Monday, April 22, 2013

Where This Bounce Is Headed

Last week was the worst week of the year for the bulls. On Wednesday, I talked about a short term bottom being near, and a day later we got the bounce the charts were hinting at. Now comes the tricky part: is this a continuation of an oversold bounce, or was last week just a healthy correction to go higher? The chart below is a very interesting chart that may offer clues to these questions. It is the S&P 500 with the Percentage Price Oscillator indicator; it measures the distance of the S&P 500 and its 13 EMA. Notice the indicator hit support the previous two times (highlighted red arrows); it ended up bouncing, and the market made higher highs. Right now, this level has again provided support. If history means anything, this bounce may have legs. Remember: the market isn't that easy...buying the dips ends up working until it doesn't (sage advice [/sarcasm])! I will leave it up to the readers on how to interpret the chart below.