Perfect 50 Day Tests...

The market got slaughtered off the top. The S&P 500 fell ten percent off its 2019 high, and by the time the selling was over, it felt as if the selling would never stop. From a clear bottoming stick we went long due to extremely oversold conditions across the board. I talked about the possibility of the indexes reaching their 50-day exponential moving averages. That would be quite the move and slightly more than a 50% retrace back up, but back testing the 50's is quite normal. Today we get back to the 50's, and, so far, it has done what it should do.

It has stopped cold at that level for now, and now we get to see just how much the market wants to sell off that key level. More importantly, watch how the oscillators work in conjunction with price. We'll be watching to see if the oscillators fall hard, because that will give us a hint as to whether we should expect negative divergences, or not, on the test back up once the selling stops. Moving back up to the 50's, once again, makes the most sense since double topping is what normally happens with the bulls after they've created some gap ups in the process back up. There is so much to learn if the market can really sell for a day or so. It would show us a clearer road map as to what to expect beyond the very short-term. Interesting and very important times are upon us.

If you keep in mind what type of market we're in you can understand why it's very unlikely for the market to just crater back down. The bulls are once again thinking that buying all pullbacks is the way. Bulls can be relentless when they have confidence. They have confidence more often than not because markets almost always go higher. It doesn't feel that way if you get caught in a bear because they can be so vicious. In doing their dirty deeds in such a short period of time, the wipe out gains in weeks and months that took months and years to gain.

That said, markets do go higher much more than they sell off, especially with such a bull-market friendly fed backing it up. The key is what happens when we go back up. We don't know yet, but for the short-term we can watch the areas of support that are likely to catch the selling. The SPY has strong support at the following levels. 192.20 is the 20-day EMA on the sixty-minute chart and from there we have gap at 191.48 down to 190.30. In between the 50-day EMA on the sixty-minute chart is at 190.99. We can't know where things will hold as we watch for the candle stick that suggests things are probably bottoming. In the end, wherever we bottom at, I would expect another move back up where we can decide what exactly we should do for the mid-term.

Now let's talk about froth or should I say the lack thereof. The bull-bear spread is now down to 17.1%. A whole lot better than the 46.4% reading we had to deal with not all that long ago. Bulls have gone from 62% down to 35%, which is awesome, but, amazingly, the bears have only gone up from 13% to 18%. I would like to see 25-30 someday to get a real bottom in. That means we would have to go dynamically lower, thus, that possibility still exists. If you want to be positive you really do have to like the way the bulls have gone to agnostic.

It was a nice change of trend the market desperately needed. I do hope we blast those bears up in time, but, for now, at least we have the bulls rocking down and that's a great start.