Have we reached the end of the recent two week rally?

August 1, 2006 · Print This Article

I mentioned yesterday that several bearish tendencies were trickling into the market after the recent sharp rally last week. We saw the first glimpse of a few of the shorter-term bearish indicators (overbought S&P and Dow) take hold of the market today in what could be a sustained move lower. I am still watching the 1280 level of the S&P as a mark of fairly strong resistance. Until we can take that level out and hold above it I am not very confident in the sustainablity of last weeks rally. I do think that we could test the 1280 level again over the next few days, but inevitably, I think breaching the 1280 level, at least over the short-term, could be quite difficult. Until we get some decent news (or any news for that matter) out of the Fed we should expect to see the market trade sideways within the lower portion of the range that was carved out over the last few weeks. Although, I must point out that any unforseen geopolitical news could provide the bulls/bears with the ammunition needed to resume a directional movement. However, in my opinion, until 2:15 EST on August 8 rolls around, the market could have problems gaining any traction to the upside. Also, the next coule of days tend to be bearish historically, just another tendency currently working against the bulls. Keep watching the 1280 level as it should provide some much needed clues as to where this market is headed over the short to intermediate-term.

RSI Wilder (5) for August 1, 2006