Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
The S&P 500 index has experienced an interesting session today. After the opening minutes there has been weakness all day but until an hour ago the indexes were masking a lot of the internal damage. All those groups that had been working nicely yesterday were very weak as utilities and consumer staples were where the money had rotated into.
Potentially problematic is the the push thru failure in the index today. We saw an identical day on February 4 where a large batch of selling was met with… zero follow through. Indeed, markets closed at highs the next day making bears exasperated… along with many using technical analysis. So it will be very interesting what happens tomorrow.
This afternoon we had the FOMC meetings where some Fed officials seem to be recognizing the imbalances they are creating. I doubt those officials were the only three who matter (Bernanke, Yellen, and Dudley) but with a market that has gone straight up for weeks on end, it won’t take much to rock the boat. But that could have been said a few weeks ago as well. Tomorrow will be an important session. For now the 1495 level is quite important to the downside. Also the bottom of this upward channel the index has been riding (with the exclusion of the late December head fake) is now over 1500.
As for the upside we saw the S&P breach 1525 yesterday which looked like a breakout but you can see the results today. Recall that inverse head and shoulders formation from mid November measured to a target of mid 1510s to mid 1520s. So if the pattern is complete, this would be a good place to begin a correction.
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