Thursday, October 27, 2011

SPY at resistance?!

The S&P 500 gapped up today and the action was very bullish until 3am. I don't want to beat around the bush: my sense is that we could have seen the/a top today!

First of all despite the general view a gap up is a sign of strength I see this gap as an exhaustion gap. After a huge move a gap usually indicates either that the bulls resign (gap-down) or that the bears resign!
Moreover some points are very similar to the action on July 7th.
1. After a big upward movement a gap.
2. Buyers control the market until the final hour of trading.
3. Profit-taking in the final hour.
4. Shooting star on a daily chart.
5. Compare the sentiment readings of the AAII survey. Last time the sentiment was similar to this week's was on July 7th.


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