A Bounce is Coming

Now that the market has closed, we can assess where we are.

The S&P 500 Index opened @ 1200.82. The high of the day was 1218.11. The jobs report was sold and the market plummeted to a low of 1168.09. News of the European Central Bank (ECB) intervention to save Italy caused the market to rally hard up to about 1210. Then, the market fell again below the day's open before closing @ 1200.28. Those are wild swings, a sign that we are witnessing a broadening top pattern. The other sign of a broadening top pattern was the drop to a daily low of 1168.09 which represents the low of a broadening top pattern trend line since February 1, 2011.

Today's low was a buying opportunity. I'm not sure how long or how high the bounce will last but those souls courageous enough to buy @1168.09 have been (and will be) rewarded in the coming days.

Since we are locked in a broadening top pattern, the proper play is to look for a rally or bounce for selling. Moving averages provide great targets for exit points. Even in August of 2008, one could have gotten out of the market around August 11, 2008 at the 13-day moving average on a weekly chart and avoided the September/October 2008 tumble.

Where are the overhead moving averages on a daily chart? The 13-day is at 1290.97. That is an exit target. The 50-day is at 1300.54. That is an exit target. The 200-day at at 1286.45. That is an exit target. No matter how dark the night or bleak the news, the overhead moving averages will be hit. Its just a question of how long and when.

On a weekly chart, we can see the more serious moving averages. The 13-day moving average is @ 1303.81. The 50-day average is at 1261.22. Even if we are in a Bear Market, I would expect 1303.81 to be hit. That's the sign to go.

Anyway, these wild swings are the death knell of a Bull Market, the birth of a Bear Market. In Bull Markets, we aim to buy oversold conditions in an uptrend. In a Bear Market, we aim to get out on overbought conditions. We are no where near overbought conditions on the S&P 500 Index.

For now, let's just wait for our moving average targets to come within range. Then, we fire.

We've had the fall. This morning, I saw the daily stochastics fall into single-digits. A bounce is coming.

Wink