Stock Market Technical Analysis Blog
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In the market today we saw the classic "hard test" of the VIX 432 EMA line (top chart above) as we went above it in the morning but retreated back below, starting a market rally in the afternoon. Statistically a hard test, where it actually slips thru the line then recovers is considered more reliable than a pinpoint test at the line. This is the scenario #2 I discussed last night, the head fake.
Coinciding with today's VIX text we had the S&P 500 successfully have a hard test of its Day 50 EMA line shown the bottom left corner chart.
This is bullish but realize we have clearly been in a downtrend in the past two weeks after four weeks of strong uptrending prior to that shown in the bottom right chart. Today's hard test was merely stage one but a good thing for the bulls. Next we will have to see if the S&P can break out of the upper line of the descending channel in this chart which will likely be 2-3 days before it can get that far. If it can't break out of the channel then this hard test of the VIX 432 and S&P 50 will only have produced a channel play in a descending channel which was due to happen anyway. Effectively rendering two important pivot points somewhat wasted.
However, if we do break out of this channel we might be good to go up for a week or two. Notice though that in the upper VIX chart, each time there is a dip they are getting shallower implying a smaller rally also with each new one. The trendline I drew under the dips makes it easier to see.
We will have to look next tosee how the market behaves when the S&P reaches the upper line of its two week descending channel.
Trade well my friends,