Wednesday, March 07 2012
So far this week the market did what the market usually does at a "hard" resistance level; that is, it hit/slightly broke its "hard" upside resistance line and then bounced back. This is not one bit surprising. Many times it takes 4-5 tries to break a resistance level, and if it fails to break, the market then makes a substantial move in the opposite direction (5-10%). This is kind of like a tug-of-war between buyers and sellers, where each side makes attempts to drag the other side "across the line". After several tries, the losers start giving up as their efforts are thwarted and they understand the strength of the other side. Then, their will to resist disappears and the other side virtually yanks them across the line.
On Tuesday, the S&P 500 dropped around 20 points after 7 attempts in the last 2 weeks to break or hold above its resistance line. There were several reasons from the "pundits" about why the market dropped, but my guess is that they were all guesses. Most likely, it had nothing to do with Greece or China because there was really nothing new from either of them. We believe the market dropped because some big guys decided to take profits, and a ton of little guys followed them (right or wrong). Most likely, this was not a one-day reversal and it does NOT mean that the markets upside run is over. But, if the SPY does not retaliate with another assault on its $137.2 resistance level soon, this could signal a reversal of the current uptrend.
Remember, MIPS is looking for mid-term trend changes (up or down), and does not respond to 1-3 day changes. Thus, MIPS is trying to identify trend direction, NOT predict it. Usually timing systems that respond to 1-3 day changes are fast-trading systems (100+ trades/year), and they must attempt to "predict" or "forecast" market direction because they do not have enough time between trades to "analyze" much of anything.
So, let's wait a few days and MIPS will tell us what to do next.