SPX Forms Inverted Hammer...Trade the Market Not Your Thoughts...

DJIA                             9,974.45  -69.30 -0.69%
SP500                           1,067.95    -6.08 -0.57%
COMPQ                        2,195.88  -15.07 -0.68%
Russell 2000                    642.62  +2.60 +0.41%

Exchange                  NYSE              NASD
Advancing                 1,923               1,504
Declining                   1,188               1,188

On Tuesday the SPX opened lower and moved lower and then moved higher from its open. Wednesday the SPX opened higher and moved higher and then closed lower than its open. I couldn't ask for better real time proof of my Monday statement about overnight futures predicting the next day's close no better than a coin toss.

If you are reading this I hope you can look at an SPX chart and recognize that Tuesday was a long tailed hammer, that Wednesday is an inverted hammer and made a higher low and a higher high. Objectively the hammer, inverted hammer and higher low and high are all bullish characteristics. Also advancing issues led declining issues on both the NYSE and NASDAQ.

The technical evidence does not mean that the market is going up with certainty which is of course why good technical traders trade with stops. It only means that the technical probabilities suggest that this support area is more likely to result in a bounce than a break.

I am considering creating a new indicator and thinking of calling it the Balderdash, Bogus or Noise Index. Why? Because every time the market gets into a key pivot area, sources begin generating Balderdash, their Bogus opinions of the future or just creating Noise that ignores the objective technical analysis on the chart.

Get me right on this I think you should follow your trading rules every single day, whether the market is moving up, down or sideways and whether it is at support, resistance or in between. I don't think a trader should look at the chart objectively some days and subjectively others depending on how loud the Balderdash, Bogus or Noise Index is. Empirically, experience suggests that this Noise or lack of objectivty increases the bounce probability.

Right now I am NOT hearing sources talk about a hammer, an inverted hammer, a bounce off 1,044 support, a bullish MACD divergence and a higher low and higher high. Rather I am hearing exactly the same kind of Noise I heard last July and in February suggesting that the market could go lower. Of course it could. It could go lower every single trading day and does in fact go lower from some level at least temporarily every single day.

What will smart traders do? Ignore the noise follow their rules, set their stops and trade the technical probabilities. And yes, if the lower probability break occurs they will trade it when it happens.

On Monday night I pointed out that the February low MACD bullish divergence consolidated for five days before the SPX had strong upward momentum. So now you take a look at the SPX chart from last July, February and today...then make your decision based on your rules.

Look at these Charts

(click image to enlarge)

 
Dave's Insight: Trade the Market not your thoughts.

Guidance:
The SPX formed an inverted hammer candle that did not confirm Tuesday's long tailed hammer so we will wait for potential confirmation on Thursday. The bullish MACD divergence is still valid. The SPX hit 1,090 before pulling back 23 points closing at 1,067.

We continue our Yellow Alert on the buy side and potential exit for short term bearish trades. Tuesday was the low day on many charts and continued upward momentum on Thursday could break the high of the low day and be a new entry for bullish trades and exit for bearish trades. Adjust your stops according to your rules for down trending trades.

Trade strong stocks up.

Trade weak stocks down.

The VIX rose +0.41 and closed at 35.02.

The four day trend is neutral.
The four week trend is down.
The six-month trend is neutral.
The twelve-month trend is up.

Continue to focus on and trade setups on the charts of the stocks you watch, trade with the trend of the chart and follow your rules.

AAPL -1.11
QCOM -0.54
GOOG -1.60
BIDU -1.49
NDX 100 stocks stronger than the NDX include: JOYG, LINTA, ATVI, VRTX, PPDI, ILMN, VRSN, NIHD, PCAR, HANS, YHOO, JBHT, LBTYA, INFY, FWLT, MICC, RYAAY, NVDA, LIFE, CERN, NWSA, HSIC, ESRX, CMSSA, FLIR, SIAL, XLNX, CEPH, RIMM, DISH, EXPE, EXPD, ERTS, HOLX and CTXS.

Stocks weaker than the NDX: SHLD, STX, AMGN, MSFT, GILD, TEVA, GRMN, CELG, URBN, APOL, CHKP, WCRX, GENZ, BIDU, BIIB, FSLR, NTAP, ADBE, XRAY, CSCO, LOGI, SPLS, PAYX, QCOM, BBBY, ROST, SYMC, AMZN ORCL and WYNN.

Stocks to Watch on Thursday
Holding Above 30 DMA
EXBD, NTRI, FAZ, NFLX, SNDK, OSTK, AZO
Moving Above 30 DMA = 1
WFMI
Moving Below 30 DMA = 0

Staying Below 30 DMA
ESI, HAS, BYI, DHR, GR, MCD, UNG, WHR, WMT, ICE, ZION, CRM, STI, PNC, AIV, HLF, AMD, ATI, CAT, CREE, DECK, LVS, SPG, SWK, UNP, URE, WFC, BA, DE, JEC, LXK, CHL, GME, SYNA, HANS, ACN, MYGN, AMX, DOW, FAS, FLS, PCLN, PCP, TSL, UAUA, USD, USO, UYG, ATW, BAC, GES, MA, V, CAM, SWN, BUCY, WLT, CLF, MHS, WCG, GMCR, GS, FCX, X, PWRD, AGU, IPI, POT, MOS

Intermediate Term Market Trend: Neutral
Short Term Market Trend: Neutral