It’s been almost a month that the S&P; 500 has hovered around the 1,100 mark, which has become a major point of resistance. Any attempts to clearly pierce through this level have been rebuffed so far.
This resistance has coincided with our Domestic Trend Tracking Index (TTI) finally closing its gaps as I alluded to in “How High Can We Go?”
Here’s an updated chart of the TTI:
As you can see, the exhaustion gaps, indentified by the large red arrows on the left, have been closed. This means the rebound in prices, since the lows in March 09, has passed the starting point of the first gap just above the upper red arrow.
Technically speaking, this could mean that major trend reversal is in the making. While these patterns are not always a reliable timing indicator, they have increased the odds that directional changes are a distinct possibility.
Recent market activity has confirmed the difficulty of the major averages to clearly pierce these levels. Should upward momentum resume, and this current glass ceiling gets shattered, we may be off to the races again with higher prices ahead.
Right now, I would not hold my breath for that to happen given how far the market has come and the still weak economic fundamentals. I am watching all sell stops closely and will execute them as they get triggered. I suggest you do the same.
Comments 2
Ulli, that's an interesting chart. Your charts are weekly correct? So that means that those gaps represent weekend events, in other words, they occured from a close Friday to open Monday, right?
I not sure but it seems by definition that those are "Runaway gaps" or "Measuring gaps":
http://stockcharts.com/help/doku.php?id=chart_school:chart_analysis:gaps_and_gap_analysi
GH,
Yes, each bar represents one week. Usually, when gaps occur to the upside, the are called breakaway or runaway gaps. If they happen to the downside, as in my chart, they are referred to as exhaustion gaps. Makes sense because activity/upward momentum has been exhausted.
Ulli…