The Ord Oracle - 08/20/2009

Below is the daily SPY.  Monday’s big down gap day broke below the previous two week lows on increased volume and implies a valid break to the downside.   Normally on these valid breaks to the downside the market will attempt to rally back and attempt to fill the gap.  The gap formed between 101 to 99 on the SPY.  Sometimes the market just inters the gap and sometimes it totally fills the gap.  Today the bounce  totally filled the gap.  It’s important to watch the volume as the market fills the gap.  If volume decreases as the gap is being filled then the gap will be resistance and turn back the market.  Filling the gap gets filled on equal or greater volume then gap will not be resistance.  Today’s rally to totally fill the gap was the lights volume since the gap formed and suggest the gap has resistance and should turn back the rally.    Since volume is decreasing from the gap low on Monday, this condition suggests rally is getting weaker; however there is a chance the top on 8/7 at 102.03 could be tested.  If and when the 8/7 high is tested, the volume should shrink by 10% or more to keep the bearish view.  The volume on 8/7 came in at 221 million shares and today’s volume came in at 172 million and therefore the volume would have to expand significantly which is unlikely.   We are short the SPX at 883.92.

 
The below chart is the weekly NYSE McClellan Summation index with the Slow Stochastics of 5x3.  The top window is the weekly RSI of the NYSE McClellan Summation index and the bottom window is the SPX.  When the RSI reaches over 70 and the Slow Stochastics has a bearish crossover (like now) then a sell signal by this method is triggered.   This method has picked out important tops in the past and currently it gave a sell signal last week.

 
On Tuesday report we said the follow and seem to be on the money. “Below is the bullish percent index for GDM.  The bullish Percent index RSI hit over 70 a few days ago and suggested the upside was becoming exhausted.  When the Bullish percent index crosses down through the 10 day MA a bearish signal will be triggered and over the last couple of days this condition was met and a bearish signal was triggered.  Yesterday the MACD turned down which implies the momentum has turned down.  In general we expect the Gold stocks to pull back with the SPX and the next significant low may not show up until November.   We do have core position is some gold stocks and will keep them and may add new ones on the next significant buy signal.  GDX could reach near 27 at the next significant low.”