TheSlayer's Market Thoughts

SPY August 1 2013

Bulls finally caught the break for which they had been looking over the past couple of weeks. The futures surged overnight and continued through the morning, barely pausing at the open. They ended the day near the highs - the all-time highs - with the usual slow grind higher throughout the afternoon.

Being at all-time highs, there aren't a lot of reference points. What we do have is a very solid base of support in the 1670s-1680s. That should cushion any downside. Well, that and the fact that there are many traders who simply refuse to believe that the market has any right being this high and are short from all points north of 1600 (and maybe lower). Yes, there are shorts who went short months ago and refuse to, um, cave. Many went short today at 1700. They will probably be right one of these days.

We would see any move back to the 1680s as a potential buying opportunity, given the usual factors supporting a buying decision (at support lines, a review of market internals and so forth).

We do have the old uptrend channel to guide us. We will be keeping an eye on extreme moves within it, though the past couple of months showed that it is hardly inviolable.

If the "pros" are still selling to "retail," well, they just missed another all-time high. If I were their client, I would want to know why. Then withdraw my funds.

Saw an interesting chart posted on Stocktwits the other day:

Federal Reserve Assets vs. S&P 500

For those wondering why on earth we would worry so much about the sacred uptrend channel we've been following all year, the above chart is a clue. There is money being pumped into the system. It is filling up the averages at a steady rate, like water into a bathtub. As long as the tap stays open, the averages rise.

At least, that's the theory. It's never wise to get too cute with charts and unrelated phenomena moving in concert for periods of time - the relationship can break or even reverse at any time, especially if someone suddenly pulls the plug (war/assassination/flash crash/etc.). But it's an interesting chart which might explain a few things.