MIXED SIGNALS

The market produced some mixed signals today. These signals make the next few days in the market very critical. Some of you might view the recent rally as a start of a new uptrend. Others might view it as a rally setting up another move down. For the bulls, I give you a break above the 1085 S&P 500 resistance today and the possibility that a bullish ABC pattern completed on 2/5/10. You could also look to the oversold conditions in the market and a MACD that is turning upward. For the bears, I give you a recent spike in the VIX and the completion of a possible bearish ABC pattern with a 50% retracement. You could also look to the downward trending 50 day MA and a world debt situation that is possibly going to snowball. The bottom line is that no one knows exactly what is going to happen next. You might think you do...but you don't. The point is not to be able to predict the future, but rather to have a system that you are following consistently. I'm still bearish because we are still below the 50 day MA and the 50 day MA is still trending downward (although it is starting to flatten out). Each time it breaks above a resistance level, the market is exhibiting a characteristic of an uptrend. I haven't missed those clues. But this doesn't mean that its time to go out and buy calls...just that it's not wise to buy puts. The next two key resistance levels are the 50 day MA (currently around 1108) and the 1117 area on the S&P 500. If we break above 1105 (February 2nd high), I will really turn neutral and start looking for bullish trading opportunities. For now, I will raise my contingent order on the SPY to 108 and wait to see what happens tomorrow. The volume was very light on today's big move which would be considered a bit bearish, but the dollar seems to be in a position where it could pull back a bit more which could be viewed as bullish. I could probably go on and on with both arguments. Be patient and don't gamble. If the trend moves back above the 50 day MA, there will be plenty of opportunities to make money on that trend. If the market breaks lower right here, you'll be glad you didn't load up on call options. If my contingent order gets triggered, I should have a very nice bearish trade. I'm going to sit here and wait for my pitch.