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The first few trading days of December are historically bullish, but as we all know, seasonal tendencies have been turned upside down over the past several months. While we might get another test of the recent highs over the next day or two I still think a move lower is imminent. There are several reasons why I am leaning toward a move lower over the short-term. The S&P 500 has struggled with overhead resistance the past few trading days and any significant move higher would put SPY in an overbought state which, in most cases, when coupled with strong overhead resistance limits any sustainable upside momentum.Furthermore, the S&P has had problems breaking through this area since the middle of November. Also, the gap that occurred on Tuesday has yet to close and is weighing on the market. Historically, large gaps, up or down, close within the first five to seven days after the gap occurred. Tomorrow will be day three so we should keep a close eye on the price action of the S&P over the next few days.
I do think the strong seasonality could give the bears some problems tomorrow, but after that I think we could see a sharp move to the downside that closes the gap. As for a continuation of that move, well, we will tackle that issue if it comes to fruition.
As always have a wonderful night!
RSI Wilder (5) for November 30, 2006
- SPY - 60.9 (neutral)
- DIA - 52.0 (neutral)
- IWM - 54.1 (neutral)
- QQQQ - 50.3 (neutral)
Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com