HUGE BOW day today! 1200+. Medium-sized BOW day Friday. 250+. The smaller SOS day's effect last Wednesday should be expiring. TRIN has mini-spiked above 1.5 the last 2 trading days. Some daily positive divergences have developed.
These continue to be very similar technical circumstances to the late January 2015 and early October 2014 examples I mentioned last week which defied the oversold technicals for a couple days with large drops despite TRIN/BOW/posd, but ultimately large reversals ensued. Those 2 examples dropped about 105pts and 85pts from their failures near the 20/50SMAs. From 2115 last week, that gives us a downside target of 2010-2030. However, those examples had also done more damage at this point and fell about 50pts and 30pts from where we are now which would give us a downside target of 2035-2055. So, a target approaching the SPX 2040/2045 lows in March may be all we get or possibly a brief spike lower.
The Dow's lows in March near 17,600 are only 200pts lower. That equates to 1.2% which roughly matches SPX 2060 assuming Dow and SPX were to fall proportionally. Today, Dow fell 0.6% versus SPX 0.5%, so Dow could break its March lows without SPX even breaking below 2060. I tend to think we'll get a similar setup as last week when Dow broke its May low but SPX didn't. If so, Dow 17,500s and SPX 2050-2060 could provide support. That is not as big a drop as I had been expecting but it's what the technicals and Oct/Jan examples are favoring at the moment along with a bottom in days. With Friday OPEX max pain near 2100 and same for end of June/2ndQuarter, I think the drop will either end around the Wednesday Fed announcement +/- and then rally back near 2100 by Friday or drop/chop into Fri/Mon/Tues and then rally for the last week of the quarter near 2100. Of course, there is the Greece wild card but odds also favor a last-second stick-save there even though we all know one day it will end badly. Good fortune.
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