Like a zombie that won’t go down this market keeps getting hit with bullet after bullet and yet refuses to roll. Many are looking for a regular session test of the $SPY 130 test (we already had that test in the overnight session on Tuesday $ES_F).
The market is absorbing bad news well. Let’s take a look the afterhour action of Wednesday and Thursday of the Moody and S &P rating news. The market immediately went down 10 points on Wednesday after the Moody’s review news and then recovered within hours:
Next on Thursday came the after-hour news of S&P possible downgrade PLUS the little detail of the agency asking for 4 Trillion deficit reduction deal in order not to get downgraded. Again, ES plunged and recovered.
Dip-buyers have now been rewarded for two years. There will come a time when the dips cease to be bought — we think it will come if/when we break the March 2009 trend-line but until then we’ll keep doing what has worked so well now for so long.
Note that range-bound strategy rules supreme in the current market hence the other side of the equation has worked equally as well (at least this year) which is sell the rips. However as long as we are holding above a 2 yr trend-line we prefer to focus on the long side as we believe the force is stronger in the bulls.