The Long Shadow of Pavlov

That was a strong rally yesterday, and the long bull move over the last few years has left many of us with a very strongly conditioned response to any strong move up, to jump on the long train in the confident expectation that it wouldn't be turning back down anytime soon. Don't get me wrong, that conditioned response has served everyone well in this long long long bull run, but in this particular case it needs to be suppressed until we see some actual evidence of a bullish break, and we haven't seen that yet. 

In terms of the rally yesterday it followed the roadmap I gave in my post yesterday morning almost exactly. There was a lower low in the morning, with a low just 0.15 above 1978.48 support, then a rally to 1999.79, just 0.21 under the top of my 1995-2000 target zone. The close was 0.68 below the 50 hour MA, and 0.35 above the daily middle band, so a close directly on the main resistance levels I gave in the morning. SPX daily chart:  

The rally retested broken rising wedge support from the 1904 low as well as testing the 50 hour MA. SPX 60min chart:

Looking closer the rally established a perfect falling channel from the high, with the rally forming a decent rising wedge into the 50% fib retracement area that was breaking down at the close. This was a viable ABC with the bull flag managing a modest but acceptable 23.6% fib retrace of wave A. Nothing to see here that is bullish unless that falling channel breaks up. SPX 5min chart:

The rally wasn't broad based. NDX led with a 65% area retracement, SPX and Dow turned in 50% fib retracements, NYA and WLSH managed 38.2% area retracements, TRAN about 30% and poor ailing RUT was the laggard, only managing to scrape a 23.6% fib retracement. RUT did manage to establish a steep falling channel at the high though, so again, unless that channel breaks up, there's nothing to cheer the bulls there. RUT 60min chart:

There hasn't been a break up overnight and unless we see a break over the multiple resistance levels tested at the highs and close yesterday, with a break of that perfect falling channel on SPX, I'm going to be assuming that this is the last really nice short entry before a move to the double top target at 1938 SPX. I'm expecting at least some weakness today, and ideally that would extend into a move back to the daily lower band, now at 1982.44, If we see that tested, I'll be treating this as the third day of a lower band ride and looking for continuation downwards. If we see a break up instead today I will exit shorts and consider the odds of a retest of the highs.