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A Duel Inside The Gap

 August 26, 2013 10:46 AM


It is highly probable that market bulls and bears have arranged for a duel inside the gap formed in SPY by the price action of last Thursday. The range between $168.38 and $167.43 maybe be where the final conflict will take place and the market direction for the next few months will be decided. It will be a fierce fight with an unpredictable outcome.

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 SPY closed above its 50-day simple moving average yesterday after a positive open that kept prices above the close of Wednesday during the whole trading sessions and with a close above the high of that day. The price action was positive and encourages an attempt of closing the gap of last Thursday. Maybe it is there where bulls the bears have arranged a duel to settle their differences. The outcome of the conflict is unpredictable and anyone who thinks can predict it is either naive or possesses supernatural powers, something that I highly doubt.  Claims of prediction of the market direction at this point beyond just a few days in the future may be an indication of some illusionary condition. This is now the start of a period of uncertainty in the stock market after a long bull run that started in March of 2009 and was gloriously reaffirmed in July of 2010 and September of 2011 after massive attempts by bears to bring it to a stop. It is possible that this will also mark another failed attempt by the bears to terminate the stock rally since the history of the markets tells us that such attempts have a very low probability of success. Regardless, this is not the time to be brave because the outcome of the fight is uncertain and if it gets too fierce the victims may be many.

[Related -HomeAway, Inc. (AWAY) Q2 Earnings Preview: Top and Bottom Line Bullish Surprise?]

Also note that the final conflict need not take place inside the gap because it is already happening. Someone may pull the trigger outside of the gap.

Disclosure: no relevant positions.

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