The news will likely continue to affect the markets – at least until Tuesday. It is hard to believe that the US Congress will fail to raise the debt ceiling, but history is replete with people making foolish blunders. So, caution is a good watchword for tomorrow.
On Friday morning, we saw the market fall into an oversold position in the hourly trend channel. More inportantly, we saw large volume come in to the uspside on the lows of Friday (red arrow). In fact, this was the largest single hourly volume reading since late June. The high volume buying continued throughout the morning session. We also see high volume come into the market at the very end of the day after a 10+ point sell-off from the 1300 level reached just before noon. The late high volume pushed the market back up.
Typically, Fridays in the summer tend to show light volume, so this signifies potential buying entering the market.
We are also not far from a spring position on the daily chart if the market can rally, hold and close above 1291.25 on Monday or Tuesday.
Watch for a light volume dip back down around the 1280 level. If this level holds, we are likely to see an aggressive rally as response. Obviously, if the 1278.50 low put in on Friday morning fails to hold, we will see lower prices. A good rally should take us up into the 1310 level. If prices close firm, we will be in a spring.
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