S&P 500 Fills Gap Thursday (by Drew Birenbaum)

Hello Slopers, Drew here again with a look at the most recent session. Equities rallied on Thursday erasing most of the damage from the prior session. The Dow was today's leader closing higher by 1.3%, the NASDAQ gained .7% on the session.

This daily update will be brief. Not much has changed since the prior session. Although early morning action pierced the 1080 support level I have been watching, prices ultimately recovered. The most critical price of the day, closing prices, were well within the neutral range (1080-1100). I mentioned in the prior update the importance of patience, especially when the picture is quite mixed as it is right now. We are still in an intermediate uptrend until we see a major reversal in price, and although there are signs of underlying weakness, this does not guarantee a substantial correction.

I also wanted to take a moment to briefly discuss a couple of the charts from the International Markets page. Although the domestic U.S. markets are hitting new highs, we see lagging action on the Nikkei and Shanghai Composite. I find this to be significant because it was these indices that showed signs of recovery months before the U.S. markets turned higher. In addition, a bearish price pattern on India's Sensex appears to be resolving to the downside. It is important to keep a pulse on the global markets so I encourage all of you to check these charts on a regular basis.

First, the 60-minute S&P 500 outlook.

Now to the daily charts. For the most part, today's action was inconclusive. As I mentioned earlier, we are looking for closing prices outside of the highlighted range, short term breakouts (fake-outs) should be expected and they occur frequently. Today was a great example of this type of whipsaw action. Both the S&P 500 and NASDAQ pulled back to their 20 day EMA's before reversing swiftly to the upside. Volume was elevated, but declined over the prior session. Remember folks, we have seen three distribution days on the NASDAQ within this recent period so remain alert.

Below the index charts, I have posted the NASDAQ relative strength (RS) vs. S&P 500. This line has been declining since the middle of July, thus we can conclude that the S&P 500 has been outperforming the NASDAQ during this period. As you can see below, directional changes in RS (peak/trough reversals) often lead market turning points by a decent measure. We can see an example of this at the March bottom.

Once again, we have some puzzling price action on the Dollar. Yesterday, both the equity markets and the Dollar closed lower, this is a divergence from the clear inverse trend we have become accustomed to seeing. During today's session, the equity markets had a substantial rally, while the Dollar was virtually unchanged. I continue to wonder if we are seeing a decoupling of this relationship, or if this is just random noise as the markets are choppy and have been trading sideways.