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As mentioned in 05/04 Market Recap, a red day after a Major Distribution Day is rare, but unfortunately we got it today. The chart below shows all the recent cases when SPX closed in red after a Major Distribution Day. The green arrows mean the SPX rebounded in a day or two thereafter and the red arrows mean that the SPX kept dropping. Looks to me unless we’re experiencing the 2008 kind of crash now, the chances are good that we may see a rebound in tomorrow or the day after tomorrow and a red day tomorrow, if so, won’t be big.
The bottom line, a rebound maybe, I will provide more evidences tonight to coax you into believing so but look at the chart below, GMMA is perfectly aligned on both long term MA group (pink) and short term MA group (orange) which usually means a very first attempt to make a GMMA bullish crossover (orange bullish crossover pink) will fail – in another word, after a rebound (if any) a second leg down to test the bear extreme would be generally expected. Besides, there’s a puzzle here, even I really really want to believe we’ll see a rebound tomorrow morning, the ChiOsc below is way too high now which usually leads to at least a four hours pullback, so the question is how high the rebound could go, if any?