S&P 500 - December 4, 2009

On Thursday, we complained about the dull nature of the market action, and market responded like a mad man with an axe.

What did S&P do after all the angst and trepidations? Not much. 1.7% gain – flat for the week, and still in the same range. But just saying that the index did nothing is not fair to the market. It did chop around and retired some trader capital. That’s what markets are supposed to do, frustrate many with the goal of rewarding few.

This is the weekly chart that we have been following for quite some time


The only technical changes that I see from last week are a higher close, and a higher volume. That is positive, which is quite something given that we had the Dubai thing, and the bouts of selling that started Thursday afternoon.

Index is still sandwiched between the 2007 downtrend line, and a multitude of support from MAs, the half range marker, and uptrend line from August.

This is a Daily chart


A couple of routine bounces off of 21 EMA, and a flat price action since Nov 9. If we take a look back at 5 prior short term peaks, they were all flat, none this long, though. Volume expanded sharply, which may be indicating that players are becoming active again. Other than that, the daily picture is fairly neutral

Daily breadth was positive


One interesting thing that I notice is that number of new highs has been expanding these past few days. That, in itself, is positive. November 26 was a bad breadth day down on low volume. December 3 was distribution day. December 4 was a crazy day that came out, in numbers, as an accumulation day.

Daily momentum as read on RSI (or Stochastics) is neutral. Price has been flat, thereby neutral

Broader daily breadth as measured by McClellan Oscillator, and the Summation Index are neutral


Daily breadth as measured by percentage of stocks above their 50 MA has also been neutral


A/D line looks, well, neutral, but nicely holding up despite all the crazy gyrations.

So, I am not sure why I should buy perma stories bull or bear. Both sides have been incapable of driving the market their way for 3+ weeks now.

This is a 60-min chart


A few days ago, I referred to the range that I have been marking with purple arrows and said that to a bear, it was a top, to a bull, it was a base, and to a pig, it was a slaughter house.

Let’s remove some of the clutter on the chart and look closer


I think that the low of November 3 was a low of some significance because it happened at a time when some sectors (like finance) and indexes (like RUT) had a reversal of their mid-term trend to the downside. I have been counting it as minor wave B. After that, I think I can count 5 waves up. So we either have a minor wave C complete or have a minute wave a/1 of minor wave C.
After that, I think I can count an a-b-c down for a minute wave b/2.

Long time readers may remember that I collect 24-hour future market data and check price formation against cash market for confirmation or discrepancies. This is a 60-min chart of S&P December contracts


So, after the minute wave b/2 (green), I think I can count 5 small waves up. Notice that I have labeled the small waves in black which is not a color that I use for any wave degrees. On one hand, they may be micro degree waves completing minute wave C, and minor wave C and primary wave B like this


On the other hand, we may have the beginning of a much longer minute wave C like this


If someone puts a gun to my head and forces me to make a choice, I will probably say that market is going higher. That aside, I’d rather wait for the resolution of the 1080-1110 range.

Of course, my count can be totally wrong, and that’s another reason for me to take it easy and let the market tell me what it wants to do.

The Way I See it:

1100 area of S&P came under serious assault by sellers but it held firm.

Late Thursday afternoon, and Friday after open, there was a good number of shares that traded through violent bursts of selling. As we have been saying, players seem nervous. It can be due to any reason. Maybe it’s Dubai again. Or another overextended dreamland gone bust. Or something else. Reasons are usually known to many of us well after the fact, and as such, dwelling on them may not be a very useful occupation.

Technically, we have an index that has faced selling at every recent attempt at a new high, creating something that looks like a mini broadening top. A failed attempt for the upside out of a range is technically bearish. On the other hand, the low of Thursday stopped the selling on Friday. Yes, I know the bears say it was this or that entity buying the close and painting the tape. The fact of the matter is that if institutions want to sell en masse, this or that entity may either be buried, or become the only buyers in a market of sellers. Market manipulation works as long as there is another party to manipulate. If every other party sells, manipulators join the rank of sellers before you and me. Do a study of the selling of November 2008 to March 2009, or go through my posts of that period, and notice how orderly the selling was, which was what I was constantly pointing out in those days. That was a market of sellers.

This is a market still trying to establish the next course of action. Pay attention to price. Pay attention to breadth (it can’t stay neutral forever), Keep an eye on RUT (beautiful bounce off trend line), keep an eye on techies, watch USD, and ignore the permas.

You will hear all sorts of stories about the dollar, gold and the market. It happens when things get choppy. Choppiness may or may not bring a change in the order of things. Macro intermarket relationships may take some time to change the dominant course of the aggregate market action. Ignore the noise, and watch the price

If I wanted to gamble on the short side, I could do so with puts a few months out targeting 850-950 somewhere. If I wanted to gamble on the long side, I could do with calls targeting 1130-1150 somewhere.


Jumping up and down a narrow range happens out of nervousness and indecision. When big players finally make their minds, and feel OK with their positions, ranges break and trends follow, and it all becomes orderly

Staying with technicals, the lows of Friday and Thursday are important, and must hold or more bursts of selling may follow. Bulls need to breakout to the upside and stay there. Bears have a lot to prove, for starters, they need to take the Friday low of 1096. They then need to take 1080. After that, they must break below 1060 and stay below that. If they can make a couple of closes below 1060, index may finally succumb to widespread exit of the longs. Anything else, and this remains a market of bulls, by the bulls, for the bulls. It is their ball to drop.

The more the sideways consolidation drags, the more capital it retires, the more of its excesses it unwinds. That way, chances become higher for the continuation of the prevailing trend, which is up.

Support is 1090, 1061 (a tough pivot for the bears so far) and 1041. Resistance is 1107 (a tough pivot for the bulls so far), and 1133

There is no short term trend on S&P, just a choppy lateral move. Mid-term trend is up. Long term trend is down.

Enjoy the Rest of Your Weekend!

NDX Futures, December 05, 2009 - Technical Study

I was lucky in the order, but I've always been lucky when it comes to killin' folks

– Character of William Munny, as played by Clint Eastwood, in the Movie Unforgiven

This is a 5-min chart of NDX minis from 8:44 to 11:44 am


How does one survive a 3-hour hack job like that? The answer is simple: One does not! I mean unless one is lucky, or a really good trader, or in control of the market, or has no interest in short term trading.

Stepping a bit back, using a 60-min chart, things show a bit more sense and sensibility


Notice the mid-line starting at the low of November 20. It acted as resistance area a number of times and then became support, and that support held firm during the crazy hours of Thursday and Friday.

One technical characteristic of mid-lines and mid-ranges is that when they fail, price has often a tendency to swing towards the other end of the range -- action/reaction?

On November 30, price zoomed down through the mid range. But it stabilized soon, and ran back up and went upside through the mid-line. When bearish setup is reversed soon after the setup has been established, one needs to examine a bullish outcome and take a hard look at any position established in line with the bearish setup.

Further on, notice the parallels I have drawn from the peaks of November 23, and 24. The one from November 24 has capped the price on all spikes.

It’s an old techniques. It’s simple and sometimes effective. Will the mid-line and parallels of the above chart hold forever? Of course not, but the mid-line was under serious attack on Thursday and Friday. It should hold. If it cannot, then, I would not be holding a short term long position backed only by prayers and not much else.

If I wanted to extend the same technique and get some sense of support further down, I could draw lines like I have in red on the chart below


I can still expand my study and apply more range study techniques

Notice On the chart below that I have boxed the two recent drops from November 11, and 25 (pink and purple boxes)


Now, if I project the boxed onto the top of the Friday spike, the bottom of the boxes, hit the areas of the two parallel read line supports that I have drawn.

So, on Monday, and Tuesday, if things unravel, and bears finally get their wishes, the above is a chart that I will use as a backdrop to price action.

Of course, bears need to do more than just wishing, they need to short and withstand squeezes. If they can’t, and market drags on, or up through the week, then the above picture may change and new studies may be needed to identify new areas of interest.

That is the tricky part of short term trading. On a weekly chart, a technical study may last for a long time. On a 60-min chart, one may need to re-evaluate daily if not more frequently. On a 5-min chart, you are in no-man’s land.

In Clint Eastwood’s unparalleled masterpiece of a western, Unforgiven, near the end, the character of William Munny goes on shooting down many of his opponents and scaring the rest.

After it’s all settled down, one pacifist writer of a character asks him how he chose whom to shoot first because, when confronted by superior numbers, an experienced gunfighter would always fire on the best shot first.

Now that is how a writer who has never had a gun sees it, trying to rationalize and find a sense of order.

The real gunman who has just killed so many and scared the rest sees it quite differently. He says:

“I was lucky in the order, but I've always been lucky when it comes to killin' folks“

So, on a 5-min chart, good luck, and good stops, ‘cause you gonna need’em

PS. My special thanks to my colleague Joe K for getting me interested in mid-line studies

S&P 500 - December 3, 2009

An action-packed start, a dramatic finish, and lots of nothing in between.

There is an old saying that says: Never Sell a Dull Tape!

Of course, the wise people who bestow upon us such nuggets of wisdom never tell us what time frame or market condition they have in mind. They don’t tell us what they mean by dull either. So it all becomes very subjective. I prefer to be involved from more an object point of view, I like to be able to measure it, and, as such, I try to look for setups, dull, or exciting.

Here’s a trade setup that shaped in the afternoon, and got activated soon after I posted prior to market close.


Main points of the trade above are the impulsive nature of the morning sell off, and the choppy, tight action of the afternoon. Good things about it were the range contraction, and availability of objective stop points near the break point.

Today, S&P gapped up, made a nominal high and was sold right away, filling the opening gap.


It spent most of the rest of the day doing nothing, and then broke hard to the down side filling another open gap in the 1100 area. There is yet another open gap in the 1070 area. So, as per text book definitions, today’s gap, the 3rd gap, might have been an exhaustion gap.

Some say that someone somewhere somehow knows about the employment number tomorrow and that’s why we got the drop -- just what I have heard here and there

This is 60-min chart


Only two types of players survive ranges like this: long term players who wait for the range to resolve, regardless of whether they have a position or not, and disciplined day traders. Other than those, some may get lucky, but most get chopped.

For a change, volume rose sharply.

Breadth was poor


McClellan Oscillator (MO) continues range bound around neutral.


Rally has seen less and less participation across the broader market since September


So things do not look all that healthy. And, of course, it does not help when nervous market players are dealt back-to-back bad news, first Dubai, and then contracting ISM numbers.

It is also a bit worrisome when every attempt to break above the 1110 is immediately sold as can be seen from the 60-min and daily charts above.

But, regardless of the news, and the job report, and the rest of the minute-by-minute hoopla, S&P is still in a tight range. If the bears are ready to take a role that would count to anything memorable, they should take the index below 1061 pivot and keep it there. As a start, let see if they can fill the 1070 gap or not.

This is a very dangerous market. Everybody seems to have figured it out that the play to fame and fortune in short USD and long whatever. As for the bears, they have no way of knowing when the real shorters of USD, those who print it, might tighten up a little. All I can do is be wary of the very obvious long side, pay attention to key levels, and watch for signs of distribution. Today was a distribution day. It needs a follow through.

There is no short term trend on S&P, just a choppy lateral move. Mid-term trend is up. Long term trend is down.

Support is 1091, 1061 (a tough pivot for the bears so far) and 1041. Resistance is 1107 (a tough pivot for the bulls so far), and 1133

Have a Nice Evening!

S&P 500 - December 3, 2009 - Before Market Close

They have made my job as analyst extremely easy. With market in eternal Ping Pong, all I have to do is to tell you to read the previous post :-)

Maybe I should do a post on Precious Metals instead later this evening.

S&P 500 - December 1, 2009

Ping!

Pong!

Ping!

You get the idea!

S&P rushed to the top of 1080-1110 range, made an intraday high of 1112+, stopped and pulled back slightly into the close


To the bull, it’s a flat base. To the bear, it’s a flat top. To the pig, it’s a slaughter house.

To a really god trader, it’s like Christmas came here early.

This range will resolve one way or the other. A break to the upside on good volume would be bullish. A break to the upside on OK, average volume and good breadth may be bullish too if it gets a good follow through on expanding volume.

A break to the downside sets a short term downtrend, and probably a retest of 1061 pivot.

For the day, volume was below average, but more than the day before. Breadth was very good.


Notice that Stochastics are around 50, and threatening to turn. A turn from neutral can be an indication of strength. If followed by a rush to above 80, it may finally lead to the breakout above 1110 that has so far contained the bulls.

The short term oversold conditions got resolved and market stopped ascending


That, to me, means that most, if not all, of the shorts of the Dubai news are squeezed dry and market has to now rally on bull capital.

Not much else to say, really.

Just a reminder of the bigger picture


Still knocking at the 2007 downtrend line. RSI broke its downtrend. It may be telling us that a breakout is underway.

I have not been talking about NDX for quite some time. Mainly because it has been doing nothing other chopping around.

This is a weekly chart of NDX that some of you may remember


There is a shadow of a MACD cross that may still turn into a hook. It’s been held around 1790 so far. My next numbers after 1789 are 1832 and 1875. NDX can fall as far as 1650 without damaging the weekly picture.

There is no short term trend on S&P, just a choppy lateral move. Mid-term trend is up. Long term trend is down.

Support is 1107 (a tough pivot for the bulls so far), 1091, 1061 (a tough pivot for the bears so far) and 1041. Resistance is 1133