S&P 500 - May 28, 2009

some charts courtesy of stockcharts.com

Market bounces up on below average volume.

Index is stuck in a range and is frustrating most – boy, it even bores me repeating that, but it is what it is.

Day traders should be having a good time, laughing at bears and bulls alike.

There are many ways of playing a range, here are some of my favourites

1. Wait for the break of a range
2. When near one end of the range, make an option bet for the outside of the other side of the range. Then if market moves towards the other side of the range, set up a spread to lower cost and then make the same type of bet in reverse
3. Day trade using oscillators on a larger frame to pick oversold/overbought conditions and, ideally, divergences, and moving averages on a smaller frame, to get a directional move for the trade.

There are some rules I have for myself trading in a range

1. Don’t get greedy inside a range
2. Be patient to get a setup you like
3. Err on the side of caution

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Let’s look at the 4 wave scenarios that we discussed on May 22

Scenario 1: Failed Intermediate Wave 5 = Primary Wave B

A move above what I have labelled as a failed fifth will render this obsolete

Scenario 2: Major A complete


A move above what I have labelled as minor wave 2 will change the internal structure, but does not rule the count out

Scenario 3: Sideways Intermediate Wave 4 (or abc-x)


Still alive and well

Scenario 4: Flat Intermediate Wave 4


Still alive and well

So, despite all the drama, the Jane & Joe Survey, the unemployment report, the cries of bears and bulls, and gazillion number of minutes spent counting every tick, nothing has changed since Friday. Amazing what a slightly bigger picture and a bit of perspective can show us!

For the day, volume was below average. Breadth was positive.


No change since yesterday – just the chop. Price, momentum and breadth sell signals are still active. Notice McClellan oscillator forming a symmetrical triangle. Let’s keep an eye it and see how it resolves.

Nas100 rose on less volume than yesterday


On the upside, it is hitting against its 233 MA. On the downside, it has the support of its short term EMAs. Looks like consolidation to me.

Nass100 breadth has not been very strong


It also has some serious cyclical divergence


Percentage of stocks above 55 EMA has also been struggling to get higher


All of this can be corrected by some wide and frantic buying on good volume, but, until then, they are only warning signs weighing on the index

To Wrap Up:


Index is in a range (875-925), and has kept both bullish and bearish scenarios alive.

Bulls need to stay above 900, and recapture the 912 area

Short term trend is up (neutral, really, but tilting up). Mid-term trend is up. Long term trend is down

Resistance is 912 (pivot), 920, and 935 (Jan 2009 top). Support is 900, 875-885 (neckline and base of a potential short term W bottom) and the frequently contested 850

There are still multiple sell signals on price, momentum, and breadth, to reverse that, buyers have to bid the tape very hard, that requires volume which have been a missing element lately

Bears do not matter at this point, watch for signs of distribution to see if bulls have turned or not.

I leave you with these two charts


Index is hitting the underside of a broken trend line. It’s been supported by its 21 EMA. It has all the makings of a base building pattern around here, and as long as it does not make a sustained move below 875-885, the pressure will mount for a move up, which is the direction of the previous trend. Watch Stochastics to see how it behaves around the mid-line.


Are we having a new channel road map or a triangle? Either way, it looks like consolidation and it is getting a bit tight.