What a start to an OpEx week!
On the weekend post, I mentioned extreme bullish sentiments. Long term readers know that sentiment indicators are not my primary tools of trade, but I keep track of them, later last week extreme bullishness was coupled with overbought markets and two days of bad econo-data, and I though caution was warranted.
The levels that we have been discussing (NDX 1580-1600, SPX 990) broke today. All day, there was really no bid, or desire to intervene and perhaps generate a bounce. On the other hand, index gapped down, reached their lows of the day early on and just went sideways after that.
This is a 15-minute chart of the index
The levels and zones that we have been discussing were broken today. It perhaps was disappointing to some that the bulk of the action happened in the future market and prior to the market open.
That’s one reason I posted prior to market open saying that NDX was bouncing off important support (1580) and SPX was below 990.
The question now is what sort of a top was the peak of August 7. As long as mid-term trend is up, I am going to regard it as intermediate degree peak. So far the declines look impulsive enough to leave the door for both an a-b-c and a 1-2-3 count
There is a speculative play that I am thinking about. You see the gap that opened down today. If markets sells more without filling the gap, and become sufficiently oversold on daily frames, depending on call premiums I may but options (or spreads) targeting the mid-to top of the gap 2-3 months out. It is still just an idea and if market does not drop sufficiently to make it a cheap play, I may not do it. We’ll see how it goes.
Speaking of gaps, take a look at this 60-minute chart of the index
We had identified a downtrend on MACD, and that, in the end proved to be too much to overcome by the index. The buffer zone north of 990 that held the index on Friday could no longer contain the price. The cut below 990 changed the short term trend and we now have a short term downtrend.
Index has almost filled the gap it opened up late July. There is technical support in 960-70 area. There also is another gap further below in the 920 area. On the chart above, I would pay attention to how price plays around its MAs, especially the 233 EMA.
On the chart above, index is a bit oversold and may attempt a bounce soon, especially since we are in an OpEx week, and still in an uptrend
For the day volume was about average. Breadth was horrendous
We mentioned that McClellan Oscillator did not look very hot in the neutral zone sitting on an uptrend line. It emphatically broke the down into negative zone. We also mentioned the flat Summation index that appears to be rolling over.
We now have a short term sell signal on price, momentum, and breadth. I am not trying suggest anything, just reporting
I the weekend post, in addition to the high bullish sentiment that I mentioned, I presented a chart of Arm Index and said that things looked in a fine balance, and also said that I would pay attention to the trend of that index
It seems like it was a timely time to pay attention to the Arm Index as it now indicates a flow of volume towards declining issues – something to keep an eye on
I expected another high, and although NDX made an off-hour high in the future market, I was wrong. That is why it is so important to be mindful of a chop zone, and try not to stay open to a break either way, especially when the wave count presents multiple opposing scenarios
I was getting disappointed that the broadening pattern had not produced anything meaningful and was ready to shelf it. A few days ago we got a nasty candle from it. Today, we got another ugly candle off the pattern. Now, between the active meaphone and the Inv. H&S, things are a bit more interesting :-)
There are multiple levels of support on the daily chart. I am very interested in seeing if price makes it to 950-60, and if so, what it does there.
The underperformance of Nas100 continued today
Let’s see how Stochastics behave around 50. There is support around 1515 and resistance is now the previous support area of 1580-1600
Over the weekend, we looked at junk bond ETF, HYG, and I said if it wanted to bounce it had to do it soon since it was sitting on support, well it just cut though first level of support at 82
Today was an ugly day for the bulls. But who knows in this market? Pay attention to important levels and pick your spots accordingly
Short term trend is down, mid-term trend is up, long term trend is down.
Resistance is 984, 990, 1018, and 1041. Support is 961 pivot (a long term level from 2003), 955 (top of the 875-955 range), 935 (Jan 2009 top, July 1 peak), 923-928 (tested multiple times), 910-915, 908 (55 EMA), 875-885 (base of a W bottom) and the frequently contested 850.
So, where do we go from here? My plan is the same as before: Pay attention to critical levels, stay unbiased and cautious, and hedge to protect profits if I get to make them. I am sure bears will declare victory. And this time, they may be right, or not. We have a short term trend that is down, and will stay down south of 1005, we have a mid term trend that is up.
We need to be cautious and watch for further evidence suggesting a mid-term trend change
I also think that we should pay attention to how measures of risk appetite like bonds and Nas100 as well as other high bet sectors behave.
Food For Thought: Is VIX ready to change its trend?