S&P 500 - May 29, 2009

charts courtesy of stockcharts.com

Short squeeze at will!

Take a look at this 15-minute chart of SPY

Seems like market squeezes the shorts at will. On Thursday, market used a better than expected consumer survey to pop the shorts dry at the open. On Friday, it took its time in a choppy fashion and then ran the shorts out of town into the close.

Spikes like that can be forced liquidation, if so, with that kind of volume (you do the math to get the dollars involved), some big account(s) was fed to the sharks in one swallow. They can also be someone who wants to buy on close no matter what. Why would a genuine buyer wait out a dull day when he can easily accumulate only to run the tape and outbid himself.

Of course, on days like this, you will hear and read that it was PPT, or CPT, or GS, or the FED, or whomever. My question is: if those who claim PPT, CPT or any other acronymic entity have that kind of power to take them to the cleaners at will really believe what they say, why do they play the short side in a mid-term uptrend in a tight range? Are they insane? Or do they only cry foul when their bearish bias takes the better of them and clouds their judgement?

it is what it is and price is all that matters.

I have been saying (ad nauseam) that the bears are finished. I mean some of the bears of the previous drop have either turned bullish, or are still bearish but enjoying the counter trend rally (inside or on the side line with their capital intact). Some other bears of the last drop are still making noise but market has taken care of their capital through endless squeezes.

Isn’t the inability of the shorters to break the index below a certain level that is being watched by everyone proof enough of a serious lack of Bear power?

To get incessant selling, market needs new bears with stamina to withstand bounces and programmed spikes like the one we saw late Friday. That kind of stamina comes from capital and confidence. Those who have capital and confidence are either the bears that went to the side line in March, or the crowd that (bull or bear) that have been enjoying the rally.

Is it the time for the turn? I wish I knew, but I don’t. All I know is that nothing has changed and S&P is still in a tight range, and both bearish and bullish options are still open. I also know that it is completely up to buyers (be them PPT, or CPT, or HAL 99-99 super computer, or your own friendly fund manager) to stop buying and/or start selling for the market to turn.

From an Elliott Wave point of view, both bearish and bullish counts are still open. However, the inability of the shorters to inflict lasting damage and the low volume Yo-Yo action suggest the higher probability for a sideway wave B or a sideway wave 4 at this point

Or

Bear in mind that the bearish short term counts are still very viable. I will take them seriously again if I see some evidence of selling.

For the day, volume was below average (what else is new?), and breadth was positive.

Notice the turn on RSI and Stochastics before getting into oversold areas! They confirm the underlying bid that has come to help the index at the bottom of the range. I would be wary of a short position if they keep going up.

Also notice that MACD has not opened, which is typical of a tightly range-bound action.

Advance/Decline line seemed like it was dipping a few days ago, but it has turned course for now, and Net new high has been in positive territory for a few days.

McClellan Oscillator has turned up without getting seriously oversold, and that also is bullish as this time.

Forgetting about the noise that comes from perma this and perma that, and just looking at the price action, we see that we have been in one month worth of a lateral move. One month of no real change.

Much bull and bear capital has been evaporated trying to game and time the market.

There are some intermediate sell signals that still are present, but there, also, are some short term improvement in the underlying technicals of the price action, absent the volume, of course. more of this type of short term improvements may mend the intermediate picture and close the sell signals.

Sideways moves are regarded as continuation patterns. They say there is higher probability for them to break to the side of the trend leading into them, which was up. I say be aware of what others say, but stay open and be prepared for both outcomes.

It may be a bit late to play the range, and a better trade may be in waiting for the resolution of the between 875-885 and 925-930. An adventurous speculator may place bets outside the range up or down using options, or spreads.

I heard on TV that a pundit said that VIX was too low and danger lied ahead because of that. In my not very humble opinion, that is absolute nonsense.

First of all, VIX at 30 is not low by historical norms, as you can see from this chart

Secondly, those who look for numbers off VIX to predict market’s next move are playing with fire. The trend of VIX is far more important than an arbitrary number. If you remember, when market was in free fall, all sorts of experts and pundits were calling bottom after bottom because VIX was at 50, then 55, then 60, then whatever, all the way to 80+. They were all spectacularly wrong – month after month. The number VIX registers only tells us about perceived volatility and expensiveness of options.

It is the trend of VIX that can be used as an indicator, in conjunction with other indicators, to asses overall sentiment and market direction.

One again, it is just one indicator and not the only indicator.

VIX has been trending down, and that has been supportive of the market’s rally. Danger may indeed lie ahead but not because VIX has fallen to 80 from 30.

Let us not forget that the most important indicator is the price itself, then come momentum and breadth. Every other indicator is complementary at best. Anybody who says otherwise is either misguided or misleading, and that, also, is my not very humble opinion.

To Wrap Up:

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

Friday saw a late spike towards the top of the. Another push like that above 935 and the danger of a melt up becomes very serious

Bulls need to stay above 912, and recapture the 920 area

Short term trend is up. Mid-term trend is up. Long term trend is down

Resistance is 920, and 935 (Jan 2009 top). Support is 912, 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 need to bid the tape, or cause spike rallies like the one from late Friday.

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

Food for Thought:

Let’s take a look the following 60-minute chart of S&P

Aren’t the contact points marked by orange arrows just perfect? Also notice the beautifully lined up MACD contact points.

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.

S&P 500 - May 27, 2009

charts courtesy of stockcharts.com

No more shorts to squeeze?

I am working on a short term market script:

There is a slow Friday before a long weekend with pathetically boring action and a dump into the close. Index is at a critical level watched and discussed by every creature in the universe – yes, Martians, too.

There are some emboldened shorts who decide to join the dumping party in the future market before the open after the holidays. Then comes a Jane & Joe Survey saying they are really pumped and are about to spend a whole lot of what they don’t have on crap they cannot afford. Shaky shorts are whipped into submission in 45 minutes or so.

Fade out – Fade in – Next day:

Shorts are in short supply and index drops with abandon.

Disclaimer: The above is just fiction germinated & fermented in my mind and has no basis in reality.

Let’s get real:

This is 5-minute chart of SPY



I think the annotations are descriptive enough.

It was yet another reversal day. These reversal days happen with such frequency that I wonder if they have any significance at all.

There was some tight action around 912 pivot, and after that gave way, 900 was taken on the way down with relative ease.

For the day, volume was below average and less than yesterday. Breadth was negative


It really was not a disaster day. In fact, nothing has really changed, same range, same levels, same sell signals on price, breadth, and momentum, and same bullish and bearish counts still alive and well.

This is a 60-minute chart of the index.

I would like to remind you that there are bullish alternates as well, two of which I discussed in the post of May 22. I will have to keep maintaining bullish and bearish counts until the current range resolves decisively up or down.

Meanwhile, because of the sell signals that I have been talking about, I, personally, have a bit of bearish bias, not enough to turn me into an all-out short, just enough to trade with a bias towards the short side.

It seems like a new channel is developing on the 60-minute chart above. It’s too soon to say, but worth keeping an eye on

I showed the following chart yesterday and wondered how index would behave at the underside of failed gap of May 20.

Index could not surpass that gap and fell. This is a bearish development, but it takes some serious bears with real capital to take advantage of situations like this.

Nas100 also had a low reversal day on below average volume

Recently, it has been outperforming S&P again. A continued outperformance would be positive for the market

To Wrap Up:

S&P failed at 912 pivot and fell below 900 support

Index is close to the bottom of a range (875-925), and has kept both bullish and bearish scenarios alive.

Bulls need to recapture 900, and then 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 900, 912 (pivot), 920, and 935 (Jan 2009 top). Support is 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. They seem to be content with squeezing shorts for quick trades and nothing more.

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

I leave you with this chart

There is an overhang of sell signals. So far the 21 EMA has held it well, and allowed it to relieve overbought pressures without giving up much. 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.

Food For Thought:

Let’s look at rates

As you can see from the middle clip, S&P got mired in thick mud after 10-yr yield broke above February high.

Can long term yields and equities rise in happy unison? I don’t know. I leave the answer to that question to econo-heads – bear or bull. What I know is Something’s gotta give, and I do not feel like going long the general market right now no matter what shade of green is shooting out of which mouth or what crack.

S&P 500 - May 26, 2009

some charts courtesy of stockcharts.com

Support held on below average volume.

On the back of better than expected consumer sentiment (say what?), index did what it has been doing with great efficiency: squeezing the squeezable shorts. Damage was done in the first 45 minutes with three long 15-minute candles, and the day was set


Notice that the gap down of May 21 was filled. Also notice that index stopped at the underside of failed gap of May 20. Should be interesting to see what the index does tomorrow.

For the day, volume was, yet gain, below average. Breadth was very good




Price action today kept both bullish and bearish counts alive.

Here is a 15-minute chart of the index depicting bearish scenario

Under the above scenario, index should reverse soon possibly after one more push.

Here is a bullish scenario


Under the above scenario, index is on its way to challenge, or better, the previous high.

Please refer to the post of Friday, May 22 for different scenarios that we discussed. I think they are all still on the table at this point.

I am a bit suspicious of the bullish scenario above because the June contracts do not support that scenario very well



Wave 2 should not dip below the beginning of wave 1, and here we have a slight dip. I, however, remind you that there are other wave configurations that point to higher prices from here, like this



Nothing has really changed. S&P is still in a range (875-925) and the smart move would have been to lighten up the shorts and/or make long trading bets/hedges at the bottom of the range

The 912 area is back in immediate focus. Bulls need to recapture and hold it

Here is a 60-minute chart of the index



Looks like a potential W pattern. The 880 area has been tested 4 times already.

Nas100 also had a good day


A big outside day on below average volume. So, some shorts were squeezed on a broad based tech rally. Tech Bulls need to follow through this week and not give anything back. A resurgence in the fortunes of the Tech index will be very good for the broader market.

To Wrap Up:

S&P bounced from the bottom of a range (875-925), and has kept both bullish and bearish scenarios alive.

Bulls need to hold the 900, and advance above the 912 area


Short term trend is 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. They rode the back of squeezable shorts today. They need more than that, and at better volume.

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


I leave you with this chart


This is an index at a juncture with an overhang of sell signals. So far the 21 EMA has held it well, and allowed it to relieve overbought pressures without giving up much. 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.

In the absence of real bear power, I would be very wary of carrying shorts with a sustained move above the 912 area.

HUI, AEM, GG - May 25, 2009

some charts courtesy of stockcharts.com

Last week, in a post about gold and gold stocks, I wrote that I would basically hang on to what I had with a wait-and-see attitude.

Precious metal stocks advanced nicely. Some made new highs for the year

Gold bug index (HUI) moved above resistance set since August 2008, and rendered the bearish wedge of last week obsolete.

This is a daily breadth chart of HUI


It is overbought, but we know overbought may become more overbought. For those who are in the sector from two weeks ago, there are multiple support points to use as guideline.

This is another breadth chart that shows the strength in HUI's move


And as we can see here, most of the components are above short and long term EMAs


Which is a very pointed improvement from a couple of weeks ago. But, it can mean that the floor is getting crowded, and it may not be a bad idea to dance a bit closer to the door

In today’s market, everything happens at the speed of the fastest computer chipset employed by super funds. Story changes and massive amount of capital gets re-deployed from one sector, or industry to another. It does not really matter what the story is. Things like depression, deflation, stagflation, hyper-inflation, whatever-the-hell-flation do not develop over a week or two, but they are surely used interchangeably, week-in week-out, to draw the crowd into one area or the other. That's how the game is played.

There are some early warning signs.

First off, there is a negative cyclical divergence in place. Also, index is at a very interesting technical area hitting against support levels it broke many months ago.

Of course, further strength in the sector may improve the cycle momentum and clear the negative divergence. If not, we will have a magnitude swing failure (fancy way of saying cycle failure) on the daily frame. Corrections that follow cycle failures are usually not very pleasant.

The cyclical lag is more pronounced on the weekly chart

But, for now, short, and mid-term trends are up, and there is support from short term MAs, as well as some clearly defined areas as depicted on the charts above above, so, let’s enjoy the ride, but be cautions and mindful of the cyclical lag.

I personally think that a bit of profit taking and/or buying partial insurance may not be a bad idea.

From among my favourite gold miners, Goldcorp has amused me most

While I can count both bullish and bearish wave structures for a number of senior miners that I follow, I cannot count a bullish count for Goldcorp unless I do some really creative waving.

The overall picture looks corrective. If I am right with the above count, this may be the last uptrend before a nasty correction sets in.

But, as with HUI, the trend is up, and there are a lot of support points to help define stops and/or profit taking levels.

I would not start a new position here, and what I have is good for now.

Another favourite of mine, AEM, has been a clear laggard

It has not been able to make a new high. It is now approaching strong resistance around 60, and I would be very cautious. A failure to clear the resistance may knock the stock back to support around 50.

Notice that stock is almost kissing the underside of the uptrend it broke early April. That is very typical technical action. It feels like AEM has been rising the last few days with a lot of help from the industry as a whole.

This is 60-minute chart of AEM

Let’s watch resistance around 60 on the daily frame, and the rising channel and negative divergences on the 60-minute frame in the week ahead.

Bottom Line:

Gold stocks as a whole have had a very good move. There are some early warning signs, especially in the bigger time frames. I would let existing positions run, but start thinking about stops, profit taking, and hedges.

S&P 500 - May 22, 2009

some charts courtesy of stockcharts.com

A bounce, a retreat, and the yawn.

Index started the day with a continuation of the bounce of 875-880 support

It then ran out of life late afternoon, and dropped like a stone into the close – seemed like traders were not in mood to take the green shoots home over the US long weekend.

For the day, volume was pathetic and breadth was mixed




Not much else to say about Friday. Let’s instead look at some short term wave configurations. If you do not like to examine multiple wave scenarios, skip to the wrap up section.

Scenario 1: Failed Intermediate Wave 5 = Primary Wave B


Scenario 2: Major A complete


Scenario 3: Sideways Intermediate Wave 4


I am showing the sideways as a triangle. It can also be an abc-x pattern

Scenario 4: Flat Intermediate Wave 4


So, we are either going up, or down, or sideways.

Man, I really like being an analyst. I can never be wrong :-)

Maybe I can redeem myself, and look a bit smarter:

It all depends on whether the 875 area breaks or not.

If it breaks, then we will be faced with the question of whether Primary B has already been made or not.

Either case is a short, and I will decide the rest when we get some oversold conditions and after seeing the wave structure on the way down.

If it does not break, we either have a frustrating sideways move or a 5th wave up.

If it is a 5th wave up, then, given the multitude of sell signals present, at this time, on price, momentum, and breadth, I do not want to have any new or unprotected long positions just for the possibility of a single wave up.

If it is the sideways move, then indicators will work the excesses, the sell signals will ease off, and I can join the party later – let the perma creatures get tossed around the lateral chop. I may, however, day trade if I get a setup.

To Wrap Up:

S&P is close to the bottom of a range (875-925), and has kept both bullish and bearish scenarios alive as we saw in the charts above, and as we can see in the charts below




As we can see from the two charts above, there is a potential H&S in the works with a theoretical target in the 830 area. I emphasize Potential and Theoretical!

Bulls need to recapture and hold the 900, and then the 912 area

Short term trend is down. Mid-term trend is up. Long term trend is down

Resistance is 900, 912 (pivot), 920, and 935 (Jan 2009 top). Support is 880-885 neckline, 875 (a short term triple bottom bounce) and the frequently contested 850

There are multiple sell signals on price, momentum, and breadth, to reverse that, buyers have to bid the tape very hard, what is the catalyst to motivate them? On Friday, nobody seemed to like to take the green shoots home for holidays. Maybe some bubble-media magic to induce some optimism into the tape, some assurances by this political head or that, who knows?

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

Since every technician and their Grand Ma are watching 875, I shall be mindful of a false break. A decent buy signal and/or significant breadth improvement shortly after the break of the widely watched 875 area, may be a warning that a whipsaw is in the works.

Food for Thought:

We have been discussing, and monitoring longer term rates, they have been on the rise while short term rates are in the dumpster


Is this a picture that’s conducive to a new bull market? Can long term rates and stock market rise together in an environment where consumers are tightening the shoe laces (those with shoes, that is), and layoffs and reduced pay and shortened work week is becoming the way of doing business? Is the will and might of Bernanke or whoever stronger then the forces of the bond market?

I wonder.

How about the junk yard?

First the so-called investable junk


And the junk junk


This slice of credit market picture does not make me feel liking buying the broader market at this point!

Have a Great Weekend!

And a Happy Memorial Day to Our American Neighbours!