S&P 500 - October 30, 2009

Trend day down. Trend day up. Trend day down.

This is a day trader dream :-)

What happens really is that market sells with force and we get a nice down day. Then dip buyers come in at oversold conditions to roll their dice at glory, and we get a nice day up, but they do not do so on huge volume. Sellers re-appear and crush the dip buyers into losses. And it goes on until either sellers stop and join the dip buying party (end of correction), or dip buyers get the message and start looking for bounces to get out of mounting losses. The latter is the situation where oversold stays oversold and bounces never bounce high enough for those trapped because of their dip-buying excursions. Then, overhead supply builds and resistance levels mount and things get really ugly

So, if this is going to be just a correction, buyers should force it into a turn soon.

Regardless, judging by the volume of the recent declining days, and the force and fluidity of today’s dump, dip buying is something I’d rather not do at this point. Let the real champions pick the bottom!

This is a 15-minute chart of the index that I showed yesterday


The amazing 20-point run of yesterday had taken the index to a point where a perfect channel could be drawn. Today, all of that bounce was given back, and then some. The channel I drew yesterday held to perfection. Sometimes, we get it right ;-)

Today felt as if Thursday did not happen. But wait a second! Didn’t I say the same thing last Friday in the post of October 23? Friday, October 23, also wiped off an impressive bounce of its preceding Thursday. Seems like people do not want to be stuck with stuff over the weekend

Anyhow, if the count in the chart above is correct, we may be close to a bounce for a minor wave 4. There may be a bit of residual selling early next week before that.

Note that I can count the above chart in other ways as well. I just went with this one because I like its momentum profile and MA alignment. But, as usual, I shall try not to get caught in short term counts and shall pay close attention to important levels and trend lines.

Speaking of important levels, bulls lost the 1041 level. They also failed to prevent a close below 55 EMA


Index also closed below the broken March trend line with an emphatic candle on expanding volume. It just does not look good for the bulls. Can they redeem this? Of course! They, as we have been saying for days, need to spend money across the broader market.

Daily volume was heavy. Breadth was ugly!


The last time down volume trumped up volume like this was October 1. That selloff proved to be the washout event and bulls came back albeit at pathetic volume. This time, breadth has deteriorated further and the lead up selling has been at higher volume that it was prior to October 1. So, the situation is a bit more hostile to the bulls. We’ll see.

McClellan Oscillator (MO) is mired in oversold territory


You need to go back to February to see comparable behavior from MO

This is one of my favorite breadth charts


Short term breadth is very oversold


Many a moon ago, I was saying that the bears of the last drop had no significance in the course of the market action, and that market needed new bears with capital and conviction, and that new bears would have to come from the ranks of well fed bulls. I repeated that almost daily and constantly advocated watching for signs of distribution. We have been seeing heavy distribution for days in a row.

So far, market has delivered two good bounces off short term oversold conditions. Both of them fizzled and market got even more oversold. But have bulls really changed sides? Have the fat cats finally said that it’s over. I don’t know. All I know is that, if there still are bulls and green shooters out there, they should deliver a rally soon with a chart like above. Failure to do so will be very telling. TRIN MAs moving like that can make the environment very unfriendly to bullish aspirations.

A study of S&P’s cyclical momentum helped me plan ahead for a possible peak. It also helped me take a short stance near the recent peak with relative confidence.

This is an updated chart


CCurve is at a critical juncture. It is sitting on its uptrend since July. I will regard a break of that trend line as a second piece of evidence for magnitude momentum swing failure at the recent price peak, and may plan to get more aggressive on the short side. If it turns and make a higher peak than the last peak before making a lower trough, I will regard it as an indication that another momentum up cycle may be in the works, and may become wary of the short side.

VIX finally broke out of its down-sloping channel


It is at a long term level of resistance, and I wouldn’t be surprised if it ebbed back. Regardless, if it starts an uptrend, it would be supportive of a downtrend of the broader market.

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Hypothetically, assuming rather foolishly, if the market has topped (at least for a good correction), what can I expect as a possible target at this point?

This is a weekly chart that I have been showing a lot recently

There is a strong technical support band around 930-950 that coincides with 50% retracement of the rally since March. David Rosenberg, in his daily musings, says that he regards 850 as value given current numbers, so, I am gonna say that somewhere around 850-950 (I know it is a wide 100-point band) may be good drop target for what I know now – all hypothetically, of course.

If market indeed starts going that way, I would not be surprised if we started hearing rhetoric in support of another round of stimulus money. Keep that in mind.

Nas100 had a bad day as well

Above average close below 55 EMA with an ugly candle.

It is still in the weekly box formed by some price points that I calculated in September


My price points have been my trading markers and I see no reason why I should abandon them

Bears need to break the techies down or all of this might end up being just another meaningless correction. For me, there is no way around it, if bears are serious, techies have to go, and go faster than the broader market.

Let’s Wrap Up:

Short term picture does not look very good at this point. I am operating under the assumption that a top is in, expecting an OEW mid-term trend change. Technically, everything that I look at tells me that, at the very least, a good size correction in underway.

Market prices and breadth are sufficiently oversold to produce a bounce. Failure to bounce in the coming week may be interpreted as a serious sign of bulls losing their grip on the market

Support is 1018 and 991. Resistance is 1041 and 1061.

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

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On a purely egoistic note,

One market player whom I read when I get a chance is Bill Cara. I was reading all of his last week’s post today and this sentence in his Thursday’s post caught my attention

The character of the market has changed, your tactics and strategies need to adapt to the new environment

But Bill, we have been saying that since October 2. Maybe he should read me :-)

Just kidding, what little I know, I owe it to a few generous souls like Bill Cara who share years of experience and insight ever so selflessly. I cannot recommend his daily musings enough

Knowing that I have called is in line with Mr. Cara's observation is enough of a boost to my confidence as a market observer

Have a Nice Weekend!

S&P 500 - October 29, 2009

Well, when I said I expected a bounce, I was not contemplating a 20-point rise on S&P.

It is interesting that, as a lead up to the week of bond auctions, US Dollar rose, T-Bonds did OK, and stock market took a shaking. Now, auctions seems to have ended, and we get a rally in equities and a shake down in T-Bonds


Interesting development!

Index wasted no time rising from oversold levels.


It gapped at the open, kept on going and made a trend day. At the close, short term frames were overbought.

This is a 15-min chart


I try not to get caught in the short term count so much. Instead, I shall pay more attention to important levels and trend lines. Notice how yesterday drop stopped at the lower edge of the last remaining gap. Yesterday, I said that bulls had to retake 1061. Well, they did that in one session. They made the RSI of the 15-min frame quite overbought. That usually is an indication of strength. If the move was indeed strong, and not a free ride on the back of late, shaky shorts, it will have to carry on, ideally after a dip in both price and momentum.

Many bears are counting the down move as a 1-2-3. I don’t have such strong conviction, and I think it can very well be an a-b-c. Let’s just see how the index behaves around 1061 pivot. A sustained move above 1061 may help retire (or postpone) bearish dreams (nightmares?) of 3 of 3 of 3 of the mother of all descents into the depths of hell. An impulsive move above 1090 may cause another round of short squeezes. I am not trying to scare you (or me). I am just examining possibilities. Judging by the down volume of these past days, there may be quite a few shorts in position, and if so, the market (and its makers) may try a trick or two.

This is a 60-min chart


There was a lot of excitement yesterday about the break in trend lines. Well, today, index peeked through the broken line to the upside. I wouldn’t wanna be caught with unhedged shorts and prayers on my lips if index refuses to go back below the trend lines. As I said, this may be an a-b-c, and, as such, it may be a correction of the prior up move. Just be mindful of important levels, and trend lines, and see if bulls can establish a short term uptrend

For the day, volume was good but less than prior down days. Breadth was very good.


If you remember, I said that market was at support on 55 EMA. Well, we got a bounce of 55 EMA. This is a market of technicians :-)

Nas100 bounced from 55 EMA as well


Unlike S&P, it has not climbed above the broken trend line.

So, what now? Short term oversold conditions have been worked out, and it is up to the bulls to press and try to improve the daily frame.

Let’s have a look at my road map, and then take a look at the weeklies


Bulls have a bit of work to do to improve the above chart

As for the weekly frames,

S&P is around the half range that I identified a while back, sandwiched between two trend lines


Nas100 is still in its box


As long as indexes ping-pong up and down their ranges, the whole thing can be viewed as consolidation. If bears cannot break the indexes, any consolidation will have a higher probability of resolving up, which will be the direction of the prior trend at consolidation resolution time.

Just a quick note on VIX before I close for the night


VIX is still in a downtrend. It has been acting up lately. Enough so to get some commentators excited. It’s good to keep an eye on it, but until it gets into a discernible uptrend, I won’t fret too much about it. Remember, when using VIX as a complimentary indicator to aid the study of broader indexes, the trend of it matters more than the numbers that it registers.

Let’s Wrap Up:

The rally today was on lighter volume and off deeply oversold levels of short term price and breadth

The structural problems that we have been discussing are still in place needing bull money across the broader market

Daily sell signals on price, momentum, and breath are still in place

Weekly charts are still intact but are subject to daily developments

Support is 1061 and 1041. Resistance is 1090 and 1107.

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

Have a Nice Evening!

S&P 500 - October 28, 2009

So far, it seems like I got this one right :-)

In a post of October 2, I repeated this 3 times

Something about the internal characteristics of the market seems to have changed.

In the same post, I said

I think we should see a bounce early next week, that is the minimum required from the bulls at this point

and

TRIN MAs shooting up like that may produce bounces, but they make the environment unfriendly to the bulls.

All of them, we now know, were good ones. The bounce turned into another rally that carried the index to 1100+. The internal characteristics of the market had changed and kept on changing for the worse. The environment turned, ever so gradually, unfriendly to the bulls.

In the same post, I said

I am going to assume that a top is in until I am proven wrong.

That was not a good assumption.

But that’s the beauty of doing my own analysis, believing in my own abilities, and staying focused and disciplined. I can start early anticipating a change that my work is telling me is about to happen (if not already happened). If the change does not happen as I had expected, I get stopped.

I kept a tab on the internals of the market and kept complaining about the bad behavior of some breadth measures that I use like McClellan Oscillator and the Summation Index. The whole thing is documented in detail post after post in case you’d like to track back.

In a post of October 23, I said

Given the weight of technical evidence, the sell signals on daily momentum and breadth, as long as index has not made a new high, I am going to assume that a top is in.

This time, it worked well enough to ensure that even if I get stopped, I will be at profit.

This is a weekly chart of the index


Despite all the headlines and the scary day-after-day red closes, the weekly picture has not deteriorated much. Price is resting on 13 EMA.

If I were a laid back trend follower with positions from March-April, or even July, I probably would see no reason to do anything other than trimming, hedging, insuring, and leaving the rest to my stops.

Operating on a weekly chart may require a daily study for entry and stop determination

This is a daily


It does not look very pretty. Heavy selling and, finally, a close below the uptrend line that started in March. It is resting on its 55 EMA, and it’s getting oversold.

During the down days of these past few sessions, volume has been heavy and breadth has been solidly negative


McClellan Oscillator has made a brand new low.


The failure of McClellan Oscillator at neutral zone was one good piece of evidence of weakness for us.

One of the best calls I made recently was on this chart of the S&P that depicts the cyclical momentum of the index


Quite a few weeks ago, I postulated that S&P momentum would make a 3-peak cyclical move for its move from July move, repeating the cyclical momentum pattern of March-June with each consecutive peak at a lower height.

Recently, I said that I would take a turn from a lower third cyclical momentum (CCurve) peak as a top (The Top?). So far, it is on track.

Zooming in


Notice downward acceleration on chart above. This is quite different from the correction that we had in June-July. Index has made a fresh low print on hourly MACD. Also, notice the sustained hourly moves below short term MAs, and the uptrend from March (pink line).

These are all signs of weakness, at least, for the short term

This is 15-min chart


We have been keeping a tab on the three gaps (pinkish orange rectangles) of the above chart. All three are now happily filled.

The weight of technical evidence suggests that we are at least dealing with a correction that can easily correct 10%, or more from the latest high. That does not mean that it would definitely happen, but I no see no reason to run for cover at this point. For days, we pointed to subtle signs of internal deterioration and said that it was up to the bulls to either spend money and repair the technical picture or let it crumble. So far, it seems like they have had no desire of spending money.

We also said that bears needed to exert damage when and where it mattered. They have been doing that. The break below 1061 was a good and timely move by the bears.

Now we are at the lower edge of the last of the three short term gaps. Index seems short term oversold and may attempt a bounce. Let’s see if market can find some bidders. Bulls need to retake 1061 pivot.

Nas100 has so far been having its ugliest weekly candle since the March low


The week is not over yet, and NDX is still in the box it has been for the past 8 weeks. Bears need to break below this box. Otherwise, it may all be viewed as a consolidation and nothing more

NDX is also at 55 EMA


It has been suffering from high volume down days but has been holding well relative to S&P. As I said, bears need to break the tech index. They need the break the bull spirit, and bull spirit manifests itself in high betas. It’s as simple as that

Bull spirit can also manifests itself when there is a love for junk


HYG is also at 55 EMA. Look at the volume of the last 2 days. HYG has now closed below the March uptrend.

Better quality junk looks like it is in limbo


Why have junk lovers been selling these things? Isn’t the FED supposed to print and backstop all debt, corporate or otherwise? Has the corporate bond market run out of fools? Too early to say, really. Notice that LQD had a bounce off of its 55 EMA. indexes that we follow are now at 55 EMA? Will they follow the lead of the coporate bond ETF and bounce from here?

It’s been a good start for the bears. It has all the attributes of turning into something meaningful. They just need to take S&P lower. They also need to force Nas100 to underperform S&P. After that, they need to change the mid-term trend.

Support is at 1041 and 1018. Resistance is at 1061 and 1090.

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

Have a Nice Day!

S&P 500 - October 23, 2009

On Wednesday, we said that bulls had to show money or things might get rough. They bid the Thursday up. On Thursday, we said bears could not afford complacency. On Friday, they knocked the market back down.

I often say that market is like a manic depressive. It can stay medicated and calmly follow a path. But then the medication wears off, and the mood swings start. It then can go from depths of despair to heights of ecstasy in no time -- and back!

What’s the medication?

Is it loose money? Cheap Credit? Bubble Vision’s shouting clowns? Faith and confidence of masses? Laggard fund managers chasing the performance game and its targets?

All of the above?

How about the ability to find a fool more foolish than me to buy what I have at a higher price?

How about we do some charts?


I had circled an area on the chart with index hitting a short term downtrend line. Index dutifully turned around and dropped all of the gains of the prior day. What has kept me skeptical of many down moves has been the inability of bears to inflict damage when it really mattered. Look at the chart above, all they had to do for a start was a lower low, a close below the gap.

I am not going to dwell much on smaller degree wave counts. There can be a number of variations and I am just going to leave it as it is presented on the chart above.

I only want to point out one thing


The small down move that started on October 21 looks like a 3-wave affair. That does not mean that we have not seen the top of this uptrend. But it can mean that if we indeed have seen the top of this uptrend, the kick start move is not going to be the 5-wave affair that some Elliotticians think they are entitled to get for a 3 of 3 of more 3s to the depths of hell. It’s a bit early, though, and it is just something to have in the back of my mind as things evolve.

Another thing I would like to point to on the chart above is that there are some divergences and market may attempt a bounce on Monday.

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Despite all the drama and manic depressive behavior of recent days, not much has changed on the weekly chart of the index


Index is practically where it has been for the past two weeks. It has been rejected by the downtrend line once. If it gets above that line, it can cause havoc to short positions and force the shorters to chase it. If it breaks below the uptrend line in the coming days, it can easily be viewed as a decisive follow through on recent weakness and may finally set the path for the first meaningful correction of the rally since March.

In-between, it’s a chop shop.

This is a daily chart that I have been using as a road map


Not much has changed where price is concerned. Back to 21 EMA as if Thursday did not happen. But momentum has deteriorated further. We now have a MACD cross. A break of the uptrend line is a must for the bears.

On October 18, I discussed the cyclical momentum of the index, and said

The move from July low has so far formed three cycles with the third cycle still unfolding. If I were a betting man, I would make a bet that this ongoing cycle would end at a lower peak than its predecessor. The third cyclical peak of the move from March to June marked the end of that uptrend. If I am right about how fractals and symmetry are going to play with the cyclical momentum of the move from the July low, a lower third cyclical peak will mark the end of the current uptrend.

This is the updated chart


Has it turned? Maybe! But remember price is the most important indicator. Momentum may peak way before the price. Price may ignore momentum and drag on long enough for momentum to turn back up and start another cycle.

For the day, volume was about average but less than the prior day. Breadth was negative


Summation index is now well below its uptrend since March. Close attention to McClellan Oscillator has served us very well these past few days.


This is a 60-min chart

We may get a bounce soon. But price seems be in a downward channel. An up move outside the channel may be a first warning that a challenge of the recent high is underway. We need a lower low to have a short term downtrend in place.

A move below 1061 pivot may be a first indication that a change in mid-term trend is underway.

Pay attention to the structure of any bounce. Be mindful of important levels and pivots and plan accordingly.

Given the weight of technical evidence, the sell signals on daily momentum and breadth, as long as index has not made a new high, I am going to assume that a top is in.

If this is really going to be the Primary wave C down, there will be plenty of entries along the way. So, I start small, and as I have done before, my strategy shall be to accumulate and hedge, and repeat.

If this is not going to be a significant drop, then my hedges will compensate and I quit or get stopped at some point. Right entry strategy is important because it gives me room to play. Right exit strategy is vital. To me, 1, 2% loss is insignificant. 10, 20% loss is sacrilege.

If you remember, back in June-July, I constantly pointed to Nas100 holding well and wondered if it could carry the load until other high betas could join. Time proved that my thinking was on the right side of the eventual market move. I still think Nas100 holds keys to a few doors.

Techies had a rough day on Friday


Since late July, it has lagged S&P. It is OK if techies are not among the top leaders of every uptrend. But I believe they should not lag the broader market in a healthy uptrend. In 2003, techies were among the first out of the gate after the bottom. They did very well for some time, but then they fell behind commodity related stuff. Still, techies did better than the broader S&P.

Friday was a down day on huge volume for Nas100 – another distribution day. The high volume selling on Friday may have made conditions ready for a bounce. If so, I shall see how Nas100 bounces. But more importantly, I shall pay attention to whether or not techies can manage to outperform S&P again.

I have some price point on the nas100 chart and those have so far done me very well. Index is in a box. As long as it stays in that box, its action can be viewed as sideways consolidation.

Every now and then, VIX does an intraday uptick and causes excitement here and there


Well, the way I see it, VIX is solidly downtrending and there is no reason to get excited yet.

High quality garbage, on the other hand, is becoming interesting


Nothing is technically broken. Internal structure of the market, however, shows serious signs of strain. Bulls seriously need to spend money across the broader market if they intend to keep the uptrend alive. Bears need to exert damage at key points.

Support is 1061 and 1041. Resistance is 1090 and 1107.

Short term may have turned down (a move below 1072 will confirm that). Mid-term trend is up. Long term trend is down

PS. On Monday, I will be on a trip to the beautiful city of Montreal for two days. I may not be able to post.

S&P 500 - October 22, 2009

Yesterday, I said

If this is still an uptrend that bulls want to defend, with TRIN reading like that, bulls should bounce the market soon. This is not a time to dilly dally, they just need to do it.

So we expected a bounce due to oversold conditions and we got a bounce. The bounce, however, retraced quite a bit of the prior day’s drop. It felt a bit like a rally.


Now the short term oversold conditions are relieved a bit, and a few shorts are squeezed – again – and the index is close to the previous high


Notice from the chart above the first gap was filled yesterday and then in the index bounced out of it started making short term higher highs. Also notice that index stopped at the lower end of the p coinciding with a parallel line that I drew against the broken short term channel.

With all the noise related to earnings and what not, this market behaves like a text book on technical analysis.

This is a 60-min chart


Wednesday’s drop made the above chart oversold enough for the market to have room for an extended rally. I shall pay attention to the downtrend on the oscillators and the Tuesday high. I shall also watch to see if a short term uptrend is being set in place or not

For the day, volume was about average but less than the prior day. Breadth was positive


Notice the bounce from 21 EMA, and the bounce off 50 level on RSI. Earnings and fundamentals and AAPL pie? Gimme a break!


McClellan Oscillator turned but it needs to do more than that.

Nas100 bounce as well.


It is being led by S&P

Yesterday, I said it was not a time for bulls to dilly dally. Today, I say that it is not a time for the bears to get complacent and just rely on late night prayers


This is a setup that can easily shoot up if it finds the right mix of shaky shorts and hopeful souls to chase it.


The above can easily shoot up as well. Notice the price points I calculated on Sep 23. They have done marvels for me. Price just stayed in the box. We are now close to the top of that range

No one knows how far a mad man on steroids can rage before the exhaustion sets in. Yes, there are gazillions of experts on human behavior that can tell us about their studies of mad men of the past. But that’s the extent of what they can do: a statistical interpretation of the past.

Support is at 1090 and 1061. Resistance at 1107 and 1133

Short term trend may have turned up. Mid-term trend is up. Long term trend is down.

Have a Nice Day!