NDX - March 28, 2010

I have been updating S&P fairly regularly. How about I do a post on NDX for a change?

This is a weekly chart of NDX


There are quite a few things to like about the above chart. Moving averages are nicely aligned. Price is in a very obvious uptrend. It has recently made a new high. There is the shadow of a MACD cross.

NDX, however, looks somewhat overbought and has pulled back from a first line of resistance around 1970. It has put a bit of distance between itself and it MAs and that always increases the probability of a correction/consolidation. It’s about 17% away from it 89 week EMA. Since 2001, there has been only one period when NDX was farther apart from it 89 week EMA and that happened in the period between Oct 5–Nov 2, 2007, which marked the top before THE Tumble. I am not saying NDX will crash because of some distance from some MA. I am just saying that it looks a bit extended by measures that have caused pullbacks/slowdowns/corrections in the past 10 years. A heated chart does not necessarily have to correct sharply to come closer to its MAs, it can ascend at a lower rate, or consolidate sideways allowing the MAs to catch up. So, price is the key, especially what it does at first resistance around 1980-2000.

North of 1970, we have 2050 area. After that, there is quite a bit of blue sky.

To the downside, immediate support is 1940 and then the 1910-1920 area (more clearly seen on intraday charts)

After that, first line of solid support is the 1890-1900 area. This is a must hold in my opinion, and depending on how things unfold, it is the area that I might consider for possible reload.

Below 1890, things may get shaky. We have the now-rising 55 EMA and 144 MA, and then the 1820-1830 area. Below that, bulls may be in deep doo-doo, and we’ll examine if we see conditions deteriorating rapidly.

This is a daily chart


Notice the area between the red and blue lines. I like that area to offer a buffer zone and absorb any possible selling bouts. That area contains the support levels 1890 and higher that I discussed above.

Same comment about MAs in here as well. They are fanning a bit wide, and I like at least the fast one(s) to catch up to price before thinking about a new position

NDX breadth, as measured by McClellan group of oscillators, has pulled back a bit


Breadth is not oversold enough to entice me into a new position. It’s somewhat neutral.

This is a 60-min chart


First off, don’t get caught in the minutiae of intraday wave count. There is a messy price action between Feb 8 and Feb 12 that opens the door for other counts and that’s why I am split between a minor 3 and an intermediate 1 at the recent high.

Most important thing is to see if index corrects and, if so, how it corrects. The softness of the past few days has made the 60-min chart oversold enough for a bounce.

There is a line that passes through quite a few peaks and valleys. I have pointed them out with blue arrows. I have used the line to form a few parallels. There is nothing magical or earth shattering about this technique, but, in tandem with MAs and price levels we have discussed, the parallel lines may offer a road map for price and act as actionary lines.

So, we have a strong trend that looks a bit extended and in need of some cooling down. That does not mean that market will give it, so pay attention to what market does, and not what I or anybody thinks the market needs.

I am personally wary of new long positions unless I get a better entry after some sort of correction/consolidation. For existing positions, not much to do other than evaluating for stops/hedge/insurance/profit taking based on personal risk parameters.

A somewhat sideways consolidation that would allow all, or some, of the MAs to tighten up, or catch up is always the best sign of a healthy trend unwinding its excesses, and energizing before another run. The key would be to wait the start of the run, like we did in the period prior to Dec 2009 takeoff.

On the other hand, a sharp correction that scares the pants off headline pushers and babble-heads, and gets bears into a shorting mode can potentially offer the best entries. Potentially is, of course, the defining phrase. The key is to get the index nicely oversold in lower time frames without damaging the technical profile of higher time frames. Best would be daily oversold while weekly stays positive, flattens or holds support. The period of the correction of Jan-Feb 2010 can give you an example of that.

Long term trend is up. Mid-term trend is up. Short term trend is up (a move below 1920 may change the short term tend).

Have a Nice Week!

GLD - March 27, 2010

It’s a long time since I have written about GLD. The last time I wrote about it was on December 6, 2009. At the time, I said

“GLD may very well have entered a correction that might lead to a trend change. If the overall structure of the above count is correct, we may have seen the end of Intermediate wave 3. Only a new high would invalidate that possibility.”

Amazingly, that is exactly what came to pass after that post.


This is a current daily chart of GLD


You should clearly see why I have not been writing about it – not much to write about.

Now, we have a situation where things may become interesting again. GLD is coiling into a tight contraction as MAs are narrowing. There also is the possibility of an Inv H&S developing, which, if successful, measures to 120+

Notice that longer term MAs are pointing up. Also, notice that 144 MA has been providing excellent support since April 2009. There, of course is no certainty that what I have marked as intermediate wave 4 (purple) is indeed the end of the correction that started on December 4, 2009. If the low of February is broken, the Inv. H&S will be off the table, the current count would come under suspicion, and we will be in a situation that would seek support from 233 MA and, eventually, 97.5. Any move below 97.5 can cast a lot of doubts on the prospects of GLD.

In the same post of December 6, I wrote:

“assuming that we have seen the end of Intermediate wave 3, if I wanted to narrow things a little, I could argue that due to the strength of the Minor wave 5 of Intermediate wave 3, we have a good probability for the correction to be at most limited to the area of Minor wave 4, that is, 101-104. That would be about 50-62% retracement of Intermediate wave 3.
GLD hit a high of 119+ which comes close to 2.62 * Intermediate wave 1.

Timewise, Intermediate 3 took 1.62 * the time taken for Intermediate 1 + Intermediate 2. If I project a 2.62 extension of the time of Intermediate 1 + Intermediate 2, it will give sometime in February 2010. That time frame corresponds with a seasonal period of strength that runs from March to July.”

This is the chart that I have used for time projection


I really would not like a move below 97-100 area.

So far, things have panned out rather well in terms of price and time for the correction. It is now up to the yellow metal to deliver.

A successful breakout of the Inv. H&S can offer a low risk play.

A break below Feb low is a first warning sign that something may be wrong in the picture that I am painting. A failure to hold 233 MA is a second warning sign. A failure to hold support around 97 may put long term prospect of the yellow metal in Jeopardy. So keep an open mind and be vigilant.

Perhaps, it’s a bit too soon to think about upside targets, but I am gonna do it anyways.
We have the potential Inv. H&S projection to 120+. Then I have some fib levels at 121, 126 and 133 based on projections from major 2 (black) and intermediate 4 (purple) as well as Gann angles.

Longer term, GLD has a very positive technical profile


There is some good support from MAs, and the 97-100 area is a clear area of support on the weekly chart as well.

So, things look promising, but, once again, this is all based on the assumption that the count is correct.

There is a lot of talk about inflation, yields rising, dollar rising, market falling, etc.

There is a lot of talk about deflation, yields falling, dollar falling, market rising, etc.

There is a lot of talk about everything and nothing.

For every ounce of gold, one can find tons and tons of talks and opposing opinions.

So, keep an open mind, pay attention to the price, and be vigilant!

S&P - March 26, 2010 - BMO

Many places I visited, the talk seemed to be of exhaustion gap, reversal, and rally end.

It all may be so, but if everybody's in one camp, I sometimes wonder.

Best course of action is to ignore the collective noise (which includes mine), pay attention to the charts, pick some levels, and let it play.

S&P 500 - March 25, 2010

A good volume reversal day!

Another distribution day!

This morning's gap had all the hallmarks of an exhaustion gap. So, I said maybe it was about time I raised some levels and took some profit or hedged/insured somewhat.

It turns out it was not a bad line of thoughts.

A look at this weekly chart that I post regularly may tell you one reason why I became concerned about that early morning gap


So a bunch of resistance levels and trend lines proved a bit tough for the market to surpass on first attempt.

Nothing of importance on the above chart is broken. But index looks overbought and at resistance. There still is ample support from all MAs and some support levels, but index can drop 35 points or so just to reach its fastest MA

This is a weekly chart of NDX


How’s that for a resistance hit and retreat?

NDX, too, has a lot of technical support from its MAs, and it also looks overbought and at resistance.

Here’s a daily chart of S&P


Notice that hit to the underside of the middle line of the channel. Also notice that S&P has had two down days in row on expanding volume.

We can argue that since last Thursday, S&P has had three distribution days

McClellan Oscillator, which has been giving us some early divergences, dipped below neutral today


This is a 60-min chart of the index


Don’t get too absorbed in the short term count. It can be counted in other ways as well. Instead, pay attention to the channel that has kept us on track. Index moved onto the lower half of the channel today.

Overall, a very interesting day. Market gapped up at the open, filled a gap down from a few days ago, squeezed a bunch of short to higher levels and then dropped relentlessly to close below the opening gap.

Support is at 1146, and 1136 pivots. Resistance is at 1168 and 1177.

Long term trend is up. Mid-term trend is up. Short term trend is up (a move below 1150 may change that).

PS. Despite all loud, useseless, stupid nonsense of mainstream financial media, and despite all the microscopic, minute-by-minute crapoola verbiage spent on the equity markets including the stuff on this blog, the bigger story happens where money is created and where money is lent.

This is a weekly chart of 10-year yield on the paper US Treasury prints



What does this mean? I am not sure yet, but it really is threatening an upward pressure on financing costs of the US.

Does it mean anything in the context of the equity markets? I think that would depend on what money printers would want to do about it, and also on whether there is anything at all that they can do about it.

I would try to get my clues for the equities from the junk, ahem, corporate bond market



Not too shabby -- not yet.

Just on the technical of the charts and nothing else, US long-dated Treasuries act more like junk than the corporate junk – I know, I know, the world is not all about charts and technicals, but, still, Go Figure!

Have a Nice Evening!

S&P, NDX - March 25, 2010 - Some Levels

market gapped up nicely this morning. Is it an exhaustion gap? Is it the first of many, many more gaps? who know?

Regardless, if I had positions from lower levels, I would raise my levels to 1938 on NDX cash and 1147 S&P cash. I might also either take a bit off here or sell covered calls/buy puts on a portion.

This is not call to alarm, just raising levels, that's all.

S&P 500 - March 23, 2010

Mortgage Back Security purchase program is supposed to end in March.

What does that mean? Who knows? We’ll just have to wait and see if a new program is officially (or unofficially) initiated or not, and if not, how the markets behaves.

In the last post I said:

"One day of selling on an expiration day does not break a market. It might however be a warning that more selling may follow to, at least, cool things off. So, I shall evaluate my levels, and watch for more signs of distribution."

Friday turned out to be another squeeze setup for hapless shorts. No important level was violated.

"This is still a bull’s market, so, I shall pay more attention to what bulls do as they have the upper hand, the capital, and the confidence, and less to what bears say – watch for signs of distribution!"

It is still a bulls' markets, and we see no signs of follow though distribution

"There were talks of 1987 crash and comparisons made between now and then. All I can say is that it is dangerous to start a new long position in an overbought market. As for existing position, one must evaluate one’s position and take appropriate risk mitigating actions (hedging, insurance, re-balancing, profit-taking, whatever). That is just good discipline and has nothing to do with talks, innuendo, fears and trepidations of others. As for the crash, if it happens, some will take credit for having known it all along, if it does not happen, they will move on and tell us other stories."

What happened to the crash? What stories are these guys cooking now? If the market crashes tomorrow, or next year, or next millennium, I am sure they'll say they told us so, but whoever shorted on the crash dreams of others, is now squeezed out, so what's the point?

There is not a whole lot to add to what I said over the weekend. If I have a position from lower levels, I need to re-evaluate my position and take whatever action that is necessary to mitigate risk. If I do not have a position, I need to see whether the potential reward of a new position justifies the risk of buying an overbought market.

If I want to short, I either need to try small with a lot of discipline, or pick a level down somewhere, think about my stop beforehand, and short below that level.

This is a daily chart of the index


The previous peak is an obvious support. There also is ample support from all MAs. For now, as long as index is above 1110, the daily chart maintains its positive technical profile.

Yesterday’s advance was on below average but expanding volume. Breadth was good. McClellan Oscillator, however is registering a series of lower highs – something to keep an eye on


This is a 60-min chart of the index


The channel that I started quite a while ago has turned into a short term road map. A break below 1150 may be a first warning that the current wave (rally) is finally over. As long as index stays above 1110, it is either consolidating or rallying. A break below 1110 may force me to reconsider more severe bearish outlooks

Support is at 1168 and 1146. Resistance is at 1177 and 1219.

Long term trend is up. Mid-term trend is up. Short term trend is up (a move below 1150 may change that).

Have a Nice Day!

S&P 500 - March 20, 2010

Distribution Day Friday?

Friday had all the makings of a distribution day. It, however, weas an OpEx day and we can’t know how much of the activity were market’s way of punishing late buyers and rally hopefuls. Monday, and Tuesday’s action will tell us if this was yet another quick selloff buying opportunity or the beginning of a pullback/correction.

This is a weekly chart of the index


Notice that index has risen all the way to the middle of the channel, MACD’s at a kissing point, and RSI has entered overbought region. It is not very clear from this chart but 34 and 89 EMA are also kissing. Index is at a stage where it needs a good push (aka money on the bid side). It needs to receive money early next week or we may see more profit taking and perhaps softness/correction.

To the upside, there is some resistance around 1200.

To the downside, there is good support from MAs , but index could easily drop, on this weekly chart, to the neighborhood of 1120 before meeting its first MA.

This is daily chart of the index


First off, look at that RSI peak!

I leave it to you to find out how many times in the past we have had that kind of peak and what the consequences were during the following days and weeks.

Index is at a new high for the year. It has a very positive technical profile. A first line of support is around 1146 pivot. Below that, there is ample support from a host of MAs, and technical levels. That being said, index looks overbought, daily price has put a bit of distance between price and MAs. Although overbought can stay overbought for a long time, I do not think it prudent to establish a new long position at this point. For positions from lower levels, one may need to re-evaluate based on one’s risk parameters and tolerance.

Friday was a down day on poor breadth and above average volume


I had mentioned that McClellan Oscillator looked like it was setting up a negative divergence in overbought areas. It did that and dropped sharply to neutral.


This is 60-min chart of the index


First off, the Inv. H&S that I first discussed on March 2, has worked very well – congratulations to those who took it. It is almost fully priced (pattern is spent) and I will remove its labels. But I shall keep the neckline as a viable technical support.

As price starts a move, we start examining possible paths that it might take. Later, we evaluate possibilities and decide on what path may be more probable than others. We then monitor the progress and adjust, or abandon if necessary. One tool that can tell us if a perceived price path is indeed behaving as it should is a well-constructed channel.

Notice the channel on the 60-min chart above. I started it on February 26. Since then, I have monitored price movement and commented on how I would have liked it to behave within the channel. On Friday, price hit the top of the channel and pulled back. First order of business for bears should be to bring the price down to the lower half of the channel. They need to do a lot of things to steal the show, but a move into the lower half of the channel is definitely a start.

We might have a completed wave pattern for a wave 1 up. It may also be argued as a wave B up.

Something I have noticed Elliot Wave does to some of its practitioners is that it gives them a sense of being right about the future path of the market. That sense, when turned into certainty, can frame the practitioner into a corner right where walls meet – hard to find a way out unless one does a complete turn and look the other way for probabilities. But looking the other way is hard when one is certain of the path the market should take in the future. With so many trying to tell the market what it should do, the ultimate contrarian play, IMO, may be to let the market tell me what I should do ;-)

As my friend Bill S. puts it: “E-wave when practiced correctly and in an unbiased manner is merely a tool for providing a probable roadmap with probably being the key word. It is all about probabilities not certainties, and one must use other tools to assess those probabilities.”

That is exactly what it is, a tool, a superior tool, I think, but a tool and no more.

OK, we have the possibility of a complete pattern. If so, the high of yesterday should ideally not be exceeded until the correction has run its course. That having been said, 60-min chart is oversold and we may see a bounce.

One day of selling on an expiration day does not break a market. It might however be a warning that more selling may follow to, at least, cool things off. So, I shall evaluate my levels, and watch for more signs of distribution.

This is still a bull’s market, so, I shall pay more attention to what bulls do as they have the upper hand, the capital, and the confidence, and less to what bears say – watch for signs of distribution!

There were talks of 1987 crash and comparisons made between now and then. All I can say is that it is dangerous to start a new long position in an overbought market. As for existing position, one must evaluate one’s position and take appropriate risk mitigating actions (hedging, insurance, re-balancing, profit-taking, whatever). That is just good discipline and has nothing to do with talks, innuendo, fears and trepidations of others. As for the crash, if it happens, some will take credit for having known it all along, if it does not happen, they will move on and tell us other stories.

Support is at 1148 and 1136. Resistance is at 1168 and 1177.

Long term trend is up. Mid-term trend is up. Short term trend is up (a move below 1140 may change that).

Have a Nice Week!

S&P 500, March 17, 2010

Just a quick post:

Market is overbought. But overbought can certainly get more overbought, and keep getting more overbought for what feels like ever.

It would be extremely frustrating had I been shut out of the rally, or, even more so, had I been short.

Had I been short, I would not have been able to easily find a cure for my affliction right here, right this moment.

Had I been shut out of the rally, the question I would have had to ask myself would have been: what I am risking for a new position and what will be my rewards if I am right about a new position here?

If the potential reward justifies the risk, so be it, if not, so be it as well!

It is easy to get lost in the emotion of the moment, but will it be a prudent speculation?

If I am impatiently inclined to commit to a long position here, I need to have my exit strategy planned out in advance, and I shall need to exercise discipline and stick to my plans.

On a completely other hand, if I am in position from lower levels, I will just need to review for size, stops and personal risk tolerance, take some actions in those regards, and do nothing else until my levels are violated

S&P 500, March 16, 2010

We expected a pullback and we got one – The Whole 12 points of it. If you blinked, you missed it. That’s how strong the rally has been, multiple short term divergences, overbought levels -- bar after bar, and market finally corrects: 12 points, and then rallies promptly to new highs.


After so many waves on Viagra – I mean extensions – index may have finally put in a minor degree wave 4. If so (BIG IF, mind you), we are on home stretch to the pinnacle of last wave of this rally.

This is a 60-min of the index


Notice how the channel I laid down on the chart has served me. Index has just been riding it up – simple, and elegant. Also notice how well the Inv. H&S played out.

For the day, volume expanded and breadth was very good


McClellan Oscillators seems to be setting up a negative divergence in overbought areas


There are a some breadth measures that seem to be hitting against resistance


Short term breadth, as measured by Arms Index, is overbought – yet again!


All of this does not necessarily mean a collapse -- hell, it may not even mean a sizeable correction. It means we have overbought conditions in a very strong trend. A pullback may appear any time, like it did on March 13.

I have not changed my stance. I think it may not be prudent to establish new long positions here. That being said, as long as index is above 1110, it is either consolidating or rallying. I would really like 1130 to contain any possible pullback in the hours and days ahead. A move bellow 1130 may be a first warning that 1110 may indeed be tested.

Support is at 1146 and 1136. Resistance is at 1168 and 1177.

Long term trend is up. Mid-term trend is up. Short term trend is up (a move below 1140 below 1130 may change that).

OpEx week is still unfolding and it is of quadruple witching type.

Trade Safely!

S&P 500, March 14, 2010

Bulls in Control!

Last week, bulls dominated the market. Keeping the pressure on the shorts, they did not give anything back – not even and intraday pullback.

The trading pattern of last week was quite simple and elegant

Index would go into some kind of contraction or range-bound action, and then would expand out of that resolving the range to the upside


This type of action is typical as a wave keeps extending, can easily happen in a strong 3rd wave or a drawn out C wave.

Notice that Friday ended with another tight price action.

From a much longer term point of view, Index maintained its positive posture.


Index is still hitting against the mid-line of a channel that I had laid down from the July low. Weekly MACD is yet to cross and, as I have mentioned, a failure to do so can establish a hook and may be a warning for a pullback. Also, the 34EMA is yet to cross 89EMA, a failure to do so can also form a hook and lead to some pullback or correction. Other than that, there is not much to complain about. Index has good support from its weekly MAs, the lower boundary of the channel, and the half range marker that we have had on the chart for a long time.

I have relegated two of the possible 4 wave counts to very low probability. The two more probable counts at this time are one count that regards January peak as a major wave 1 and February low as a wave 2 (or part of a major wave 2), and one count that regards January peak as a major wave A, and February low as major wave B (or part of major wave B).

This coming week, being an OpEx week, has the potential of clearing the wave structure and reveal which one of the remaining two is the one to prefer to the other.

NDX has already made a new high for the year


Notice that NDX has broken above the blue resistance line and is approaching the middle of the purple channel. Also notice that MACD is at a juncture where it may either cross or hook. The outcome of these technicals will set the stage for the next move. Other than that, NDX’s chart looks very bullish at this moment. NDX has been leading S&P. It is hard to see S&P through an extremely bearish lens when high beta NDX looks charged with bull spirit and clean waves.

This is a daily chart of S&P


To say that short term momentum is overbought is somewhat an understatement. But that’s what a strong uptrend should do, it should get overbought. The next thing it should do is that when it finally pulls back, it should give back little and, if it’s really strong, do not get fully oversold.

Index has been toying with the January high. The overbought levels may stall the index soon and cause a pullback. I think it may not be very prudent to start a brand new position here.

Breadth has also improved a lot over the recent rally. It was showing signs of getting overbought and on Friday it displayed some moderate signs of slowing down.


McClellan Oscillator pulled slightly back while being overbought


ARMS Index rose and may indicate that softness or correction may soon follow


As you can see from the chart below, the rally has had a good breadth, but may be at, or near some sort of a short term top or exhaustion point


From a purely technical point of view, none of this necessarily means that a collapse is imminent. It just means that things look a bit toppy, and shorter term probabilities may not be favoring a brand new position on the long side. It also means that risk parameters of existing positions may need to be re-evaluated.

This is a 60-min chart of the index


On February 19, I wrote this

“The move from Feb Lows looks very similar to the one from July lows. While future will tell us how similar they will in fact be. I shall remember that the July move destroyed the bears, and also kept a lot of bulls out waiting for a retest or pullback or whatever.”

Not too bad of a call, eh?

From a secondary short term low of Feb 25, index has not given anything back, roasting the shorts alive, and leaving the non-participating bulls in its dust.

We have an active INV H&S shoulder that I talked about on March 2. The pattern came to life right after I wrote about it via a strong morning gap, held a small pullback and then went racing on. The July massacre of the bears also got into gears via a strong gap leaving many behind.

So far, the move off the Feb lows has been very strong and broad-based. Bears keep telling us that volume is absent, but these past few days had decent volume on S&P and the whole move has had decent volume on NDX which has been a leading index. Also, as I have mentioned before, with a composite, volume may come after price moves for a while as many either join the party later or are squeezed into submission to the move. Regardless, volume is not a trading trigger, it may give warning as to a move being suspect but that’s all there is to it: A potential warning.

Bears also tell us that sentiment is very bullish. My long-time readers know that I regard sentiment reading as a background condition and a warning at best and useless he-said-she-said at worst – definitely not a trade trigger on its lonely own.

Instead of conducting a round-the-clock talk show of complaints about volume and sentiment, how about bears do something destructive about the price and, at the very least, generate a series of short term lower lows and lower highs? I mean: how about actually selling the market down as opposed to talking it down?

I hope bears regard my pokes as a motivational rant and not as any sort of insult because, as much as this is a bulls’ market at this very moment, it would be nothing without the bears ;-)

So, market is overbought and a pullback can happen anytime. I have made no change to my levels. As long as index is above 1110, it is either consolidating or rallying. I would really like 1130 to contain any possible pullback in the hours and days ahead. A move bellow 1130 may be a first warning that 1110 may indeed be tested.

Support is at 1133 and 1107. Resistance is at 1168 and 1179.

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

This coming week is an OpEx week. We have had a nice, long stretch of a rally. I expect all sorts of price gymnastics.

Have a Nice Week!

S&P 500 - March 11, 2010

I don't have much to say tonight.

All I said last post is still, IMO, valid and good for now.

S&P made a new high (by a penny or so) and all but killed the uber bearish count that we had relegated to low probability. I am not sure why some bears insisted on sticking with it when some high beta indexes and foreign markets were already at new highs.

Wave extension continued. That should tell some of you why I seldom use EW as the only tool of my analysis. In times like this, counting short term moves becomes a nightmare, and may cause losses or premature exits.

Market is overbought. All day it was heavy, but some huge flashes of buy orders attacked the tape late in the day and, Voila, we ended green -- gotta love the liquidity providers and liquidity spenders -- all good and vital for our shenanigan-free market(s) ;-)

We need some cooling off, and until then, I have no new bets to make.

As for bears, they still need to start by a lower low and lower high.

Next week is OpEx week.

Have a Nice Evening!

S&P 500 - March 10, 2010

Short term waves multiplying faster than rabbits – Waves on Viagra?

Not much has changed since my last post. Well, market has risen quite a few points, many and many bears have been skinned alive, and index has gone from overbought to more overbought, but, these things are expected from a strong trend.

This is a weekly chart


Although the price has risen, some of the key watch points of the last post are still valid and yet to be accomplished. Index is still in lower half of the weekly channel. MACD is yet to cross or give a kiss and let go -- a failure to cross may cause a snap pullback

Other than that, there is little to complain about on the weekly chart. I am sure some bears will tell us that the volume has not been that strong, and they do have a point.

But, these past two days volume has been on the heavy side


This rise in volume brings to what I have at times mentioned that, with a composite or an index, volume may follow the price as doubters join the move, or are forced to submit to the move in later stages.

Index is overbought. It may be time to review positions and stops and see if any action is needed.

There is very good support from all MAs, and from the short term trend lines that I have from the lows of August and December 2009

Short term breadth is overbought





Being overbought does not necessarily mean collapse, it just increases the odd of a correction. Funny thing is that we have had some pullbacks but mainly in the off hours of the future market.

Shorter term, price structure has just been extending itself


A pullback may happen any time. It may be imprudent to establish brand new positions here, but that does not change my view that as long as index is above 1110, it is either consolidating or rallying. A break below 1133 pivot and into the lower half of the channel may be a first warning – just a possible warning – as to the the completion of the current wave up.

From among the 4 different counts that I presented a while ago, 2 are seriously doubtful at this moment (I have made their respective labels smaller).

None of what we see is bearish in any way. Bears tell us that fundamentals are bad. But economy and the market can be out of synch for extended periods of times. They tell us market is rising on funny money and bloated FED balance sheet, but why fight it? They tell us sentiment has been very bullish, but so the hell what? They tell us volume’s been lacking, but volume’s been lacking for most of the rally since March 2009. None of what they say is a strong enough argument to send anyone in front of an uptrend.

Price is the most important indicator, way more important than sentiment. Breadth is also more important than some survey of who is bullish and who is not. Bears, if they are serious should start with a series of lower lows and lower highs, maybe cause a distribution day or two, and we’ll see what they are made of.

Support is at 1133 and 1107. Resistance is at 1168 and 1219.

Long term trend is up. Mid-term trend is up. short term trend is up (a move below 1133 may change that).

NDX - March 06, 2010 - Inv H&S

A few days ago, I posted an Inv. H&S on S&P. NDX has one as well



A reader posted that these patterns rarely reach 100%. Unfortunately he did not provide me with any statistical study of what rarely might actually mean in terms of numbers.

But he reminded me to express a few things about patterns

1. everything is theoretical, theory and reality are very different things

2. in reality, even if a pattern works (big IF) one needs to monitor, adapt and adjust

3. I point to a potential setup (emphasis potential), there is a big difference between potential and achievement. I am not saying whether something will or will not happen

4. What I post is in no way suggestion, recommendation, advice or anything that is meant to influence others in any way, shape or form in financial matters or otherwise -- read the disclaimers on this page!

S&P 500 - March 06, 2010 - a Piece of News

An OEW colleague of mine just shared this link with us

http://news.bbc.co.uk/2/hi/business/8553979.stm

It's about Iceland refusing to pay its debt. First off, good for them, first for their elected officials for asking their people if they want to bailout a bunch of bankers out of their mistakes, then for the people to say: Hell No!

I am not sure how it would impact market action. Monday will tell us.

S&P 500 - March 06, 2010

What a Pump!

I have not been posting as frequently as last year. That’s partly because of time constraints. It also is because I have been trying to shift my own approach to longer moves. So, I try to lay out a plan for the week, and try to monitor the progress of the plan. If nothing’s going against the plan, there is no need change it. If adjustments are needed or something develops that may put the plan in jeopardy, then I revisit and would definitely post.

I also would like you, my reader, to know every tool that I use and the way I use them. I like you to be able to do the same analysis as I do if you think my analysis is worthy of consideration. That is the true and single key to freedom – doing your own work and making your own mistakes – freedom from bubble visions and bubble heads.

Last weekend, I pointed to a host of buy signals on price and breadth, and said

“The short of it is that bulls have all the technicals lined up. Bears, well, I don’t know what they have.

Now, if all the technicals that bulls have lined up fail to deliver, and technicals roll over, and support fails to hold, then, we can interpret that as a change in inherent characteristics of the market and its price action.”

And

“Bears, if they are serious and have enough capital and conviction to make a difference, should break 1080 as a start and then take the index below 1061.”

That was basically all we needed to go by for the week. We had to monitor to see if technicals that bulls had lined up would fail – which they did not – and we had to monitor if bears could do anything bearish – which they could not.

Later on, with index around 1118 or so, I raised my level of concern from 1060 to 1080 and said

“as long as index is above 1080, it is either consolidating or rallying”

So far so good, eh?

No need to micromanage if market is following a trend nicely!

This is a weekly chart of the index


Last week I said this about the weekly chart

“the lows of July and Feb form a picture perfect channel (dashed black) around price action, with an actionary median line from November low (thin blue line)”

Now, weekly price is hitting against the mid-line of the channel. It will be very good for the bulls to get in the upper half of the channel and stay there. It is even more important for them to stay in the channel so that no correction gets below the lower boundary.

Notice that 13 EMAs is nicely rounded. Also, notice that other MAs are flattish and not falling. There is a lot of technical support from MAs and the half-range marker that should contain any correction. If these things fail, then maybe bulls have a problem, but as long as longer term technical profile is positive, it is a bull’s world – but it would be nothing without a bear :-)

I shall keep an eye on MACD for a cross, a failure to cross, especially if it does a kiss or hook may warn us to a correction, but even if so, as long as support holds, and as long as price stays in the weekly channel, it’s just a correction within an uptrending market.

This is daily chart of the index


The above chart tells me how useful simple technical analysis can be. Look the two small trend lines that I have had on the chart for quite sometime, one in dashed purple the other in solid black. Notice how price rose towards them as they were converging. Notice how market printed a series of three Dojis above the black line on Tuesday, Wednesday, and Thursday – not violating the line or MAs below it. And, notice the Friday’s candle. No fancy indicators. No complicated technical schema, just two lines and a bunch of MAs.

I would also like you to notice that the channel I have on the daily chart forms a somewhat different envelop around the price than the on the weekly chart. That is because daily closes and weekly closes form different high/low points

The volume has been absent in the 6 up days that we have had in a row. I am sure many bears will point that out. And, yes, it is a something that should be kept in view as a point of concern. But we trade prices and not volume. Have you ever heard a stop point or profit target based on volume? If I am suspicious of a trend for whatever, reason I can stand aside and wait for it to turn. I see no need to jump in front of it and try to turn it around all by myself.

What some bearish blogs that I visit do not mention is that volume of Nas100 has in fact been good


NDX has also been outperforming S&P since Feb low. It is only a few points away from making a new high.

RUT has a new high


Now, I am not sure how S&P (or the DOW) would collapse in a wave 3 of 3 of 3 of whatever it is uber bears dream while high-beta indexes run like that. Market, as of now, is not exhibiting any signs of weakness. Maybe a crash out of nowhere happens, maybe the world ends, maybe so many things, but, in a game of probabilities, even if we are close to, or at another top, I would like to see some signs of weakness first. Bears, if they are serious, better start with a series of lower highs and lower lows.

That being said, NDX is coming against some longer term levels of resistance as you can from this weekly chart


This is another daily chart of NDX with the purple channel blue line of the weekly.



Index is overbought and near resistance. In situations like now, it is very hard to tell someone who is out and bullish, or someone who is bearish and caught with a losing hand what to do. The short guy may cover only to see the market dropping 3-4-5% if not more. He may hold and see in horror how overbought can get even more overbought in a momentum-driven rising market. The bullish guy may buy only to see market correct, or wait outside and see market rise.

On the other hand, if I had a long position from lower levels, then I could start looking at my stops, and position size with respect to my holdings and decide if adjustments were needed. If I wanted to establish a new short, I could define a plan with both entry and exit criteria, and wait for a sell signal of my choice.

This is 60-min chart of S&P


It was only a few days ago that I mentioned a nicely formed channel on the 60-min frame, and said that it was something to keep an eye on, and that bulls needed to keep the price in channel and send it to the upper half. Well, bulls did just that. It was only a short while before the channel that I laid down a range on the chart with two targets. Both targets have been achieved. Now, I am going to raise my level of concern up from 1080. As long as index stays above 1110, it’s either consolidating or rallying.

The choppiness of the Feb 9-13 makes the short term count a bit tricky. It is possible to count it with a wave extension. Friday’s highly momentous price action suggests that we may indeed have an extension. If so, the current wave is a wave 3 (I am counting as a minor degree (dark blue) for now) to be followed by a wave 4 and a wave 5. without the extension, we are in wave 5 to end soon.

For the bears, yes, it is possible to count the rise from Feb low as an ABC, with the C wave ongoing, but that possibility is looking rather faint right now.

A couple of days ago, I mentioned a potential Inv H&S on the 60-min chart. So far, it’s been working as you can plainly see from the above chart.

Bottom line of the matter is that it would take a spectacular reversal of fortune (or liquidity) to start the uber bears’ nightmare of collapse of DOW 1000 or whatever from right this moment. Anything is possible, but not all things have the same probability of occurring. If history is any guide, positive technical profile like we have now, and momentum like market displayed on Friday, should take some more time to work itself off.

Bears talk a good show, but talking does not crash a market. It takes an absence of buyers followed by ardent sellers. What we have been seeing is a broad existence of buyers and a continuous squeezing of sellers. Index is overbought. It may (emphasize may) pullback any moment. When it does, we’ll see how good bears are with their actions.

Support is 1133, and 1107. Resistance is 1168 and 1219.

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

Have a Nice Week!