Market Note - April 29, 2010

Just a quick note.

The oversold bounce we said we expected took place yesterday in S&P (and Russel and elsewhere). NDX had a wild ride but managed to pull out of the depths of the day and close flat.

Internally, the market is still very oversold. Not as oversold as Monday but still oversold.

This is an interesting situation where price is not deeply oversold on daily frame, let alone weekly, but internals still look like a sold-out condition with room to expand

On the other hand, the shorter term 60-min frame has price in the oversold area, and some other areas of the market showed good price performance like PM, PM miners, health insurers (HUM had a +4% day).

So, the bounce has a good chance to continue. But it is hard to say if market has bottomed for another multi-day (if not multi-week) advance or whether this is just a dead-cat-bounce.

While, I am watching how market recovers from Monday's supply shock, I keep these levels in mind

NDX:
2030
2010-2015
2000
1986 (held the decline yesterday, it's around the lower boundary of the channel on 60-min chart)
1970

S&P:
1240
1222
1186 (1180 held the decline and was retested)
1168
1146

Have a Good Day!

GLD - April 27, 2010

"Gold has worked down from Alexander's time... When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory."

– Bernard Baruch

So far, everything’s on track as far as GLD (and Gold) is concerned.

On March 27, I identified a potential Inv H&S and said

“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+”

On April 10, I followed up with

“A break below the neckline (or below 110) is a strong warning. A break below 105 will make the situation look negative”

GLD has so far tested the neckline and bounced




This is a really good looking chart. All the targets of March 27 post are still in play.

Media seems to always find a reason why Gold is rising (or falling). Sometimes it is USD, sometimes it is Greece, sometimes inflation, sometimes stagflation – we all know how useful media interpretation is.

All I can tell you is that gold is money, and in that, it is different than the money and the moneyness that bankers (public, private) create.

For every ounce of gold, there are tons of experts. I shall ignore them all, and pay attention to what the price does.

If the move is for real, the neckline should hold.

If things get really rough, the right shoulder should hold or technicals may turn negative.

S&P 500 - April 27, 2010

Junk status for Greek debt!

S&P cut its rating on Greek bonds, and people hit the sell button on almost everything.

This is a 60-min chart of S&P


There is a very good chance that the rally from February is over and the market is in correction mode. If what I have marked as intermediate wave 1 (purple) is correct, the current correction cannot be impulsive and will end up being a correction as part of an ongoing advance. It may go deep. It may take long, but it cannot be impulsive on the way down.

As usual, I urge you not to get caught in the minutiae of intraday waves and instead pay more attention to important levels and price behavior around those levels.

After barely getting into the area of 1222 pivot, S&P went soft, and today rushed down in massive selling. Notice that, after the correction of April 19, S&P could not really move back into the channel of the chart above.

Now, it has sold down to the area of 1187 pivot which corresponds at this time to the 233 EMA of the 60-minute frame.

On one hand, S&P is oversold enough to get a bounce if the bulls are still at it, maybe after a bit more selling. On the other hand, tomorrow’s a FED day, and now that Bernanke is supposedly done easing himself (Quantitatively), and there is this grand spectacle of Goldman-SEC, many will be dissecting every word of what the FED releases tomorrow for clues as to whether the party is still on or not. So, it may get a bit wild.

This is a weekly chart of S&P


S&P is still in the 1175-1200 band, and is resting on the support of the blue and pink actionary lines.

From a first glance at the chart above, nothing’s really changed. We are at support and bears need to break it. The devil, as they say, is in the detail.

First off, the current candle looks really ugly. Secondly, it’s an ugly candle off some overbought levels. Thirdly, it’s an ugly candle accompanied by some MACD divergence.
So, the weekly stage looks set for the bears to inflict some damage. We’ll see if they have it in them to do so.

Let’s get closer for more detail. This is a daily chart


A very ugly candle!

21 EMA failed to contain the selling. MACD is pointing straight down. The purple dashed line that I said might be resistance knocked back the index twice. This is a picture in need of urgent reinforcement from the bulls.

Next area of support is 1175, and then 55 EMA which coincides with our 1168 pivot.

Daily volume expanded on the way down. NYSE breadth was peculiar


Down volume ratio and decliner to advancer ratio were horrendous. There, however were 177 new highs on NYSE. There are a lot of issues on NYSE that are not stocks of companies and I am not sure what those 177 new highs really are. So, I scanned S&P, and we had 26 new highs, and 1 new low (Monsanto). I also checked Nasdaq100, 5 new highs, no new lows, and some 35 highs on S&P 400 midcap. I am not going to take that 177 new NYSE highs seriously, and instead will wait to see if bulls recover from today’s action.

McClellan Oscillator turned back down below zero


Summation Index has been on a sell for some time

I can go on, but I think you get the picture. The point is that we have had diverging momentum and nagging breadth softness for some time. Today’s price action may be catching up with breadth.

On the other hand, index is oversold enough to catch a bounce.

TRIN looks like it is sold out


The bounce, when and if it comes, will show us if bulls are still willing to defend their market or are ready to take a break. If we smash through support levels and oversold fails to get a bounce, bulls may be in real doo-doo.

In the previous post, I said

“We had 1180 as a possible trade initiation level. That worked fine. I am going to raise short term level to around 1195 and 1190. That’s to ensure trades after 1180 bounce do not lose money, otherwise, as long as index stays above 1165-1175 area, it’s either consolidating or rallying within the context of the current intermediate uptrend.”

Seems like raising the levels to 1190-1195 was not a bad move.

1180 is still in play and today stopped the decline.
As long as index stays above 1165-1175, it is either consolidating or rallying.

Not much has changed in terms of my short term levels, but we now have a short term down trend. Market behaved poorly today, and urgently needs to catch a bid.

OEW pivot support is at 1176 and 1168, resistance at 1187 and 1222 and 1240.

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

Tomorrow, we have FED matinee.

As I have mentioned, when there is conflict between masters of politics and masters of finance, things may get rough. There is a saying that goes:

When dog eats dog, famine follows.

Is the Goldman-SEC a show or the real thing? Who knows? I set my levels and conditions and let the market take care of the rest

Have a Nice Evening!

NDX - April 24, 2010

NDX at 2050!

I have to go many posts back to find the first time I mentioned 2050 area as a resistance, and the 1970-2050 range as an active range.

And it seems like just yesterday when I said that the move out of Feb low looked more and more like the move out of July low and might destroy the bears and leave many bulls behind waiting for a pullback.

Well, as a well respected Canadian technician, Bill Carrigan, once said, investing is not a spectator sport :-)

We had quite a week, with two very rough days that coupled with constant noise of financial media about Goldman-SEC and Greece this and PIIGS that felt like the world was coming to an end and stock certificates would lose their value faster than the paper bankers print. Well, as it turned out both days of sharp selling were long opportunities for traders. That’s the thing with a well established trend, it persists.

It, of course is a matter of, first, deciding on the trend, second, having the aptitude to play the trend, third, having the discipline to maintain a holding with the trend.

As for aptitude and discipline, one cannot help others that much. As for identifying a trend, there are many different ways, one can present and discuss one’s methods. It is then up to the audience to pick and choose parts that suits them and their personality.

Speaking of tends, it is, of course, a matter of time frame.

This is weekly chart of NDX that we have seen many times.


You can go back many posts, and see for yourself that the annotations on the chart have hardly changed. Most of the levels are still the same (I made a change from 1973 to 1970). All of the actionary lines are still the same. It does not take a PhD in astro-physics to see the trend. All my moving averages have been in positive alignments since August 2009.

There, of course, is always the possibility of an uptrend being a counter trend rally. Bears had an excellent opportunity to take control of the market in June-July 2009. They were defeated. They again had a chance in Nov 2009, and could not capitalize. Then came the Jan-Feb 2010.

On February 7, right after what we now was the low, I said

“I think market went into weekend with a state of technical equilibrium, both bulls and bears have to prove themselves in coming days”

That’s exactly what both parties did – proving themselves. Bulls proved that they meant business. Bears proved that they were defeated. What the uptrend that followed the Feb low shows us was that the move from March Low was a 5-wave affair, and as such, and as per tenets of EW, it had a very low probability of being terminated abruptly (I never say never, and do not give a damn what EW or any other methodology says, there is no absolute certainty about the future, ever!).

Now, the weekly is overbought and at resistance.

It was during the first month (or so) of this blog that I wrote a few words about how in uptrends, overboughts are best ignored and oversolds are best accumulated (the reverse goes for downtrends). In range-bound markets, one may be better off selling overbought and buying oversold. One reason is that it makes for good trading. Another reason, which I deem more important, is that one never knows with certainty which way the range resolves.

In an uptrend, overbought readings can become useless as means of trading. In a relentless uptrend, time analysis and cycle analysis may become somewhat erratic, or ineffective as time series and shorter cycles may become stretched (or squeezed depending on whether they are predicting a high or a low). Even with cycles that hit the turns in their window, the low of a strong uptrend may not correct that much.

Price is the most important indicator of all. Everything else – absolutely everything else is what we (and others) do based on some statistical past to build a probabilistic model to predict the future.

"Essentially, all models are wrong, but some are useful".

– George Edward Pelham Box

With that cheery quote, let’s get on with our charts

On the weekly chart above, a move higher than 2050 may put a lot of pressure on whoever has been awaiting a pullback to join the party lest it goes out of style. I hope it does not happen. I hope market corrects or consolidates and relieves some overbought conditions. That’s not because I am benevolent and want others to have a piece of action but because I don’t like fast and furious melt ups. They are hard to gauge and analyze – not much use analyzing a parabolic move, it goes till it runs out of fools and then hangover settles. I hope it does not happen like that, but it is very possible here, depending on whether fat cats finally sell for profit or not.

One thing to keep in mind is that, when price makes new highs, there are mainly two groups of speculators, the shorts who are badly burnt and of little significance, and the happy longs who may have no reason to sell. There no more remain disgruntled longs from earlier peaks to and get out even. So, we need to watch for signs of selling and distribution.

In the weekly frame above, it’s hard to find technical support that would not involve a serious point drop. We have 1970 (80 points lower). We have the blue actionary line and the 13 EMA around 1930 (120 points lower) and those are the closest I can pin point on the chart. If NDX busts above 2050, it can then finds a close support but being overbought may make it hard to psychologically commit a big chunk to a new position. It will be more like the realm of traders and momentum player.

Other than what is apparent from the weekly chart, I ran some price range and volatility-based algorithms that I have developed and also did a standard calculation of floor pivots. I then selected some area of commonality from the two sets and came up with these levels

2090
2065-2070
2030
2010-2015
2000
1986

This is all theoretical, of course, and I treat them as some signposts of probable support and resistance

This is a daily chart


Other than overbought (which may not mean much in an uptrend) and being at resistance, I can’t find much else negative to say about the recent price action. It’s been murderously cruel to bears and very unkind to out-of-position bulls.

There is a lot of support from a lot of levels and all the MAs.

Breadth, however, has been mixed.

Advancers have outpaced decliners every day, and the A/D line has been making new highs. Daily Up volume has been nice and green


Overall the breadth has been good on a day-to-day basis, but the McClellan group of oscillators and the Bullish Percent Index, have gone soft

This is a chart with McClellan group of oscillators


Since March 2009, every time Bullish Percent Index crossed below its MA 10, NDX had some sort of correction


We have the same type of McClellan breadth divergence in the semiconductor group as well


These are just warning signs that may later prove to be early signs of a correction. They do not necessarily mean a top, just part of the whole picture that is not functioning well at this moment. Remember, Price is the final judge of the whole thing, and with a strong trend, other measures, like breadth, can correct and recover while price goes sideway or slightly down.

This is a 60-min chart


There seems to be 3 clear technical levels of importance at this time. The 1990 area was tested twice and played as a springboard for a good run.

The 2010-1015 area was also retested and led the reversal on Thursday.

The 2035-2040 resistance was taken on Friday and looks like a first level of short term support. I’d say that the area between the 2035-2040 and the blue zone and the mid-line of the channel looks like a possible technical buffer zone right now.

Since March this year, the duo-team of 34 and 89 EMA have stopped every short term pullback.

The current count seems to have worked well so far. If correct, we are in a 3rd wave, and may expect a 4th and a 5th to follow. If correct, the 2035-2040-mid-line buffer zone I mentioned above should hold. A failure of that zone early next week may put the current short term move in jeopardy.

So,

Market has been brushing off anything bad that media has thrown at it: Greece, PIIGS, Goldman-SEC, Financial Reform, FED’s end of QE, The Chinese and what they say about mortgages in China, whatever. Does that mean we are in a true bull that will run forever, and ever? Does it mean that the sugar high from government borrowing and FED liquidity has got the better of all participants? I don’t know, but why not let the market decide when it is that I should fold? The game is still the same as far as I am concerned, ignore the noise, follow the technicals, be flexible, methodical and disciplined, and do not try to tell the market what it should do.

And keep an eye on these levels


2090
2065-2070
2050
2030
2010-2015
2000
1986

From a broader point of view, for now, as long as NDX is above 1970, it's either rallying or consolidating.

Have a Nice Week!

NDX - April 22, 2010 - Intraday

NDX is close to my resistance of 2050. My first level of support is below 2010. For a burgeoning position, I would rather trim a portion, say, 1/4 or 1/3 just to reduce exposure and book some $$$.

The rest could stay on a number of stops according to levels I have discussed.

HUM- April 23, 2010

Every now and then, I look for possible opportunities (long or short) in areas other than those I frequently cover.

In the past, I have featured stocks such as NFLX, ESI, APOL, and PICO.

For some time, I have been interested in US health insurers.

Here is a long term count of HUM


If correct (that nasty word if, again), there is a lot of potential upside in the months and years to come.

Currently, however, HUM is in a downtrend


I shall have to see how far the correction goes. If the count is correct, then the top of intermediate wave 1 around 41 should hold.

Some say that the biggest beneficiary of the recent healthcare laws in the US will be insurers. If they are right, stocks of companies like HUM should progress in a steady, impulsive manner for a long time. But before that, let’s see if HUM can halt its recent decline without violating support

S&P 500 - April 22, 2010

Just some quick notes

Index is above resistance (1200 area) on the weekly frame


North of 1200, there is not a whole lot of resistance on the above chart, we have OEW pivot at 1222 and 1240.

There is support around 1175 and the rising 13 EMA. The 1175 area has a couple of actionary lines in it.

Daily price has had a couple of nice bounce off the 21 EMA


It has the purple dashed line as resistance above it. It has 21 EMA, 1175 and 55 EMA as support below it.

Notice how volume has expanded above average recently. Market is definitely attracting more attention and participation

Daily breadth was OK


There is negative divergence on new highs.

I don’t think it would shock anyone if I said index was overbought


But, overbought can stay overbought, and, on itself, is not reason to short a market.

McClellan Oscillator is still doing rather poorly


We have some breadth measures that are lagging the recent advance.


Index is having a hard time getting into the black channel we have had for weeks. It may be slowing down in a less steep channel. I have drawn a blue line to perhaps serve as the lower boundary of a developing channel. For now, it’s like a short term support line.

We had 1180 as a possible trade initiation level. That worked fine. I am going to raise short term level to around 1195 and 1190. That’s to ensure trades after 1180 bounce do not lose money, otherwise, as long as index stays above 1165-1175 area, it’s either consolidating or rallying within the context of the current intermediate uptrend.

OEW pivot support is at 1187 and 1176. Resistance at 1222 and 1240.

Long term trend is up. Mid-term trend is up. Short term trend is up (a move below 1190 may change that).

Have a Nice Day!

NDX - April 22, 2010

Yet another news-driven shakeout?

After the market close of yesterday, futures went soft, and remained soft into the open of today, and then there was a plunge after the open.


Before market open, I posted a message and talked about futures being soft. With extended trends and waves that have multiplied faster than rabbits on the Blue Pill, profit taking can happen at any time and for any reason.

For those who are sitting on really good profit, the question always is when to sell/trim/hedge/insure because no one wants to take a position up 20-30-40% only to see it cut into pieces by a sharply correcting market.

None of this has anything to do with media and the endless barrage of useless noise that they send out to pollute the airwaves.

It has do to with playing a trend and taking risk mitigation measures.

In the morning post, I said:

“Not much has changed in terms of levels. The area around 2000 still looks like support. After that, there is the 1990 area, and then 1970”

As it turned out, the 2000 area held firm.

This is a 60-min chart



See how nicely the combination of the 2000 area, the 89 EMA and the gap area of April 14 held the early plunge. The top of the breakout at 1990 was not even threatened.

When market is dropping like a stone, there is really no saying when and where it would stop. Sure we have our trend analysis and wave analysis and this analysis and that analysis whatever telling us where the probabilities lie, but that’s all they are -- probabilities. So, one plays the probabilities, sets some levels, and let the market take care of the rest.

What followed after the opening plunge was the all-too-familiar roasting of the shorts.

I also said:

“As things stand in the futures market, NDX cash would be around the 2015 mid-range of the 1970-2050 band.

If NDX can hang on to the mid-range and rally, it will have another shot at a new high“

NDX hurled down, held support and rallied back to, and above mid range, and finally made a new high in the afternoon – that’s what ranges and mid-ranges are for ;-)

I also said:

“NDX had a hard time getting past the gap it had opened on the way down on April 16. As we mentioned before, that area is a clear resistance.

Also notice that after briefly getting above a short term trend line, it dipped below it again. If things go as they are now in the futures market, Index will have a gap down -- a second gap on the way down since April 16.”


After the initial gap down, index filled the morning gap and finally peeked above April 16’s gap. It, however, stayed at the lower boundary of the small channel. It’s OK if it cannot get above that channel line as it is rather steep. Important thing is price stays impulsive and within the larger channel – ideally, above the mid-line

You can plainly see that my methods are very simple. There is nothing complicated about a bunch of support/resistance levels, MAs and channels. It just takes a bit of flexibility to respect the will of the marke, and a bit of discipline to stay with one’s own methodology


This is a daily chart



Index is back at the blue resistance line which now coincides with the 2050 area.

And what do we have above 2050? A lot of blue sky as you can see on this weekly chart


NDX is overbought and at resistance.

I am going to raise my first level to 2010. After that, 2000, 1990 and 1970 area

As long as NDX stays in the 1970-2050 range, it’s either consolidating or rallying.

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

Have a Nice Day!

NDX - April 22, 2010 - BMO

Yesterday, after the close, the future market took a gap down. The softness has persisted overnight. It may be a continuation of Goldman-SEC. It may be because Senate approved a bill on finance, it may be any other thing or none of the above.

It may simply be a relentless run running out of buyers (or fools?) to bid the tape.

Do you really care?

This is a 60-min chart.



NDX had a hard time getting past the gap it had opened on the way down on April 16. As we mentioned before, that area is a clear resistance.

Also notice that after briefly getting above a short term trend line, it dipped below it again. If things go as they are now in the futures market, Index will have a gap down -- a second gap on the way down since April 16.

Not much has changed in terms of levels. The area around 2000 still looks like support. After that, there is the 1990 area, and then 1970


This is Daily chart



As things stand in the futures market, NDX cash would be around the 2015 mid-range of the 1970-2050 band.

If NDX can hang on to the mid-range and rally, it will have another shot at a new high.

If not, it is important for the index to absorb all selling above 1970. If so, any future selling will look a sideways sideways consolidation. We will revisit if index fails to hold on to the support areas I mentioned.

When there is a conflict between political and financial masters, there is great chance for turbulence in the markets. Is there really conflict brewing as media suggests, or is it just some cheap drama?

who knows?

But, It may be time to think about protecting/insuring most, if not all, of the built-in profit.

S&P 500 - April 19, 2010

All that so far has been achieved by Friday’s SEC Saga, and Goldman Gaga is a bunch of squeezed shorts and a ton of expired calls.

I wonder how many calls Goldman had expired on Friday due to allegedly surprised SEC announcement on Friday.

Some even called it a Black Swan. This Black Swan thing has become nauseating. Every time some dupe is startled off guard, he calls the thing a Black Swan.

Be it the Fed Chief or the SEC, officials seem to love to serve Black Swans on OpEx days ;-)

The retail is supposed to be creamed on Option Expiration, where is the Black Swan in that?

Let’s move on

Last post, I said:

“have to see the true reaction of the market to Goldman drama from SEC after all players have had time to recompose themselves and evaluate the situation.”

So far, the market reaction has been as if no one really cared.

We said that both short term price and breadth were oversold enough to fetch a bounce if bulls were still at it.

This is a 60-min chart



The day started with a bit of a bounce, but then sold off into our 1187 pivot area. The pivot held its ground and index rallied into close for a green finish

So, we got our bounce off short term oversold levels. Now, the question is whether we will have another high, or, at least, the challenge of previous highs or not.

Notice Index closed right under the lower boundary of the channel. If bulls are still serious, at the minimum they should push the index back into channel. They should also be able to get some overbought reading in the 60-min frame. They also should hold the index above the 1187 pivot area (+/-7)

Don’t get caught in the intraday wave count. It can be counted in many ways, like this


Instead, pay attention to price and important levels.

In the previous post, I said

“To the downside, 1180 area may offer a possible trade and a possible stop area.”

That was an OK call as Index made its low of the day around 1183. So far, these past two days’ action looks just like a correction, and it will continue to look like that to me as long as 1180 area holds.

I also said

“A move below the channel is a warning.

After that, if index cannot climb back into the channel, it gives another warning. If index stays below the channel but hugs the underside of the lower boundary in a choppy manner, it’s probably (probably does not mean absolutely) setting for a relief of short term oversold conditions before it takes another plunge.”

So, we have had the warning, and now index is right under the channel’s lower boundary. Let’s see how price action unfolds from here.

For the day, volume shrank but was above average. Breadth was mixed.


NYSE decliners outpaced advancers and NYSE McClellan Oscillator remained in negative territory still pointing down.

We also have a sell signal on the Summation Index that’s coming after a negative divergence on that oscillator

On the other hand, Up Volume ended better than Down Volume.


This is a fractured picture of some large caps getting the bid. It does not mean automatic short or top, but it is a warning that market may not be firing on all cylinders.

I read somewhere that 20% of the volume belonged to one stock. Citi rose almost 8% today on 3 times its average volume. As per volume reported by Stockcharts.com, it looked closer to 30% of NYSE volume. That can help explain why breadth was mixed and McClellan Oscillator did not turn.

S&P hit its 21 EMA and bounced


Just looking at price, it looks like Friday was an excuse to do a bit of profit taking/shakeout. Looking at breadth we see a bit of vigor lacking from the bounce.

After such relentless run, profit taking can materialize for any reason and the Goldman-SEC is as good an excuse as any. It is the reaction of the market that tells the story in more detail. We got oversold. Rallying from oversold in an uptrend is easy – just round up the shorts and squeeze them. It is what happens after the squeeze that matters.

On the surface, the Goldman-SEC of Friday, the never-ending Greek bailout Comedy (and it incessant re-runs), the untold story of Irish debt (and other PIIGS in waiting), the supposedly terminated quantitative easing program, etc have the potential to change the nature of the game, at the very least from a market pumped by easy money to a market moving more on economical metrics, especially where the North American as well as Emerging markets are concerned.

Beneath the surface, who knows what's happening? All we can do is observe market behavior. For now, let’s see if breadth expands or not and if price can make another high.

Index is in a 1175-1200 band and as long as it stays there it can work off its overbought conditions without giving much back. So, 1180 area looks like a key level.

Below that, as long as index stays above 1160-1170 area, it’s either consolidating or rallying within the context of the current intermediate uptrend.

Before signing off, let’s have a look at the weekly picture


OEW pivot support is at 1187 and 1176. Pivot resistance is at 1222 and 1240.

Long term trend is up. Mid-Term trend is up. Short term trend may have turned down – pending a lower high.

Have a Nice Day!

NDX - April 17, 2010

Before the market open on Friday, I raised my level on NDX to below 2000. Friday panned out as a hard down day for the market but the level I had in mind was not violated.

This is a weekly chart of NDX


Technically, not a whole lot has changed from last week. NDX rose about 1% for the week. It is still overbought and still in the 1970-2050 band formed based on two failed peaks of 2008.

Index is hitting the underside of the mid-line of the purple channel that has so far been guiding me well.

Right now, the 1970 area looks like very good support. If NDX manages to further pullback or go sideways and work its overbought conditions, it may offer an entry north of 1970 area. If NDX breaks above 2050, if may attract momentum players, setting the 2050 as support. I would personally prefer a buy in the 1970-2050 zone. But, before all that, we have to see if (or when) NDX finally corrects, and how it corrects. We also have to see the true reaction of the market to Goldman drama from SEC after all players have had time to recompose themselves and evaluate the situation.

This is a daily chart


I have had a purple channel on the above chart for days. Notice how the center line kept the Friday drop in check. I have marked the 1970-2050 area on the chart, with 2015 as a median. Notice that 21 EMA is also in 1970 area at this moment. Also notice that below the current resting point on the mid-channel line, there is not a whole lot of chart support until 1970.

Again, before getting excited about a new purchase, I would like to see some shake out or correction and see how index would behave under stress.

This is 60-min chart


Friday gave us the first unfilled gap down in a long while. So we have a 2030-2038 that is for now a resistance. Friday also did a fill of a gap that NDX had opened on the way up in the 2006-2013 range. Notice how the 2006-2013 gap acted as shock absorber on Friday.

There also is the top of the most recent breakout around 1980-1988 that looks like technical support in here. A bit more softness may actually bring both price and 89 EMA to that zone and set up a long entry.

Again, all of this is in the context of the ongoing uptrend and subject to me seeing how index corrects if/when it corrects.

I had a channel on the 60-min chart that did very well for quite some time. I have slightly readjusted that channel to contain the latest run-up. Also, notice that the mid-line of the channel is the same area of the gap that got filled on Friday, offering support to the drop in the index.

Below 1980, we have the lower line of the channel that may end up being in the 1970 area that we discussed above.

Below 1970, index runs the chance of a mid-term trend reversal.

NDX is oversold enough on the shorter time frame to catch a bounce if bulls are still at it. Regardless, I need to see how it carries after Friday's SEC-Goldman blah-blah roasting of call holders. Ideal situation for a long would be more selling to cool off the daily frame a bit but not so much to change the technical profile of the market. As long as index stays within, or above the levels I discussed above, it’s either consolidating or rallying

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

Enjoy the Rest of Your Weekend!

S&P 500 - April 17, 2010

Finally some OpEx excitement!

After four days of business as usual, we finally saw some interesting price action in the market place on the OpEx day

Before the market open, I did a quick post and asked this question

“The question is will market hang around these levels, if not higher, to reward all call buyers, or will it correct sharply to punish the late hopefuls.”

I also said that my interest would be only as a spectator but raised my NDX first level to below 2000, whic was not violated.

Market punished the late call buyer who kept their calls into Friday with a nice blow.

This is SPX


This is NDX


Prices stay active after 4 in the futures market for 15 minutes

This is S&P futures


And NDX futures


The statistics of market’s tendency to seek a strike price on OpEx day has been researched and written about ad nauseum. What everybody tries to speculate is what strike price has a higher probability of being the closing price.

With market having been going higher and higher and dip buyer in full force, what would it take to knock back the market a enough to screw a whole bunch of call holders and enrich some who bought very cheap puts?

Enter the Dragon – ahem – the News!


Some had already started selling before the news. But dip buyers were back at it as you can see from the above chart in the period prior to open to the vicinity of 11:00 am. Then they got it handed to them by the news.

Why do these types of announcements happen on OpEx days? I don’t know. It makes really good drama. Maybe that’s why, an interest in Drama.

My interests are in price levels and posture. So let’s leave the crazy world of options , SEC tactics, Goldman antics, and news to those who understand them and look at some charts.

This is weekly chart of S&P


Flat for the week, at resistance (actually, in 1175-1200 resistance band), and overbought. On the other hand, there is a lot of technical support from the blue actionary line, the pink actionary line, the 1150 area of the previous peak and rising moving averages.

The most important thing now is whether the index can clear the 1175-1200 band and hold it. It may consolidate in that band and advance. In fact, it would be healthier if it did that. It may fall below the band as well. So, this is, IMO, at this time, the area of the battle between the buyers and the sellers.

This a daily chart


On April 14, I drew a purple actionary line on the chart and said

“an actionary purple line that might become resistance for this run. I am not predicting anything. It’s just an interesting line and I’ll be watching how index behaves if it gets there. Currently, it coincides with our 1222 OEW pivot.”

The line performed beautifully on Thursday and Friday. Did we finally top for the run from Feb low? It is hard to say. Technically, the lead-up action to the Thursday high had enough momentum to echo at least another price high. On the lower frames, price is oversold enough to generate a bounce or be technically perceived as another dip to buy in an uptrend. But we do not live in a purely technical world and many exogenous events can materialize like it did out of SEC – ahem – nowhere on Friday and shake the boat.

So far, the Friday damage looks contained. Index did not even make it to its 21 EMA. On the other hand, everything’s so overbought that profit-taking can happen any time. Notice how wide the shorter term MAs are fanning out. Good entries are usually offered when MAs contract not when then run away from each other into a rabid chase higher.

Friday breadth was horrendous


The doors of crowded places are narrow and few!

Last time we had such a down volume spike was in February leading up to the low that started this unforgiving run up. Market was oversold then which is not the case here. But there are other such spikes going back, Nov 27, Oct 30, Oct 1, etc. So, I think we need some follow through on the down side and violation of some key levels to comfortable call and end to the rally since Feb low.


Arms index shot up


If this rally still has some umph left in it, we should, at least get a bounce early next week. If not, that may be a harbinger of a change in market behavior.

NYSE McClellan Oscillator took a sharp turn down


In the post of April 14, I said

“Despite the break in the downtrend of McClellan Oscillator, we have new price highs at lower breadth oscillator peaks. And we have spikes in momentum. So, as I have said before, price advanced while breadth expanded, and, now, volume appears. And, now that volume appears after so many points of price gain, maybe we are getting close to some sort of a top for this rally.”

That proved to be an OK call in the short term affair of the market. The question is what type of top was that we saw on Friday, or more precisely what degree of wave did top on Friday.

This is 60-min chart


Given the momentum of the last high, I was reluctant to count the top of the rally since Feb low. So, I tried to be creative with internal waves and small corrections. I may be able to argue this


I have my doubts about the intraday count. So, as usual, my advice to myself is not to get caught in the minutiae of waves and pay more attention to how price does around important levels.

I had a blue dashed line on this chart (I still do) that I had initially drawn as a possible diagonal top line, and later as possible support. It did not offer any support yesterday. I have readjusted the line as a parallel to the black channel lines.

Notice that Friday’s drop stopped around the area of the lower channel line and 89 EMA.

A move below the channel is a warning.

After that, if index cannot climb back into the channel, it gives another warning. If index stays below the channel but hugs the underside of the lower boundary in a choppy manner, it’s probably (probably does not mean absolutely) setting for a relief of short term oversold conditions before it takes another plunge.

After that, a move below 1180 may indicate a short term downtrend of lower lows and lower highs. It could also undercut what I am counting as minute (green) wave 1.

All that having been said, as long as index stays above 1160-1170 area, it’s either consolidating or rallying within the context of the current intermediate uptrend.

I am not in any mood to buy a new position to hold for days and weeks in here. For that, I would like some oversold, or even neutral price momentum on the daily chart.

As for trading, to the upside, 1200 is an obvious resistance and may offer momentum players a play with limited risk

To the downside, 1180 area may offer a possible trade and a possible stop area.

To summarize, the drop on Friday stopped on some short term support, and has caused enough oversold in short term price and breadth to fetch at least a bounce. Failure to bounce and hold 1180 area may be a first sign of a change in market characteristics for the short term.

OEW pivot support is at 1187 and 1176. Pivot resistance is at 1222 and 1240.

Long term trend is up. Mid-Term trend is up. Short term trend may have turned down – pending a lower high.

Have a Nice Week!

OpEx Day - April 16, 2010

So far, this OpEx week has been a one-way ticket higher.

The supposedly smart players will tell us about Max Pain strikes and point us to extreme, off-the-chart level on a host of put/call ratios.

The question is will market hang around these levels, if not higher, to reward all call buyers, or will it correct sharply to punish the late hopefuls.

My interest is from a purely spectator point of view.

This is one of those days that I would like to just watch.

On NDX, I have raised my first level to below 2000.

Have a Good OpEx Friday!

S&P 500 - April 14, 2010

Volume expands for two days in a row!

Uber bears have had two main arguments against the advance. They have constantly been harping on on sentiment being bullish and volume being absent.

Readers of this blog know that I regards survey type sentiments as some kind of background, secondary piece of information at best, and outright he-said-she-said confusing piece of noise at worst – definitely not a trade trigger

As for volume, time and time again, I have said that with something like a composite or an index, price can very often lead. In fact, you wouldn’t want heavy volume participation in the early stages of a rally, you’d ideally want quiet, yet steady runs on good breadth, and, later on, you’d want the masses to join and bid you up. Regardless, volume is not a trading trigger.

These past two days, we have had the return of volume. It might be due to this being an OpEx week, or not, but the fact is that more participation is afforded to the rally, so, now that market has taken care of most of the bears, and more money is flowing into the market, maybe we are finally approaching the end to this rally.

This is a weekly chart of S&P


Index pushed through the widely touted 1200 level today. Other than being overbought, there is nothing technically negative about the chart above.

Lots of positives: lots of support, beautifully aligned MAs, an active MACD buy signal, nice move along the channel, the works.

This is a daily chart


Just look at RSI!!

That is a monstrous hell of a lot of momentum going into every small degree wave – waves that we can’t even see clearly on a daily chart.

I have drawn an actionary purple line that might become resistance for this run. I am not predicting anything. It’s just an interesting line and I’ll be watching how index behaves if it gets there. Currently, it coincides with our 1222 OEW pivot.

There is a lot of support below. 1200 area is obvious. And there are the blue center line of the channel, and the MAs. It should be easy to pick points for stops

As I have said before, bears lost their last chance when they miserably failed at breaking the market in February. That made the advance since March 2009 a 5-wave affair and, as such, either part of a bull run, or 5-wave part of a yet-to-be completed 7-wave, or 11-wave bear rally. Either way, market told the bears to just pipe down and take a hike for a while

This is what I wrote on February 19, and repeated on March 14

“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.”

Look at the run since Feb low! So far, it’s been even more relentless that the run of July. Harsh on the bears, and no palpable pullback for the bulls.

Daily volume expanded nicely and breadth was very good


We had been watching a short term downtrend on McClellan Oscillator. Today, that downtrend was broken



Despite the break in the downtrend of McClellan Oscillator, we have new price highs at lower breadth oscillator peaks. And we have spikes in momentum. So, as I have said before, price advanced while breadth expanded, and, now, volume appears. And, now that volume appears after so many points of price gain, maybe we are getting close to some sort of a top for this rally.

Just remember price is the most important indicator of all.

This is 60-min chart



First off, don’t get caught in the minutiae of small waves. Pay attention to the bigger picture and price posture

Our channel has performed admirably guiding us along price movement. I had drawn a couple of blue lines that I thought might cap the price with some sort of diagonal. Index has clearly gone through it. Now, I like the upper blue line to offer a first area of support. It currently coincides with the 1200 area.

After that, a move below 1180 may be a warning for a correction and a change in short term trend.

After that, as long as index stays above 1160-1170 area, it’s either consolidating or rallying.

Pivot support is at 1187 and 1176. Pivot resistance is at 1222 and 1240.

Long term trend is up. Mid-term trend is up. Short term trend is up (a move below 1180 may change that).

Have a Nice Evening!