In The Land Of The Blind...

Haven't been blogging for a few weeks (you've noticed?) - things with the market have been kind of dull - meandering in a range in the mid 1000's  and I've had some other things going on including a long needed vacay....

Anyway - 2 very quick things:

1) the latest S&P intraday high to watch for is 1080 with the highest close at 1071.66.  Both numbers are suspiciously close to the magic 61.8% retracement of the Oct 2002-Oct 2007 Bull Market.  The level didn't really serve as support on the way down, so I'm not sure why it should be significant on the way back up again, but there's always the chance that it will repeat as resistance again on this current little subleg up.   I'd treat a bounce back down off of this level as not necessarily a major "top" (yet), but rather, as an opportunity to do some short-term swing trading - jump on an inverse ETF going back down until it hits support and then ride a regular ETF coming back up.   On the other hand, if things move right through this level this time like buttah,  treat it as a confirmation of being long and stay in until at least the Oct 07-Mar 09 50% retracement around 1115.

2) Speaking of ETFs, for the past few weeks I've been playing the 3x real estate ETFS (DRN long, DRV short) and have been seeing a lot more success (i.e., volatility and profit opportunity) than the financial ETFs (FAS/FAZ).  For example - I made 5.5% today on DRN - FAS would have only returned 1.14%.   The only downside, is that my belief was that the financials moved closer with the major indices such as the S&P, so that I could watch the S&P and change in S&P direction as a proxy for when to move in and out of FAS and FAZ.   I'm not sure that I have the same comfort level with the real estate sector ETFs yet, so I'm finding myself keeping a closer eye on them rather than the index.   But so far so good.

Gotta run - seeya

The S&P hit 1074 yesterday before stalling and closing at 1065.49.  Futures were down in the overnight and have since risen back up to yesterday's closing level, indicating a flat to slightly higher opening.   Today is a big options expiration day ("Quadruple witching") so the possibility exists that the price action today could be quite volitile - keep the seatbelts handy.

I want to revisist something I wrote last week - that once the S&P moved past the 1044 area resistance, that things would be clear sailing until the Oct 07 - Mar 09 Fibonacci 50.0% Retracement area up around 1115.

I looked at yesterday's intraday chart last night - and there was a definite pivot at 1074 that ended the strong upward move from the 1050s.  Here's the chart:

S&P 500 - 15 Minute Chart - 3 Days

You can see how price bumped twice yesterday morning before declining - so resistance of some sort was hit.  So what's going on?  No recent price action in that area to look at for clues.  Prices are above all the moving averages, so that wouldn't have been an issue.   And I rechecked my Fibonacci numbers - nothing until 1115. 

So, just sort of noodling around I thought I would play around some with the last big trend before the decline from Oct 2007 through Mar 2009 that I've been using for my Fib numbers.  That last big trend would have been the big bull market measured from the October 2002 low through to the Oct 2007 high - what would happen if I drew Fib lines based on those points - would they still be relvelent today?

S&P 500 - Weekly Chart - 6 1/2 Years Ending July 24, 2008 

Here's a chart where I show the 2002-2007 uptrend that I used to generate the Fib series - I colored this particular Fib series in red to distinguish it from the Oct 07 - Mar 09 series that I've been using that has a grey color.   See how that first rebound from the decline that began after the Oct 07 top reversed at the 38.2 Fib line?   When the market shows that it respects Fib lines, that we're supposedly on the right track.  You know where I'm going with this - check out the level of the 61.8 Retracement line.

Now lets update the chart and zoom in a bit to show more recent price action:

S&P 500 - Daily Chart - 3 Months 

And - W00t! There it is! - it turns out that the 68.1 Retracement of the Oct 02 - Oct 07 uptrend comes out to 1077.08- suspiciously close to yesterday's 1074 pivot point.  Who knew???

 To me this says that yesterday's pivot wasn't necessarily just a random turn, but was based upon a real resistance point.  Doesn't mean that 1074 is a top - this resistance point can be overcome the same as the 1014 Fib line was overcome.  However, rather than blithely assuming that the way upward to 1100 would be resistance free, it turns out that there is some decent resistance right there.  

I don't know enough about Fibonacci theory to know how far back we would have to go to determine at what point Fib lines drawn on a trend from years and years ago wouldn't matter any more - but it does appear that the market is still respecting this older one.   I would like to think that the more recent Fib holds more weight and that the S&P will get up above 1100 and interact with the next Fib lines in that series - but for the moment, I will count this particular 1074 resistance from the older Fib as still active and give it the respect it deserves rather than treating 1074 as just a random point.

So there ya go.

Good luck!

For the past few weeks the S&P 500 has been bouncing around in a trading zone between 1014 and 1039.   The problem facing the bulls is that even ovecoming the upper boundary of that zone,  there is one last piece of resistance ("piece of resistance" - HA!) immediately facing it at 1044 - the top of the very first reaction bounce after the waterfall plunge began in earnest in September.

Here's a little blast from the not-so-pleasant past (unless one was in FAZ like I was - in which case it was pleasant indeed):

S&P 500 - Daily Chart - 5 1/2 Weeks ending October 31, 2008 

As you can see, things dropped very quickly beginning the last week of September.  Within 2 weeks the S&P had gone from above 1200 to below 850.  On Oct 10th the S&P found support and rebounded on very high volume.  The apex of that rebound took place 2 trading days later on Oct 14 when the index hit 1044.31 and pivoted back down again - and is only now getting back to that level. 

Because the market was so volatile (i.e., uncommonly large daily price changes), that 1044.31 is the only support/resistance area in the 100+ points between the low 1000s and the low 1100s left by the plunge. 

Look at this way - think of how many days we've spent just since we first crossed back over 1000 in early August and all of the various support/resistance areas we've confirmed or created in that time in the 40+ points we've advanced since then.  Last fall,  we spent all of about 3 days in 1000s - 2 going down, and 1 going back up that culminated at 1044 (the S&P closed that day at 998, btw - hit 1044 intraday and then plunged almost 50 points by the close) and that was it. 

So easy to go down.  So hard to go up.

So how did we do today?

S&P 500 - 15 Min Chart - 4 Days

Today the S&P finally broke out of that 1014-1039 trading zone, made it up to 1043.56, dropped back briefly below 1040 and then finished at 1044.14 - the high for the day (very bullish). 

I don't think it's necessarily a coincidence  that it initally dropped back at 1043.56 or that it closed just a scootch below 1044.31 - that is what resistance does.  Maybe the market will be strong enough to get past this - or maybe this will be another apex and downward pivot.

HOWEVER... I mentioned that this is the last resistance left over from last fall's fall.  Above that could be pretty clear sailing if we get past it.   

I've mentioned in the past that on a price chart there are 3 possible sources of support/resistance areas to be aware of:

1) those derived from former price action pivot points and support/resistance areas (remember the recent support/reversal areas at 980 and 992 were both pretty clearly identified by earlier support and resistance at those levels)

2) those derived from places where price and/or important moving averages cross each other (remember the problem that the S&P had trying to cross the 200ma back in June)

3) those derived from Fibonacci ratios (remember that the S&P has had major difficulties surmounting the 23.6% and 38.2% retracement levels of the 10/07 - 03/09 decline)

Of these, we've already determined that 1) there are no remaining resistance levels between 1044 and 1100 left over from last autumn's price action; 2) there are no potential moving average issues going forward for the bulls (price is currently above all the moving averages - it will only interact with them if price declines or goes horizontal for a long enough period for the averages to come up and meet it); and 3) the next Fib area doesn't occur until the 50.0% retracement up around 1115.  

In short - if 1044 can be cleared the bias would definitely have to swing to the side favoring the bulls (and as my usual kiss of death, it will hit 1050 and PLUNGE! LOL).

Anyway, that's where we are.  One of the themes of chart reading is that it helps identify those positions where things could go one way or the other, and one can derive meaning and gain confidence from the direction that is taken from that position.  If the market continues to move upward, this is the last of those places for awhile - and a successful upward move through this area will constitute a definite and important signal.  Nothing says that resistance/reversal can't be met up above 1044, but of the factors that we consider to increase our odds and confidence in the market, the next 70 or so points above 1044 look to be a real "sweet spot" for the bulls.

There, now I've totally sealed the kiss of death.

Later

Yesterday amid all the 090909 hoopla I forgot to note that it was also the 6 month anniversary of the March uptrend - the lowest close of the big decline - 676 - was touched on March 9 (my birthday, btw) - and it's been up up & away ever since.

Yesterday, the market came back at the very end of the day , boosting the S&P to 1033.37 at the close - a new closing high for 2009 - but still stuck in the current zone below 1039.   For all the attempts that the S&P has tried to get past this range, this was only the second time that it's managed to close above the 1030 mark.   Overnight, things rose, things fell, and now things are pretty much unchanged.    So this morning should be what they call a "mixed opening" with no real apparent direction.  

I pointed out yesterday afternoon that every time so far that every trip into the 1030s has resulted in a pullback back into the 1020s (or lower) - so a low bar of staying above and closing above 1030 could be considered a small victory for the bulls.  But there is still strong immediate overhead resistance, say in the 1035-1045 range.  The real bull victory will be to get past and close above that.  

One of the ways that the March uptrend has shown great resiliency (understatement much?) in that there have been several occasions in the past 6 months in which prices have stalled at big resistance areas, knocked against resistance several times, and then rather than getting discouraged and giving up, instead gathered up the strength to push on through.   So even though we've been in the 1030s a bunch of times so far without further success, I wouldn't necessarily count out a move higher from here.   The Fibonacci people look at the major Fibonacci Retracement areas for important reversals - so if the 1014 Fib 38.2 Retracement area is finally cleared, then things won't likely reverse until the 50.0% Retracement (about 1115) or even up to the 61.8% area at around 1230.  1230 - wow - that's heady. 

Haven't we cleared that Fib 1014 area?  Afterall, we're at 1030 now, right?   Let's take a look at the weekly chart:

S&P 500 - Weekly Chart - 16 Months 

On the weekly chart, prices are still very much interacting with the Fib 38.2 area at 1014.  It's been 6 weeks now that 1014 has either been a resistance point or smack in the middle of the weekly ranges.   Theoretically we could have another several weeks where that would continue, or even if the price bars move up from here, where 1014 could then act as support before things finally move up and away.  Look at the Fib 23.6 level at 880 - the S&P danced around that for 13 weeks (a full quarter of a year!) - 3  weeks as resistance and then 8 out of the next 10 weeks as support.  In other words, it wouldn't be unusual for prices to continue to interact with 1014 for a while longer.  No wonder the bulls are having a hard time getting through the 1030s!

I'm also beating a dead horse here - but the MACD-H divergence also shows on the weekly charts - higher prices - lower MACD-H.  For an example of how the divergence works in the other direction - look at the location of the MACD-H during the November spike down last year - and then at the March low.  Lower prices, higher MACD-H - and the downtrend reversed.  That's why I believe in the MACD-H even though it's put egg on my face all spring and summer long.  Take it for what it's worth - but it says to me that this is going to reverse.  Or at a minimum, it makes it hard to make the bull case.

Current targets for market direction - above 1045 for the bulls - below 1014 for the bears.  Deja vu all over again again - we could be here for awhile.

Good luck!

Today is 09/09/09.  Happens once ever 100 years - savor it.  Nine is one of my lucky numbers - and it's happening 3 times (which is my other lucky number) - so you'd think that today will be an awesome day.  Hopefully it will be :-)

In the few days bracketing Labor Day weekend, the S&P made it through the Valley of Death and made it past the 1014 resistance line pretty easily.  Now it is in that trading zone between 1014 and the 1039 high in which it occupied most of August.  

S&P 500 - 15 Min Chart - 4 Days 

So it's very obvious from here that those are our 2 numbers to watch - 1014 for support going down - if it breaks down through this, especially a second time, it will be good for the bears - and 1039 as resistance on the upside - if it breaks through there, needless to say it will post a new 2009 high and will be good for the bulls.

The S&P closed yesterday at 1028 and spent the overnight below that number - so the open will probably be to the downside.  I expect that the post-Labor Day trading will begin in earnest today, so whether the bulls can step back in and push prices back up could be a good early indicator of how things will play out from here. 

Here's a daily chart:

 S&P 500 - Daily Chart - 3 Months

First off - notice how yesterday's volume picked up and was over the vol 45 ma - we should expect to see that regularly for awhile as trading picks after the summer doldrums.

The red line at the top is the August and 2009 high that the S&P needs to break through to move out of this trading zone. 

I put some circles on the current trading zone area when we were here back in August so we can do some comparisons.   As you know, I like to use the MACD and MACD-H as momentum indicators and, as can be seen, the current levels of both the MACD and MACD-H are lower than when we were here a few weeks ago.   That isn't good for the bulls and doesn't favor a continuation of the uptrend.

Look at the area in early August where the S&P bounced along the Fib 38.2 at 1014 for a week before turning down, found support at 980 and came right back.   What's happened the past couple of weeks where the S&P then bounced around off of 1039 and then retreated, found support at the 992 level and came right back.  The market does this sort of repetition a lot, so that in itself isn't too unusual - but look at where the MACD and MACD-H are during both waves.  The second wave, prices were higher, both at the top and where support was found after the pullback - but the MACD and MACD-H are both lower in the second wave than the first - and, more importantly for my purposes, the depth of the MACD-H (bear strength) was much deeper the second time, even though prices were higher.   That is a clear divergence, and can be interperted as saying that the uptrend will fail.   However, I've been saying this since April, so who knows?

So, bottom line,  S&P needs to push through 1039 to go forward (and it faces immediate possible resistance at 1044 (theoretically, 1039 is close enough to 1044 that 1039 could be considered part of the 1044 resistance area) - or it needs to drop below 1014 for the bears to take control.   And, as I say repeatedly, not just an intraday poke, but a close.   None of this isn't anything that we haven't heard before.  As the saying goes, it's deja vu all over again.

Good luck.

S&P500 - 15 Min Chart - 4 Days 

So the S&P made it down to the 992 support level, tested it twice, found support, and rebounded up into the Valley of Death (S&P 1007-1014).  This afternoon it is challenging that old buggaboo at the north end of the Valley - the Fibonacci 38.2 Retracement at 1014.  Remember, 1014 has served in the past as a very tough resistance level, and also as a support level.  If the S&P can get through and close above this area it will be huge for the bulls going into the Labor Day weekend.

S&P500 Daily Chart - 2 Months

Here's a head-and-shoulders pattern that's been forming.  The left shoulder is basically that area between 992 and 1014 the occupied the market for the first 1/2 of August.   The head was the breakthough of the 1014 line that went up to 1039.  Now, if the formation works out, we are already in the right shoulder - having already touched (twice!) the lower bound of the shoulder at 992.   For the shoulder (and the pattern) to work however, the right shoulder needs to more or less stay within the upper bound limits of the left shoulder - our old friend 1014.  A spike like on Aug 7 that briefly went above that line is ok - its where it is at the close and where it goes from there that counts.

So, for a few reasons this attempt at 1014 could be important - it will tell us if the market is going to continue to print a reversal pattern, or it will signal new hope for the bulls.  It's not unusual for particular price points to be hit and retested two or three times - for that right shoulder to form, we would expect that the S&P would go above 1000 and challenge 1014 again, although we wouldn't expect it to go substantially past there.  So keep an eye on that level this afternoon.

Later.

The S&P closed yesterday at 998 and futures are down slightly this morning (this chart is a 20 min delay - as I blog, the S&P futures are a little further down at 993) - indicating a lower opening on The Street, continuing yesterday's slide....

I put up a pretty colored chart yesterday - showing the 2 trading areas that had dominated trading throughout most of the month of August.  It took all of the better part of the morning on the first day September to stage a complete retreat from both of these areas.   Anybody who is in FAZ or any of the other inverse ETFs had a good day yesterday - with the possibility of more to come in the near future.  So here's the chart and the pretty colors again:

 S&P500 - 15 Minute Chart - 4 Days

The red area is the Valley of Death with the 2007-2009 Fibonacci 38.2% Retracement line at 1014 as the upper bound.   Remember it took several tries and a retreat back down to 980 before the bulls managed to muster the strength to get through there.  And once the S&P got past the Valley of Death, it stalled in a trading zone in the yellow area - never getting past 1039 on the upside, and testing the Fib 38.2 for support a couple of times.  

And look at how what happened yesterday - within 2 hours of the open not only was the trading zone left behind, but the Valley of Death was cleared in 15 minutes. Important potential support areas at 1014 and 1000 were completely ineffectual and the work of  a month was gone in hours.  A complete retreat for the bulls and a triumph for the bears - look at the size of the down MACD-H impulse yesterday compared to the previous days.

So where to now?   There are 2 very important support areas coming up for the bears - 992, which was a very active support/resistance area going up, and 980, which was a big reversal pivot last November and resistance on the run-up this summer, and served as the big support level a few weeks ago on that first retreat down from the Valley of Death.  

980 is the important area to watch - the last time the S&P retreated it got a very strong reversal bounce at that level.   If that happens again, there will still be strength left in the bulls.  If it falls, then the downtrend is definitely for real and very worth getting in on the inverse or short side.

 S&P500 - Daily Chart - 3 Months

I drew a thick red line at 980 on the daily chart, which also nicely shows where 980 acted as support in mid-August.  Think about what makes a trend - higher highs, higher lows for an uptrend, lower highs, lower lows for a downtrend.  Look at the uptrend that started at the 2007-2009 Fib 23.6 Retracement line (880) in Mid-July.up to the top in Mid-August - higher highs, higher lows.  Right now, if we turned around right now and went back up, that higher high, lower high thing would still be intact.  We need to get below 980 to effect a lower low and confirm the downtrend.  So 980 is sort of a last stand for the bulls.  If they can hold that line and find support as they did in August, there's still hope - if it folds it's all over (well, not literally "all", but you know what I mean).  I noted back in August when we were last in this situation that those who are prudent may wish to wait until 980 is broken decisively (i.e., a close below that level) until committing on the bear side.   As it happened that first time, that would have been the wise choice.  It still is true now.

I also drew, in red, new Fibonacci lines from the March 9 low to the August high.  The first Fib Retracement level - the 23.6% - occurs right around 950 - which also coincides with the June highs.  It was a strong resistance then - will it be a strong support now?   That would be the next area to look at if 980 does not hold as support.

If the chart pattern ends up being the Head-And-Shoulders that I discussed last month (hey webmaster - if you're reading this, I'm unable to access any older posts other than those listed on the first page - the links to pages with earlier posts seems to be broken),  then 950 will be the top of the right shoulder, but prices have to drop down first to the 880 neckline before coming back up.   So for the Head-And-Shoulders pattern to work, 950 has to fall.  We'll see.

That's it for now - they need me at the salt mines.

Good luck!

The S&P closed Monday at 1020 - pretty much where the futures were at this time yesterday.  Today the futures are down around 1014-1015 - is that where the close will be today?

Things continue to trade in the trading zone that the market has been in ever since the move above 1014 on Aug 21.   Consider that the S&P closed on the first trading day in August at 1003 - and ended the last day of August at 1020.  That's 17 very hard fought for points over the course of a month.   Not a very good showing by the bulls who want us to believe that we are in an historic bull market.

S&P500 - 15 Min Chart - 4 Days 

I shaded in yellow the trading zone - and in red below it, the Valley of Death with the Fibonacci 38.2 Retracement as the upper boundary at 1014.   That boundary, which served as very tough resistance earlier in August served as support yesterday.    From here, the way forward comes down to 3 choices - either 1014 holds and serves as a boost for another trip upward, the same way that 980 acted a few weeks ago and the uptrend stays intact.  Or 1014 gives way, the uptrend ends, and we look towards 1007, 1000, 992, and then 980 for support and clues whether this will be a real downtrend or just a pullback.   Or, things will bump along at the bottom of the zone, but not breaking 1014, for the rest of the week waiting for everybody to come back after Labor Day.  

Almost everybody is expecting September to be potentially pretty bad.   Question - if you were a big fund manager, would you want to hold onto a large stake going into the long holiday weekend?  If anything, I would expect that that should put some selling pressure on stocks as we move through the week.   See what happens with 1014....

Later

The S&P closed Friday at 1028.93 - it's 4th straight close between 1028 and 1030.   Futures are down this morning (there was a big sell-off in the Asian markets overnight - I guess they didn't like the results of the Japanese elections) - down around the 1020 level - but well within the trading zone of 1016-1039 that the S&P has been stuck in this past week.

Here's an intraday chart showing just how tight the trading range has been:

S&P500 - 30 Min Chart - 6 Days 

I drew a blue line showing the level of the open each day since the breakout a week ago Friday - and red lines showing the level of the close.  Just another way of illustrating how little movement there has been during the past week (Next: pie charts!)

Believe it or not - we've had 5 straight doji days:

 S&P500 - Daily Chart - 3 Months 

That's a lot of indecision.  But look at how tight those first 2 weeks of trading were in the beginning of June - so this isn't unprecedented by a long shot.  Although that June stretch also functioned as short-term top.  Just sayin'.  During an uptrend, I would expect the burden of proof to be on the bulls.  If they can't move things higher, it's not much of an uptrend, is it?   For all the talk last week of  "Dow up 8 straight days" - or some kind of nonsense like that - 5 of those days things moved by about 2 points.  Big freaking whoop.   You know what I mean?  That's putting lipstick on the old pig.

Nothing's really changed since last week (except we're that much closer to Labor Day).   On the downside, the S&P has to move decisively (i.e., close) below the 1014 Fibonacci 38.2 Retracement area to create a bona fide downtrend.   On the upside, the S&P has to breakthrough the 1038-39 level that has served as an upper bound in order to get this uptrend going again - and there's a 1044 resistance area right behind that too, don't forget.   It's conceivable that we may stay range-bound for the rest of this week until the market comes back from the holiday and things get going again.

70 years ago - was a fairly quiet summer - things were still reacting to the 1937-38 crash and the market spent the summer in the doldrums hanging out at the Fib 38.2 Retracement line of the '37-'38 drop.  Average NYSE volume was down around 63,000 (!) shares/day.  The Monday in the week before Labor Day didn't appear to be anything special and things looked like they would just be playing out the week similarly range-bound (not as tight as now - but within the upper and lower bounds of a Head-and-Shoulders pattern - so things were quiet, fairly predictibile, and not expected to be very dramatic.   But by that Friday morning, Hitler had moved into Poland and volume climbed to over 500,000 shares/day and the market took off.   So you never know what will happen....

Good luck!

S&P 500 - 15 Min Chart - 4 Days

So the S&P emerged from the triangle and proceded to drop like a stone at the open.   Got down as far as 1016, - spitting distance from the Fibonacci 38.2 Retracement of 1014 -found support, quickly retested it, and then reversed.  Kind of like what happened with the quick drop down to 980 support level last week that also sparked a reversal.  

It's not uncommon for  a triangle breakout to do that - do a head fake in one direction, find support (or resistance), do a quick pivot and take off in the other direction.  Breaks a lot of hearts and bank accounts that way (moral of the story: don't jump right at the instant of the a triangle breakout - wait a bit and see what happens).

Right now the S&P is a little bit above 1030 - hasn't yet broken the 1037-38 top of the range that we'd been in all week, although if this is like that run up from the 980 support last week, this reversal may have enough strength to push past that.

Whenever looking at the sort of range bound market like we've been in - first look to the upper and lower limits of the range (in this case it was 1022 and 1038) to see what it would take to get out of the range, and on which side momentum is going to be to give the strength to make the break.  But then, keep an eye on the first big support and resistance levels that such a break would encounter to see if its the real deal or the head fake that the triangle pulled this morning.

On the down side, the first big support area is the Fib 38.2 Retracement at 1014 - that held as support this morning and sparked the reversal.  On the up side, the first resistance area after passing 1038 would be the early November pivot at 1044.  So, even if, for example, we get past 1038 today, I wouldn't commit to the long side in the expectation of a rally unless and until it got past 1044.

Back to the salt mines....

Good luck!

 The S&P climaxed an improbable August run by busting through hard resistance in the Valley of Death (S&P 1007-1014) that had stymied it on 4 previous occasions already this month.  Not only did the breakout take out the Oct 07-Mar 09 Fibonacci 38.2% retracement, but it did so on very credable volume as the bulls came out in force.  The bears, on the other hand,  put up virtually no resistance in the face of the steady bull advance from the 980 support early in the week.

 S&P 500 - Daily Chart - 3 Months

On this chart, I went back to showing the Oct 07-Mar 09 downtrend Fibonacci Retracement levels in gray.  As you can see, the 38.2 acted as strong resistance most of the month, before finally rolling on Friday.

I've been reading a few Fib books this summer and am really getting into it.  Not every Fib Retracement works, but, when the market shows that it respects a particular Fibonacci Retracement setup (and this one has at both the 23.6 and the 38.2 Retracement levels), that it will continue to respect the Fib going forward.  In this case, Fib theory suggests that with 23.6 and 38.2 respected and now out of the way, the uptrend should continue through to the 50.0 (above 1100) and possibly to the all important 61.8 (above 1200) Retracement areas.   Nothing is of course set in stone, but it's something to aim for.

The breakout was all the more impressive because it pulled with it several of the indicators that I follow - indicators that had continually suggested imminent reversals as the market climbed higher the entire summer.  

The 5o ma (blue line) finally crossed up over the 200 ma (dotted yellow) - and it is the first time since last October that the 4 moving average lines are all in a bullish order with price above the 13, which is above the 26, which is above the 50, which is above the 200 - and all are trending upward.   It's very hard to argue against such a strong bullish position. 

The MACD-H while still in negative territory, has reversed from a downtrend that started in the middle of July at the last bull impulse high, and is now moving upwards toward positive territory.  This also means that the MACD blue fast line is about to overtake the MACD green slow line - a "buy" signal to many, and having weathered a MACD/MACD-H downturn and then passing back into bull mode without the MACD itself falling below the center 0 line is considered an exceptional show of bull strength.

And I've already mentioned the very respectable volume for the day.  I generally screen a price breakout by looking for the breakout to coincide with volume at least 1.5 times the vol 45ma.  Friday's S&P volume came in at 1.44 times the vol 45ma - which, considering it's the middle of August, is quite impressive - especially compared to relatively lackluster volume on previous up days this summer.   Some of the big money evidently liked the bulls pushing through resistance and decided to get on board and make some gains.  We have seen very little of that this summer.

Take a look at this - I had to make sure that my chart settings were correct for this intraday chart:

S&P 500 - 15 Min Chart - 4 Days

Look at how even and steady the price action was for the 4 days covered by this chart.   The bulls gradually and steadily pushed upwards, and the bears did absolutely nothing to stop them.  No pushback, no velocity - just the bulls making a move, consolidating their gains with virtually no downward pressure, and then moving forward again.   It's very rare that I see an intraday chart with so little movement on it.   To me this suggests that the bears are still on vacay at the beach and it's the lack onf selling pressure, rather than neces sarily the strength of buying pressure that is fueling this movement.  

However, you can't really argue with what happened.   There's still 2 weeks to go until Labor Day for the bulls to play.  Before, I was putting the onus on the bulls to justify their advances throughout the summer.   Now I think the onus will have switched to the bears for the rest of the summer.  Will they stay away for the next two weeks and allow the bulls to advance with impunity because no one is stopping them?  Don't forget that what was resistance when prices were below will now be support when prices are above.   That 1014 line should theoretically give good support going forward.   So, for the next 2 weeks, anyway, unless there is some sort of bull collapse and reversal,  the name of the game is to go long and take advantage of the bull move.

How far can we expect this to go?  Let's look at some potential resistance coming up:

S&P 500 - Daily Chart - 10 Months 

 One problem with prices falling in a dramatic sustained relentless waterfall as they did last Sept-Oct is that they leave very few support/resistance areas in their wake for when prices come back into that area.  I circled a pivot at 1044 from at the end of the waterfall drop last October.   And after that there is very little before the Fibonacci 50.0 line a bit above 1100.

There is no rule that says that prices can only find resistance and reverse at previously identified support/resistance areas - those that we identify provide guidance for what may happen when we get to those areas, but we have to remain vigilent for unexpected resistance anywhere along the way, especially when we don't have many guideposts.  So keep an eye on other indicators such as the moving averages and MACD and MACD-H for clues.

There's 2 weeks to go until Labor Day - since the market built up some momentum for that final push through the Valley of Death,  I would expect that 1044 may be easily reached (kiss of death - since I said that, now it's going to drop like a stone from here LOL).  It is even conceivable that the 50.0 Retracement may be reached by Labor Day.  Once Labor Day comes, though, and everyone comes back from the beach, things may have to be re-evaluated.   But until then there's maybe a two week mini-rally to enjoy being a bull.

That's it from here.  No futures chart this morning, but futures are up a bit and are holding onto their Friday gains and the market should open moderately on the plus side.

Later.

The market closed right on the brink of the new foray into the Valley of Death at S&P 1007 yesterday.   Futures are up in the overnight, portending a higher open, and setting up a new assault on the Fibonacci 38.2 Retracement line of 1014.  If 1014 holds, the bears will be in charge.  If 1014 falls, the bulls will take over.  Simple as that.

 S&P 500 - 30 Minute Chart - 20 Days

Here's a 20 day chart with the Valley of Death ("where uptrends go to die") outlined in red.  It corresponds to 1007 - the November rebound high - and 1014 - the Fib 38.2 Retracement.

The S&P has made 2 previous trips into the Valley of Death - spiking intraday at 1018 for the 2009 high on the first try before falling back,  and then being turned back 3 separate times on the second try.   Gotta give the bulls credit for perseverence, but with so many indicators on the daily and longer range charts favoring the bears, it really does seem like an uphill battle for the bulls.  Not impossible - nothing is ever a definite or a sure thing in the world of the markets, but, still, there's probabilities...  If the S&P breaks through and then closes above 1014, it will be hard to argue against the bulls regardless of the indicators.

2 big exogenous events today - a big Bernanke speech - theoretically the last of his tenure unless Obama re-appoints him.   And today is an "options expiration" day which often, but not always, means a day of high volatility.   So it really is the kind of day where prices can double and the scores can really change.

That's all I got - and I don't think we need any more.  All eyes on 1014.

Good luck!

UPDATE: At 10 am, the S&P has taken out the 2009 high of 1018 - watch and see if it can hold on until the close

The S&P nudged against the 992 resistance yesterday, closing at 989.67.  Futures overnight evidently didn't like being up so high, and they've since dipped to the 980 level.  The low on Monday was 978.5 - so basically we've given back overnight all the gains that everyone was so excited about yesterday. Needless to say, expect a lower opening this morning, and a probable resumption of the descent down from away from  the 1000 level.  

S&P 500 - Daily Chart - 3 Months

The daily chart shows how insignificant yesterday's bounce was.   It printed a very small candle, that barely made it up 2/3s the way of the previous day's down candle.  Volume was still very low - no conviction or support by the big boys.   And it wasn't enough to change the negative direction of the MACD-H.  The MACD-H measures momentum, don't forget - so this is indicating increasing negative momentum.

The low price on Monday, and the open yesterday, were very close to the 26ma (red).  Any downward move today should bring prices below the 26.   In a healthy market, prices should find support at the 26 - look at the extreme left hand of the chart back in May for several examples of this.  When important moving averages fail to offer support, and price moves from above the MA to below, should be considered very bearish.  There's little reason to believe that the downtrend will not resume from here.   All of the momentum is working toward the bear side.

Often after a major trend change, the market gives stragglers a second chance to get on board before resuming the new trend in earnest.   Yesterday should be considered such a day.  If you failed to sell your long ETF before Monday and don't want to get caught - or if you were waiting for an optimum price to get into an inverse ETF before the train left the station - yesterday was the day.  No excuses now.

And, most importantly, the market yesterday offered an early test of the downtrend to see if it's for real - the 992 support/resistance line.  Not only did a former strong support line turn into strong resistance (yesterday's high was 991.2) but prices are now fleeing downward from there - exactly what resistance should do. 

So where do prices go from here?  There are no obvious support areas before the mid 940s where prices tried to cross the 200 in June and were stopped (the "head" of the failed head and shoulders).  This also corresponds to where the 200 - and the 50ma - are today.  Will strong resistance in June turn into strong support in August?  Right below that is the first Fib Retracement (the 23.6%) at 935 - which is just above the resistance line that formed the tops of the shoulders in that H&S. 

So expect possible clear sailing down from 980 to 950 or so, and then possible congestion for the next 20 points from 950 t0 930.   I am still looking for a move down to 880 to complete the head of the newer bigger head and shoulders that is still forming.   These things being symmetrical, it took about a month for prices to rise up from 880 to form the left side of the head - so it should take about roughly a month to get back down.  A month from the August 7 top?  Just happens to coincide with Labor Day.  And after Labor Day, September trading (traditionally and historically the worst month for the market) begins in earnest.  Funny the way these things work.

So that's it.  Make sure you're in on the downside in an inverse ETF.  Getting in very near the top of a possibly long downtrend provides an excellent opportunity to make $$$.

Good luck!

Futures are up nicely this morning - a bounce off of the downward action of the past couple of days.  These things are normal after a trend change or big move - the market is kind and forgiving and gives laggards and those asleep at the switch a last chance or two to get their ducks in a row.  We will still remain in the new downtrend (lower highs, lower lows) unless a new high is made.   The current 3 day high is 1013 - ya think it will happen?

Speaking of 3 days - haven't posted a 3 day chart in awhile.  This nicely illustrates the trend change:

S&P 500 - 3 Day Chart - 10 Months

Notice the MACD-H divergence over the past coup'le of months.  Look at the maximum MACD-H level during it's positive bull impulse of the spring ("AMJ"), and then the lower maximum of the current bull impulse (already negative on the daily chart, still positive, but falling, on the 3 day).  Then look at corresponding prices.   Once again, in August we had higher prices than earlier, but the MACD-H was much lower when it should have been higher in a healthy market.  Divergence.  Falling prices.  etc.,  etc.

I've been enamored of the Fibonacci Retracements lately.  This past uptrend failed at the Fib 38.2% retracement line of the Oct 2007-Mar 2009 downtrend.  So now that we've completed another trend (Mar-Aug 2009), where can we expect retracements to occur going forward?  I'm glad you asked.

S&P 500 - Daily Chart - 7 Months

I've created a new Fibonacci scheme based upon the March 6 low and the August 7 high.  The gist of the Fibonacci Retracement analysis is that the reactionary counter-trend after an initial trend will reverse itself at specific ratios of the original trend - the main ones being 38.2 and 61.8% of the original trend and lessor ones being 23.6 and 5o.o%.   If you've been reading this blog, I've been trumpeting the fact that the last uptrend failed (i.e., reversed) at the 38.2% retracement of the Oct 2007-Mar 2009 downtrend.  So, now, where will this downtrend reverse?

According to the Fib analysis, the likely retracement areas are:

23.6% 935.11

38.2% 883.84

50.0% 842.40

68.1% 800.95

The way the Fibs think is that if the market gets past each Fib Retracement area, it should be good until the next one.  If it gets past 935, for example,  it should go to at least 883, before reversing.

I want to take note of that 883 number.  It's the 38.2% going down - we just reversed at 38.2% of a different trend going up.  But that 880ish number also corresponds to a couple of other things.  It's served both as very strong resistance and support each time we've been in the neighborhood recently.   It is the 23.6% Retracement of Oct 2007 - Mar 2009 downtrend.   And, remember a few days ago I was talking about a possible new head-and-shoulders - that just happens to be the very important "neckline" of that potential H&S (and served as support for the smaller failed H&S of the early summer).    I don't want to make any hard predictions here, but to my eye, that 880-883 has just too many separate things going on and converging there that it's hard to believe that something isn't going to happen there.  For the new H&S to form, that is the exact place where the "head" (which we are completing in our current downtrend) is completed and goes back up to form that second right-hand shoulder.   Cue the spooky organ music.

But if prices go down past 883, the next expected reversal area would be at 842 - if prices go through that 800 (another huge support and resistance area in the recent past) would be the next expected reversal area - and if it gets through that, it could be expected to go all the way down to the trend start at 666.

There's one other tantalizing point about the Fibs that I want to briefly bring up.   Say we know that each of the Fib ratios provides at a minimum a support/resistance area - the parameters are calculated after the trend is completed for reversals going forward, but a glance at the chart shows that prices respect the eventual Fib Retracement as support/resistance even before the trend that is used to calculate the ratio is completed.

So, when we hit a big support or resistance area, couldn't we extrapolate from that eventual range targets?   Say we hit major resistance at point X - not enough for reversal, but still resistance that takes a slog to get through.   Couldn't we then say "what is the ultimate trend end of which the distance that we have covered from trend beginning to point X is 23.6% of the total or 38.2 or 50.0 or 68.1"?   We could theoretically calculate from that 4 different end points of a current trend based on Fib analysis even before the current trend is completed.   It's intruiging and, scarily, the sort of thing I think about lieing in bed at 3am.  Yep. Scary.  But intruiging.  I'll be exploring this more in the future.  Bet you can't wait...

In the meantime, enjoy the bounce for what it is - keep an eye on S&P 992 - it was awesome support while prices were above it - it should be strong resistance while prices are below it. 

Good luck!

 It looks like the operative word for today is PLUNGE.  Sorry about that if you are afraid of heights.

I highlighted last week the importance of S&P 992 as support - tested 3 times in 2 weeks - and the futures have blown past it going down.  If this holds at the open, 992 then becomes overhead resistance, and things won't be looking good for an easy trip back above 1000.

I want to show 2 daily charts with slightly different perspectives to show where we are:

S&P 500 - Daily Chart - 3 Months 

This shows the most recent 3 months.  Nothing really new here - I've been talking about this stuff for awhile. 

Starting at the top - prices - the top gray line is the Fibonacci 38.2% Retracement line.  Price aimed at this line several times and, excep for one brief intraday poke above which failed to hold at,  the close, the S&P failed at this line several times and is now turning away from it's foray as the "Valley of Death" (I'm going to miss saying that line) claims a victim.  If today's plunge is the real deal, then we should/could close below the 13ma (orange line) and then aim at the 26, the 50, and the 200.  Theoretically, those moving averages should provide some sort of support.  Whether they do or not could be a good gauge of how bad this will be.   Unfortunately the 200ma line (dotted yellow) could be the last stand - the failed June try at the 955-945 area (because of the curvature of the 200ma, it is back right around that area again) presents the first real area of potential price line support going down.   If this area doesn't hold as support, there really isn't any more good support areas until down around 880.   Note also, the the blue 50ma never did get above the 200.  For those looking for the proper bullish order to the moving averages (price above the 13, 13 above the 26, 26 above the 50 and 50 above the 200) - it never happened.  The 50 never made it above the 200.  You use these little things to help identify and confirm trends - a big bull uptrend, no matter the "green shoots" and the CNBC hype - never materialized.

The middle area of the chart shows the MACD-H.  I've been pointing to this divergence for awhile - you need upward momentum (which MACD-H measures) to maintain an uptrend.   Instead while price was inching above 992 and 1000 - MACD-H was going down.   It should be no surprise to anybody that the uptrend failed.   The MACD-H went steadily downward and is now firmly into negative bearish momentum territory.

And the bottom of the chart - volume.  The horizontal red line is 45ma of volume - sloping downward throughout most of the summer, even while prices rise.  This signalled a lack of commitment by the big money.  And you can't have a rally without increasing volume and participation of the big boys.

Now lets just zoom out a little bit to show the bigger picture:

S&P500 - Daily Chart - 10 Months 

The grey lines show the various Fibonacci Retracements calculated from the Oct 2007 high to the March 2009 lows.  Reading up from the bottom they are the 23.6%, the 38.2% (which gave us so much trouble) and the 50% which we never got near.    The 38.2 served as strong resistance back in Nov 2008 on the first bounce off of the Sept-Oct plunge and that gives context to it proving strong resistance that past 2 weeks.  

I drew a red line at the 950 area which was good resistance back in June when it coincided with the 200ma - and which it coincidently coincides with again now.   Since this was a good resistance going up, it should provide good support going down.   If it doesn't, there looks to be some support/resistance area at 900 - and then a big support/resistance area at 880 (coinciding with the Fib 23.6%) - which has already served as both strong resistance going up and strong support coming down.   In actuality, I would be surprised if we don't get down to at least this level - a drop of 10% from here.  Theoretically, we may retest the March 666 low, but we'll deal with that as we get closer.

At this point there is no reason to stay long once 992 is breached.   A cautious person may watch the anticipated 950 support area before committing to the bear side, but for me, breaking through 992 was the key.

The tools exist - the inverse ETFs to make $$$ when the market goes down.  Don't be irrevocably wed to the bull long side waiting for things to come back - take the opportunity to enjoy and profit from the bear side also looks like that might be the general tone of things for the foreseeable future (and since we're at the top with potentially a long way down to go, the opportunity for some major profits!)

So, fasten your seatbelts - it's going to be a bumpy flight.

Good luck!

S&P 500 - 15 Minute Chart - 7 Days

After 3 futile attempts, the S&P is backing off of its attempts to push past the Fibonacci 38.2 Retracement line of 1014 and has now retreated below 1000 again.   As the above chart shows, since a gap up at the open to start the month on Aug 3, it's traded in a fairly narrow trading band from 992 to 1014 (there was that one intraday spike to 1018 - but it lasted all of about 60 minutes).

Let's review for a second what makes a trend.  An uptrend is generally defined by higher highs and higher lows - a downtrend is generally defined by lower highs and lower lows.  In an uptrend, you don't necessarily expect each price bar to constantly setting a new high on each print - but the uptrend will stay intact so long as the price bar doesn't create a new low.  And vice versa for a downtrend.   Once that new low is created, the uptrend is finished - once a new high is created, a downtrend is ended.

So that's why 992 is so important right now.  It's been tested 3 times now and held.  A move below 992 creates a new low and ends the uptrend.

As an aside, if you are fairly new to chart reading, I hope you'll notice that the number 3 is a pretty important number.  As you look at charts notice that a lot of things happen in 3's.  Look at the chart above - since we've been above 992, there have been 3 separate upward moves.  The last upward move failed at 1014 3 separate times.  A head-and-shoulders consists of 3 separate thrusts also, etc., etc.  The more you look at charts the more you'll recognize this.  Keep this in mind as you're looking.

There isn't any rule that says that things have to change after 3 failed attempts, but in my experience it happens often enough to be aware of.  3 attempts to break through 992 going down, 3 failed attempts to break through 1014 going up.   I think that means that something is going to give this time - if 992 is tested going down, I don't think it will hold.  If 992 isn't tested and the S&P moves up again, I would expect that a new try at 1014 might be successful.

If 992 support doesn't hold, the uptrend is ended - but with important resistance at the 980 level, it doesn't necessarily mean that a new big downtrend has started (just as moving above 1000 with 1007 and 1014 right overhead offering immediate strong resistance  didn't signal the start of a strong new uptrend).   Once that main support/resistance area is broken, it's generally a good idea to see what happens at the next support/resistance area before commiting yourself to the new trend.  Accordingly I will get out of FAS once 992 is broken, but I won't enter into FAZ unless and until 980 also falls.  Nothing is a sure thing - don't anticipate and trade too early, because you may get burned - there's no rule that says that support at 992 necessarily can't hold again.  Wait for the market and the charts to tell you what to do and when.

I hate to keep playing Cassandra or the boy who cried wolf, but the fact that there was strong resistance which corresponded to an important Fib Retracement point and the S&P is pulling back after a bunch of failed attempts, coupled with the lousy MACD-H and volume readings makes me think that this may very well be the start of the downtrend that we've been waiting on for months, rather than just a temporary pullback. 

Remember all the bull excitement just a few days ago after the Fed announcement?  We were pretty much almost out of the recession, etc., etc.   It didn't quite incite a big lasting market rally, did it?  In just a few days, that might be nothing more than a brief memory.

Back to the salt mines for me.  Good luck!

Futures are pretty much unchanged pointing to an open that is pretty much unchanged.  Since the S&P is in the middle of what I've been calling The Valley of Death ("where uptrends go to die"), the lack of forward movement isn't exactly a positive.  And it's not as if we just had a huge price rise that the S&P needs to consolidate from - it's been 9 days since the S&P crossed the 1000 line - and it's only finished at a new 2009 closing high yesterday of 1012.73.  12 points in 2 weeks!   And the market is acting all exhausted and just.... can't.... push.... things.... higher.....  It's tough isn't it?

Nothing is different from what I've been talking about the past few days.  S&P prices are stalled at the Fibonnaci 38.2 Retracement level (quite a resistance so far, eh?) - 3 tries so far, and all there is to show for it is one intraday poke above.   At some point if things don't happen, the bulls will just give up in disgust and take their ball and go home, leaving the field open for an epic bear move downward. 

 The 50ma still hasn't crossed the 200.  MACD-H is still declining, and is barely a scooch above the center 0 line, barely hanging on.  And volume, to be blunt, sucks.

Basically, for things to continue upward, the bulls really do need to make a show of force - a decisive move that closes above the Fib 38.2 (at S&P 1014) would certainly send a message to right things - will it happen?   3 weeks until Labor Day and the historically very bearish months of September and October begin.   The bulls better get their acts together and in a big way very soon.  None of the indicators that I follow give much support to this notion - but nothing is written in stone - an indicator gives an idea and framework to view the market movements with - but it nothing is ever definite and a sure thing (otherwise we could all retire early).  Maybe the bulls will pull it off - who knows?   I am still using the 980-992 area as my drop dead line on the support side.  Once this is violated on the down side, it's going to be all over.

Busy day at the salt mines today so I gotta run.

Stay tuned - Good Luck!

Here's a very strong futures chart.  It gives the impression that things are headed way up today.  It is on a 20 minute delay - at the point this chart was captured, the S&P futures were at 1014 (our  yearly high the other day was 1018).  So I go to the kitchen to get some coffee, etc., I come back out 5 minutes later, and there were bad jobless and retail sales reports released and suddenly the S&P futures were down at 1007.

So instead of this awesome upward trending futures market ready to blow past the Valley of Death and challenge the yearly high right at the open, we're back down right at the 1007 entry to the Valley of Death, looking upward.   Suddenly wasn't as strong as it looked 5 minutes before :-(.

All I had to do was say yesterday that FAS was no longer en fuego, than it then went out and turned in a 5.3% day (yes, that's all it takes).  And in that glorious pre-jobless report futures world it was already up another 5.5% - then it dropped back to up only 3.5%.  SIGH.

OK - let's look at some charts:

S&P 500 - 15 Minute Chart - 4 Days

 Looking at Wednesday's price action - there was that big gain in the first 30 minutes.  Things then pretty much cruised in a tightish range between 1005 and 1009 until the Fed 2:15 announcement (you can see all the quiet bars throughout the afternoon and then suddenly they started moving as if they had a jolt (7 bars before the day's end), initially dropped, then took off up to 1013 just before 3 before dropping back a bit just before the close.  Basically, prices hit a the Fibonacci 38.2 Retracement again, and fell back again.  

If today was to be a down day, then there would be the distinct possibility of a double top, which combined with the fact that it occured at an important Fib Tracement area would be a very strong argument that that was it.   The high futures this morning gave hope that the double top would be avoided and the Fib 38.2 Retracement left behind.   The idea behind the Fib Retracements is that the market will most likely reverse at the specific Fib ratios - if the S&P made it through the 38.2 area, the next danger areas wouldn't be until the 50.0% (just above S&P 1100) and 61.8% (above 1200).  So, theoretically, if we make it convincingly past the Valley of Death 1007-1014 area, the bulls should be able to grind out another 100 points on the S&P (that's 10% in S&P terms, 30%+ in FAS terms).  At 8:29 am, that looked a distinct possibility - at 8:31 am that possibility is looking problematic.

Here's the Daily Chart:

S&P 500 - Daily Chart - 3 Months

For all the hoopla of the Fed announcement yesterday, none of my technical indicator situations that I've been concerned with have been resolved.  The 50ma (blue line) still hasn't crossed over the 200 (yellow dashed line).  The MACD-H is still diverging -  still headed down and is now just barely in positive territory.  The only positives were that prices managed to bounce back up off support at the 13ma.   And volume was up a smidgen over the previous day and barely above the 45 vol ma.   I ask you - if the big boys had thought that yesterday's Fed announcement was such a big deal - and that the markets were headed higher, they would have jumped in bigtime and really pushed prices and volume up way more after 2:15 than they did.  If they thought that the S&P was going up another 10%, they would have wanted in while prices were still cheaper than they will be.  They wouldn't have taken profits after 3pm the way they did.

So, in spite of the excitement, we're still pretty much where we were earlier this week.  The indicators are still suggesting a downward move, there is still a lot of resistance and the Valley of Death right ahead.   Nothing's really changed - and really won't until this area is cleared.  The danger is, that there have been 2 attempts already (and don't forget, each new attempt has a lower MACD-H [inditia of forward bullish momentum] than the previous one - so each attempt becomes harder) and quite often a failed 3rd attempt is psychologically devastating to the market and will portend a major downward move.  

So this is really approaching put up or shut up time for the market.  And it should be resolved in the next day or two.   Damn those bad retail reports.  But does anybody really expect at this point in time that the market can make a solid upward move based upon good economic reports?  That I think is where reality trumps wishful thinking.  And at some point, unless those economic reports become actually good, as opposed to the chimera (I've been waiting all week to use that word) of beating lowered "expectations", you'd really have to wonder what else the bulls have to make their case upon.

So, today, into the Valley of Death.  Good luck!

The S&P finally had a bad day yesterday to match the signals the the indicators have been giving off,  dropping through the 1000 level,  finding support at the 13ma level (or some other sort of support funkiness going on at 992) and closing at 994.  As you can see from the futures chart,  it's been hanging around that 994 level during most of the overnight.  The media has been all about the market "waiting for the Fed" (today's the second, the important, day of the Fed meetings when things get announced at 2:15). 

It's not like the Fed is going to either lower or raise interest rates.   And I don't see yesterday's action as "waiting on the Fed" - unless the S&P was destined to go down 50 points yesterday and instead held off, because it was "waiting on the Fed"....  Regardless, theoretically things should start moving again after 2:15.

S&P 500  - 15 Minute Chart - 4 Days

Here's the last 4 days - I outlined what I've been mentally referring to as  "the Valley of Death" ("half a league, half a league, half a league onwards, etc.") that area bounded by the November resistance at 1007 and the Fibonacci 38.2% Retracement at 1014, which we barely made it through.  But notice the support line at 992 - it held as support last Thursday and yesterday.  And, as the next chart shows, it also corresponds with the 13ma.

 S&P 500 - Daily Chart - 3 Months

So there's your next key for today - watch that 992-993 level.   Not only has it acted as support two separate times in the past few days, but, also, notice that the S&P has been above the three shorter-term MAs (the 13, 26, and 50) since about mid-July - one characteristic of an uptrend or a bull market is that prices are rising and above the MAs.  If the S&P falls through the 13 today, that characteristic comes to an end and is a bearish signal - it would only be a matter of time before MAs themselves reverse direction and start heading downward also. 

Notice that the 50ma (blue) has yet to cross the 200ma (dotted yellow) - and is looking increasingly like it may not.  On a longer range chart, it will appear that the 200 served as resistance to the 50, just as on a longer period chart it will appear that the pivot turned at the Fib 38.2 at 1014 instead of slightly higher.

Notice also that the MACD-H has continued dropping - and is now nearing negative territory - remember some traders use the MACD-H crossing the center 0 line as buy/sell signals - and this would definitely be a "sell" (this also corresponds to the fast (blue) MACD line crossing under the slow (green) one - notice how it has already gone flat and changed direction downwards , indicating upward momentum has stalled or ended - and people also use the MACD lines crossing each other as buy/sell signals).

So there's a lot going on - lots of signals being given that actually aren't at odds with the price action the way they've been for several months now.   We've had that bearish divergence on the MACD-H, indicating prices wouldn't continue to rise - and that finally appears to be coming true.

Yesterday's low was still a smidgen above the intraday low 3 days ago - so the 3-day chart will not have showed a trend change yet.  If today's price action is down, that will change.

So, long story short, the talking heads think nothing much will happen before 2:15.  But, depending on what happens after that will go a long way toward clarifying where we're headed.  A downward move will confirm all sorts of bearish signals.  An upward move... well, what is the case for what happens on an upward move?  It would mean the 13ma held as support (which is always bullish, just as the MAs not holding is bearish).  But we still have the 1000 line and the "Valley of Death" (I really like that phrase LOL) ahead overhead - and we've already been pretty much stymied getting through there with upward momentum intact.   I hate to let my bias show, but to me the weight of things definitely seems to be on the bear side.

Will the 13ma hold?

Will the 50 finally cross the 200?

Will the MACD-H manage to keep itself in bull territory?

We're all "waiting on the Fed".  Isn't this exciting?  Stay tuned.  And Good Luck.

P.S.  The FAS had a bad day yesterday (down almost 10%) - safe to say that is no longer en fuego.   Remember one reason why I'm trading the financial ETFs is that the fortunes of the financial sector tend to lead the indices - both up and down.  If today ends up badly, FAZ (the 3x financial ETF) will start looking really good.

The S&P closed yesterday at 1002 dipped in the overnight below 1000 and has rebounded.  I consider the steady upward move since midnight as portending a higher open in the markets.

I wrote last night about the potential Fibonacci 38.2% Retracement area at 1014.  There's another big resistance also staring us in the face at 1007 that we've already bounced off of once.

Here's a chart

S&P500 - Daily Chart - 11 Months

 Back last fall, when the markets were plunging, prices hit an initial exhaustion in October, and rebounded before resuming the plunge in November.  The high of that initial rebound?  1007 - the same level as our current high hit this week.  It may be hard to see, but I drew a red line across the chart at that level and, as I said, it's already held as a resistance point.  Combine that with the 1014 Fib resistance area and suddenly the immeidate way upward is looking quite problematic.

Let's look at the MACD-H.   See how high the MACD-H was at the Oct 1007 pivot?  See how low the  MACD-H looks at the August high?  This is a bearish divergence.  The current market  doesn't have nearly the same level of upward momentum to get through this same area that stopped things cold back when it had much stronger upward momentum back in October.  This suggests (weasel word) that prices will go down from here.  We'll see.  Add this to all the other reasons why the charts indicate that the rally can't be sustained.  The market hasn't been paying attention to the charts so far.  LOL

Look also at yesterday's volume.  That's quite a red spike.   We're having a tough time getting high volume on up days in an uptrend, but give the traders a down day and everybody comes out of the woodwork.  Does this suggest strength on the bull or the bear side?

Here's the same chart only showing the last 3 months:

S&P500 - Daily Chart - 3 Months

 On the chart you can more clearly see where current price is in relation to these 2 resistance lines.  You can also see how MACD-H is still declining (bearish) suggesting that the bulls have run out of gas.  And of course there's that big red volume spike that the bears put up yesterday.

I don't think anyone wants to say that things are headed south from here - regardless what the charts have said, anyone who has expected a downtrend since April has been burned.  So I'll just settle for saying that, at this point in time, the signs don't necessarily support a big upward move.

If the S&P manages to get past this resistance area and the MACD-H starts looking healthier again I would consider very bullish and start looking ahead toward 1100 and 1200, but until that happens, caution should be a watchword.

FAS en fuego

I use the S&P as a proxy for entry and exit into the financial ETFs (UYG, FAS, SKF, FAZ), since the financials tend to be the tail that wags the market dog.  However, look at this past weeks price action, particularly the past 2 days where things have stalled.

Now consider FAS the past 5 days:

7/30 +6.7%

7/31  +1.8%

8/3    +7.9%

8/4    +6.1%

8/5     +9.1%

27.1% in 5 days.  And this morning, so far, +4.9%

First off, I hope everyone's in FAS and enjoying this.  But notice that the connection between FAS and the S&P is now off - especially the last 2 days.   The financials should be lifting the broader market - and they're not.   I don't know how long this disconnect will last, (and I certainly expect when things turn around that the inverse financial, FAZ, will lead the broader market down) but I think it's worth noting.

That's the deal for today. Good luck!  GO FAS!

Ok - today we're going to get into some more advanced chart esoterica - Fibonacci Retracements.  

It can get complicated, but basically all you need to know is that there are certain ratios that often repeat in nature that also work in chart analysis.

If you think big picture - once a trend is complete and reversed direction, the distance that that reversal will go before it in turn hits resistance and reverses is often a specific proportion of the distance from trough to top (or top to trough) of that first trend.  These proportions or ratios are .382 and the more important .618 with .236, .50, and .786 of lesser importance.

What this means, and I'll show the chart - the previous ultimate S&P high back in 2007 was 1576.  We bottomed at 666 in March - so the S&P travelled 910 points from peak to trough.  So how far will this bounce that started in March go?  Take the various Fibonacci ratios and apply them to 910 and then add that number to 666 and they will identify potentially very strong support/resistance and reversal lines.

The reason that I'm bringing this up?   S&P hit a high 2 days ago of 1007.  The first big Fibonacci Retracement - the 38.2% line - is right there:  (910*.382)+666=1014.  That could be very strong resistance or a reversal area. 

 S&P 500 - Weekly Chart - 24 Months

The Worden Telechart software has set the top line at the Oct 2007 high and the bottom line at the March 2009 low.  It has put in lines at the (reading up from the bottom) 23.6%, 38.2%, 50%, and 61.8% retracement levels.  I gather that the 23.6% level isn't an important reversal level, but it served as support a bunch of times back in May.  After that, look at the 1000 area (where we are now) for the 38.2% retracement, the 1100 area for the 50%, and the 12oo area for the 61.8% retracement.  Serious Fibonacci followers will nail  it down to the exact number, I'll settle for areas and keep a watch from there.

So now when we think about support/resistance areas to monitor for potential trend reversals, we need to think about 1) past chart pattern reversal and support/resistance areas; 2) important moving averages such as the 13, 26, 50, and 200 day; and 3) Fibonacci Retrenchment lines. 

Hey, I didn't say this would easy - but think about how back in the day they used to have to do all of this by hand.

Did I mention that tonight is the Full Moon?