In The Land Of The Blind...

The S&P broke out in a major way yesterday, and closed at a new 2009 high of 1068.76 - which was also the high for the day (very bullish - on up volume this implies that demand was satiated and could resume pushing prices up again today).  The overnights were down slightly, which implies a flat to slightly lower open.    However, the market during the past two weeks has shaken off early bear strength at the open to consistently move up - so I'm not discounting that today could end up being an up day when all it said and done.

Here's how the current chart looks - feast on the bull goodness:

S&P 500 - Daily Chart - 3 Months 

I don't have a whole lot to add to the chart by way of interpertation - all my usual moving average and MACD/MACD-H indicators are looking very healthy.   I read in a article this morning the S&P is at it's furthest point above its 200ma since 1983.  This implies extreme healthiness, although it also points to things being overbought and that a pullback/correction of some sort is due at some point - if only to bring the price movement back into line with norms.

One thing I want to point out is volume.  Yesterday was gratifying in that volume rose from the day before on a strong up day.   Any rally worth it's salt needs to have rising volume showing that traders are buying in in the expectation of prices continuing to move higher.   However, volume as a whole hasn't really made much of an increase from its depressed levels over the summer.  I would expect, for this market to really take off, that volume would increase much more than it has - we should see several days where volume is 1.5 times its 45ma - and it just hasn't happened yet (even the strong day yesterday was only 1.18 times the 45ma - and don't forget the 45ma includes most of the summer - i.e., it was 1.18 times a very low number.  That has to improve for this to have legs - otherwise the implication is that the big boys really don't have confidence in a further move up and are remaining on the sidelines.  Supply and demand, baby - and we have to work on demand.

For the past year+ I've been basically confining my trading to the Financial ETFs.  FAS when the overall market is going up - FAZ when it's going down.  Yesterday FAS returned 9+%.   But can we do better?

Here's a listing of the top 10 ETFs by % return since Labor Day (the list actually includes 11 ETFs, but I discount anything that trades lower than 50000/day)

Top ETFs By % Return Since Sept 4, 2009 

As you can see, FAS makes the list, but it isn't the hottest ETF by a long shot.  Something wild is going on in real estate - the 3x Bull Real Estate ETF (DRN) has returned 56+% in less than 10 trading days.  Wow.  DRN debuted in the mid 50s in the middle of July and is now in the 150s - you do the math.

I also did a scan to see which ETF currently has the strongest MACD-H.  Check this out - there's been a lot of discussion of gold in the news lately - how much have you heard about silver?  Here's the chart for AGQ - an ETF that tracks silver:

AGQ - Daily Chart - 3 Months 

Up 14% since Labor Day - not enough to make the Top 10 list, but still not shabby at all.  

The thing that excites me about this chart is check out the volume.   quiet all summer, and then totally took off once September came around.   This is the type of healthy volume that I'd like to see in the S&P charts - but for now, this tells me that AGQ is maybe the place to be.

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 hit a 2009 high on August 7 and has since dropped back.  Which ETFs have posted the best return since then?  Let's take a look:

Quite a mixed bag.   These are all 3x and 2x ("UltraShort") inverse ETFs.   Basically real estate, financials, emerging markets (read: China) and energy.  

I basically trade the financial ETFs - it is my belief that in general  the financials lead the markets - both up and down.   For example, FAS does well when the overall markets go up and FAZ does well when the overall markets go down, however, FAZ returned 11.35% yesterday, while the S&P500 itself was down only 2.4%.  Since the financial ETFs and the markets generally travel together, it is easier to track the financial ETFs (meaning the underlieing specialty indicies that they represent) by tracking the S&P, than by tracking exotic/obscure/lesser known indicies such as the FTSE/Xinhua China 25.

Notice that I've shown the 45ma for volume (and eliminated a few ETFs from consideration).  Volume should always be healthy enough in a given equity such that liquidity issues are avoided.   Trading in an issue that only trades a few thousand shares a day will only lead to trouble.  I generally use as a lower bound of 50-75,000 shares/day as a minimum requirement for consideration.  Sorry, UEM and DMM - come back when you grow up.

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!

  FAZ - Daily Chart - 9 Months

 I'm not one to monitor the news looking to play Chicken Little - but this is potentially huge as far as I'm concerned - and could have serious market-impact reprecusions. 

Just saw this on the Washington Post website -

Let me set up the situation - the issue is how the banks will account for the hundreds of billions (trillions?) of exposure to toxic assets that are still on their books.  How much exposure they have has a direct effect on how much of their assets they are able to lend out, which affects their stated value and, presumably, stock price.

The current rule allows the banks to report the items as their value when transacted.

According to the article:

The proposal, which the standards board will consider issuing for comment later this month, would require banks to report the value of all loans and other assets based on the prices that buyers are willing to pay. This process is called marking to market, and the result is called a fair value. At present, banks are not required to report the fair value of most loans. They can instead report a value based on the original purchase price.

OK - Still awake? This is important:

Banks are required to put aside a certain amount of their funds to cover a share of their exposure.  Right now, the exposure is valued articially low - the banks have that many more funds to use to make $$$ - and that's what they base their value on.  Change the exposure to market value which is a LOT lower now, they have to report a much higher exposure, which means more of their funds having to be set aside - which reduces their working capital  - which reduces their value.  Which is huge.

Here's how the article puts it:

Even as market prices plunged during the financial crisis, banks reported that most long-term investments had held their value. By requiring banks to report fair values for their entire portfolios, the change could force many banks to acknowledge steep drops in value.

Got that ? By forcing the banks to be honest it's going to plunge their values, which will plunge their stock prices (which will probably plunge the market) but it will be a HUGE time to be in FAZ.

I know its cheating on a techincal analysis blog to rest my FAZ case on something that has nothing to do with techincal analysis (although its effects will be quite apparent on the charts) but, right now, there's some serious hope for FAZ on the horizon and it has nothing to do with the technicals. 

And that is my case for FAZ - which of course also has all sorts of implications for FAS.

The results of the stress test have been leaking out (official results at 5pm EDT) - but the market likes what it sees - futures have been up nicely and this uptrend that won't die looks ready to continue for at least another day.

We're getting within spitting distance of the high point of the year - S&P 944 - hit way back in very early January.   Consider that point to be the next serious resistance mark.   Part of me says that there's no way that we'll get past there - another part of me says that, with the stress tests out of the way and good grade given to the financial system, there's no reason why we shouldn't blow that point away.   S&P 1000 - Dow 10000 anyone?  

And someday we'll have a huge correction.   But not today...

Here's a daily chart showing where we are:

S&P 500 - Daily Chart - 3 Months

I wanted to point out 2 features on this chart that are bullish - notice that the MACD-H (middle window) has turned positive.  It is still in a divergence (if price is higher than at an earlier point, then the MACD-H should be higher too), but the fact that we passed through a part of the cycle where the bears pulled the MACD-H negative but couldn't hold it down below 0 should be interpreted as bullish - it gets to start a new postive cycle from a very high base - kind of like a football team getting the ball on a turnover already at the 50 yard line.

And look at yesterday's volume - an up day, with higher volume than the day before, at a level higher than the 9 week (45 days) volume MA.  That's also bullish.

So, unless something rediculous comes out this afternoon about the stress tests (and it doesn't appear that the market is anticipating such) - today should be an up day.   Either stay in a long ETF (FAS, UYG, etc.) or wait for the official news to come out before jumping in.

And keep an eye on S&P 944 - there should be a lot of hoopla if we pass that for a new 2009 high.

Later.

What if the bears gave a party and nobody came?  That seems to be what's going on now - we've gotten all sorts of signals and indicators that the late 6 week uptrend is done - yet the market is being very stubborn about making the move downward.    Futures are higher again this morning.  So what's going on?

Here's our current intraday chart - notice that our 3-day high is the high of Monday morning at 868 and the low is the low of Tuesday morning at 826.

 S&P 500 15 min Chart - 4 Days

So let's think about this for a minute.   Is the trend going to change to go back up?  It has to go up past 868 to do that - even with futures being up, they're only in the mid 840s currently, so it would take a big day to do that.  And what would happen after that?  The big 875 resistance would be staring us right in the face.  If we clear that, that totally would justify a switch to an uptrend stance.  Will that happen?  It could.  But highly doubtful.  But it could.  Nothing is ever certain.

What would most likely happen?   The market has a history of liking to retest important points.  I wouldn't be totally surprised if we tried to make another run at 875 from here.   But, in all probability, since it probably wouldn't succeed, it would be psychologically devastating to the market if it failed.  If I had time (which I don't) I'd pull up some charts showing that this sort of thing happens - there's a sticking point, the market takes a couple of tries at it, and then completely tanks after the last try fails.

So, the point is, even if we pass 868 and our rules tell us to switch over to the long side, I would definitely hesitate and wait and see what happens just up the road at 875 before making any switch - it could be very possible that I'd have to switch back to the down side very quickly.

So that's where we are.  We're still in a downtrend, although not currently going anywhere (Damn you, Apple! LOL) - but the chances of switching back over to the uptrend is not very realistic at this point.

Assuming that you've already switched over to FAZ or SKF or another inverse position - just hang in there and see what happens.  As usual, the market is what will tell us what to do - try and anticipate or jump too early, and chances are you will get burned.  Big time.

Later.

After the big switch-over back down to the downside, I was loving life yesterday - enjoying my 12% FAZ gain when suddenly the S&P hit 826 and decided to find support there and rebound upwards.  WTF??? What's so special about S&P 826?  Nothing really - however, that level also corresponded to the Dow 50 MA at 7790 and if things were going to find support and take a bounce, the 50 MA is a likely place for it.  

So yesterday gave up half the gains of Monday.  Does that mean that Monday was an aberration and that the market will continue going up?  Doubtful.  But it is a useful reminder that things don't just move straight away from point A to point B, but instead things do a lot of zigging and zagging on the way.  We are still in a downtrend until the rules stay that that has changed - indeed yesterday's low of S&P 826 is now the new low on our current 3-day bar - and the high yesterday of 850 didn't even come close to taking out our 3-day bar high of 875.  So it wasn't a particularly good day on the inverse side - but nothing's changed to suggest that the inverse still isn't the side to play.   Rememeber that 256% FAS gain in Mar-Apr - that didn't happen in a straight line or all at once.

 S&P 500 - 15 Min Chart - 4 Days

Here's the current chart.   Look at Monday's bars - there was big move down at the open, down to 850 (with a huge MACD-H on the downside)  and then steadily down from there the rest of the day.   Yesterday morning the price movement down continued down to 826 and then rose from there - however, it was unable to take back any ground past the point where the inital opening plunge on Monday ended.  And the MACD-H during the rebound never got even close to showing the level of strength on the upside compared to the level during the price drop on Monday.  This indicates to me that the strength right now continues to be on the side of the bears.

This morning's futures are lower - although Geithner is speaking and that can always shake things up.  Don't let yesterday shake you up - remember the big picture and the trend - yesterday's price rise gained back only a portion of what was lost on Monday - and  that should be lost again today.

Keep an eye on the 3-day parameters (since we are in downtrend, we need to rise above 875 on the upside to switch the trend) - stay in the inverse ETFS (SKF or FAZ) and wait for the downturn to resume in earnest - yesterday did nothing to change that.  

Remember - big picture - and wait and let the market tell you what to do.

Later.

As expected, the trend changed yesterday - the uptrend from early March is officially dead - having failed to make it past resistance at S&P 875.  Yesterday was a perfect down day - the high was right at the open at 868 - the low was right at the close at 832.  Currently, futures are down at 824 - a giveback of over 50 points since Friday.

Here's an analysis of return of the top 10 performing ETFs % change during the uptrend from Friday March 6 through Friday April 17

Anyone who bought FAS right at the S&P 666 bottom on March 6 and sold at 875 last Friday made 256% in 6 weeks. Even someone who came in late and left early during very obvious entry and exit points would have still gotten their 100% pretty easily.  And it would have been cake just dipping in for a quick 10% here and there - I hope everyone took advantage of the opportunity - there's absolutely no reason not to be making money in this market

Here's a 3-day chart, showing where we are:

S&P 3-day chart - 6 months

Since we were in an uptrend, we were looking for a violation of the low of the previous 3-day price bar for the trend change.  That happened with the price action yesterday. 

Now that we are currently in a downtrend, we will be watching for a violation of the high of the previous 3-day price bar for our trend change signal - otherwise, we will stay in an inverse ETF (SKF or FAZ) and just ride it down until we get the trend does change - and maybe scoop up an easy 256%. 

As it is, anybody who made the switch to FAZ on Friday when S&P 875 failed, made 31% just yesterday and is already up another 12% so far this morning.

No idea how far down this leg will go - there are arguments and indicators that support a plunge back down to at least 666 for a retest - but the case can also be made that maybe we won't get that far down at all.  Regardless, the current play is definitely to the inverse side.  Get in and stay in an inverse and just hold tight and wait for the market to tell you when its time to switch.

Later.

Futures are down bigtime.  I could go to any number of financial websites that will have headlines talking gobbledy-gook about renewed "fears" about the banking system, the economy, the state of the uptrend after it had risen so high, so fast, etc.  In fact, with the exogenous news this morning - a good earnings report by Bank of America, and the big Oracle/Sun deal - one would expect things to be higher.   But we know whats really driving things: the S&P hit major resistance at 875 on Friday and dropped back.  

Several weeks ago I predicted that this market would get to the mid 850s or mid 870s before dropping back (I admit that I thought it would happen sooner - gotta work on my timing! LOL) and that time is finally here.  The question is whether this will be just a small bump before things resume going upward - or whether we will sink back down and eventually retest the S&P low at 666.   I tend to think the latter - major lows and highs like to retest themselves.  Either way, the 6 week upturn we've been enjoying is in jeopardy  -we may stick around and make another try at 875 before dropping further back or we may just fail from this point - but this would be a good  to prepare to exit any longs and take this opportunity to either switch over to the shorts - or at a minumum wait to see what will happen before re-committing.

The current 3-day chart parameters are 875 on the upside and 835 on the low.  Since we are still technically in an uptrend on the 3-day charts, a violation of 835 on downside would be the confirmation of the switch to a downtrend.  

On a daily chart, we are still above the most widely-used moving averages, particularly the 50ma, and also still above the big trend line that I've been mentioning that has formed from last September (this line served as resistance at 875 back in February).  If any of the MAs or the trendline act as support, maybe this will only be a bump - but if we slice through them (like butter!), that should be interpreted as bearish strength validating the "retest" scenario.

Regardless, this is a good time to exit the FAS or UYG.  Those who are daring may wish to switch over to the shorts/inverse (FAZ and SKF) right away - others may wish to wait until further direction is given by the market - i.e., a violation of 835 to the downside.

Good luck!

The bulls had another good day yesterday - S&P hit 870 before retreating to close at 865 - both new high points in this uptrend.  Futures were down overnight - but have started rising again beginning around 5am.  As there is some serious resistance ahead around 875, there isn't a whole lot further to go before another big test.   I want to say that this uptrend is long-in-the-tooth, but it has been continually surprising me with its longevity and strength.

Here's an intraday chart of the last 4 days showing the strength. 

S&P 500 15 Minute Chart - 4 Days

One of those market chestnut sayings is that the amateurs (like me!) trade in the morning - the professionals trade in the afternoon.  And if you look at the past 2 days, there have been strong afternoon rallies both days which is bullish.  MACD-H for the bulls is at very strong and positive levels compared with the feeble MACD-H levels of the bears - look at Wednesday and yesterday how relatively high the positive MACD-H levels were and how small the negative MACD-H levels were when the bears took over.  Of course this may change at any time - especially if resistance at 875 holds - but in the meantime should be interpreted as a bullish signal.

The current 3-day bar low is 835 - the high is yesterday's high of 870.  You should be in a long ETF - UYG or FAS - keeping an eye on 875 for a sign of a possible reversal or a signal of continued bullish strength.   Going below 835 is the signal/confirmation that the trend has changed to the downside, but otherwise, stay long and wait for the market to tell you what it wants you to do.

Later.

The market had a late rally yesterday with the S&P closing at 852.   Futures were down through most of the overnight, however they have rebounded strongly as the morning has progressed and that momentum should carry over into the open.

I must confess that I've been distracted lately, and also influenced by a bias based upon expected terrible earnings - terrible earnings that have been somewhat discounted by the market - or, as in the case of the financials, considered by the market to be not so terrible after all in the scheme of things. 

For whatever reason, I've been downplaying the upside and expecting things to tank - and it just hasn't happened (yet!).   So let's look at a couple of charts and see what they say:

 S&P 500 - Daily Chart - 3 Months

As you can see, since March 6, the market has been in a solid uptrend - higher highs, higher lows.  It is steadily approaching the mid-870s resistance that served as a ceiling in late January and early February.   Of course if it passes this area it will be very bullish.   There are 2 conflicting factors to be considered here. 

Remember the trendline that I drew a few weeks back that started in September and served as resistance during the price breakdown after that - we crossed back over that line (for the first time since September) in late March - and that line has been tested as support twice now and has held.  This is bullish - however, the slope of the line is downward, so, theoretically, it wouln't help as support at current price levels or higher.  But the fact that the line has been crossed and has held as support has to be recognized as placing the market in a fundamentally stronger position than it was when we were below the line and it acted as resistance.

Now lets look at the MACD-H - notice how, since the MACD-H reached it's highest strength toward the end of March, that the price has kept climbing but the MACD-H has been declining.  That divergence indicates that upward momentum has stalled and that further price increases are unsustainable and that price should fall.

Next, lets look at the price moving averages (MAs) that I like to use - the 13 day (red), 26 day (orange) and 50 day (blue).   It's not easily visible on this particular chart, but all the way down the red (13 day - fastest MA) was below the orange (26) and blue (50).  Now that has changed, and in the past couple of days, also for the first time since last summer, the 13 is now higher than the 26 which is higher than the 50 - and all with upward slopes.  When important MAs cross each other are good buy/sell signals and the MAs reversing direction and the 13 and 26 crossing up over the 50 is definitely bullish.

So we have conflicting indicators - price is rising, it has cleared some important resistance areas and converted them to support.  MAs have reversed and are rising, with the 13, 26, and 50 all sending bullish signals.  But the MACD-H is sending a divergent signal, that upward momentum in the current market is not strong enough to retain the current price level - although MACD-H has not turned negative yet.   Bulls have lost momentum, but bears have not taken over.  Theoretically the bulls *may* come back before the bears get their acts together - keep an eye on the daily MACD-H for some clues as to future direction.

Now lets look at my favorite - the 3-day chart:

S&P 3-Day Chart - 7 Months

Look at the pretty uptrend on the 3-day.  Also notice that that trendline shows very well on the 3-day acting both as resistance before the end of March, and as support (twice) once it was bested.  On the 3-day, the MAs have also turned up (bullish), and the MACD-H is also not only still rising, but showing a nice strength.

So how do we interpret this?  Slight weakness on the daily chart, but still nicely strong on a longer-range chart.  A little bit of trouble in the shorter term - but still nicely bullish on a slightly longer term.  Since we are counting the 3-day as determining our trend,  this augers well for our trend - although it won't necessarily be a straight shot upwards.

The bottom line - listen to what the market tells you.  Right now you should be in a long ETF (UYG or FAS) - look at how nicely you would have done if you had moved into the long side back in early March as shows clearly on the 3-day.

The current 3-day bar has its high at 864 and its low at 835.  Since we are in an uptrend, we want to look for a break below 835 to the downside to signal a trend switch - otherwise, just hang on and stay long and see what happens when we reach the mid 870s.

Don't try and anticipate - let the market tell you what you should do.

Good Luck!

On a fairly lackluster day yesterday, the S&P managed to rise up to 864 before closing at 858.  As you can see, the futures then spent the evening drifing downward into the mid 840s during the overnight - until suddenly starting to rise around 2:30 am and wiping out all the evening losses.

What was going on?  The big headline, of course, was the Goldman Sachs earnings report which took "the Street" completely by surprise with reported 1Q earnings of $3.39/share vs the consensus $1.64 analysts estimates.   Wow.  And coming on the big Wells Fargo news last week - maybe this is the end of the banking crisis - or maybe at least the turning of the corner....

Except that there is some small print in the Goldman Sachs earnings report that is being widely overlooked:  in order to achieve its earnings surprise, Goldman did some major moving of the goalposts.  Bigtime.

Goldman ended it's fiscal year last Nov 30.  For the 1Q 2009 earnings, one would therefore expect 1Q to consist of the months Dec-Feb - except Goldman decided to, for this year, change it's fiscal year to a January-January calendar year.   So the earnings report that blew the estimates out of the water this morning was based upon Jan-Mar rather than Dec-Feb. 

So anything much happen in December that is now just going to slip through the cracks and not get reported?  Well it turns out that for the month of Dec, Goldman took a loss of $2.15/share - add that to the earnings actually reported and it turns out that the earnings were actually lower than the consensus.  In other words, by some accounting sleight of hand, Goldman turned a loss into a huge gain.  And Wall St, at least initially is lapping it up.

The question is, will this trickery (this is why the bankers get paid the big bucks) end up boosting the market in actuality as people assume that the worst is over and the market reacts as it did to Wells Fargo last week (which was good for about 200+ on the Dow) - or will the truth leak out and deflate the balloon?

So, looking at our parameters - the current 3 day bar parameters are 864 on the upside and 814 (again) on the downside.  Since we are in an uptrend, what we would be looking for is a break of 814 on the downside for a trend switch - otherwise stay with the longs - FAS or UYG.

And keep a clear eye out - they're all crooks out there - especially the bankers :-)

******
UPDATE:  The GS scam didn't really fool that many people (except maybe the idiots on CNBC) - as of 2:30 the S&P is down 1.8% and GS itself is down almost 10%.  Good job Goldman Sachs!

The market had a big day last Thursday - the S&P closed at 856 - just short of its high for the day (chart below).  Since then, it's given back about 8 points and is pointing to a lower open today. 

Will 856 be the high point of this uptrend?  I thought a few weeks ago that the trend would make it to the the 850s or 870s before hitting resistance and dieing - but then I also thought that things would get slammed with the earnings season beginning last week - so what do I know LOL.

Here's a chart from Thrusday showing the awesome day:

S&P 500 15 Min Chart 4 Days

I drew a couple of arrows to show that even though it was a good day point-wise for the market, technically, I don't think it was so much. 

The lower indicator is the MACD-H.  For those coming in late, MACD-H is a measure of momentum with upward or downward trend strength being measured from a 0 mid-point.  If a trend (and momentum) is strong, as price rises, MACD-H should rise also - if a downward trend is strong, as price falls, the MACD-H should increase, only in the downside, away from 0.  As you can see from Friday's price action, though, price rise big early, declined a bit, then steadily rose the rest of the day.  On the MACD-H, however, the initial price rise was accompanied by a very strong MACD-H - but the subsequent price rise was not matched by the MACD-H and in fact, the MACD-H declined the rest of the day.  Doesn't say anything good about the likelihood of further immediate price increases - does it?

We're still in an uptrend position-wise.  If this is it as far as the uptrend goes, the market will tell us.  Look at the last 3 days of price action heading into today - the high is 856 - if it goes higher than this, the market will have shaken off whatever was bothering it Thursday afternoon and in the overnight.  The 3-day low, however, is at 813-14 area - an area tested numerous times as support last week.  If this level is breeched heading downward,  it will be below the low of the 3-day bar - indicated trend reversal - which will also be confirmed by the failure of a significant support level - indicating market weakness.  Of course there still will be support levels at 800, 792 and 780 to contend with - see how strong the downtrend is by then.

For now, continue where you are - either in a long ETF (UYG, FAS) or out of the market waiting to see what will happen.

Later

Well maybe the earnings season isn't going as expected - although we're still early in the process.  Maybe all the bad news is already baked in and all the surprises from here will be good. You never know.

Things yesterday certainly didn't seem too bad as the market shrugged off the first earnings reports and actually finished higher than the open, even though it was down on the day from the close the day before.

I had thought for sure that we would violate low of the previous 3 days and begin the new downtrend in earnest, but it didn't happen.  Here's the chart:

S&P500 15 Min Chart - 4 Days

S&P 814 has acted as very strong support over the past couple of days - I'm not sure why, but I suspect  that it has more to do with the corresponding Dow 7800 level than anything special about 814.  Until we crack that particular nut, any downtrend will not go anywhere

Look at how quiet the MACD-H is - there is very little evidence of any strong momentum in either direction - until one side gathers steam, we may see a period of horizontal movement.  If this lasts throughout what is supposed to be a terrible earnings season, that would only be interpreted as bullish.  I still subscribe to the POV that we're going down from here, however, and the market is doing its best to make me look foolish.   Won't be the first or the last time.

So as of this point we are still in an uptrend - travelling in a narrow range between 842 and 814.  If the low breaks below 814 today, it will signal a shift to the down side, but with futures looking up, that might not happen.

I'm still in the inverse - expecting things to go down.  That may come back and bite me in the butt, bigtime.  I don't like jumping back and forth from day to day - that's a sure way to lose money - although staying in the wrong side will also lose money in a pinch.

At this point, if one is daring and has calzones made of something more than cream cheese, one could go into the long ETFs  and try to take advantage of this until it fails.  Or one could just sit out and wait for things to definitively move in one direction or another - and with earnings season surprises, that may change from day to day.  Or one could stay in the inverse and wait/hope for what should be "inevitable" - but may prove not to be.  Won't be the first time I have egg on my face if that happens.

Whatever happens - good luck!

The S&P closed yesterday at 815 - just before Alcoa reported half-a-billion dollars worth of losses in the 1st Quarter after the bell to kick off the earnings season.   The futures have responded negatively, although catastropically - and the movement is definitely down.

S&P 500 15 Min Chart 4 Days

Here's an intraday chart showing the last 4 days of S&P price action.  Notice that the 3-day low going into yesterday was 814 - which also served as a bit of support - we hit 814 a couple of times but never broke through. 

The current 3-day parameters going into today are Friday's  high of 839 and yesterday's low of 814.   Since I think we are still "technically" in an uptrend (movement has been choppy the past several days - not really in any regular trend), the violation of the 3-day low, presumably at the open today, will move the trend "officially" to the downside.   If you haven't made the switch yet out of a long ETF (FAS, UYG), now is the time to move into an inverse - FAZ or SKF - I would be very surprised (my normal weasel words LOL) if things go back up from here - we're headed DOWN.

Look to the upcoming support levels of 800 and 792 and 780 to get a gauge on how strong the downward momentum is.   I don't expect any of these levels to ultimately hold, but it will be interesting to see if they put up a fight or fold. 

Good luck.

I must confess to being a little baffled as to where we go from here today.  My gut tells me that we are both over-extended on the up side and due for the beginning of a serious pullback with the earnings season starting Monday.  Today's unemployment report was pretty ugly.    S&P futures have given up all of their overnight gains and currently sit at 830 (I have no idea what happened at 3:30 this morning to send the futures up - but it didn't make it past the unemployment report).

Here's a daily chart of the S&P - notice on the stochastics that we are in overbought territory:

S&P Daily Chart 6 Months

And here's my usual intra-day chart.  Notice in yesterday's action, that the close was very close to the first bar after the open.  Anyone who bought after 10 am yesterday ended up in a negative position for the day.  That tells me that even though yesterday was an upday, there was very little follow-through.  If it had been something to sustain the uptrend, prices should have kept rising, or at least not have given back what they had gained.  Notice that the 830 area acted as good support yesterday also.  If that can hold today once the market opens, that might be meaningful.

 S&P 500 15 Minute Chart - 4 Days

Via the 3-Day chart rule, we switched over to an uptrend yesterday as the price went past the previous 3-Day high while on a downtrend.  Can you tell that I'm discounting this?  I really don't think it will last or mean anything.   Since we are now technically in an uptrend, the area to watch for a trend switch is the 3 day low of 783 - and we're a good way away from this.

So, as for today's action I am highly ambivilent.   I don't think its going to go up from here, so I don't think it's worth switching to a long ETF.   Yet, there is nothing in my rules or in the actual market action yet that would justify a switch to the inverse.  So, at this point, I will stay out of the market until the market itself tells me what to do - and I think that might happen until Monday or even later.

Maybe I'll see more clarity a little later on.

Good luck!

We're huge.  HUGE!  And getting HUGER! 

Things have definitely taken a turn for the upside.  FASB announced this morning an effective suspension of the mark-to-market rules - very plus upside for the banks, the financial sector, and the market in general - and it is reflected in the futures and the probable open.

Do I still expect the market to go down next week once earnings season starts?  Yes - without a doubt.  And looking ahead and aniticpating like that is one of the cardinal sins of trading - because it's causing me to ignore and discount what is happening now - and I apologize to anyone who is taking my advice because it has cost you money.

Here's our current intraday chart:

 S&P 500 15 Minute Chart - 4 Days

First thing to notice - look at the last 3 days - the 30th, 31st, and 1st - the 3 days that would make up the last 3 day-bar if we were lookng at a 3-day chart.   The low is at our old supply/resistance line 780 - which still hasn't been broken on the down side - and the high is at yesterday's high - 813. 

And if you look at the futures - which are already up in the 820s - it is apparent that the 3-day rule will dictate a trend change from down to up as soon as the market opens. We were in a downtrend and the upper price of the 3-day bar was violated.   The down play - the inverse ETFs SKF and FAZ - is now dead.   The play should now be in the long ETFs (FAS, UYG) - and with the suspension of the mark-to-market rules this should greatly benefit the banks and financial sector.

One of the cardinal rules here is to be nimble - follow rules, and make the jumps when necessary.  

I still believe that the market will be headed back down soon -there's no way that the market will go stay up during what's going to be a bloody earnings season (see, when you say such definitive things you paint yourself into a corner - what happens if it does?). 

You think you "know" what will happen and try and anticipate it, and the market takes out this big huge wet floppy nasty fish and whack-whack-whacks you across the face with it to remind you what an idiot you are (me, really - not "you").

I try and teach my people to wait and listen to what the market says rather than just throwing the dice and hoping for the best.  In this case, the market is telling us - at least for the next day or two - that it isn't quite ready to go down yet.

Will this whole FASB bump hold?  Is it worth jumping over to the longs?   If you follow the rules, and that's what the rules say - then do it.  The rules aren't right 100% of the time (the rules, afterall, told us to switch to the downside earlier this week) - but they're right often enough that they're worth following.  And right often enough that when we do follow them and they give a false signal that we don't blame ourselves when they go wrong.

If you are in and believe, as I do, that the downside is still the way to go, then at least get out for now and wait for the downtrend to resume.  If you're nimble, you'll switch over and ride this little burst of uptrend and see where it goes.

Once we have officially switched over to the uptrend,  the current 3-day low to switch back is 780.

Good luck!

Futures, as you can see, have been all over the place but over-all are DOWN. 

After dropping to 797 at the close, the futures yesterday continued to drop down to the low 780s, rallied several times overnight back up to 790 - and now, as of 8:30am, sit at 783 after a bad ADP jobs report.  I think it's safe to say that the 2d Quarter 2009 will open on the down side.  A move below the 780 support/resistance line will be the final nail in the coffin on the late March rally - although we've already started making money on the downside.   Go FAZ!  Go SKF!

The 3-Day high to watch for a trend change back to the upside is still at 832 - what do you think the odds are that that will happen??

Yesterday was, I think, a last gasp for the bulls.   The S&P hit strong resistance at 810 - the low side of the Monday's downward gap at the open.  Remember that the natural tendency is for gaps to be filled - the fact that the index yesterday managed to get justp to the edge of the gap but was unable to get up the strength to fill it - that's just a bit bearish, no? 

S&P 500 15 min chart - 4 days

Additionally, the 50ma is right at 790 - this will mark yet another occasion where the S&P managed to get above the 50 briefly and couldn't hold it.  Nothing new here.

So all of the weight seems to be on the side of failure - the S&P gets the strength to rise, but can't follow through and hold it.  So the natural direction is further down. 

Make sure you take advantage of this by getting in on an inverse ETF - since the financials lead the market up - and lead the market down - the ETFs to be in are FAZ and SKF. 

If we go down and retest the 666 low, that should easily be a 50-100% pickup for the old portfolio - just stay steady, follow the trend, and don't jump around.

Good luck!

 Here's an intraday chart going back a few weeks showing the late uptrend.  I really had thought that it would go another week until the earnings season started next week - but it appears to have already failed.   Notice the declining positive MACD-H and the advancing strength in the negative MACD-H in the past trading 4-5 days - and how now the negative MACD-H is at the highest value for either postive or negative within the 20 days of the chart.

For those who aren't used to looking at the MACD-H indicator, look at the level of the positive MACD-H  on Monday March 23d (the length of the lines going upward from the mid 0 line)- and then go to the 25th and 26th.  Notice that prices were higher than on the 23d - but that the corresponding high for the MACD-H on those days was much lower than on the 23d.  That sort of divergence generally indicates that prices will fail - and sure enough they did.   Now prices are lower and the negative MACD-H is at a very healthy value which indicates to me that there is a lot of strength to the downside.

There is no reason anymore to be in on the long side.  An overly-cautious person may wish to wait and see if 780 support level fails for final confirmation - but I've already switched over.

 S&P 30 Min Chart - 20 Days

As of 2:30 - the financial ETFs have had the following returns so far today:

FAZ +19.5%

SKF +13.5%

UYG-12.3%

FAS - 18.6%

It's a good day to be short and inverse :-)

Later

The market was had an interesting day yesterday –up big, then down – falling through the S&P 800 level (who knew that 792 would turn out to be such a nice support area?) – and then coming back at the end to finish at 814.  The fact that support was found and prices rose at the end should be considered bullish.

Yesterday I had written about maybe dropping the long ETF if 800 failed, but to wait until the 780 failed as support before actually switching over to an inverse ETF – and the way things played out, that was way to play – the uptrend was in danger and it would have been prudent to bail – but nothing ever said that a new downtrend had actually begun – and it hadn’t.  So anyone who switched too early lost money.   It’s a good idea to wait for confirmation on trend change – either the failure of the next lower level of support (which will tell us that things really are headed south) or for the price to go below the last lowest 3-day bar level – which yesterday was at 766.  Yesterday, if you had just gotten out and waiting to make the switch, rather than switching automatically, today would just be a matter of getting back into the long ETF no fuss no muss without taking any losses.

Futures rose overnight into the 820s and have consistently stayed above yesterday’s close.   I keep pointing out the the way forward into the 800s is filled with lots of resistance areas – but I also feel that this uptrend should proceed at least until the earnings season starts the week of April 7.

Going forward, I expect more days like yesterday – lots of volatility and slow progress upward.

Keep an eye on the 800 area again for support – bail if it fails again, but wait until a failure of 780 to make the switch to the inverse.   The 3 day low has now moved up to 772.

Here's an interesting feature on the daily chart:  remember I've been talking a bit lately about a trend line going back to last September that we finally breached with the big day on Monday - check out yesterday's price bar on the chart - and notice where yesterday's support was - the trend line!   This is incredibly bullish - this line acted as very strong price resistance ever since the tumble beginning last September - and now suddenly it's acting as support.    I bet the bulls just wish it was an upward sloping line - LOL 

S&P 500 Daily Chart - 3 Months

To be fair, the trend line at this point also corresponds to the 50 day moving average (ma) - so it's entirely possible that price was reacting to the 50ma rather than the trend line - but the important thing is that the turn-around yesterday wasn't completely at random, but based entirely on finding a logical and usable support - that is bullish going forward.

Later

So we had a little bounce-back from the big up day on Monday.  It didn’t do a lot of damage in terms of how many points we had gone up – but suddenly we are back down in the 800 area.

It goes without saying that if this uptrend is going to succeed, then the 800 level, which had acted as strong resistance coming up now comes through as support.

So the play is easy – if we go up, stay in the long ETFs – the general consensus is that there should still be more room on the upside before this fades.  But if 800 falls, get out of the longs and go with the inverse ETFs if support at 780 fails.   The low on the current 3 day bar (a breach of which would signal a change to a downtrend) is at 766 today.

Futures are down this morning, as to be expected, after the big party yesterday.  Anybody who was in FAS from the start yesterday picked up a gain of 41+% on the day – not too shabby.

The sentiment of the market seems very bullish right now, having cleared the important S&P 800 hurdle.   We easily beat the 818 level yesterday, and it looks like, since we’re backing off that now, that we’ll have to clear that area again.

I’ve been reading around and everyone seems pretty excited that this has some kind of legs.  There’s a guy who I respect who comments over at The Big Picture blog, who uses a combination  of Elliot Wave and Fibonacci Analysis (things I can only aspire to – and believe me, you don’t me to get started babbling about that stuff) – who is looking for a target near 875-880 – which makes sense to me – which also implies that there is still another 10% to the upside on the S&P.  I like that.

So obviously the play going forward is the long ETFs – I still prefer the financials, and I will periodically post some charts showing the financial ETF gains relative to those of other ETFs – but financials should be among the leaders – if not the leaders.

I wanted to post a couple of charts that I should have posted last night.

S&P 500 15 Minute Chart 4 Days

Here's my standard 15 minute chart showing the last 4 days.  It's a little busy, but I circled the bullish cup-and-handle formation that set up since the afternoon of the 18th.  What I find interesting is that up until yesterday's bars you couldn't see the cup-and-handle forming at all (at least I couldn't).  Yesterday took what appear to be a downward-forming trend from the previous 3 days and completely turned it around and gave it a huge boost turning it into a classic bullish chart pattern and then followed through to the upside - this would not have happened in a downward market.

 S&P 500 3 Day Chart 10 Months

This is the 3 day chart that I posted the other day.  Notice how the price has now cleared the trendline that defined upward price limits since September.  Also notice how clearly defined the uptrend is on the 3 day chart - anyone who had switched over to the bullish side 4 bars ago and had stayed in throughout the 800-level drama easily picked up the 41% yesterday - there's something to be said for just picking a side and sticking to it. 

Notice also, on the 3 day chart, that the MACD-H has just cleared the 0 line and is just starting showing bullish ownership of momentum.  Judging just from the relative sizes of the lengths of each up and down MACD-H cycle, it would appear that this uptrend still does have a way to go.

Besides the normal resistance areas throughout the S&P 800s that lie in wait  - the Q1 earnings season, which should be absolutely dreadful, starts in 2 weeks on April 7.  On a 3-day chart, that comes out to 3-4 bars.  Looking at the chart, and the congestion around the 847 line, it's rather easy to expect that we could be up around that area on the 3-day chart before the negative news from the earnings season starts to adversely affect this uptrend.

So I give it 2 weeks - with an upside into the mid-850s.  I could easily see a drop from there and the creation of double W-shaped bottom.

 There was a big pre-market move today, and then not much happened until this afternoon when things finally took off to the upside.  The S&P has moved nicely above all the 800-area resistance points - those should now be support on the way back down - and FAS is up 31% while FAZ is down by the same amount.  Gotta be nimble to play these guys.

 S&P 500 and FAS - 10 Minute Chart - 2 Days

Here's a 10 minute chart showing the S&P and FAS for the past 2 days.  Notice that Friday the uptrend had broken down and things were headed downward.  Now it's the exact opposite, especially after breaking through the S&P 800 area which beat the last rally.

The play is definitely the long financial ETFs (UYG 2x, FAS 3x).  We have some serious resistance coming up in the 818 and 830 areas (the S&P 800s are filled with all sorts of treacherous areas) - let's see if the rally this time (maybe Wall St actually likes this plan!) will keep things moving through these areas.

Good luck.

 I've been viewing the S&P 780 line as crucial to the success of this uptrend - and we've fallen back below it.  A line that acts as awesome resistance going up should also act as awesome support coming down for a trend to stay intact - and this didn't happen with 780.

 S&P 500 - 15 Minute Chart 4 Days

There's still potential support at 750-52 (the low on our 3-day bar is 749) and then again at 742 - so theoretically the uptrend can still be saved - although my gut tells me it's na ga happen.

The uptrend play FAS/UYG/etc. is done (unless you want to be die-hard about it).  Those who want to be early can jump over to FAZ/SKF and other inverse ETFs - or wait and see what happens down around 750 for confirmation before committing.

Theoretically the 666 line needs retesting, so there is plenty of room on the downside from here.  Even if you don't jump over to the inverses right away, there still should be $$$ to be made as we head downward.

Later.

Lookie here - a trend line going back to early September - pre-Lehman days - Look at the low in Mid-September and the bar right next to it - the solid black bar right next to the turn-around day which was the low - that was a big day that was September 15 - Lehman Bros day - solidly down, the next day there was a turn-around and a one-last-gasp reaction for a few days while Paulson became "the man"  - but since then, this line has not been crossed.

 S&P 500 - Daily Chart - 7 Months

So it shouldn't be a surprise that even with a trillion dollar headwind, the market got stopped stone cold.   The big question here - will it go straight down, or will it meander in a horizontal fashion for awhile.  Of course, if it goes up through here it would qualify as awesome. 

Of the moving average lines on the price chart - you can see how successully the S&P has interacted with the top lite-blue one - the 50 day ma - since in the days when Lehman was still alive - sort of it's once-a-month  "Gee the weather is nice up here" before retreating back down below the 13 and the 26 for the rest of the month.  

But you can see how much better the indicators are this encounter - the ma's are all pointing in an up direction and compared to the interaction points since this whole downtrend-thing began, the MACD-H looks pretty bullish - the volume has had several weeks of above average volume on up days since this month began -

Things could go either way - and Friday is  witching day - expect turbulence.  If it breaks through the line in a convincing way with good volume (and there will be good volume if it happens) it will be incredibly bullish.  If it proves to be the top point of the uptrend the question is how dispirited the bulls will be - will the drag it out and put up a fight or will they give up and will it plummet back to 666?  Either way, if it proves to be a top of course we want to go inverse for the ride down.

I'm gonna watch 780 as a support area and be willing to abandon and make sure my position is in the inverse if 752 or 742 don't hold either - or wherever the 3 day bar low is actually. 

80o is going to be a rough place to get through - if it does, definitely be on the long side.  But there's a lot of stuff going on upwards there and I think it would take a big rally tomorrow to not get spit up and tossed aside by prevailing trend-lines and moving averages converging to support resistance - and maybe it'll be a famous witching day - who knows.  Maybe Bernanke will throw another trillion in just for fun.

Later

Yesterday was quite an exciting day – the rally was failing at S&P 780 when the Fed made their announcement – and suddenly 780 resistance was taken out “like buttah”. 

We are now in the midst of dealing with the next very problematic resistance level at the 800 area.  Futures dropped overnight from yesterday’s 794 close down to the 785 level, but have since rebounded to positive territory.  This rebound should be considered bullish, as well as the fact that the overnight low stayed well above 780,  

For this extension of the rally to stay real, what was resistance at 780 has to now hold as support and provide a floor for the assault on 800.  The overnight futures seem to support this.

At this point, there is no reason to be in the inverse ETFs unless we break back down below 780 – and maybe even wait for a break below 750 (the current 3-day bar low, and the next major support level in its own right.  A prudent person might choose to wait until 800-804 is cleared before committing back into the long ETFs – however the long ETFs is where the market is currently telling us that the play is taking place.

Technical analysis and chart reading are based upon analysis of chart patterns and price movement.   The price movement before the Fed announcement gave every indication that upward move was sputtering out at resistance and would probably reverse.   But technical analysis can’t predict for such an exogenous event as the Fed committing to injecting a trillion dollars into the economy – when something like that happens it can truly be a game changer – a fading rally suddenly has a new lease on life.  Let’s see if this is enought to boost the S&P into the 800s.  If we do pass 804 – look for the 818 area as the next challenge to be met.

So the S&P and the Dow are both staring important resistance areas right in the face - the S&P 780, the Dow 7400.  They both closed within a cat's whisker yesterday - the S&P at 777 - the Dow at 7396 - both backed off at the open this morning. 

The Dow had failed at 7392 on Monday and then again at the open this morning.  The S&P failed yesterday afternoon and then again at 778 after an run this morning.   So at this point the barrier is holding - the S&P hasn't been able to crack 780 going up in several tries since it fell below that line last month.   Often after a several failed tries at resistance the bulls get dispirited and give up, so chances are that will be the case here.  There's always the chance that something exogenous could happen (maybe some sort of surprise announcement from the Fed meeting this afternoon, perhaps) that might give the bulls the extra push they need to clear the hurdle and keep the rally alive, but it's never a good idea to get into the "betting on a surprise" game.

Here's a 4 day chart of both the Dow and the S&P showing the failed attempts.  Notice that the low of the previous 3-day bar in the S&P is now the familiar 742 line.   

 Dow and S&P 500 15 Minute Charts 4 Days

A prudent move might be to exit any positions at this point and wait for the situation to resolve itself before getting back in.  I would treat a breakthrough of the S&P 780 and Dow 7400 as incredibly bullish (Go FAS! Go UYG!) - although there is stiff resistance coming up again really soon.  Likewise I would look for a breakdown through support at 750 and 741-42 as confirmation that the uptrend is officially ended and go inverse (Go FAZ! Go SKF!)

One way or the other, the market and the bulls and the bears will tell us what to do - there's absolutely no reason to be guessing otherwise until they tell us - even if it means waiting another day or two.

UPDATE: - at 1:45 we've made it to S&P 780.80.  FUN TIMES!!!

UPDATE 2: The Fed came through with an announcement of a program to aid the mortgage market - the S&P and the Dow blasted through the 780/7400 resistance - now at 797 and 7500 - more resistance!  If the Fed boost is real, we might actually clear these areas...

After closing at 778 yesterday, the futures appear to be backing off of their date with the all-important 780 line.

We’re at a point of reckoning here – the 780 area is the next and biggest test for the rally.  If we clear 780 it will be HUGE (although land mines abound at the 800 area) – on the other hand, if we get turned back at 780 it will be the beginning of an important new downswing that should retest the 666 low.

So hold tight and remain vigilant – clearing 780 means remaining in FAS/UYG – dropping back means switching over to FAZ/SKF (or your contrary ETF of choice).  If we do drop back, I would look to breaching the 750 area and 741-42 as confirmation of the resumption of the downtrend.

The rally stalled yesterday – the S&P reversed after hitting 774 twice and closed at 753.  It’s been up and down and all over the place overnight and currently (8:15 am) sits at 750.

There’s a couple of ways that this can go.  The extreme bear case calls for a full retreat – all of the over-sold conditions have been worked off and things are ready to resume the big drop back into the 600s (switch to the inverse ETFs SKF/FAZ).   Or, yesterday afternoon was just an overbought blip and the market will be ready to resume its march through the S&P 700s toward 780 and 800 (stay in the long ETFs UYG/FAS).  Or we can stay in a trading range with, say 750 or 741 as the lower bound and somewhere in the 770s or even 780 as the upper bound and move horizontally for awhile.

The uptrend from 666 still hasn’t ended yet.  Even though forward momentum seems to have stopped, yesterdays high and low were still both higher than the day before.  The 3-day chart shows the low of the last 3-day bar at 714.

I am looking for support to hold at either the 750ish or a drop-dead 741 level.  If they break, I will sell the long ETFs and switch over to the inverse – otherwise I will stay with the long ETFs and wait for them to resume the upward movement – my gut tells me that that isn’t over yet.

So far today things have been proceeding apace.  The S&P has been moving in a very nice price channel since last Tuesday afternoon and is currently in the low 770s.

FAS is up 14% for the day - UYG is up 8.5% - that's what I'm talking about.

I still expect to see trouble at S&P 780.  This doesn't mean to jump into the inverse ETFs right away (we may bust through, afterall) - but maybe take some profits off the table and keep an eye on things to be able to make the jump if you have to.

S&P500 15 Minute Chart 4 Days

Friday’s S&P high was 758 and the close was 756.  The Futures had spent the weekend down around 750 and then overnight last night rose up well into the 760s – this is a good sign that the uptrend will continue into today’s session.

As of 8:15 am, FAS is up almost 7.5% and UYG is up around 5%.  I hope everyone stayed in these ETFs for the duration of this trend and is taking advantage of these gains.  

Things should go ok at least until the S&P hits the 780 area – then we’ll see.

The FASB is holding discussions today about possibly modifying the mark to market rule – this will add to the “buy the rumor”  upward demand on the financials. Go FAS! Go UYG!

Have fun.

Earlier this week I was talking with a buddy about the baby rally up from below S&P 700 and I mentioned the Nov low and retest line of 741-42 as being a crucial support/resistance area for the success of this uptrend and he was quite surprised because he didn't think it acted as much of a barrier on the last trip down a few weeks ago.  He was right about that to a certain extent - but check out how Friday looks on the daily chart - the low was at a familiar level:

S&P 500 Daily Chart Oct 21, 2008-Mar 13, 2009

This is 3 times now - the big Nov low after the big Sep-Oct-Nov market tumble; the only area on that last trip down from the 800s in Feb that gave pause at all (the "retest"), and today.  Interetsting to note for when the market is coming back down - and is there anyone who thinks that the market isn't going to come back down again - if anything, at least to retest the 666 low?

Of interesting things to note on the daily chart is that after 6 days, the indicators that I follow are all pretty much pointing upwards and indicating that maybe there's some room to run:

I like to use 13- and 26-day moving averages on price - both MAs are finally pointing up (bullish), we've pushed through the 13 (no mean feat) and we closed on Friday right at the 26.

MACD-H (middle) seems to be gathering strength as it's crossing the 0 line - momentum has definitely shifted to the bulls - and looking at the lengths of previous cycles, I would expect the bulls to hold it for several more days.

Stochastics (bottom) is still headed upward after spending weeks in oversold territory (the horizontal line equating to a value of 20 on the chart) - it looks like it still has some ways to go before it gets into overbought territory (above the horizontal line that is 80) - and even then, the sell signal isn't until it passes 80 coming down the other side - it could spend some time being overbought and still be going up)

I still tend to think that this isn't going to make it past 780 or maybe the 780-800 level (of course that is always subject to revision LOL).  But that would also be consistent with indicators giving the idea that this uptrend still has some more room to run (and who knows, there is a gap coming up at 818-825 needing to be filled). 

I hope it's obvious to everyone that we're in a temporary uptrend and the place to be is in the pumped up financial ETFs FAS (3x) or UYG (2x) or maybe even RFL (2x - haven't tried that one yet).  Even if you think that the train has left the station - I'd bet there's still a good 20+% to be had before we even get to 780.  It's going to turn eventually - even if it makes it past 780 - but it's still way too early to playing any anticipatory inverse FAS/FAZ plays - the play right now is definitely on the upside -especially as long as the "mark to market" rule issue is in play - you know - "buy on the rumor" stuff.

Here's a chart showing the best price % change by ETFs this week.  Not bad for a weeks work:

Later

Futures have risen overnight and now sit comfortably above the 750-752 area.  If this holds we’re ready to go after the 780 level.  No reason not to be in FAS or UYG – but be prepared for this to end soon and switch back to the inverse ETFs.

Fortunately yesterday's doji day was just a pause for refreshment before the S&P remounted its assault on the 700s.  And so far the assault has been successful - 724 was taken out early on, the cup-and-handle from yesterday did its thing and sparked a nice breakout and uptrend - the 731 previous close, the 741-736 gap downward, the Nov 742 low and its failed retest were all taken out, and then 752.  Thud.  And that's where we closed - 750.

S&P 500 15 Min Chart 4 Days

But it sure was clean and pretty.  A little bump down at the open, a little reaction bounce, and then just plain motoring up through the 730s and 740s.Look at how it just hugged right along the upper Bollinger Band - and the middle 20ma band now has a nice upward slope.  It looks effortelss. It was really one of the most fun bull days in quite awhile.  It wouldn't surprise me to see another doji day or some other kind of day tomorrow that indicates that the bulls are taking a short break  Of course without any bears around the price may still go up.

Check out the MACD-H - there was some at that little business in the morning but then was non-existant the rest of the day.  Even though the S&P spent the afternoon in an uptrend, there was barely any real momentum - it was the complete absence of any bearish strength - this must have been a "short covering rally" - that allowed the price to rise. 

I haven't shown a 3-day chart in awhile. 

I want to show 3 things -

1) the breakout from the downward price channel that followed the triangle is very prominent in the 3-day.  This is the first time since August (before the Big Plunge) that the chart is not being overtly influenced by either the triangle or the price channel that broke it.

2) Acting as it should in an upward trend, the high and close of the latest 3-day bar is higher than the preceding one - this kind of chart behavior is of course incompatible with a downtrend and the bias we now give to the chart and to trading is now officially on the bull side. 

3) Notice that the top today (resistance) is almost exactly the support that ended the long waterfall in Nov and was the lowest close of the Nov low.  So strong support coming down - strong resistance going up.   I'm still figuring that this will make it through this Valley of Death, butI am prepared for things to get tripped up at 780.

S&P 500 3-Day Chart 9 Months

I woldn't be surprised to see the upper triangle line remnant end up stopping this uptrend.  From the looks on the chart, it looks a 2-3 bars away (and probably right around 780 - how does that work??)

I try and teach my friends to stick with the trend - not to trade out until the market tells you to - like with this past trend.   The more you trade,  the easier it is to make a wrong choice and screw up - or otherwise miss a big move.  Right now there is no reason to trade out of FAS/UYG - unless, of course, the S&P can't get past 752 - then buy into FAZ/SKF if and when it falls below the 741 line or wait until 724 if you want to be convinced.

Later.

So today was the type of day that everybody got excited about.  We've all been waiting for a good bounce for quite awhile now and this certainly has that feel - even to the point of closing at the highs.  Fortunately we are in an area where we could know fairly quickly

On the way down the S&P made a run and got slammed bigtime at 724 on the 4th - so discouraging the bulls that they gave up on holding the 700s.  Whether it can get though that 724 as easily as it sailed through 700 and navigated the 710 area will tell us whether this was a one-day wonder or not.

The 3-day chart also shows  724 as the high of the previous 3-day bar, so whether 724 stands or not will also have an effect on how our current trend is defined by the 3-day chart.

S&P 500 - 3 Day Chart

There is one other aspect of the 724 line that also is of interest here.  Let's open the 15 minute chart up to 10 days:

Futures have been consistently rising since the close yesterday – I consider that to be bullish.

Nothing has changed since yesterday.  I see the important areas to watch are 666 on the downside and 700-710-729 on the upside.  Any violation of these should be considered confirmation of a trend worth taking part in.

I think that the bias now favors the upside.

Here's a 15 minute chart of the past 4 days:

 S&P 500 15 Minute Chart 4 Days

Notice that while prices have been steadily decreasing, the negative strength of the MACD-H is also steadily decreasing,  while the positive MACD-H has started to find increasing strength.  To me that says that momentum is currently shifting, at least on the short-term, to the bulls.

I would be a little careful about holding inverse ETFs right now - definitely if the S&P can get itself over 700 (we've had 2 failed attacks so far).   Any such move over 700 - and definitely if it clears 710 and then 729 - justify an immediate move into the long ETFs.

The market hit S&P 666 on Friday and took a strong bounce upward.  That bounce carried over into the after-hours and now has faded.  So how strong is the 666 line?

Here's an overview chart showing the 666 line both when things were coming up and now coming down

 S&P 500 Monthly Chart 1990-2009

and here's how it looks close up:

 S&P 500 - Daily Chart 1996

The market climbed steadily throughout 1995 - it hit the S&P 666 area and stalled for about 7 months before steadily climbing again until the 1998 troubles.  666 acted both as important resistance going up and then an important base for a long rally once it was cleared.

So will it work the same way coming down?  It certainly gave that impression on Friday.

So keep an eye on 666 going forward.  If it can't break 666 going down, then the long ETFs will be the place to be.  But if it can't break 700 and 726 and 741 going up, then the inverse ETFs will be the play.  We may have a couple of days of indecision while the market makes up its mind.  Stay tuned.

Ran into a buddy of mine last night and naturally we started talking about the market and the current FAZ play (of which we're both making $$$) and he started talking about the FAZ chart and I realized that I never ever look at the FAZ chart - I use the S&P (and sometimes the Dow) as my proxy since it is my belief that the financials and the general market pretty much move together.

So here's a FAZ chart.  A week ago this morning one could have bought FAZ for under $50.  Right now it is 100.33 (the chart is on 20 minute delay).   On a "normal" equity, I would view something like $100 as a resistance level (those nice round numbers generally are) - but since the financials generally move with the market, I don't think that the market is going to care that FAZ hit 100 and back off while it tests resistance.  That's the reason I'd rather watch for S&P support/resistance - the market will pause and back off while the S&P tests support/resistance - it won't do it for the FAZ.  I don't want to let making my decisions by technical indicators based on what I see on the FAZ chart influence how I see the market as a whole.

FAZ - 15 Min Chart 7 Day

I'd like to use this chart to illustrate some of the points that I've been making about the Bollinger Bands and MACD-H indicators.

Do you see how the price tends to move from one line in the Bollinger Bands to the next?  Definitely not random movement.  And the price rarely strays outside that 2 standard deviations of the 20ma either.  I found this stuff truly quite amazing.  And also notice, there are about 3 different areas where the bands tightened, resulting in a "pop" in one direction or the other.  So if you're in a strong trend, and your Bollinger Bands tighten - you can be looking forward to some good times!

Now on to the MACD-H.  It's very obvious by the size and length of each MACD-H cycle that the FAZ bulls are much stronger, are able to create more momentum, and are able to do more with the price when they "have the ball" than the FAZ bears.  And look at what was happening yesterday, when the FAZ bears were able to get the downward momentum the highest that they were able to get it in the 10 days on the chart.  And were barely able to do anything to price while they were at it.  To me, this kind of exhaustion - repeatedly expending your strength and having absolutely nothing to show for it - generally ends in some sort of capitulation. The FAZ bears' wad was shot - when the FAZ bulls came out to play this morning, the bears had absolutely no strength left to stop them.  And consequently the bulls have pushed the MACD-H to a new high level.

Remember the MACD-H rule - if price and MACD-H both make a multi-period high or low at the same time (in this case its the high), in the event of a retracement, momentum will be such that the high price will be revisited.  So, even if the price drops from here, it can be expected to come back and at least touch the high price again.  At that point, one would check the MACD-H, see how much momentum is left on the bulls side and decide to sell at the top if the new MACD-H is way down, or hang on and expect to go higher if the MACD-H continues to be at a high level.

Later.

S&P 500 15 Minute Chart - 3 Days

It's been all about the bears today.  Yesterday I pointed out how the price trend went higher while the MACD-H trend diverged and went lower.  This prediction of a price drop was borne out at the open this morning - the bulls must be still hung over from their rare celebration party last night as they just completely rolled over and let the bears drive the price down through 710 support and then through 700 - like butter. 

And look at the size and dominance of the negative MACD-H - lots of bearish momentum today.

On the Bollinger Band, notice that the opening price dropped straight through to the lower band, and it hasn't even gotten out of the lower band area all day.  It looks set to touch the middle band this afternoon, but only because the middle band (the 20ma) is moving down to the price rather than the price moving up to the 20ma.

696 acted as early support on the initial downthrust and once more on a 15 min bar until it eventually yielded.  Let's definitely keep the 696 level in mind as support/resistance for the future.  And it looks like 690 has acted as resistance twice now, stopping the price from going up.  That is something else to keep an eye - so I draw a line there as well.

In terms of the 3-day bar, the current 3-day bar high to beat to "change" the trend is now at yesterday's high of 724.  Because of steep declines in the past few weeks it's been awhile since we've had the top of the last 3-day bar within such easy reach.  Think the bulls can get there and force a trend change?

So far today S&P and Dow are both down between 3 1/2-4 %.   Yet, the financials are really in trouble as the FAZ is up 23%.  SWEET! 

I hope everyone has been able to jump in (if they weren't in already) and grab some of that FAZ goodness.

Watch the 690, 696 and 710 areas again if things reverse.  If the S&P can suddenly turn and rocket rebound up, those areas should fall pretty easily (although wait until 725 to go in on FAS/UYG) - after being down the way it, a rebound that clears that resistance would be worth getting in on.  Otherwise, in the absence of any bull power, the play is to stay with the inverse ETFs until the market tells us otherwise.

Later

Well futures took a dive overnight.  Those bulls must have been out at a party or something and the bears went to work.  There’s an expected horrendous jobs report coming out at 8:30 – so things may rise or fall depending upon how that is received.  Use 695 as a benchmark – if things are above 695 at the open, the jobs report was well received and momentum might push things back up – if lower than 695, then it was bad, bad, bad and today might be ugly.

The drop in futures below 700 doesn’t say a whole lot about bull strength from yesterday’s little mini-rally.  The more obvious play is probably going to be the inverse ETFs SKF/FAZ, but if the bulls come back and easily take out 710-12 and then make a move on 735-41 it might be worth the long play (UYG/FAS)  to take advantage of that momentum.

So the Market did manage a little bit of rally after I posted this afternoon (yes, I take total credit for it LOL).  The S&P got up to 722 before it was stopped and fell back to the 710-712 area support/resistance level.  I guess the big thing for the day as far as the bulls are concerned is that 710 was finally conquered and then held twice as support. 

 And they managed to actually have an up session without Bernanke opening his yap and helping them out.   I guess that's a big thing too. 

I've drawn 2 price support/resistance lines on our intraday chart:  one shows the late great 710-712 area support/resistance that has been a major factor of our show for the last 3 days; the other shows the 696 line that figured in yesterday's move down below 700.  I wouldn't be surprised if we have to deal with both of these lines again in the near future.

S&P 15 Minute Chart 3 Days

Looking at the MACD-H - it shows that momentum was on the side of the bulls the entire day today, continuing the climb since the 692 low yesterday.  And the bulls finally used their momentum to get some price gains too.  However,  the fact that the price trend during the day was up while the trend of the MACD-H was down is a divergence - according to this partiuclar indicator, price should be falling again in the short-term - so we'll see if 710 actually acts as real support or not.

An interesting facet of today was that the inverse financial ETFs were also up while the market was up - generally they tend to trend opposite each other, which is why I watch the general indices for my financial ETF cues. This is something to keep an eye on in case we need to adjust the current methodology.

One thing I haven't done much of is post just plain old everyday daily charts - I guess I assume that these are the ones that everybody has access to and refers to.  Here's a current S&P daily chart.

 S&P 500 Daily 2 1/2 Months

First off, look at how nicely robust the MACD-H is on the downside.  The previous MACD-Hs were all hamstrung by the limited price movement during the big triangle. This is the first MACD-H cycle since the triangle and it is feeling it's oats nicely. 

Look at yesterday's price bar and MACD-H.  A general rule is if price and MACD-H both make a  multi-month high or low on the same day (in this case it was multi-month lows) - that in the event of a retracement, that price will be revisited.  So basically, according to the MACD-H rule, we should expect to see the below 700 area again (i.e., if a big rally starts tomorrow, it won't be *the* rally) - so file that away in the old file cabinet.

I haven't discussed Bollinger Bands yet - those are the price channel lines around the price on the chart.  The middle line is a 20 day moving average ("20 ma") - the outer bounds are 2 standard deviations away from the 20 ma.  

The way you read the Bollinger Bands are that prices rarely stray more than 2 standard deviations away from the mean, so anytime a price crosses an outer line, one should expect it to recross coming back in very soon (the Bollinger Bands version of overbought and oversold).  Price tends to either travel along a band (or the bands open and close according to the price action) - and when the price bar leaves one band, it probably won't stop until it at least reaches the next band.  So when the price moves, you can kind of expect to have an idea of where it might end up - although there will be times where the price just moves horizontally and the band itself shifts up or down to meet the price movement.  A last thing to know about the bands, is that when they get narrow (remember they are based upon a moving average of price, so if they narrow, that means that the price movement has narrowed also during the past 20 periods), at some point price will explode out of the bands.  Always fun to see the bands get really narrow....

So looking at today's chart, we see that on a daily basis, that today's little rally basically just moved the price off of the lower band - so we shoud be able to expect that the price will move to the center band - although it might be a situation where the band moves down to meet the price rather than the price moving up to meet the band. 

But looking at a daily chart, the take-away is that both on MACD-H and Bollinger Bands, it is obvious that the bears remain very much in the drivers seat and it looks like the bulls will have to exhibit enormous strength to break the pattern.   One good day does not change around the charts LOL

As far the ETFs go,  there is major resistance going up beginning at 729 - the gap down from breaking the Nov low last Monday - and then again at 751 and 780 - so it is not definite that the bulls will be able to make this a real rally and I would hold off on switching to a long ETF until the market tells us by price breaking through some more resistance and holding it.  Interestingly, the high of the last 3-day price bar is right at major resistance at 780.  If the price drops back below 710 and then 700 again, definitely be back in the inverse ETFs.

Later.

S&P 500 - 15 Minute Chart 2 Days

The market's not ready to support an oversold bounce yet.  There seems to be some sort of resistance level taking hold at the 710-713 area that ruined the bulls enthusiasm this morning.  The S&P is managing to stick around the 700 level - so the good news for the bulls is that the 3 days of relentless grinding downward has finally ended.  The bad news is that they seem completely unable to take advantage of it to take control and drive prices higher.

I'd say that the play right now is to stick with the inverse ETFs until the market tells us otherwise.  It is way too premature to switch over to the long ETFs - we'd have to wait to see the S&P get past this 710 area and maybe even close the 735 gap from yesterday to justify such a switch.

Futures are definitely showing a floor of some sorts at 700 indicating that a bounce will happen.  I kind of doubt that it will be any serious rally that would actually put the prevailing downtrend at risk, however it probably can be played as a short-term opportunity to make some $$$ via the non-inverse ETFS UYG/FAS.   Keep an eye on the old Nov low areas of 741 and the strong resistance at 751-2 as possible uppward limits, but in the meantime looks like the bulls might actually come out and play.

Hard to think - 3 days ago the S&P was pushing 780 - now it's hugging 700. 

Today the bears are celebrating a complete take-down of the November lows.  From now on, a new low must be achieved, consolidated/built upon, and revisited before the big money comes back in on the long side.   And since the final run at 780, and then the failed run at 752 after the retest was violated, the bulls pretty much gave up the ghost and let the bears have their way with things.  There was a tiny little mini-rally this afternoon that completely failed and once again the indices closed very near their lows for the day.

S&P 500 15 min Chart 6 Days

I wouldn't at all be surprised of an upward bounce from here, or sometime very soon.  The market is very oversold right now and could turn on a dime.  Then there's the little matter of the price gap on Fri morning at the open that not being able to fill it that afternoon broke the bulls' spirit.  And the gap down this morning below 730 remains to be filled too.  Even if 751 acts as strong resistance going up again on any bounce back, that's still about a quick S&P gain of 5% - pump that with a 2x (SKF) or 3x ETF (FAS) and 15% over a day or two isn't too bad.  Right now the futures are up - they're making a stand at 700.  We'll see what the morning brings.

The S&P closed at 735 on Friday – and is currently hanging at the 717 mark.  The Dow is well below 7000 at 6920.   Today could be a plunge – there are no obvious support areas along the way. 

The play is obviously the inverse ETFs (FAZ is already up 10% in the premarket).  Watch for a rocket rebound – the further down we go, the more oversold we’ll be and the bigger and faster the possible bounce from whereever that new bottom will be.

The key to any successful trading strategy is to remain flexible and nimble.  Find something that works, stick to it until it doesn't work any more and then find something else. 

For the past year I have been convinced that one of the few sure things on Wall St was that the financial stocks would go down - and so playing the financial ETFs - both the inverse for when those financial stocks went down and the regular ones for when they rebounded - was a sure-fire money-maker.  And believe me, it has been.  What has been a very painful period for a lot of people has been a whole lot of fun for me.

The Financials work so well, because for the most part they lead the broader indices both up and down (espcially down).   However, they aren't the only game in town, and conditions may change such that they won't necessarily be the best game in town either.

If you want to stay nimble and successful, always keep an eye on what else is going on so that you evaluate the success of your current plan.  Never stay wedded to anything.

One easy way to check out what else is out there is to look at the recent returns of other ETFs.  Some sectors may be working out better than the financials - there may be other, better plays than the SKF/FAZ, UYG/FAS that I've been playing.

Here's a ranking of the top ETFs by percentage price change in the 10 days since the S&P broke through 800.   Let's see how they're doing:

 TOP RETURN ETFs - 2/13/09-2/27/09

BOTTOM RETURN ETFs - 2/13/09-2/27/09 

So it's a mixed result.  Some of the inverse ETFs are doing better than the financials currently are on the downside - such as small- and mid-cap, energy,  health care, and basic materials.  The question is whether these sectors are consistently leading the returns enough to warrant a change in strategy to these other ETFs.  It may well be - although my money is still on the financials, everyone can follow their own strategy.  One thing I like about the financials is that the up and down trends for playing the UGY/FAS and SKF/FAZ plays pretty much coincide with those of the broad averages.  I bet the small- and mid-cap ETFs do also, we'd have to test the other sectorwide ETFs to see if they do.  We'd also have to test these to see if they generally lead the market over a longer trend or are we just catching them on a lucky snapshot.

The point is, however, that for those who are interested, there are other ways to play this game besides *just* the financial ETFs.  Just make sure that whatever you play has both a regular and an inverse ETF so that the market can be played both in the overall downtrend and in the inevitable bounces and snapbacks and bear market rallies that we will be seeing in the coming weeks.

So the S&P finally broke through the Nov low on Friday - although not by enough to put all this "retest" business fully behind us yet (theoretically there is still the making of a nice double "W" shaped bottom in place if it bounces up from here).  The important business from Friday, though, in my opinion, is that after breaking through and then bouncing up off of the mid 730s in the morning, the bulls spent the rest of the day making a counter-attack, which then ultimately failed when they ran into 751.  What was a very strong support on the way down, looks to be what could be a very strong resistance going up.  In my mind, this confirmed that going down and breaking that Nov low on Friday was the real thing rather than just the short bounce of last Tuesday. 

And, after hitting 751, the bulls' spirit evaporated - things went straight down from there, broke through the original low of earlier in the morning and ended up very near the lows of the day.  If you go back and look at this past couple weeks "inverted head and shoulders" - the normally expected reversal breakout to the upside completely failed to get past the breakout point, but the chart has now successfully broken out in the other direction, past the level of the head.  The failure of the inverted head and shoulders which was supposed to be an upward reversal, as well as the confirmation that the last important support before the Nov low is now resistance, strongly indicates a continued move downward.

Perhaps we have now moved into a new stage where instead of bouncing between 780 and 750, the S&P will now bounce between 750 and ???  - or maybe this will be a whole new downward leg that will go a chunk before settling into its next shortterm consolidation.  

One thing we have learned for sure from the Friday action is that coming back up (and most assuredly it will come back up at some point) - the Nov retest line of 741 AND then the big support/resistance line of 751-752 HAVE to be breached before any upward move can be taken seriously.  We can file that away in the old database.

 S&P 500 - 15 Minute Chart 10 Days

Here's a chart showing intraday movement since the big S&P break below 800.  We spent 3 days in a range bounded by 800 and 780.  Then 5 days from 780 to 752 and now we are below the 752 line.

The chart shows a lot of up and down daily movement within the support/resistance range boundaries.  If one was jumping back and forth between the up and down ETFs, there would be a lot of back-and-forth action.  If one was keeping a very close eye on the support/resistance lines, and managed to make the successful switch each time, one could have made a lot of $$$. 

I posted a little while back about watching the 3-day chart for trend determination as it tends to wipe away a lot of the zigging and zagging and helps to keep an eye on the ultimate trend.  So lets take a look:

 S&P 500 - 3-Day Chart 4 Months

Compared to the intraday (or even the daily) chart, the 3 day is a model of clarity.  The downtrend never appears to be in doubt (very strictly, technically speaking, the high of the last bar does go higher than the high of the previous bar (the hammer).  This was a judgement call - the same action did not happen on the Dow, and there was never any follow through to the upside - it was the difference between 780 and 777 - basically stalled at the same resistance level.

So, going with my 3-day trend model, I never did get out of FAZ, even though at times my position was more than 30% down (and I was getting frantic phone calls and emails from my friends!).  The FAZ position should look a lot sweeter going forward.

One last note - check out the hammer.  That is normally a bottom reversal candlestick - but as in this case, not always.  When you see hammer, or almost any other candlestick indicating reversal, confirmation by the price action in the next candlestick is always required before taking action.  In this case, the next open after the hammer should have gapped or otherwise trended upward - when it didn't, that was evidence that the reversal predicted by the hammer didn't happen.  While candlestick reading can give some very impressive market signals, always wait for confirmation before acting upon them.

Doesn’t show up too readily on this time delayed chart, but futures took a big hit this morning on the news of the deal between Citicorp and the government.  After bouncing between 750 and 755 all night, the S&P futures are now down around the Nov retest mark at 742.  Should they hold through the open the 752 resistance and the November retest low will both in jeopardy.

It should be a good day for the inverse Financials.  After the financial sector did better than the market most of the week (buy on the rumor, sell on the news….) the financials definitely don’t like the looks of this Citicorp deal.  As of 8:20 am SKF premarket is already up 12% and FAZ is already up 17%.  These kind of moves are one reason why I like to keep my holding during the length of a trend rather than jumping early – it seems too easy to miss out on some big moves if you have to wait until the markets are open to buy back in.

I’m anticipating a sharp drop once the S&P 741 line is breached – both because it means the Nov low is finally history, and the recent temporary bounce and rangebound movement between 752 and 780 has built up some steam that needs to be worked off.  Additionally, although I don’t talk about the Dow as much as I maybe should, it is entirely possible that it might end up below 7000 which would totally certainly grab news headlines and enhance a sense of bear strength.

Since we’ll be entering Wiley Coyote territory, there won’t be any pre-existing obvious support areas to keep an eye and give warning of reversal – so keep an eye out (as it were).

I bet if you threw "741" and "bounce" into a search engine today you'd get a ton of hits.

I was away from a computer most of the day so missed all the hoopla.  Fortunately, I don't consider anything that happened today to change the trend - yet.

 S&P 30 Minute Chart - 6 Days since break below 800

Here's a 30 minute chart of the last 6 days.  Except for the very brief cup of coffee back in November, this is the only time this go-round that we've spent any time below 800. 

I circled the area of the retest.  You'll notice that as the S&P came up it stalled and reversed at the first resistance it came to (758).  Then Bernanke talked and the rest is history.

Check out the interesting chart pattern - an inverse head and shoulders (circled).  That is always a strong reversal pattern - and see how it just cruised through 758 and finished just below the first real resistance at the 777 level.  If I had been watching I probably would've considered jumping into FAS for a quick scoop once it passed 758.

As it is though, this little bounce hasn't really met any other real resistance - it should hit some at 777 and then around 790 (I posted about that area on the way down) and then a major resistance in the 797-800 area. 

The 3-day chart high drops tomorrow down to 778 - but today was at 797 so downtrend is still intact.  A perusal of the Dow chart shows that the Dow still hasn't tested and gotten past it's downward price channel.

 Dow - daily chart

So there's all sorts of pitfalls standing between this being a bounce or a bona fide uptrend.  Depending on what happens tomorrow at the 777-78 mark I may switch over to FAS/SKF.  We are due for a little bit of an uptrend although I won't be surprised whichever way it goes - futures are currently down, so breaking further out to the upside isn't necessarily a sure thing.

I wouldn't be surprised to see a few days-length pennant triangle from here with lower highs and higher lows that lead to a breakout- we already have the first two bars in place.

Later.

The indices gave up on overnight gains in the futures and continued the 5 day old downward breakout from the Nov-Feb triangle formation - closing very near their lows for the day.  Anybody who bought long in the first 10 minutes of the trading day when it appeared that it might be an up day ended up being disappointed with a losing position.

S&P and Dow 10-Minute Charts - February 23, 2009

Today was the day that the S&P got close enough to its November low (741) to be considered a retest.  So far the results are inconclusive as the S&P hit 742 and then closed at 743.33.  Tomorrow should bring either a reaction bounce - the market is very oversold and the S&P is near support, so we are due an up day or two (meaning that the retest is inconclusive, unless the bounce takes us up into the 800 range) - or we will be entering Wiley Coyote territory.  But it was pretty much ordained back in November that at some point we would back where we are today.  And here we are.  Once the moth sees the flame it never does see anything else.

SKF and FAZ both started the day deep in the red - yet both managed to turn in strong performances as the market sank.  SKF ended up with a gain of just over 7% and FAZ was up 9.35%.  Gotta love those enhanced ETFs.

I often teach my friends to think of each day as a battle of the bulls and the bears.  This morning the bulls started off strong, but after an initial showing, their strength completely dissipated and they were powerless (absent, really) to stop the bears from running the ball down the field at will.

This is a very bearish situation when the bulls not only have absolutely no strength, but actually squander what little strength they have.   This passivity on the part of the bulls does not bode well for any reaction bounce tomorrow.  If one does happen (one will have to happen at some point), where is the strength to keep it going going to come from?

I want to post 2 additional charts to further illustrate the overwhelming bearish outlook of the market:

This is a daily chart of the Dow during the past 2 months.  It has been 5 trading days since the triangle was violated.

 Dow Daily Chart - 2 Months

You can see the triangle, which defined a range which acted as support and resistance for several months,  but notice in the past 2 weeks, coinciding with the period just before the breakout, and since then, the breakout, that the Dow is now moving in, and confined to a downward price channel.  Just as the triangle defined a price range and added support and resistance, so does the price channel.   Until it breaks free from the price channel,  the Dow has very little room to maneuver except down.

The second chart is a monthly chart of the S&P going back to the last time that the S&P was at this level in 1997.

 S&P Monthly Chart - 1997-2009

I've included my favorite indicators on here - the MACD and the MACD-H.  I won't bore you  with long explanations involving second derivatives of price series moving averages.  Just know that they basically oscillate around a center "0" point and the further away from 0 in either direction, the stronger the trend they describe is. 

The long curved lines (the MACD) indicate trend - as you can see, currently the MACD is showing the S&P to be currently in a downtrend, at a deeper level than anything in the past 12 years. 

The vertical orange bars (MACD-H) show trend strength or momentum - again going out from "0" (I prefer to think of it as an overhead view of a game of tug-of-war between the bulls and the bears). 

One way to interpret the MACD-H is to compare the price at similar extreme points and see how the MACD-H looks at each point.  Compare for example, the MACD-H when it was at this level in  1997 - above 0, in the midst of an uptrend.  Then look at the MACD-H at the nadir of the 2002-03 bear market - a decent ways below 0, as one would expect at the bottom of a long bear market.  Now look where the MACD-H is today.  Holy tamoley.  We're talking seriously deep levels of bearish momentum - much deeper than anything  seen in many years.  There's nothing here to indicate any fast recovery or bull market any time soon.

What I would expect - look a little more closely at the 2002 low and then where it was almost matched in 2003 -  see how the MACD-H the second time in 2003 was a lot higher?   That is what is needed - a retest of the recent lows, but with a higher MACD-H to indicate that the bears have lost their strength and are losing momentum to the bulls, in order to start a serious new uptrend.  There's nothing like that going on in our chart today at all.

Prepare for a long downtrend from here. 

That means lots of money to be made via SKF and FAZ.

Later.

PS - as long as we're on this chart - here's an additional MACD-H lesson.  Check out the market tops in both 2000 and 2007 - now look at the corresponding MACD-H.  See how on both of them, the MACD-H was showing absolutely no strength while the prices were making new highs?  This illustrates the value of the MACD-H indicator - it showed that the bulls had run out of gas and the market was ready to drop.  Anybody who was using this indicator knew to get out of the market right at the top. 

Similarly that is what we will be looking for to know when we've hit bottom - new price lows but with an MACD-H close to or slightly above 0 indicating no more bearish strength.  As you can see, we are still a very long way away from that point.

I plan on putting up a few posts further explaining the strategy of exclusively playing the Financial ETFs in the current market.  I’ve had a few people ask me why I’m limiting myself to the financials and not looking at the broader market or other sectors.

Courtesy of the fine folks at Bespoke, here is my short answer:

Can you think of anywhere other than an 3x inverse Financial ETF where you would rather be?

Big news of the day is that the Dow tested the Novemeber intraday low (7449) - touching 7447 briefly before making a half-hearted attempt at a rally that didn't go anywhere.  Here's a chart:

 Dow 5 Minute Chart

The big moment came at around 3:40.  There was an immediate reaction and bounce up that hit resistance at the trend line and immediately gave up the ghost, closing at a disappointing 7466 - much closer to the low than the rebound high.  The S&P moved pretty much the same way, although higher than it's November intraday low than the Dow was, it never came close, closing at 778.98 after hitting a low for this down leg of 777.03.

While the Dow "retest" held, and we can now label a support area of Dow 7447-49, it was extremely disappointing for the bulls in that the world didn't say "Hey, the support held, let's jump in and start a big rally!"  Instead, the Dow is remains dangerously close to a range boundary area below which is generally considered to be free of any ready support for quite a ways down.  If this doesn't hold further, the floodgates may open.

My current system is very simple - follow the trends of the major indices and play the financial inverse ETFs (SKF or FAZ) when the market is in a downtrend, and play the normal financial ETFs (UYG or FAS) when the market is in an uptrend.  Since the Dow hit a support area and bounced up, the reasonable move was to assume that the current downtrend is over and await further developments.  As it was, my FAZ stake made another 13% today before I sold at 70 shortly after the Dow retest.  It probably was a premature move, and I will put up a post soon showing similar bounces off of support where the market made a rocket rebound and a quick switch from FAZ to FAS to take advantage of the bounce was extremely profitable.  The fact that the market did not act in similar fashion today after hitting support does not bode well for the bullish play.

So I will keep an eye on the Futures overnight to get some clues as to which way the market will go from here and which side to go back in on.   The post-retest bounced failed at 7517 - a level that has acted as support/resistance several times this week.  I would not consider going in on the long side unless the Dow convincingly passes this level and the play would be UYG/FAS.

 Dow 15 Minute Chart

  I wouldn't go in on the bear side unless the Dow significantly breaches the retest support level (rememeber, what was support coming down will be resistance going up) and then the play would be back into SKF/FAZ.

 Maybe the market is waiting for the S&P to join the Dow in the retest before a rebound begins.  Maybe everyone will be spooked and everything will plunge.  Either way, from this point there could be a big move either up or down

Later.

For the second day in a row the market opened higher and couldn't hang on before drifting lower.

I haven't talked much about the Dow, but it hit a low of 7479 - only 30 points away from the Nov 20 intraday low of 7449.  This is less than 0.4% - well within the margin of what can legitimately be considered a retest.  It hit 7480 yesterday morning, and idiot me, concentrating solely on the S&P totally missed it.  On an intraday chart (see below), we have what would be considered a double bottom.

The S&P hasn't come as close to it's low - bottoming at 780 on Wednesday and almost matching with 781.95 today for another double bottom.

A double bottom is a legit chart reversal pattern.  It mostly resembles a "W" on a chart.   The risky buy point is when the middle point of the "W" is passed going up - the for-sure buy point is when the top of the "W" is reached (both represent very recent resistance - if the rebound is strong enough to pass through these resistance points, the reversal/rebound is real).

 S&P & Dow 10 minute chart

In this case, the risky buy point is actually the double half-tops (think of a very fancy "W") which correspond to 795-797 on the S&P and 7614-17 on the Dow.   The "for sure" reversal point is 801 on the S&P (still that 800-804 area that I've been talking about) and 7673 on the Dow.

Of course these little mini-rallies may peter out this afternoon without getting to these points, so I'm still hanging onto the FAZ/SKF play until it happens.  I most likely won't switch to UYG/FAS until the upper resistance is passed and I will post on that if it happens.

Later.

UPDATE:  3:06 PM EST - REBOUND FAIL - (but now you know what to look for in case it does happen at some point) more later

Here's a 15 minute chart of the S&P today.

2 observations:

1) notice the obvious triangle - this is generally a continuation pattern - and we can expect a nice pop at the breakout when it happens.

2) remember yesterday, the S&P tried several times to go below 790 and couldn't do it - today the opposite happened - on 3 separate occasions before the close the S&P couldn't rise above 790.  What acts as support in going down often becomes resistance coming back up.  And there is definitely something "sticky" about the S&P 790 level.

So the markets travelled in another very tight range today as they consolidated after the big drop yesterday.  I consider this bad for the bulls.  If this was an optimistic market, buyers would have flooded in looking for bargains.  Instead they basically sat on their hands.  Once the bears decide to come back from their brief mini-vacation, the downward move toward the Nov lows will continue. 

Both FAZ and SKF gained around 1% today - absolutely no reason to sell either of these positions until the market tells us to - and that most likely won't happen until the retest.

Later

The inverse financial ETF set up a nice triangle today.  Triangles are generally a continuation pattern, and considering that FAZ has been in an uptrend since last week, the triangle signals that the uptrend will continue.  Should get a nice pop at the breakout.

 FAZ 5 MINUTE CHART

So far it's been a fairly uneventful consolidation day - which isn't good news if one subscribes to the bullish persuasion.

S&P has traded in another tight range from 780-796.  It hasn't really shown any strength or desire to attack the 800-804 levels and turn things around.   Like the moth to the flame, it's probably doomed to descend to that Nov low level. 

The 790 area that was so important yesterday doesn't seem to worth squat today.  I guess today's 780 is the new 790....

No reason to switch out of SKF/FAZ.  My FAZ position has been bouncing around and is currently up 2.33% for the day.   Even when it's been down, as long as the S&P hasn't been able to get near or take out its highs for the day, there's been nothing to worry about.

See how the afternoon action goes...

S&P 10 minute chart

The S&P had a big major drop at the open and the spent the rest of the day in a very tight trading range defined by 790 at the bottom and 800 at the top.  Out of 26 15 minute periods in the trading day, the index came down and hit 792-790 on 11  different occasions before finally slipping through and closing at 789.17 - the low for the day

S&P 15 MINUTE CHART Feb 13 & Feb 17

There were 2 half-hearted attempts to get up through 800 but neither went anywhere.  What was strong support coming down should prove to be strong resistance going up.

So the 790 level may prove to be a good support area (or resistance if it goes down further).  File that away for future reference.

It looks to me as if today consisted of a big move through support in the first 15 minutes and then consolidation.   There is nothing to indicate to me that the downtrend will imminently reverse before it retests the Nov lows (once the moth sees the flame, does it ever see anything else?)

The feeling here is that the downward movement will continue - the play in the financial ETFs  continues to be SKF/FAZ (FAZ was up 25% today - SKF was up 16% - ask me again why I like these guys ).

From this point, I won't accept any "reversal" as bone fide unless the S&P can convincingly clear the 800-804-806 level.

Later.

Ok - so I've figured out how to get a chart on here. 

I just wanted to illustrate the point that I made before about the Dow finding support in 7840s on several separate occasions in the past 2 weeks.

This is an hourly chart of the Dow going back to the 4th.  We can clearly see the Dow hitting the 7840s area and moving back up as I mentioned earlier. 

This afternoon after I posted, the Dow moved back down to 7840 found support of some sort and then moved up to close at 7850.  But it tested the 7840 area twice today and it held each time.

Anybody else see a very nice possible inverted head-and-shoulders setup for Monday?  Target would be right around the 8000 mark.

But also notice that the 7860 mark acted as strong resistance on that dip on the 12th.  I would think that if the Dow goes further down, that this strong 7840-7860 area may act as very significant resistance as it tries to come back up.

In terms of financial ETF trading, below 7840, go with SKF/FAZ - above 8000, go with UYG/FAS

Later.

ok - just wanted to play around with trying to upload a chart - I'm sure I'll learn easier ways to do it as I get used to this thing.

Currently at 11:55 the S&P is down a bit, but the inverse financials are moving quite well - there's trouble with some British banks that's dragging down the financial sector more than the general market this morning.

This is a 15 min chart of FAZ.  MACD-H is now positive and it's getting ready to cross over the middle Bollinger Band line (if that happens, the upper line becomes the target).  50 has acted as a recent resistance point - notice FAZ stalling at 50 the afternoon of the 10th and yesterday afternoon before finally busting through.

Notice this time around, however, the MACD-H is much higher than yesterday and on the 10th when it hit resistance - and if it continues to climb from here (this chart is a 15 min delay - it's since gone up to 48.50) the MACD-H will be higher still.   Very bullish for breaking through resistance.

PDF File

Just a bit of an addendum to this mornings commentary.

The current system involves trading the financial sector ETFs according to the trend.  In an uptrend, the way to go is UYG (2x the finanical sector) or FAS (3x the financial sector).  In a downtrend, the inverse financial ETFs are SKF (2x) and FAZ (3x).

The direction of the financial sector generally leads the overall indices.  It's a proxy for betting on the market as a whole (there are plenty of other ETFs that follow other sectors or that mirror the market as a whole).  About a year ago it dawned on me that the safest bet in an uncertain marekt is that the financials are going down because of the whole "credit crisis" mess - and I haven't been disappointed. 

Over this past summer, I started playing the financial ETFs for the trend - the inverse ones when the market was down and switching to take advantage of the rebounds.  It's worked REALLY well - especially during the autumn when there was broad movement in both directions and trends would go a long way before reversing.  Since then (and I'll post something better on this when I figure out how to put charts on here), the indices have settled into a triangle pattern - the trend tops are getting lower and the trend bottoms are getting higher - so there is less room to run for each trend before reversal.  At some point the triangle will end and there will be a huge breakout in one direction or the other, but for now, we play the hand we're dealt and put up with short trends.

Futures have been dropping steadily since I posted this morning.  According to the CNBC talking heads, some banks in London are in trouble (yay SKF and FAZ!), so the inverse ETFs are doing really well in the pre-market (SKF up 4.6%, FAZ up 7%).  Although, technically I would consider the uptrend that started yesterday to be intact until a key support (818-822) is violated,  I now think that it is likely that that will happen.  If you bought UYG or FAS to take advantage of the reversal yesterday - might be time to take the profits.