In The Land Of The Blind...

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

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

S&P 500 - 15 Min Chart - 4 Days 

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

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

Here's a daily chart:

 S&P 500 - Daily Chart - 3 Months

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

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

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

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

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

Good luck.

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

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

S&P500 - 30 Min Chart - 6 Days 

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

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

 S&P500 - Daily Chart - 3 Months 

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

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

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

Good luck!

The S&P closed yesterday at 1028 after failing again at the mid 1030s.  Overnight futures started lower, rose up to where they were at the close, and then dropped back again indicated a lower opening today - but as with the market the past couple of days in general - without much conviction.

Yesterday was another doji day - a "gravestone" doji where the open and low are close to the low of the day with a long tail above and very little tail below - like a gravestone sticking out of the earth.   Prices rose at the open indicating early bull strength,  but the bulls failed to hold their gains and the bears pulled prices back down to close near the open.   This inidcates a lack of strength on the part of the bulls that they were unable to hold on to their gains, but also a lack of strength on the part of the bears because they weren't able to generate enough strength to actually pull prices lower than where they started.

S&P 500 - Daily Chart - 3 Months 

A gravestone doji appearing at the top of long uptrend is often considered to indicate a trend change, although, as with many Japanese Candlesticks, price action the next day is needed to confirm the indication.   It is considered normal for the market to stall for a day or two after a big advance, but at some point any breakout needs a "follow through" - another very strong  day - to confirm that the breakout wasn't just a one trick pony.  So far the market obviously hasn't been in the mood for a follow through - and until it does, Friday's breakout won't be considered an important start to a renewed uptrend.  

The gravestone doji isn't what I consider a "good" doji  for the bulls - the lack of ability of the bulls to hang on to their gains is a sign of weakness - which isn't what you want to see as healthy for an uptrend.  The only thing that is keeping things from falling isn't the strength of the bulls, but, rather, the lack of strength of the bears.   At some point one side will dominate - but that sort of uncertainty doesn't really bode well as a sign of upward trend strength.  A bunch of dojis in a row, such as the beginning of June when the S&P first tried to get through the 200ma and failed, in my experience doesn't lend itself to trend continuation.

I went back through the charts looking for similar pairs of these kind of dojis with long top tails and short or missing bottom ones and didn't see any at all of this type since the March rally started - which to me says that maybe this type of double doji isn't comapatible with a strong rally - but I don't want to read too much into it until something actually happens - which may have to wait until after Labor Day.

That's it from here.  We have resistance in the mid 830s - any move above there (that holds) is a sign of bull strength - and potential support which hasn't been tested down around 1014 - which, if broken, is a sign of bear strength.   In the meantime we are in a fairly tight range waiting for direction - so take your cues from the market.

Good luck!

The S&P made it up as high as 1035 on Monday before the bears finally showed back up and pushed things down to 1022 before closing at 1025 and forming a doji day. 

This futures chart is on a 20 min delay - S&P futures dipped overnight, but are now currently up about 6 - indicating a higher open.

Doji Day - remember Doji indicates "Indecision" - the market opens - the bulls push things up, the bears come in and pull things down, and eventually it all closes more or less where it opened.  When it occurs after a long trend, it can be a symbol of trend change (before, the bulls were clearly in charge - the doji represent a loss of control by the bulls, although the bears haven't yet taken over). 

As with many Japanese Candlesticks, the doji symbol needs to be interperted with what comes the next day to be meaningful.   If, say, there's a doji at the top of an uptrend, and the next day gaps down at the open and continues downward during the day, then the doji would have illustrated a change in control from the bulls to the bears.  On the other hand, if the next day opens upward, it merely signifies a pause in the uptrend, and possibly a sign of potential trouble ahead as the bulls are starting to show weakness and less commitment than before, but are not ready to give up full control.

Here's a daily chart showing the Doji

S&P 500 - Daily Chart - 3 Months 

You'll notice that I put a Bollinger Bands on this chart.  I was going through some websites last night looking for an illustration of a doji to use for the blog - and the one website that I was looking at stressed how dojis at the top of a long trend and especially if also at the top of a Bollinger Band, signify potential trend change.  So I threw in the Bollinger Bands, and sure enough, yesterday's doji was at the top of the band.   Forewarned is forearmed - as they say.   But you still have to watch the next day's price action to confirm the trend change, and today's open doesn't seem to support this interpertation of the doji.  So I would guess that at this point the S&P will keep moving forward - at least for a little while.

PEGA

You know how I love - love, love, love - the MACD-H setup where if the MACD-H and price both hit multi-month highs on the same day, that if there is then a dip in prices, then the previous high price should be retested - well take a look at PEGA:

PEGA - Daily Chart - 3 Months 

 I put some circles around what I'm talking about - back in early August, PEGA was hitting new multi-month price highs and MACD-H highs.  Then prices took a substantial dip - dropping from 32 down to 26 on the 18th.

But - Lookie, Lookie, Miss Cookie! - see where it is now - back up to where it was above 32 - a nice 23% return in 5 days.  Not too shabby.  I love this setup.

That's it for now - big day at the salt mines today so I gotta run.    Looks like the bull side is still the place to be - although, be vigilent, as always...

Good Luck!

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

 S&P 500 - Daily Chart - 3 Months

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

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

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

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

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

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

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

S&P 500 - 15 Min Chart - 4 Days

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

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

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

S&P 500 - Daily Chart - 10 Months 

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

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

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

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

Later.

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

 S&P 500 - 30 Minute Chart - 20 Days

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

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

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

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

Good luck!

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

The S&P closed at 996 yesterday (so much for that big 992 resistance line LOL), so futures were up for most of the overnight.   This screenshot is a 20 min-delay chart - a not-favorable unempolyment report at 8:30 washed away all the gains, so expect a mixed to lower opening.

There was a key mini-reversal yesterday right after the opening that completely changed the tenor of the market - let's take a look:

S&P 500 - 15 Min Chart - 4 Days

 Let's go back first on this chart to Monday morning (the 17th) where the price gapped down to start the session, moved all the way down to find support at 980 and then gradually drifted back up to 990.  Basically no follow-through from the bears - they're still at the beach. 

Yesterday morning (the 19th), the S&P again gapped down at the open, and again went back down to 980 (is 980 the new 992?) although this time it immediately reversed and started back up again (red circle on the chart) and ended up plowing straight through my important 992 line like a hot knife through buttah.  What's going on?

Firstly, I want to discuss those kinds of reversals a little bit - any time you have momentum in one direction that turns-on-a-dime the way yesterday's opening price action did, should be paid attention to - that momentum shift should be very tradeable, at least for short-term trades if one is observant and nimble.  Whenever there is momentum in one direction that is stopped and reversed with momentum in another direction, that second momentum has to be pretty strong and should be paid attention to.  You know the expression about how hard and slow it is to turn an ocean liner (or a battleship or one of those big boats) - so imagine the energy involved in turning the entire market from momentum in one direction to momentum in the other.  Put that energy to use and make money with it!   Always keep an eye out for those type of reversals.  Some of my biggest gains last fall during the plunge came about with during exactly these types of reversals.

Ok - so now where do we go from here?  Is the new downtrend already over?  Have the bulls come back in force?   Not so quickly....

First, let's do a quick review of what defines a trend - an uptrend is equities making higher highs and higher lows, and if new highs aren't being made, it's ok as long as new lower lows aren't being made.   A downtrend is lower highs and lower lows (obviously), and if new lows aren't being made, it's ok as long as new highs aren't being made.

So let's look at another chart to illustrate what's been going on:

S&P 500 - 30 Min Chart - 20 Days

Look at each pivot area (I know I use the word "pivot" quite a bit - it's the price bar where direction changes - that first price bar yesterday morning was a pivot, for example) - up until the Aug 6 high, prices definitely acted as if in an uptrend - higher highs, higher lows, etc.  And after Aug 6, the highs started getting lower, the lows started getting lower.  So far so good.

Nothing that happened yesterday changed that.  The S&P reached 999 (resistance at 1000?) and finished at 996.  The last pivot point that it would have to breach on the upside to change the trend is either at that 1012 high on the 13th or that little bit of a spike at 1004 at the close on the 14th (last Friday).  I tend not to think of the 1004 spike as a pivot because it didn't make prices really change direction at all, but still maybe technically it is - we'll have to appeal to the judges for a ruling on that.  

Anyway, for a trend change to happen to the upside, yesterday's reversal would have to now carry the S&P up above 1004 or 1012.   So if that does happen, does that mean that we should jump back into the long side?    I don't know.... to me the current bias and momentum is still going to favor the downside.  And that also puts the S&P right in the midst of the Valley of Death (1007 Nov resistance - 1014 Fibonacci 38.2 Retracement).

Maybe the market is making another attempt at 1014.  Look at the price action on the left hand side of the 20 Day chart - specifically from the 22d through the 30th.   There were 4 separate tries at 980 resistance that failed.  Then the market backed off a little bit, gathered momentum, and plunged through on the 5th try.   Now look where we are in relation to 1014 - 4 separate failed tries - now the market has backed off a little bit, is gathering momentum, and.... 

We'll see, won't we?

So I wouldn't necessarily abandon the bear side yet, and I wouldn't move into the bull side until the Valley of Death is successfully crossed and 1014 is breached.  And, if prices back off again, what will happen at 992?  Will that kick in as good support again or are we going to have to go all the way back down to 980?   Fascinating.

So that's where we are.  Good luck!

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

S&P 500 - Daily Chart - 3 Months

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

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

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

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

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

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

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

Good luck!

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

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

S&P 500 - 3 Day Chart - 10 Months

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

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

S&P 500 - Daily Chart - 7 Months

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

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

23.6% 935.11

38.2% 883.84

50.0% 842.40

68.1% 800.95

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

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

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

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

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

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

Good luck!

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

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

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

S&P 500 - Daily Chart - 3 Months 

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

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

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

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

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

S&P500 - Daily Chart - 10 Months 

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

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

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

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

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

Good luck!

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

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

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

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

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

Stay tuned - Good Luck!

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

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

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

OK - let's look at some charts:

S&P 500 - 15 Minute Chart - 4 Days

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

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

Here's the Daily Chart:

S&P 500 - Daily Chart - 3 Months

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

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

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

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

S&P 500 - Daily Chart - 2 Months

Yesterday's price action on the old S&P was yet another hammer.  If you look at the chart of this uptrend since early July, the hammer seems to be the most predominant Candlestick on the chart during this trend.   The hammer, in review - price opens - moves down to form the long bottom tail or wick,  the moves back up again to finish near the open and near the high of the day.   2 features are important - the bulls were unable to generate any strength from the open - the bears were able to drive the price down.  But then, once the price the down, buyers came in and pushed the price right back up to where it started.   Hammers at the end of an uptrend are generally viewed as portending a trend change - the story they tell says that the bulls are losing their mojo and their grip and the bulls are basically just holding on as opposed to advancing the trend.

Look at the candlesticks during the downtrend through the end of June and into early July.  Notice how on down days (solid colored candlesticks) in a downtrend the close often ends up near the low of the day.  During this part of the downtrend there were at least 5 days with completely solid down candlesticks - prices opened at or near the daily high, the bears took over and drove prices down, and never gave up.  Now compare that to the candlesticks during the uptrend - since early July, price has closed near the top on the vast majority of days, regardless of how far down it went during the day.  On those days where the bulls were especially strong they pushed the price straight up from the open.  On the other days they let the bears take over and then came back at the end to form the hammers.  And all of this drama is playing out on very weak volume.

The way I'm reading this is that after July 4, the bears took the summer off and went to the beach (or maybe the mountains).  Those still left only have enough strength and numbers to pull intraday prices down but can't hold on - and buyers, such as there are with the low volume, pull things back up - the old "buy on the dip" thing but on a very micro intraday basis.

So I see this as an ephemeral summer market.   Neither side has enough strength in numbers to dominate and force a solid trend (hence this disconnect between, say upward prices and downward MACD-H) and things are just sort of bouncing along vaguely upward almost like a balloon held by a small child.  Every day he gives it a tug downward, but then it just rises again because it's filled with air (which is very passive, compared to rising because of generated strength).  And right now the balloon seems to have hit a ceiling.

At some point the bears will come back in force from their vacay, and the hammer days and the ephemeral summer market will end.   Rather than pulling the prices down intraday only to lose their grip and let them rise again, the bears should be back in force to force a downtrend.  Keep an eye on the candlesticks - as long as they are hammers the balloon should keep on bumping along.  But once we start getting some solid down days like before July 4, when the bears manage to hold prices down into the close, will be the clue that the ephemeral summer market is over.

Futures Watch

There was a spike overnight, I guess when they announced the China numbers (very good 10%+ growth, for what it's worth), but otherwise things are basically unchanged.   We are at the bottom of a strong resistance area and just above 1000 which should be support.   So things could be rangebound again like Monday.  If you look at the daily chart, Friday and Monday price action created a small triangle.   Breakout should be in the direction of the trend, so if there is a breakout in one direction or the other, that could be a key in helping us identify the trend for the remainder of the summer.   Will the balloon bounce against the ceiling, or will it take off and fly?

S&P futures are down about 7 points from Friday's close - having risen some during the overnight and then a steady smallish decline since then.   Which should lead to a more subdued open than on last Friday when everyone was so excited about the jobs report.  Considering that we are now back below our current possible resistance areas, without that upward momentum, it could be difficult for the bulls to get anything meaningful going today.

S&P 500 - Daily Chart - 3 Days 

 Friday morning opened up with a gap toto the upside - hit resistance at the Nov 1007 line, got through that and hit resistance again at the Fibonacci 38.2% Retracement line of 1014 and managed to get past that just a bit before losing steam and dropping back at the end of the day as folks took profits.   I'm not posting a daily chart, but volume was up and was above the 45ma - which you want to see on an up day.  FAS was still en fuego, up almost 8% for the day - over 30% for the week.  I'll take it.

On the down side, MACD-H was down, again continuing the bearish divergence.  And one measure of a successful move through resistance is that the resistance then turns to support - the yesterday's ceiling becomes today's floor.    That didn't really happen on Friday, did it?

You'll notice on the intraday chart that I've drawn lines at 1007 (November rebound high), and at 1014 - the first Fibonacci Retracement line - where we would expect resistance and a reversal.

I've also drawn a new line at about 1021.  I'm reading a very interesting book, Fibonacci Analysis (Bloomberg Market Essentials), which suggests that rather than using the ultimate high and low of the previous trend to determine the parameters for calculating the Fibonacci Retracements, that instead use the last pivot points before the previous trend high and low.   Using this calculation, the Fib 38.2 comes out almost 1021.  Slightly different than the 1014 achieved using the extreme high and lows.  I don't know enough about the whole Fibonacci thing to evaluate  whether this is valid or not, but I threw the new line up there to see if it works.  At this point I would treat any reversal at a level between 1014 and 1021 as a Fib Retracement.  My understanding though is that the Fib devotees really look for pinpoint precision - if the usual way of generating the Fib ratios comes out at 1014.14, they are looking for the reversal right at 1014.14 - not somewhere in a range sorta maybe if you squint with one eye close by.  So we'll see.

I don't expect a really momentous day today.  It's mid-summer, we've just finished a leg upward, and we have all sorts of resistance in our face.  We'll see.  I'm a big believer in "be careful what you wish for" LOL

It's a new week.  Good Luck!

I put up a post discussing how this was one of those days that because of the employment report coming out at 8:30 what the futures did before that really didn't matter.   And the post got lost or eaten or something....  And then the jobs report came out and it was awesome and everything is up bigtime.  Will it hold?

Yesterday was quite ugly.  Futures were up, the bulls charged out of the gate - and were stopped cold at 1008 within 15 minutes.   The bulls fled the field the rest of the day leaving all the action to the bears.  And, as  you can see from the chart, the bears held the reins all day, pulling the S&P to a close below the 1000 line for the first time since it was crossed earlier in the week.   Here's an intraday chart:

 S&P 500 - 15 Minute Chart - 4 Days

Notice that except for that first 15 minutes it was steadily downhill.  The MACD-H  was negative almost the entire day and the close was lower than the low the previous two days.  Bearish momentum.

So where do we go from here?  Is this report enough to re-charge the bulls and get them past that dangerous 1007-1014 area?  If so, of course that would be incredibly bullish.  Or is this a flash in the pan and a temporary boost that only forestalls an inevitable downtrend?

Keep an eye on the intraday price action and volume today.   If this is going to take hold, it should be a reverse of yesterday - the bulls should take control and not give up - prices and volume should be rise steadily through the day if the big money boys think this is the real thing and want to buy in before prices get higher.   If price goes up and then stalls and turns back as happened yesterday would be a big signal that the big money doesn't have faith - even after the great jobs report.

FAS took a hit yesterday - of course.  I wrote about it being en fuego so obviously it went down (I swear, whatever they're paying me to do these things just isn't enough...).   But in this new rosey post-8:30 jobs report world, FAS futures are now up 3.7%.  I'm not gonna fight it - GO FAS!!

Good luck!

Here's the future's chart as of 8ish am - S&P isn't really doing a whole lot in the overnights and isn't really giving a whole  lot of guidance as to what will happen today.  Unless today will be meh also, in which case it's giving a very clear signal.

Just watched Art Cashin on CNBC - one of the few on that network that I respect (he's a floor trader, not a CNBC employee/shill) - and Art seems to think that all of this is built on a technical nothing and will collapse like a house of cards in the fall.  So I'm glad I'm not alone on that one.  But in the meantime, we want to make money between now and the fall....

Here's the current S&P chart - enjoying the view from the lofty 1000s:

 S&P 500 - Daily Chart - 3 Months

Looks pretty good, doesn't it?  Rising nicely, volume is above 45ma the past 4 up days.   On price, the 26ma and the 5oma are about to cross the 200 - nice. 

Take a look, however (you knew there'd be a however), at the the last 4 days, price-wise - I drew a red line (very healthy slope upward ) but then look at the MACD-H - which, remember, is a measure of momentum.  Those 4 days, nice up days price-wise, correspond to down, down, up, down on the MACD-H.  Not a very good show of momentum, eh?  Compare those to 4 similar days a couple of weeks ago (I drew orange lines).  Look at the corresponding MACD-H to those 4 days - nice up direction and momentum back then.   I'm just sayin'.

So I would expect this latest move to peter out - but, hey - what do I know?

Good luck!

Update: at 11am the S&P is down below 1000 (996.78) and remember that list of ETFs I put up the other day - they're all down - except for the financials (FAS, UYG, etc.) which are going pretty strong (which isn't usually the case - they tend to move with the overall indices, which is why I monitor the S&P rather than FAZ or FAS themselves).   Whether this is just a bit of a correction from things being seriously overbought or whether this is the start of something bigger remains to be seen.   I'm using 980-982 support area as my line in the sand.

Futures overnight held pretty much near yesterday's market close of S&P 986.75 - but have since dropped back a bit - I would bet that's going to mean a mixed opening (weasel words).

But... the markets had a really good morning yesterday, explosively jumping out at the gate, creaming through S&P 980 and then 990 - hitting 996.68 before dropping back.  Did anyone really expect it to go through 1000 "like butter"?  Doesn't usually work that way.  The important thing though, is that with the 980 resistance behind us, it should now act as a support.  Maybe we'll see if that happens that way today.

Here's an intra-day chart of yesterday's action:

S&P 500 - 15 Minute Chart - 4 Days 

As can be easily seen - almost all of the big price jump came within the first 30 minutes of trading and the rest of the day saw a bit of a consolidation above 990 (bullish) before dropping back right before the close ("profit taking"? - more weasel words) - but not falling below or even needing to test the 980-82 support area.  

S&P 1000 is a big bite to chew - numbers ending in 2 zeros - nevermind those ending in 3 zeros - tend to be fairly strong support/resistance areas.  So I wouldn't be surprised to see some more consolidation before an upward movement resumes.

Here's a daily chart:

 S&P 500 - Daily Chart - 3 Months

Notice yesterday's candlestick - it's clear, so it was an up day - no wick on the bottom, so the opening was the low of the day (bullish), it went up to it's daily high and then dropped back to close with a fairly large wick at the top end.  Bulls had pushed the price up, but couldn't hold onto it by the close (not exactly bullish).  But look at the MACD-H - see how price is going higher - hitting a new high - yet the MACD-H is going down.  This indicates that the price rise is unsustainable until the bulls get the momentum going again.  So expect a decline in the short term, at least.  Considering the almost relentless upward price action of the past 3 weeks (15 trading days), and the fact that we do have such a big resistance staring right in the face, it would make sense for things to stall or drop back a little bit before making the big push, so that doesn't bother me.  The level of this bullish MACD-H impulse has been impressive though, compared to the bearish/bullish impulses of the past 3 months on the chart, so it's possible that the MACD-H might not even get back to the center 0 line before turning positive again - which would be very bullish.

So expect a consolidation for a couple of days, maybe.  The important thing to watch out for, is whether or not the S&P 980 and then the 970 support areas hold.  Both areas proved very sticky on the way up (with 970 serving as good support already) - so, the market will be giving us a good signal if they hold or not.

Later

Futures have been trending upwards during the overnight, and the markets look set for a higher open.

 The S&P has travelled in a narrow band between 970 and 980 all week long.  As you can see from the futures chart, with futures over 980, it looks like that area might be cleared today.   Don't forget, that what was once resistance becomes support, so all of this noodling around potentially creates a nice support for an upward move and a try at S&P 1000.

Here's a chart showing how tight things have been the past few days:

S&P 500 - 15 Minute Chart - 4 Days

Nothing ever goes up and down in a straight line - prices generally take 2 steps up and 1 step back.  So after an upward move, I would consider a sideways consolidation as a positive and bullish.  The bears certainly had the opportunity to use the pause in the upward movement to drive the price down - even the 1 step that they are owed for the bulls taking 2 steps up - but the fact that the opportunity was presented and not taken by the bears only highlights the weakness of the bears and the strength of the bulls.

Look at the MACD-H for the past 4 days - barely any bullish momentum at all - what momentum exists was solely on the part of the bears.  And what did they get for their efforts?  Squat.  Couldn't bring things down below 970 (just a short time ago we were below 970 and looking up - now it seems like a fairly solid floor).  Now it's the bulls turn again - if they can get things above 980, as looks likely, maybe next week we'll be looking down at 980 as a floor.

Still a good time to be in on the long side.  The other day I posted a listing of those ETFs that have been doing well since the trend changed back to the upside on July 8 - take advantage of the opportunity, use S&P 970 as a stop, and make some $$$.

Good luck.

Futures are down this morning, and the movement since about 4am has been steadily downward.  I think it's safe to assume that the markets will open lower this morning.

The S&P had a tough time of it yesterday - opening at 981 - immediately dropping a bit, drifting through the day, and barely coming back right at the close to finish at a new high of 982, but at lower volume.

 S&P500 - 15 Minute Chart - 4 Days

Notice the lack of MACD-H momentum by either the bulls or the bears - neither wanted to take control.  This lack of conviction may be either a sideways consolidation of the recent upward gains (in which case it's bullish), or, looked at in combination with today's expected downward movement, could be a short-range top while the S&P retests a new bottom range (or even falls all the way back and retests that 880 level of a few weeks ago) - which could the bears coming back out.  We'll see.

In the event that things remain bullish, I wanted to take a look at what ETFs have been doing the best since the 880 level was tested back on July 8.

This is a listing of the top 11 ETFs, by return, since July 8.  DZK has very thin volume, so is not a good candidate, but the others all could be considered good substitutes for the financial plays - several of them did better than FAS in this latest upturn.

The S&P closed on Friday at 976 - so the futures, while taking a trip up into the 980s overnight, remain basically unchanged.  In other words, don't expect the bottom to drop out or anything based on the futures.  We may have a temporary pause while the market digests last weeks gains, but I think that the rally momentum will end up most likey pushing the S&P up to 1000 - which should be the next big area of resistance

Here's a current S&P chart showing that we are in full rally mode:

 S&P 500 - Daily Chart - 3 Months

Friday's volume was exactly what was needed (although, picky me, it *could* have been stronger, but still what do you expect for the middle of the summer...) - you always want a strong up day to have higher volume than the day before - it shows conviction on the part of buyers that they think that the rally is for real and they want to get in while prices are still "cheap" (i.e., cheaper than they will be expected to be if prices continue rising).  MACD and MACD-H are both very healthy looking - with the MACD-H again hitting a new multi-month high to go with the new multi-month price high.  The 13 day moving average has now crossed up and over the 26 and 50 - and now they all need to move up over the 200 - and when they do, it will be EPIC (not really, but a good thing, nonetheless).

One little fly in the ointment to keep an eye on:

 S&P 500 - 15 Minute Chart - 4 Days

Notice that the S&P price hit 979 on both Thursday and Friday and met resistance.  This may prove to be a minor blip - or it might prove to be a top.  If you haven't entered yet on the long side, it might be worthwhile to wait until this S&P 979 area has been cleared before entering.

Good luck!

Futures are down some this morning as those companies reporting so far this morning have been pretty disappointing compared to the Goldman Sachs blowout  last week (we're moving out of the quarterly reports of those companies that got lots of government money and into the ranks of those facing the economic travails on their own without the taxpayer largesse).

The opening is important because a lower open will confirm the reversal of the HANGING MAN Candlestick signal that I discussed last night.  Yesterday's open was just shy of 852 - an open below that, and a down day, will indicate the start of a downtrend.

To top things off, todays market action coincides wth the occurence of the longest solar eclipse of the century (only visible in Asia, sorry).

I'm much more interested in technical analysis and chart patterns than astrology, but there's plenty o'folks, some very succsessful, such as the famous W.D. Gann, who believe that there is a direct connection, and that many key market reversals directly coincide with eclipses.  Do a search on "teh Google" and you'll find plenty of hits discussing this.  (Did you know that last Sept. 15, the day that Lehman Bros. went down and took the market with it, causing the Big Panic, was also the day of a lunar eclipse?)

I'm not sure that I believe that stuff, but, the fact of the matter is that we have 2 strong reversal patterns setting up and staring us in the face, today's the potential trigger day, and it just happens to be the day of a big solar eclipse.  (cue spooky music)

Forewarned is forearmed, as they say.  Absent an up day today, I wouldn't own anything long going forward from here until I see how this plays out.

Futures are up and looking strong.  Since this is the earnings season and those companies set to report today are expected to bring in good earnings reports (albeit on a very low bar and with much lower revenues than, say, a year ago), it looks like today could be another up day in the markets.

The S&P closed yesterday at 951, a new 2009 closing high, and within easy distance of the 2009 intraday high of 956.

The Dow is lagging the S&P as far as these milestones, so I will focus on the Dow here.

Dow 30 - Daily Chart - 7 Months

First off, the Dow crossed its 200ma yesterday and deserves congratulations (Congrats, Dow!)  The Dow closed yesterday at 8848 - but the 2009 high (set back in January 6) of 9088 is still a bit of a distance away.

Here's a close up chart

 Dow 30 - Daily Chart - 2 Months

2 observations:

- The high prices in this recent upturn is not being matched by high volume.   One would think that if the big boys thought that this was the the start of something meaningful, everybody would try and get in while prices were still relatively cheaper now than they would be expected to be down the road.  Instead, average volume (horizontal red line in the bottom section of the chart) is declining.  Not very bullish, is it?  A general market rule is that strong price movements should be accompanied by strong volume to add validity- the big boys should be acting on what they think the price movement indicates wicll happen.  Lack of volume shows a lack of conviction.   If a stock price rises in a forest and no one buys into it does it reaselly matter?  So there will be those who will discount all of this positive movement of the past few weeks and months because it is unaccompanied by increasing volume.  On the other hand, all the big boys are probably at the beach with their familes...

- Look at the price bars for the past 6 trading days - all up days.  One thing I like about Japanese Candlesticks (once you get used to reading them) is that they very easily show price highs and lows compared to open and close.  The thing that strikes me about these 6 days is how the candlesticks show that the price closed very close to the high on each of those days.  That is an indication of strength - buyers aren't fading out as each day goes on - or rather, sellers aren't coming in.  This is very strong and bullish.  When I'm doing my daily screens of potential stocks to buy, one thing I look at as an indicator of strength is the close relative to the high - the closer the close is to the high, the stronger the upward movement is.  If a stock finishes at its high (on strong volume), to me that says that there were still buyers unsatisfied at the end of the day - and they will still be looking to buy in the morning.  Having this happen for several days in a row is a sign of strength.   However, I will temper this with the lack of volume issue - to me this isn't necessarily saying that the bulls are strong (if they were, this would be accompanied by the volume - those bulls like to stampede!) - but that right now at this point there isn't any bear strength - they all went to the beach with the big boys, I guess.  But light volume says that no one is getting excited and stepping in to buy - and no one is really getting concerned about being overbought and selling and locking profits.  Eventually, the up movement has to be accompanied by higher volume in order to continue. 

So these are 2 conflicting considerations - each day is strong price-wise, but weak volume-wise.   This adds to the general ambivilance that the other indicators that I watch have been signalling.  In the case of a nascent bull market, ambivilence is not necessarily a good thing.

S&P futures have been strong, pulling up away from the 936 level of the 200ma.  The next resistance is the 2009 intraday high of 956.  Will the S&P mount an assault against that today?  The 200ma is support - so we are in a fairly narrow range to gauge market sentiment and direction. 

 S&P 500 - 3Day Chart - 10 Months

The 3-Day Chart is highly useful in that it tends to smooth out the day-to-day noise and gives us a better illustration of market trends.   Except for the prices, everything in the chart has been mulitplied by 3.  Each price and volume bar represents 3 days.  The blue 50 day MA is really 150 days (that's why it still hasn't dropped below the red 26 and orange 13 day MAs (in actuality 78 and 39 day MAs respectively) - 150 trading days ago prices were pretty high!)

The 3-day very clearly shows the upper reisistance in the S&P 940 range that held in January and again in June.   And I drew a line showing the lower 880 support level that held throughout May.   After being bound in a price range over a period of time, a breach in the range in either direction will determine trend.   And we're about to breach on the downside.

In the 3-day chart, the important 50ma proved the resistance to the March rally.

A couple of points:

Look at the MACD - blue line (fast) crossed over yellow (slow) back in March and has just now crossed back under.  MACD is still above the center 0 line, but the slope isn't increasing and it should turn south soon.  MACD-H after also being positive since March reached it's apex in May (upward momentum increase stalled) and now below the center 0 line.  The fact that prices in May increased after the MACD-H stopped increasing is considered highly divergent - in terms of trend it indicates a trend reversal, and that is what has happened (higher prices should generate higher MACD-H, not lower, so the price increases cannot be sustained).

Look at volume.   After the end of March the overall level of volume declined while prices increased.  This is another bad sign.  If the big boys thought that the rally was going to continue (GO GREEN SHOOTS!!), overall volume would tend to rise as prices rise - people don't want to be left behind if they think the market is going higher.   But obviously they sort of don't, do they?

And lastly - keep an eye on the futures - is there any strength left in the 880 support area? 

hmmmm.... futures are below 870.   I don't think so.

If this turns into a substantial downtrend from here (and all points seem to be pointing south), this is definitely the time to enter on the bear side.  I still like the inverse financials SKF and UYG, both of which are extremely cheap right now and will only get rise as the market goes down.

 Look out below!

General Motors filed for bankruptcy this morning.   Back last fall, when this possibility first presented itself as a direct casualty of the financial collapse, the fear was that a "disorderly" bankruptcy would result in a general calamity to the economy.  Instead, 6 months later, the bankruptcy is happening and the market has a good shot at taking out the high for the year that was achieved in the beginning of January. 

Several months ago, the effects of a GM bankruptcy was considered to be a catalyst of uncertainty - who knew how many auto supply businesses dotting the Midwest would go down with it?   Yet, today, I've heard absolutely nothing about the collateral effect - it doesn't seem to be an issue at all  (CNBC this morning has chosen to go on and on with the union bashing - even though th auto industry guests  point out that the near-collapse of the financial system and recession destroyed demand for a product that is basically dependent on the availablity of easy credit - but CNBC has a mission, after all...).  So I guess the Midwest economy isn't going to collapse after all - or maybe it already has...  Either way, the market at this point isn't viewing GM as the calamity that it did during the last months of the Bush Administration - in fact, it's acting as a catalyst for a potentially big market day.  Go figure.

The S&P futures this morning are well into the 930s - this would extend the March rally past it's 930 apex and threatens to overtake the 2009 high of 944. 

 S&P 500 - Daily Chart - 5 Months

We've bounced off of the 930 area a few times in the past several weeks.  Anytime that overhead resistance finally gives way should be considered bullish - although at this point with 944 so close ahead, that is really the number that we need to be keeping an eye on.   Don't get all that excited by an intra-day poke above 944 - it will be much more meaningful if it closes above that mark - but if it does close above 944, the place to be is a long stock or ETF.

I still note that the technical signals such as MACD-H are still showing divergent weakness in the market - prices are going up while the MACD-H is going down.  That generally indicates a price drop in the near future.   So what will it be - the surprising positive impact of the exogenous event - or the weakness evidenced by the technical indicators?  We'll see...

Good luck

The S&P closed yesterday at 906 - and the futures have risen steadily throughout the morning, suggesting a higher opening.   Will that hold?  

We're still in the range defined by 930 on the top and 880 on the bottom.  And at this point, we're pretty much in the middle of the range - the S&P is going to have to move quite a bit before it even gets to test the upper or lower level of the range - but it doesn't seem that the market dynamics are in place for a big move today.  Theoretically that will happen Monday if, as expected, GM files for bankruptcy - which should be a huge catalyst for next week.  I hope to talk a little more about that over the weekend.    The question is - do the pros expect the market to tank on Monday?  If this bankruptcy had happened last autumn or winter, the uncertainty associated with a GM failure would almost certainly have contributed to a market plunge.  Now, however, that isn't necessarily a sure thing - it's been expected for so long that the actual event of a GM bankruptcy may actually be considered now as a positive catalyst as it removes a cloud of uncertainty that's been hanging over the market for months.   Interesting the way things these things work.

Not feeling inspired to blather on as I don't have anything additional that I feel is particularly incisive or pithy.   Keep an eye on the range - if we get above 930 - bullish.  If we get below 880 - bearish.  If we stay in between - boring.

Good luck.

S&P Futures are basically unchanged - the S&P closed at 893 - the futures dropped further after the close and then started a steady overnight climb suggesting an upward bias toward the opening, however with a jobs report coming out at 8:30 which has the potential to "move the market", I would at this point discount trying to devine any meaningful meaning about the overnights.

But in the meantime... I was out of pocket for a few days, and I get back to my computer and... nothings really changed.  We are still range-bound between a very hard overhead resistance at S&P 930 area and a very strong support area at S&P 880 area. 

S&P 500 - Daily Chart 6 Months

 We've tested both the upper and lower bounds several times.  It's a great setup - whichever way we break - when we do finally break - will be a very strong, clear-cut sign of what to do.

Look at the MACD-H and the lack of bullish strength since the beginning of April - that is why technical guys like me keep expecting the future direction to be down (and am incredulous that things have stayed up as long as they have).  Coombine that with the imminent GM bankruptcy and it's hard not to expect things to go down going forward....

Here's a very interesting 2 day chart -

S&P 2 Day Chart - 4 Months 

When I'm trading, I like to use the 13 and 26 day MA (moving average) for trading cues.  In the above chart, the 13MA is the red line, the 26 is orange.  Notice how, since the end of March, the 2 day bars have  interacted with and found support at the 13 MA numerous times.  That is what to watch for - if the 2 day chart can stay above the 13 MA, the rally should continue - but if the 2 day breaks through the 13MA support, it's all over.  That should be an early clue to watch for.

Good luck.

I happened to have CNBC on the teevee yesterday morning and they had some lightweight talking head on crowing about how resilient the bull market is.  "Just 48 hours ago the S&P was way down in the 880s - now it's in the 920s and we're probably going to hit a new 2009 high today, etc., etc.".   Dude.... hate to tell you, but we're probably going to be back down in the 880s again today.  So much for that.  Idiot....

(UPDATE: - yes, at 9:15 ET, the S&P futures *are* back in the 880s... sorry dude - are you going to go back on CNBC today and say "Never mind"?)

I thought that we would retest 930 and either break through (to retest the 2009 high of 944) or fall back.   We made it to 925 - and then fell back.   Does that count?   Usually I consider support/resistance areas a range rather than an exact point.   925 is like 0.5% away from 930 - generally that is good enough for me.

Here's a chart:

 S&P 500 - 15 Minute Chart - 10 Days

We filled the gap that formed between the end of the day on the 8th (the day we hit 930) and the open on the 11th where we dropped back.  But filling the gap yesterday morning basically took all of the strength out of the market - look at how low the level of the MACD-H bump was - and then look at how the bulls failed to retain control and gave up momentum to the bears.   That's kind of what happens at resistance, no?  So I count 925 as testing 930 and FAILing.

So the place to watch right now is the 880 area itself - where we dropped to last Friday the 15th.  For the time being, consider us to be in tight range - 930 on top - 880 on the bottom.  Which way we go from there will tell us how "resilient" the market is.  

We've failed trying to get through that top - now we are quickly approaching the bottom of the range again and the bears seem to have momentum.  Enough to get through?

Good luck.

Last week I mentioned that I thought we may make another run at S&P 930 and it looks increasingly like that is being setup to happen as the S&P stalled at 880 and regained the 900 level.

S&P 500 - 60 Minute Chart - 16 Days

We hit and bounced off of 930 twice a couple of weeks ago.   We then gapped down - a gap which hasn't been filled yet, btw.    As we get climb back up, that retest of the 930 level is becoming more and more important.  If it breaks through 930 it will most likely set up a cup-and-handle type pattern - which is very bullish, of course.   Anytime you break through a support/resistance line after 2 recent failed attempts is generally a huge sign of strength - and that then converts skeptics to the bull side and acts as a self-fulfilling prophecy as they buy in. 

The flip side though, and this is the part where we have to remember that we are in a bear market still, is that if such a retry after 2 failed attempts also fails,  it is generally seen as a sign of incredible weakness (or bear strength, if you will) and psychologicially devastating.  If we make another run at 930 and FAIL, I would expect things to head south again very quickly.

So it's the psychology at work here - if the market is successful at this test (knowing that the 2009 high of 944 is right around the corner) it may trigger a burst of optimism which will put the bear market to rest.  OTOH, if this test fails, it will reinforce the pessimism which has faded into the background these past couple of months.  It wouldn't take much to bring it all back.

So keep an eye on the now all-important 930 area for clues as to which way things will go next.

Good luck.

Futures were up overnight and then took a dive around 6 this morning (something happen in Europe or Asia?).   Unless they make a rebound before the market opens, I would have to consider that plunge to the be the portent of a down day ahead - at least initially, at the open.

S&P 500 30 Minute Chart 14  Days

The S&P spent quite a bit of time Wednesday afternoon, and at the open yesterday, at the 882 level which provided support that ended the decline down from our recent high at S&P 930.  That 882 number was ringing a little bell in my head.   Way back in the olden days of last month, when we were having so much trouble getting up past 875 (and we should have trouble getting down through there now), the first time that we actually breached that area was right before the close on April 29 - just as stress test news was beginning to leak out driving the market higher.  And when we first broke through that big 875 area - where did we land?  That high on April 29 was - wait for it - at 882.

So I would say, at this point, our first goals on this current downtrend will be to take out 882 and possibly that evil 875 area (I would count 882 as the upper outpost of the 875 support/resistance area).   It's entirely possible that 882 may form a small base for a run back at 930 (this would be a handle of a cup-and-handle formation going back through the end of December - see below) - it wouldn't totally surprise me to make one more run at overhead resistance - but it would surprise me if it succeded.   If we do pass up through 930 though, of course it would be incredibly bullish - but take a look at the MACD-H on the daily chart below - do we appear to be in a period of substantial bullish momentum?  To go through serious resistance on the upside seems like a huge hurdle right now - but to go through resistance on the downside doesn't look to be nearly as difficult.

S&P Daily Chart - 6 Months 

If you look at the daily chart above, you should also notice that the S&P has again taken the form of an inverse head-and-shoulders - which I've discussed in the past.  This is usually a reversal pattern - and for this to succeed we would have to rebound back up and then through 930.  However, the failure of these sort of patterns also create a negative psychology on the market - failure to get back up and through 930 could be a psychologicially devastating FAIL, which could provide negative momentum for a plunge back down to retest the March 6 low.

Bottom line - if we go back up, we *need* to break through 930 - if that doesn't happen, then eventually we should fall back through 875 and then a lot further south.

Good luck.

Here's the current futures as of 8:30 am ET.  Yesterday, the bears pulled the S&P back below 900, closing at 883.92 - and as you can see, the bulls have not come charging in  on a white horse in the middle of the night to save the day - things are still in the mid-880s.  I think that the bulls are pretty exhausted from trying to maintain the late gains in the last uptrend and that any slowdown in the price falling will be more due to the bears taking a break rather than any strength on the part of the bulls.

The change in trend is now starting to show in the indicators on the daily chart:

S&P 500 - Daily Chart - 2 Months

We've now had 3 straight down days for the first time in ages - as least since before the uptrend started in the beginning of March.  And, ominously (cue spooky organ music), volume has increased all three days.  Traders are taking notice and getting out.  The MACD-H has now dipped back below 0 - the last little MACD-H upcycle ended after just a few days and the MACD-H max in the cycle came in a lot lower (albeit at a higher price) than the MACD-H max from the last up-cycle.  That's bearish.   The MACD itself (something I rarely follow, but that a lot of people do - the red and pink lines above the MACD-H) is turning over with the faster MACD now dipping below the slower MACD - which is usually a sell signal.  And, looking at the actual price chart, the fastest MA on my chart - the 13 day MA - has now turned south.  If prices continue to decline the 26- and the 50-MA will eventually turn down also,  and. as the faster MAs cross and drop below the slower MAs, that will also constitute a sell signal to those who use MAs as their buy/sell signals.  

A couple of weeks ago I showed how the MAs were all signalling a price rise while the MACD-H was signalling a price decline.  It looks like the MAs won in the short term, but the MACD-H won out in the end.  So much for those "green shoots" that everyone's been so excited about. 

They had "green shoots" back in the spring of 1930 too....

At this point no one should be on the long side - we have clearly topped out on this last 2 month run and the rollar coaster has reached the top and is heading down.

Probable support areas to be wary of on the way down - the big area around 875 that gave us a lot of trouble on the way up - and then around 860 and then 830.  How the market does when it hits these areas will give us a clue of the strength of the downturn.   

Good luck 

When I went to bed last night, the futures were pretty strong.  When I woke up this morning, they were down and have kept going down.  This chart reflects a small delay - at this time - right before the open - futures are at 890.  The downward trend of the futures suggests a downward trend for the market open and possibly the entire day itself.

 I haven't posted an intra-day chart in awhile - the current 4 day chart clearly shows the latest change of fortunes for the S&P:

S&P 500 15 Min Chart - 4 Days

As you can see, we violated the previous 3 day low yesterday, hitting an intraday low of 896.  As we were in an uptrend, the violation of the low is the signal for a trend change.   For confirmation, I would look to see a close below the 3 day low or a violation going downward, of the next major support area - which should be the 880-895 area that gave us so much trouble going up (and was only breached after the stress test reports came out).  

The ease or difficulty with which those support areas holds will give a big clue as to whether this is in fact going to be the major correction that has been expected for a few weeks now.  There should be a lot of money to be made on the down side at this point - if the downtrend is confirmed, make sure that you are in an inverse ETF such as FAZ or SKF and make some $$$.

Good luck.

Last week I pointed out that many charts were showing reversal signs, but that the announcement of the stress tests results provided an exogenous event that gave things a boost.  That boost may have run its course as the charts are signalling reversal again.

First, another brief lesson in Japanese Candlesticks. 

Here's a diagram showing how to read to the Candlesticks - I realize that I use the Candlesticks in most of the charts that I post, yet I haven't really done a good job at explaining how to read them - these are generally what the Candlesticks show - you have a "body" - either light colored if the day is an up day, with the open forming the low of the body and the close forming the high of the body - as well as a tail or wick extending from the body showing the high and the low - and if the day is a down day, the body will be black or dark, with the open forming the top of the body and the close forming the bottom of the body, again with tails or wicks indicating the high and the low. 

It should be intuitive, that the longer the body (the difference between the open and close), and the closer the body is to the high and the low, the stronger that day was as an up day or a down day. 

But think of the opposite - where there is a very small - or no - body on the candle.  The candle looks like a cross.  That should indicate that the trend is very weak.   The Japanese have a word for this  - "doji" - which signifies indecision.

Generally, when one sees a doji symbol after a long trend - either up or down - it is an indication that the trend has run it's course.  In an uptrend we expect to see a "long white candle" (using the terminology of the chart above) - the close is substantially higher than the open.  But in a doji situation, the stock opens, it goes up, it goes down, and then it closes right where it opens.  The bulls who had been running the show during the trend have reached a point where they don't have the strength to move upward anymore.  The bears haven't yet taken over to push the price downward, but the point is that the strength that has characterized the trend is broken and traders should prepare for a trend change.

I want to focus on a particular type of doji - called the gravestone doji:

The Gravestone is generally a reversal signal if it occurs at top of uptrend.  The market opened, the bulls pushed things higher - and then lost strength and the bears pushed back all the way back down to the area of the open.  Not what one would expect to see in an uptrend, no?

Now that we know what we're looking for, let's look at some charts:

 S&P 2 Day Chart - 2 Months

S&P 4 Day Chart - 4 Months

I hope you've noticed the circles that I drew on the charts and the point that I'm making - on several different time frames, the charts are signalling if not an outright reversal, at least a stall in the uptrend.  To me that says that the boost from the stress tests has run its course - the bulls are unable to sustain their further gains - if you are in a long position, caution is warranted from this point unless the bulls clearly take charge again.

Good luck

The official stress test results came out yesterday afternoon, and, as you can see, the futures responded in a very positive way, climbing through the night and erasing the losses from the down day yesterday.   The employment report at 8:30am this morning caused the futures to give back a little bit of the overnight gains, but it looks like the lifting of the cloud of uncertainty that has hung over the financial sector since last year is finally lifting and that will be the determinative factor in today's market rather than the employment report.

I spent a lot of time looking at charts last night - and if I was relying solely on a chart-reading and techincal analysis, I would have thought that we had reached a market peak and things were headed down.   But instead,  the stress test results should give things another boost in this uptrend that won't stop.

I want to diverge a little bit from my usual discussion and focus on the indices and the financial ETFs to give a short charting lesson on Japanese Candlesticks (a method of charting) that should illustrate what I mean about the market peak:

 This is a Japanese Candlestick price bar called a "hanging man" when it is at the top of an uptrend, and a "hammer" when it is at the bottom of a downtrend.  It generally indicates a reversal:

What happens is that the price opens (generally higher than the close the day before) represented by the top horizontal line in the price bar, it goes up higher, represented by the short "tail" above the open, then goes much lower (represented by the long "tail" dropping down), and the rallies to finish higher than the low, but not as high as the open.  

Think of momentum and the bulls vs. the bears - in an uptrend we expect the bulls to be in charge - price bars should show a higher high and a higher low.   What happens in the "hanging man" is that the bulls open higher, push the price up a little bit, and then totally lose strength and momentum, allowing the price to drop substantially.  By the end of the day, the bulls do rally and come back, pushing the price up off the low of the day, but are not strong enough to push the price back past the open price or into positive territory.

The significance of the "hanging man" is an illustration that, after a long uptrend where the bulls have been strong and in control, bullish power is weakening and the bears are awakening.

The "hanging man" pattern depends upon a confirmation of the next day's price action to complete the reversal signal - if the price the next day is down, the uptrend should be ended (likewise with a "hammer" at the bottom of a downtrend - if the price the next day opens upward, the downtrend can be considered ended.

So let's look at a chart.  I picked Apple because Apple has had a very nice price ride during this last uptrend:

Apple - Daily Chart - 2 Months

This chart basically shows the entire uptrend since Mar 6.  Very nice.  I've circled the "hanging man" that showed up on the chart on Wednesday (2d price bar from the right edge).   The reversal signal was confirmed by the price action yesterday when it opened lower and went down during the day (note - this didn't just show up on Apple - there were all sorts of reversal signals all over the market yesterday).  By all rights, anyone looking at this chart would interpret this as a sell signal and the end of the uptrend. 

But the big exogenous event of the stress test announcement completely blows this out of the water.  In the absence of these sort of events, the market (or at a minimum, Apple) should be headed downward - instead we are slated to continue upward.

As I mentioned yesterday, keep an eye on S&P 944 as the resistance area to watch on the way up - that is the high for the year from very early January.  It should act either as strong resistance and possibly reversal - but if it doesn't hold, could portend a new and very significant move upward.

Good luck.

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.

Fuures were down overnight and when I got up this morning - but then the ADP employment report came out at 8:15 showing significantly fewer job losses than expected (ahhh - the expectations game) - portending a less horrible labor report on Friday than expected (ahhh - the expectations game) - and futures reversed and took off.

So what to make of this?   The ADP report doesn't always align correctly with the actual government reports - we could still come in with a lousy report on Friday, and now that expecations have been raised, that could be disastrous.    Or if it comes in pretty good, would the market have it already baked in because of the ADP report.

But before then, we still have to face the stress test results, which come out on Thursday.   The futures indicated that the market was a bit concerned about what had already been leaked about the stress tests (question - have they leaked the good stuff yet or the bad stuff? - ahhhh - the expectations game) - but does the fact that they turned on a dime when the ADP report came out mean that we have now "normalized" the financial crisis to the point where employment reports are trumping big financial sector news?

The next couple of days have the potential to be big movers.  The expectations game is being played in a big way so what will happen with the market isn't really easily predictable - the market may end up moving more in reaction to the expectations rather than in reaction to the actual news. 

And of course, there is still the old adage about "buy on the rumor, sell on the news".  We've had plenty of rumors to feast on and the market has responded accordingly.  In the next two days the actual news will come out.

For the fearless, we're still in an uptrend and the play is the long ETFs.   The safe play, however,  may be to wait and see what happens before committing.  I'm a big believer in what technical analysis via the chart can tell us - but I also recognize that that is trumped when important exogenous events (and the expectations game) kick in - and for the next couple of days, I think it will be the market reaction to the exogenous events that will matter.

Later

After yesterday's awesome day, futures are holding up nicely - yesterday's rise will not be a one-day flash in the pan.

S&P 15 Minute Chart - 4 Days

Nice looking chart isn't it?   The bulls are definitely in control and don't show any signs of giving up.  The only fly I could find in yesterday's ointment was the relative lack of volume - volume was up over the day before (bullish on an up day), but barely made it to the 45-day volume MA.  It's hard to make a valid rally without volume and the relative lack of volume makes it harder to make the case that this is a bona fide rally as opposed to, say, short-covering.

Regardless, the uptrend is firmly back in place.  The 875 area was a very solid resistance area - and also should act as decent support if we ever head back down.

And yes - it is highly unusual for an uptrend to go on for so long without a pullback - at some point we WILL go back down.  As Mr Worden noted yesterday in the Worden Report:  "we are still in a bear market. And somewhere along the line we're going to undergo a whopper of a correction."   And I firmly believe that.

But in the meantime....

Futures were up in the afterhours on Friday and then were very healthy overnight before basically giving back everything before the market open.   Figure it's going to be that kind of week until the stress tests come out on Thursday.  If you need to take a couple of days off - right now would be a good time to do it.

On Friday I threw down the gauntlet taunting the S&P for not having been able to finish above 875 after several tries.  So what does the S&P do?  It takes up the challenge and closes at... 877.  B... F... D...  .

Here's the issue:

 S&P 500 - Daily Chart - 5 Months

We had this waterfall plunge back in January before the innauguration - hit the 2009 of 944 very early on and dropped like a stone below the 900 mark where we've remained ever since.   We had 2 failed attempts at a rebound in January and February - and 2 more attempts just recently.   I've drawn a thick horizontal line showing where these attempts all failed.  The Jan and Feb tries failed with highs at 877 and 875.  The latest attempts briefly broke through into the 880s, but, as I had noted on Friday, still failed to close above 875.  So a subsequent close of 877 doesn't really advance the ball downfield, does it? 

The market is mocking me - and I mock it right back.

Bottom line - nothing is going to happen on the upside until we decisively clear this area.  If and when it does it will be huge - but until then, the downside potential of the repeated failed attempts remains very real - and as I've been pointing out, the indicators that I watch, such as MACD-H, aren't necessarily confirming that we will in fact move higher from here.

Regardless, nothing much, at least on the upside, will happen before Thursday of this week.  No one wants to commit big money if there's a chance that the market will tank on bad news.  And if we do take off on Thursday, there should be plenty of time to get in.

We most likely will stay in some kind of holding pattern for the next few days while we wait.  No sense committing your money if you don't have to - at this point that would be gambling as sure as betting on the Kentucky Derby is gambling. 

There's plenty of bad news piling up - Chrysler bankruptcy, etc. - that doesn't seem to be affecting the market yet because the stress tests are trumping all.   Think of it as a clogged steam pipe building up pressure - when that pressure is relieved (Thursday) things could really take off.  Just we don't know which way yet.

Good luck

Futures are climbing from overnight, although (not showing on this chart) they have dropped back to 870 (unchanged) shortly before the market is to open.  However, if you will notice, they are lower than yesterday.   Not what you are looking for if you are trying to make the case of a renewed uptrend.

I am still quite ambivalent about whether or not we will start a new uptrend.  Via the 3-day rule, we have poked above our changeover signal a couple of times now.  However, I don't view the 3-day rule as determinative by itself - you have to also look at what's going on in the market to see if a trend change based upon nothing more than poking a price higher than the previous 3 days is actually realistic.

For example, we have been dicking around around a very important and stubborn resistance line at 875.  We've poked above it twice - but, importantly, we haven't been able to close above that line - We got up to 882 on Wed and 888 on Thursday - but both times we dropped back below 875 at the close.   Can you say "running in place"? 

Here's a chart:

 S&P 500 - Daily Chart - 1 Month

I drew a circle around the last 5 days of price action.  Notice on each of those days, the very lengthy "tail" above the body of the price bar - those tails show that the price couldn't hold onto the high of the day before dropping back.  Compare these with the price bar immediately before the circle (a week ago yesterday) and the bar 2 bars before that.  Very little tail on top - the market closed at or near the high on the days.   Closing at the high indicates ongoing strength - inability to maintain the high indicates lack of strength - and all week long, even though the market has pushed higher it is also not really showing strength.  Rememeber I view the daily price action as a battle of the bulls and bears - in each day the bulls pulled the price higher and then were too weak to maintain their gains.

 And look at the MACD-H which I've been pointing out - that's decreasing while the price is increasing - a negative divergence indicating that the price level won't hold.

The take-away is that our important price resistance level of 875 is trumping the 3-day rule - until we break through 875 and actually close above that level, the case can be made that this market isn't going aware.  If this continues for too long, eventually gravity will come into play and prices will just start dropping just because....

So at this point, we are still sort of in a no-mans-land - not really going up, not really going down.  If you are in the market, keep a sharp eye out because at this point it can move either way - if not in the market, wait until 875 is decisively cleared before jumping in on the long side, or until a lower support area (840?) is cleared going down to confirm a move downward.

This might not happen until the stress tests come out next week. 

Later.

The market finally broke through the big S&P 875 area resistance yesterday - hitting 882 before dropping back at the close to finish at 873.  This is an upward move through the previous day bar and would potend a return to the uptrend.  I've learned, though, that sometimes a quick spike that doesn't hold at the close doesn't always translate into a trend change - however this morning futures are up strongly into the 880s and so I can't discount the trend change.  This IS the little market that could - or at least the little uptrend that could.

S&P 500 15 Min Chart - 4 Days

So now our 3 day parameters are 882 as the high, and 847 as the low -since we are in an uptrend, we would look for a breach of 847 going downward to change the trend back.

At this point I would be completely out of any inverse ETFs.  I still see this market as still being very overbought so I'm not so sure that I would advise jumping immediately into anything long just yet - there's all sorts of resistance in the 890-900 areas (i'll try and illustrate this better this coming weekend) and a nearly 2 month uptrend that as of yet hasn't had a correction of any sort is just begging to go back down - but you also can't argue with what's currently going on - whether it's short-covering, or investors determined to get in on what they think of as "the bottom" before it's too late, or fears generated by the bank stress tests are abating, but things are certainly still driving upwards and we have to recognize and acknowledge that.

Now idea how long this will last - the stress test results become public Monday.  There is still a pandemic threat out there.  Etc., etc.  The bearish case, to me, still looks stronger than the bullish case, but for right now the bulls are in control and if one wants to make $$$ one must be on the side of the bulls at this point.

Haven't been around for a few days - my apologies.  Houseguests overstaying their welcome have a way of throwing one off one's game - nevermind coming down with some sort of flu (oink oink).    Normally I lead off with a current futures chart (futures are down) - but instead I'll lead with a chart of the past few days to see what we missed:

S&P 500 - 15 Min Chart - 4 Days 

Basically, not a whole whole lot has happened since last Thursday - we've traded in a range from about S&P 840 up to 871.   And do you know where the S&P is this morning in the futures? Right back down around 840.   There's 2 take-aways from this - 1) I thought last week that 875 might be retested again and maybe 871 will count as that retest and 2) look at the negative level of the MACD-H both at the point where 871 was reached (i.e., a high price *should* have a high MACD-H, not a low one), and then throughout the day yesterday - the bulls are nowhere in sight.

So we're still in the same position as when I last posted.   We are bumping up against a strong resistance that is preventing a further uptrend - but the downtrend that the indicators are predicting is still having trouble getting itself going downward.   And since nothing has changed, my current bias expects things to eventually (maybe even today with the swine flu scare news) give way and actually head back down.

So, anyway - here's the futures chart - thanks for being patient:

Like I said - down around 840....

Here's a current daily chart of the S&P - it's my ususal Telechart chart, but I've changed the background to white so that it's easier to pick up the moving average (MA) lines on the price chart:

S&P 500 - Daily Chart - 2 Months

I want to point out an interesting divergence within the chart and the indicators. 

First off - look at the level of the prices and then the MACD-H - I've drawn helpful arrows to help guide the eye - price has been advancing for several weeks - but that price rise has not been matched by the MACD-H which has gone steadily lower.  That is a serious divergence and portends that prices can't sustain their current level - one main reason why I believe that S&P 875 will NOT be breached in this current market.

But look at the MAs - the red line is the 13 day MA, orange is the 26 and blue is the all important 50 day MA.   In a bullish chart you would expect to see the shorter MA on top of the longer MA.  And in this chart that is the case - Compare the chart when in the downtrend prior to March 6 and the longer blue was on top of the orange and red - to the order during the uptrend when the red moved to the top followed by the orange and then the blue.  

The MAs are giving a positive signal (when a shorter MA crosses over a longer MA and the slope is up, is often considered a buy signal - when the longer crosses over to be on top and the slope of the MAs turns downward is considered a sell signal.  That hasn't happened yet.

So we have a divergence in the indicators that I use - the MACD-H signalling a bearish divergence, the MAs signalling a bullish outlook.  This will be a good test of the indicators.

Interesting times....

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!

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.

Earnings season is here.  The words I've seen used to describe what to expect range from "grim" to "brutral" - and those are the optimistic ones. 

If you haven't quit out of long positions and switched into inverse yet, now is the time to do so.

The S&P high yesterday was at the open - 839.75.   Remember that number as we aren't going to be seeing anything that high for awhile.  There was a short rally going into the close - it closed at 835 - but overseas markets and futures have taken a big hit - currently down around 20 down to around 815.

I see the potential to go all the way back down to retest the 666 low -but of course one never knows where this may end. 

I'll be keeping an eye on and pointing out the support levels as they come up - it looks like we'll be testing 800 pretty soon and then the 792 low of last week - but it will take some pretty big earnings surprises to the upside - doubtful - to turn this thing around.

There's lots of money to be made on the short/inverse side from here - take advantage of it and make sure that you're in an inverse ETF.

Later.

The S&P closed at 742 on Friday - very close to the highest level of the uptrend of 745 reached on Thursday.    Futures rose Friday after the close and through the night last night, but have taken a dive this morning, ostensibly on news of the impending collapse of the IBM/Sun deal.

Here's an intraday chart of the last 4 days

 S&P 500 15 Min Chart - 4 Days

As you can see from Friday's MACD-H levels, the bulls showed absolutely no strength on Friday at all - the MACD-H stayed negative most of the day, yet the bears neverr really managed to push the price down any.  Of course, this MACD-H divergence signals a short-term price decline ahead - and with the earnings season starting tomorrow - traditionally lead off by Alcoa - I would be surprised to see things go higher from here.  Although so many people have been talking bad about how dreadful this earnings season will be, one has to wonder how much may be already baked into the prices - maybe we'd be in the S&P 900s already, but for the iminent horrible earnings reports.   Maybe we will be surprised - nothing is ever a sure thing, which makes the market so much fun *usually*.

 I must confess to totally missing out on this last little uptrend - I wasn't nimble, stayed in FAZ, and took a nice haircut.   As I mentioned last week, I'm guilty of looking forward to the earnings reports coming out this week - and so discounted the postive market action last week and suffered for it.

From here - this may be the high water mark, especially if the market opens down this morning.  My feeling is that any holdings on the long side should be watched very carefully in anticipation of getting out.  

On the upside, watch for resistance/possible reversal around 850-855 if we get that high (if we break through that, of course that would be an incredibly bullish signal that the market is discounting the anticipated bad earnings reports).  On the downside,  watch support at 818-820 and the 800 areas.  If they do not hold, definitely bail out.

The current 3-day parameters are 845 on the upside and 783 on the downside.  Since we are currently in an uptrend, a break south of 783 will be the definitive signal to switch to the inverse ETFs.

And in the meantime, we'll all wait on Alcoa...

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!

Futures have steadily risen over night and indicate a higher open this morning - but still below 800.  So are we in an uptrend or a downtrend?

My rules generally follow a 3 day rule - in an uptrend, if the low of the next previous 3-day bar is broken, then the up trend is broken.  In an uptrend, highs should be higher and lows should be higher - so if the next low is lower, then it is no longer an uptrend.  In a downtrend, if the next previous high is broken, then the downtrend is ended - in a downtrend each 3-day bar should have a lower high and a lower low - if the high goes higher than the previous 3 day bar, then it is no longer a downtrend.   Think about it for a minute and it should be intuitive.

Yesterday, the previous low of the 3 day-bar was 792 - we broke that and spent most of the day in the 780s - so the uptrend was violated

Here's a 3-day chart as of this morning

S&P 500 3-Day Chart - 3 Months

 Today's 3-day bar shows a high of 832 and a low of 779.  If we were in an uptrend, then 779 would have to be violated going down for a change in trend.  If we were in a downtrend, then 832 would have to be violated going up for the trend to change.

So even though today is supposed to be an up day - since the trend changed yesterday, it would take the S&P going up to 833 today to change the trend back - the odds of that happening...?  It's in the realm of possibility, but not very likely. 

I mentioned yesterday that sometimes a smart move is to exit the prevailing position at the trend change, but to wait until an important support/resistance line is encountered before committing one's position to the trend change - in our case it would have meant exiting long positions when 792 was breached, but not committing to the bear side until support at 780 was breached going lower. 

Look at the trends in the 3-day chart - they tend to last for 5-7 bars - 15-21 days or so.  So if you miss the first day or two, there's still generally plenty of time left to get in and enjoy the rest of the trend.  No one says you have to switch right away (although exiting your position at the first sign that things are no longer going your way is prudent) - sometimes, as in the current situation, maybe it is the better course to wait a day or two and let the market tell you which way it's going to go rather than taking a guess or a gamble.

I still think that the market is going down from here - maybe I'm being premature and missing out on what I could have gotten from a short bump today - but I'd rather mechanically follow a timing rule than allow emotions (FEAR!!! GREED!!! OMG!!!) to dictate my moves.  It doesn't work 100% of the time, but it works enough that when it doesn't work I don't worry about blaming and second-guessing myself for a wrong move - because I followed a rule.

So right now, even though today should be an up day, I will assume that we are still in a downtrend - unless the S&P moves up past 832.

Good luck - we should see greater clarity a little further down the road.

Well things aren’t looking good for the up side.  I thought we’d have another week on the uptrend, but it seems pretty evident that that isn’t going to happen.

Futures are sharply down – they’ve been declining steadily from the Friday close of 815 and now (8:30am) stand at 797.  The 818 support/resistance area didn’t hold and the 800 area is failing.

The current 3-day low is at 792 (looks as if that was touched and held during the overnight, although technically that doesn’t count)– If the S&P falls below that, the uptrend is officially over (as far as I’m concerned) and a switch to the inverse ETFs would be warranted.

Even if 792 holds today, I would be very surprised at any further sustained move to the up side from here – the up trend just really seems to have completely run out of steam.  So even if a move to the inverse ETFs isn’t warranted right away, it still may be safer to exit the long side and wait for the downtrend to resume in earnest.

Good Luck

The S&P spent most of the afternoon yesterday trying to bang past the 832 point and didn’t make it after 3 separate attempts although the close was virtually at the high of the day.    The futures spent the night backing off from this area and now (8am) sit down around the 817 level.

I seriously doubt that 832 is going to be the high-water mark of this rally – my gut tells me that this uptrend will keep going through next week.  Earnings seasons start the week after (Apr 7) and that trainwreck should be enough to sink things, but I don’t see why this won’t keep going until then – up into the 850s or maybe the 870s.  If things do go past there, that would be major.

I keep stressing how treacherous the S&P 800s are – there seems to be bigtime resistance every 15-20 points or so – the 818ish area, the 830ish area, 845-53, 868-75, 888 area, etc.

Remember to keep an eye on the ball – in this case, the TREND.  I follow particular rules – support-resistance areas are those areas most likely to see a reversal – however, the failure to initially clear a resistance area, for example, won’t count as a reversal unless it is confirmed by the failure of the next 0ne or two support areas going down.  Sometimes things just stall, rather than actually reverse – if the next support level down after an attempt at a resistance level holds, then chances are that the market will be making another attempt at that resistance – it would be very premature – and damaging to your portfolio – to make a switch prematurely.  

Keep an eye on the 3-day chart (if you don’t have access to something like Telechart that provides a 3-day option, just keep an eye on the high and low of the last 3 days of chart action (this is why I generally include 4 days on my intraday charts)) – a violation of the last 3-day bar – especially at the close -  in the opposite direction of the current trend is confirmation of a trend reversal.  The low of the current 3-day bar is at 790.  Price could bounce off of 832 a bunch more times – unless it breaks 790 today (or whatever the low of the 3-day bar is going forward), don’t consider the trend reversed.  When it does break, that is your absolute confirmation to switch.

I have friends who are constantly trying to anticipate the market – and they jump way too soon at the first sign of failure without waiting for any sort of actual reversal confirmation and are constantly getting whipsawed in the daily zig- and zag of the market.  And they are generally nervous wrecks too.  Don’t do this – establish specific rules of when to switch and don’t let the various daily gyrations distract you.  The key is keeping emotions out of it – you establish and follow rules and it becomes mechanical rather than emotional – and you sleep a whole lot better at night LOL

Good Luck.

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.

So you go to bed at night and things are pretty ordinary and you wake up in the morning and all hell has broken loose  - but in a good way.  Geithner apparantly has finally come through with a major plan to save the financial system and, evidently, “they” like it (I won’t begin to even pretend that I know enough about this kind of finance to be able to evaluate this on my own). 

The question is – is this one of those “buy on the rumor, sell on the news” kind of things where the markets are moving now, but this is the high point and things will drop when the actual announcement is made – or is this the sort of kick in the butt that the markets really need and this will actually do the job and jump start a rally?

Right now (8 am EST), S&P futures are up well over 20 points overnight.

I went to bed last night thinking of a post this morning discussing how the uptrend of the previous 2 weeks was history (complete with charts!) and now – maybe not.

We have very strong resistance on the upside – the 800 area fairly easily defeated the S&P last week – so we should know fairly quickly whether this has any strength at all.

I would initially abandon any bearish downside inverse positions and wait to see if things clear 805 before jumping in on the bullish long side (and then watch for resistance at 818ish and 830ish areas).  If an initial try at 800 fails, wait and see what happens at 780 support/resistance – and if that support fails – go in on the inverse side.

Exciting times.

Good luck.

Futures spent most of the overnight sliding down through the 770s – remember that the bulls need 780 to hold as resistance if they are to have a chance at salvaging the rally.  Then beginning around 6 this morning they reversed and have risen back above the 780 level. 

When I’m looking at futures, I’m not so much concerned about what level they are at as I am about the direction of momentum – and the turn-around this morning indicates to me a bullish momentum going into today’s quadruple witching day – although that might change between now and 9:30 am.

Expect volatility and maybe a crazy ride today,  We are interested in breaking through resistance at 800 going up for the bullish play, and breaking through 780 as support going down as the bearish play.

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.

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.

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.

Not too much guidance from the futures – they drifted down overnight and then quickly made it all back.  The indecision evidenced by yesterday’s doji may very well continue into today.  

There’s an old market saying - “Buy on the rumor, sell on the news”.  There is a school of thought that could easily explain the buying since last Friday on the rumor that “Mark To Market” is going to be suspended or otherwise adjusted.  This is a regulatory adjustment that would be crucial (in the eyes of the market) toward alleviating some of the issues facing the financial industry (no, I’m not going to try and explain mark to market here). 

All week long things have been abuzz because hearings will start today in the House Securities Subcommittee that could get the ball rolling toward solving the mark to market problem.  While it is widely assumed that repeal of mark to market would generate a BOOM in the financial sector (go FAS!) – just the announcement and the start of holding hearings seems to be have been enough to generate interest and excitement.  So keep an eye on these hearings and market reaction – I have no idea that something will be announced today, but it is something that has the market very excited and potentially has the power to start a major move to the upside.

In the meantime, keep an eye on breaking through S&P 731 on the upside and S&P 710 and 700 on the down,.  I wouldn’t be surprised to see a little more indecision or sideways movement before anything substantial happens though.

I posted last night on the importance of breaking past 724 as a cue that this turn-around is real and worth climbing aboard – and look at where the futures are placed this morning – the SP should open right around the 724 level this morning.  If it goes up from there, we’re off to the races and pick your favorite long ETF for the ride up.  If it goes down from there, we might be moving sideways in a range for a little bit, or we’re going back down.

The road upward is going to be difficult with several potentially difficult resistance areas ahead. It’s going to take some decent bullish strength and momentum to pass through these hurdles.  Best to know early on what kind of rally we’re dealing with here.

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.

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.

Futures were way down after the close yesterday and spent the night rising from 685 to over 700.  This upward momentum is bullish and should portent a bullish opening.  Whether the bulls can carry that over into a bounce or relief rally will depend upon whether they’re able to push the price past the 710 barrier (of course since I’ve switched my thinking to the bearish side, of course we’re now guarranteed a monster rally LOL.   If one wants to play the long ETFs for a short-term gain, I’d wait until seeing what happens at 710 and again at 735 at the gap before switching.  The way up is filled with pitfalls.  Any move past resistance should be considered extremely bullish.

Futures have been up and down all morning and have settled in the S&P low 770s area.  Nothing really determinative unless and until 780 area gets tested

Futures don’t appear to be maintaining any sense of yesterday’s rally.  They’ve been mainly up and down in a range lower than yesterday’s close.  Obviously the market isn’t going to react to President Obama’s speech last night with a rousing rally out of the gate. 

It’s very possible that the 777-78 resistance won’t even be tested today.  As I mentioned last night, I wouldn’t be surprised if we move into a short horizontal consolidating pennant triangle with lower highs and higher lows for the next few days before the next breakout.  I wouldn’t go into the UYG/FAS play until at a minimum that 777-78 area is cleared and if we do form a triangle we wouldn’t even be close to that until the breakout.  It’s very conceivable that not much is going to happen market-wise before, say, Friday, although I could very easily be wrong.

S&P 500 Futures

The futures were generally up but quite volatile overnight – still up since I’ve been up – but are fading.  It feels like yesterday  - starting off up but not able to hold on at all.  What’s it going to take for the bulls to come out and play?  The markets are very oversold  - and the S&P is at the last support level before Wiley Coyote territory so we’re due for a bounce of some sort….  Bernanke’s speaking today or maybe President Obama’s address tonight will be the job….

I don’t see any reason to switch from SKF/FAZ.  If for some reason a spark catches and the market does ignite some, wait for some key resistance to be breached before jumping.  The 3 day high is still at S&P 797 – close to the 800 level.  I’d wait for that (and that’s a long way up) before making a move. Just shows how pathetic the market is these days.

Futures have moved up to the 777 level – a nice move up up from the Friday 754 low – and further away from a retest of the Nov low.  To me this only delays the inevitable…

But, in the meantime, looks like the market might have an up day to break the 5 day downtrend.  Enough of an up day to start a new uptrend?  Doubtful, but things are oversold so there’s nothing unusual about a break.  Watch the 790 area (which gave the S&P nice support on the way down), and more importantly the 800-804 area for clues as to how far this will go.

S&P and Dow futures are way down.  While the S&P still hasn’t tested the November low, I guess we can consider the Dow retest as a FAIL.  The trapdoor is opening up and what is possibly a big new leg down is starting.  

Be vigilant for a possible sharp rebound (and when it does happen it cound be fast and furious)  –  keep an eye on S&P 750 and S&P 741 – but once we get past these areas there are no identified support levels to give us warning - but in the meantime, take advantage of strong market movement and jump back into SKF or FAZ

The S&P Futures dropped below 780 shortly after the close yesterday, and then spent the night slowly rising up to 792.9 (9am EST).  What’s important when watching futures isn’t so much the level of where they are as the direction in which they’re moving  to give a clue about market momentum.

So this indicates that the market should move somewhat higher today.  In terms of trend, watch whether the S&P can pass the 800-804 area or not to determine if this is a legitimate move (remember – what was support going down becomes resistance going up).  The market never goes straight up or straight down – there’s always a few zigs and zags along the way – the question is whether the zig/zag is meaningful enough to change the overall prevailing trend – otherwise just hold on and stay with the trend.  I kind of doubt that the market has enough strength to successfully challenge the overhead resistance – it barely had enough strength yesterday to move much at all.  But you never know…

Stick with the inverse ETFs (SKF/FAZ) today even though the account may incur a small loss for the day.  It’s not worth jumping in and out unless the trend changes.  Anyone who was out of FAZ on Tuesday mostly missed out on the 15% move right at the open. You bounce back and forth to avoid minor losses and you end up missing some big gains.  Of course if the S&P moves up above 800-804 in a very convincing way we would jump into UYG/FAS to take advantage of the trend change.  If that happens I will post word.

As of 10:40 Monday evening, the futures are predicting a rocky session for Tuesday.

Bloomberg shows the Dow futures at 7677 and the S&P futures at 806.9

The Dow is lower than the 7693 intraday low of last Thursday - the only time the Dow has been lower this go-round was during the November 20-21 lows (7449).  Like a moth to a flame, I don't see the Dow as being able to avoid testing that bottom.

The S&P is equally worrisome - except for the November lows (747), the S&P generally  has avoided the  extreme Dow weakness of the past month.  The S&P hit a low of 804 on Jan 20 and has successfully retested the area twice since then, but while the Dow started getting pulled under the 8000 line back in mid-January, the S&P has managed to avoid slipping under 800.  With futures down to 805, that might be in jeapordy.

So what to expect on Tuesday?  Both major indicies may be below any substantial support keeping them from the November lows.   If the futures hold, both indices will also be below the level of the bottom boundary of the triangle that has defined the last 4+ months and would signal a strong downward breakout and resumption of the down trend that has been constrained by the triangle (although, watch for a fake-out - sometimes a breakout fakes in one direction and the quickly reverses and moves strongly in the other).

The day also has the potential for what I call a rocket reversal - a big downward move followed by a very strong intraday reversal that begins a new secondary up trend. 

Either way, the early play would be the inverse ETFs (SKF, FAZ) - take advantage of the downward move from the triangle.  Keep a fairly tight trailing stop (5%?)  in case of the reversal (and then quickly jump into UYG or FAS) - or ride the indices down to the retest level if the reverse doesn't happen.