In The Land Of The Blind...

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

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

S&P 500  - 15 Minute Chart - 4 Days

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

 S&P 500 - Daily Chart - 3 Months

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

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

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

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

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

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

Will the 13ma hold?

Will the 50 finally cross the 200?

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

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

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

S&P 500 - 15 Minute Chart - 4 Days

The S&P started off the month of August with a bang(!) - cruising through the 1000 mark - maybe not like buttah - but pretty easily - almost as if it were not the big a deal.  Certainly not the testing and backing off and testing and backing off, etc. that often happens around a big potential resistance number.  Of course hitting a high of 1003 and a close of 1002 doesn't necessarily mean that the 1000 level is in the rear view mirror for good, but it's not exactly chopped liver either (ok - where are all these food references coming from??)

I've read different things about volume - that it was "up"; that it was "strong, but not as strong as Friday", etc., so I'll have to wait until a get to sit down tonight and go over the charts to get the full picture.  As I said this morning, strong volume in an uptrend is crucial - although considering this is the middle of summer, I guess anything over the 45 ma is a good thing (and last Thursday and Friday both were so hopefully today will be too).  And hopefully today's price action was enough to turn around the dreaded MACD-H divergence that I also mentioned this morning.   All-in-all, not a bad day all around.  The S&P itself gained 1.53% and the Dow gained 1.25%.

I spotlighted some ETFs last Tuesday July 28 - let's see how they did today (I recopied this list from Tuesday - the numbers on the chart represent the % change from the July 8 low through July 27), the numbers next to it are the % change today:

EDC  +11.26%

ERX  +7.78%

TNA   +5.57%

MWJ   N/A

USD    +2.47%

UYM   +7.82%

FAS     +7.90%

DZK    +7.44%

BGU   +4.98%

UPRO +5.03%

UMM  +3.67%

Is there any reason not to be in one of these guys?

Futures are way up this morning portending a big opening on the markets for the month of August.   Will this be enough to push the S&P over 1000?

I've been having a lot of problems posting lately - for some reason this program has become almost incompatible with my mouse, jumping all over the place and eating my blog entries (I lost 3 over the weekend and gave up - oh well...)  And for some reason, the site that I usually go to for my intra-day charts (www.barchart.com - awesome site!) is saying that it can't find any stock named S&P500 and can't draw the intraday chart (it can do the daily and weekly nicely though).     So while the stars seem to be aligned against me, hopefully they will be on the side of the markets.  I'll take one or two for the team...

So here's a daily chart instead:

S&P 500 - Daily Chart - 29 Days

First off, I want to point out something very important - look at volume rising for the past 6 days.  No rally goes anywhere without increasing volume.  The big boys need to have conviction that the movement is for real, and buy in.  And this is finally happening.  If today turns out to be a big up day, keep an eye on the volume - hopefully it should be up over Friday.

Next go up and look at prices - Thursday's and Friday's price action formed a small mini-triangle going into today's breakout.  Note - Friday was more or less a Doji day - price opened and closed in the same area and more or less formed a cross candlestick.  Doji means "indecision" in Japanese - it's a signal that the prevailing trend has paused or is about to reverse - but it doesn't automatically mean that it is a reversal - just a pause.  As with many Japanese Candlesticks it's important to see the next day's price action for confirmation or clarity.

I also drew on the chart a short horizontal line showing the 982 resistance that stopped the market on Monday.  It was tested as support on Friday - very bullish.  If the S&P does bounce back off of the 1000 level, look to that area as a line in sand - if the bulls are still in charge after hitting 1000, it should be a support if reached.  If the bulls are traumatized from a failed try at 1000, and have given up momentum to the bears, then 980-82 not holding on a pullback would be an important clue that this has run out of gas.

The only bothersome thing is the MACD-H - signalling a divergence (price is going higher, MACD-H is going lower).   If today turns out to be a big up day, then I would expect the MACD-H to start reversing and going back up.  If for some reason today starts strong and peters out and doesn't reverse the MACD-H, then I would expect that the divergence will eventually win out and this rally won't be sustained.

Better quit while the quitting is good - before this thing crashes or before I jinx things. At this point FAS futures are up over 6% - could be a good day.

Good luck!

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.

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!

I thought I would start screening for stocks again rather than just relying on the Dow/S&P and the ETFS.  Here's a really good chart that got me pretty excited.  Now this is an uptrend:

NTES - Daily Chart - 18 weeks

Netease (NTES) is a large internet company in China.  It was a darling of the market about 2 years ago and appears to be coming back in favor.

Some of the things I screen for:

1) Up day on strong (at least 1.5 x 45ma) volume  CHECK

2) High MACD-H value coinciding with the price high - preferably multi-month price high corresponding with a multi-month MACD-H high  CHECK

3) Moving averages are all in the proper order for an uptrend (notice how the 13 (orange) was above the 26 (red) was above the 50 (blue) even before they all crossed up over the 200 (dotted yellow). CHECK

4) Lots of interaction with the moving averages with the MAs providing lots of support.  Look at the way price moved along with the 13ma throughout April and May - and when it broke through downward, it found support at the 50.  This provides predictability - once you know that a stock interacts with particular MAs in a certain way (i.e., as a source of support), when, in the future it fails to act as expected with that MA is a key sign giving warning that things aren't the way they should be.  CHECK

5) Rising average volume (horizontal red line in the bottom window) as well as plenty of recent above avg volume up days (green spikes in the volume bars, as well as the lack of too many red (down volume) spikes) - the demand is out there and pushing this stock higher.  CHECK

Let's look at the MACD-H story and see what it has to say:

Prices rose with March rally, and MACD-H went up indicating rising upward momentum before trailing off in April.  Then followed a bearish MACD-H impulse for 5-6 weeks throughout the end of May.  BUT NOTICE - even though the MACD-H went negative, indicating bearish momentum - prices stayed more or less horizontal.  The bears exhibited their power, but were unable to move the price down.  When the bulls got back in control at the very end of May, they took off.   Same thing happened in June - when the bulls lost momentum and gave control back to the bears, the bears again displayed all kinds of strength and momentum - and could barely pull the price down.  And by the time prices actually did start moving down by the beginning of July, bearish momentum was exhausted and the MACD-H was already rising again - a bullish divergence.  And sure enough, when the bulls got contol again, things went through the roof (figuratively).

This kind of MACD-H movement is what you want to look for - especially when, during a trend, the other side seizes MACD-H momentum, but can't move prices their way.  Their side becomes exhausted and when then other side comes back to the playing field, they completely dominate.  Anytime you see a flat price response after a strong move upward or downward generally means that the trend is very strong and will really pop when the movement resumes.

And now, MACD-H is making a high at the same time as price is making a high - and is the strongest MACD-H on the chart (even higher and stronger than during the March rally). 

And look at MACD - notice in March at the beginning of the rally, and again at the end of May, at the bottom of the MACD where the fast (blue) line crossed over the slow (olive) line - that the 2 MACD lines never made it below the center 0 line.  Do I have to say that this is very bullish?  Well it is.  And now, even though the MACD dipped below the center 0 on it's last trip down, fast has just recently crossed over slow, and both are just now crossing over the center 0.  Either of these are considered buy signals.  I would prefer to buy when a trend is still fairly new, as opposed to, say, the second week of April when, although price was still rising nicely, the MACD-H was already declining, and the MACD was looking a little long in the tooth.  You can use the MACD and MACD-H to help time your trend entries and exits this way.

Let's go back to yesterday's price bar where the price and the MACD-H both made multi-month highs.  I'm a big fan of Dr. Alexander Elder, whose books turned me on to the MACD-H.  It is Dr Elder's thesis that when price and MACD-H both simultaneously make multi-month highs (or lows), that that shows that momentum is such that even if the price backs off a bit, that that high (or low) price level will be retested.

There's not a whole lot of things with stocks that are a given and a certainty and a sure thing, and this thesis by Dr Elder is one that comes as close as I've seen.  You can use this a couple of ways.  Even though, for example, NTES looks over-bought right now, if I enter at this price, I can be reasonably assured (weasel words) that, at a minimum,  if price goes down from here, that it will come back and at a minimum retest this level - so that does wonders for my risk factor, doesn't it?  Or alternatively, if I don't want to buy at an over-bought level, I can put this on a watchlist, wait for it to come down a bit for a dip, and then buy, knowing that it should (weasel word) reach that original level again at a minimum.  Doesn't get too much simpler than that - does it?

S&P 500 - 15 Minute Chart - 4 Days

The markets decided to take off (as in a rocket, as opposed to a vacation) this morning -and are currently (1:30ish EDT) up 2+% on good volume.  Things have been relatively quiet during the past week and the S&P and Dow spent some time hanging around their 200ma lines - but that lack of velocity came to a sudden end this morning.  And even though I'm not showing the chart, the Dow joined the S&P and finally took out it's 2009 intraday high today.  Good times for the bulls.

I was at the salt mines until quite late last night and finally got home well after midnight and just did a cursory check of the charts.  I did want to discuss briefly the S&P chart from yesterday, as there are a few things worth discussing (and I wish I could have gotten to spend some more time and gotten to post this earlier, but, oh well...)  But here's the chart:

S&P 500 - Daily Chart - 3 Months

I'd to talk about three things on the chart that bear notice:

1) Yesterday's price action resulted in a "Doji" (Japanese for "indecision") candlestick.  The market opened, it went up, it went down, and it closed pretty much where it opened.   Neither the bulls nor the bears were able to take charge.   After the Hammer setup on Tuesday, with the possible dire consequences if the bears succeeded in pushing things down,  the fact that the bears weren't able to do anything with the opportunity presented  is what probably resulted in the resumption of bullish sentiment today.

But, for what it's worth, look at the large bullish candles almost every day since the 13th showing the very strong uptrend, and then for a couple of days no movement at all while it waited to decide what to do...  That's what to look for in a Doji - it's a pause in whatever trend has been happening while the bulls and bears evened themselves out again.  Like many Japanese Candlesticks, the Doji needs a confirmation follow through the next day.  As today shows, don't assume that just because a doji shows up in a strong trend doesn't automatically mean reversal - wait and see what happens the next day before taking action.

2) Look - Oh Look! - at the 13, 26, and 50 day moving average lines converging -  this is important.

One of the reasons for having multiple MAs on a chart is, as I mentioned the other day, to illustrate market direction by the position of the MAs lines in relation to each other - a strong uptrend will have the shorter MAs on top of the longer MAs as price rises and a downtrend will have the longer MAs on top of the shorter ones.

Another feature of watching multiple MAs is that when MAs of different lengths converge, as they did in yesterday's price action, it generally signals a BREAKOUT!!! - trading opportunity.   And that is the certainly the case today.   And after today's action, the 13, 26, and 50 will all be in the proper order for an uptrend (although still below the 200 - look for their crossing of the 200 as bigtime confirmation of the uptrend).  This was the first thing that caught my eye last night, and I went to bed actually a little excited (do this long enough and that is what happens to you - be warned).  That's the sort of thing I mean by charts telling a story and giving clues - if you only know how to look for them.

Which leads to:

3) MACD-H.  Haven't talked about this for awhile, but, MACD and MACD-H are my favorite indicators.   They put the "trend" in "trend following".

MACD-H is the vertical orange lines travelling away from the 0 value in the center of the lower portion of chart.  They measure the distance between the fast and slow lines of the MACD (the long blue and olive lines running vertically).  The bigger the distance between the MACD lines (the larger the MACD-H bar), the stronger the momentum of the prevailing trend.  

One thing to look for in any chart where prices are making new highs is whether or not the MACD-H is making new highs too.  Rising price should be accompanied by rising volume and rising MACD-H.  If not, the uptrend is suspect - and this particular uptrend has been suspect for awhile.  

When I'm looking at stocks, I screen for those that have hit new price highs - but I only consider going in on stocks where the price high is also accompanied by the MACD-H high.   High price and high MACD-H generally idicates continuing upward momentum.  High price and low MACD-H indicates momentum is fading, and so will the uptrend.    If you have access to charts and are able to scroll back and look at past price action, follow the price movement and the MACD-H and see what I mean.

As a trend follower, my motto is "buy high, sell higher" - I will buy as long as the MACD-H is high and sell when the MACD-H starts failing.

So, finally, in the past 2 days, MACD-H has been making multi-month highs to go along with multi-month price highs.  I consider this extremely bullish.

Both MACD-H and MACD give good buying and selling signals.  With the MACD, the normal buying signal is generally when the lines cross over the center o line coming up. That also is in the process of happening as you should be able to see.   If you have a high risk tolerance, another MACD buy signal is when the fast line crosses up over the slow line (fast line over slow line = uptrend; slow line over the fast line = downtrend) - which also coincides with the MACD-H crossing the center 0 line (remember the MACD-H is the distance between the two MACD lines - when one crosses the other, the MACD-H automatically crosses the center 0 line). 

One can also glean some good information from the relative sizes of the MACD-H impulses (I think of the cycle of each MACD-H when it goes above and below the 0 line as a bullish or bearish "impulse".)  The relative size of the max or min point of each impulse, as well as how many days duration it has, gives an indication as to whether the bulls or the bears have the most relative strength.

Looking at the 3 months of this chart, it have been fairly evident that the bearish downtrend impulses have exhibited much stronger momentum and were longer lasting than the bullish uptrend impulses.  Even while price has generally been drifting higher, which, should signal a downturn (higher prices should have higher MACD-H, remember?). 

But now suddenly, the MACD-H is quite respectably bullish and showing increasing momentum at a level not seen in several months.  To me this definitely gives this upward movement bona fides that it didn't have before.

I have a lot more to say about the MACD and MACD-H that I'll be discussing in future posts. 

Meanwhile, enjoy the BREAKOUT!!!

S&P 500 - 10 Minute Chart - 3 Days

An interesting 3 days on the S&P.  I went to the 10 minute chart to best illustrate the action:

Wed the 15 - prices moved up steadily in the morning, continuing the market boost started by Goldman Sachs' bogus profits reports on Monday.  Notice that as the price moved closer to the 200 (red line), it met resistance and upwards price movement stalled.

Thurs the 16 - 2 halfhearted attempts at the 200 in the morning didn't go anywhere.  I didn't outline it on the chart, but do you see the triangle that formed from the beginning of the trading day until about 1 pm?  Lower highs, higher lows - and in the lower portion of the chart the MACD-H showing very little strength by either the bulls or the bears.  Then, suddenly, at 1 pm there was an upward breakout from the triangle (triangles generally but not always break out in the direction of the trend, remember) and the 200ma resistance was easily overcome. 

Notice the nice bump to the upside of MACD-H on Thursday afternoon before the attempt, indicating strenghtening momentum.  My belief is that any attempt at breaking through an important support or resistance line must be accompanied by a relatively high MACD-H to succeed.  Look at the minimal MACD-H levels during the failed attempts on Wed afternoon and Thursday morning for example - nothing to build a run to storm the castle with there.  If I was a short-term trader and looking to trade the 200ma attempt, I would have waited until I saw the bullish strength in the MACD-H on Thursday afternoon before getting too excited about the trade.

Fri the 17th - a consolidation day - neither the price high nor low went above or below that of the day before.  The big thing here, however, is notice how the 200 has been tamed.  It went offering resistance before it was breached to offering support once the breach took place.  If this holds, this will be a major turning point in the market.  Notice, also, that the consolidation took the pattern of a triangle (lower highs, higher lows) throughout the day, just as it had on Thursday morning.  Which way will the breakout go this time?

One reason that I think the S&P had a consolidation day on Friday, rather than building on its gains, was that it is waiting for the Dow to catch up.  The Dow still hasn't crossed the 200ma - and in fact, it met resistance and failed on Friday.  Here's a chart:

Dow Industrials - Daily Chart - 3 months

Much more price movement in the Dow on Friday than in the S&P as it played catch-up - yet, as the chart shows, it failed at the 200.  The Dow 200 is currently at 8763 and the Dow was never able to get closer than 8754.  So any enthusiasm over the S&P breaking the 200 will have to be tempered until the Dow also does so - if, indeed that does happen.

I wanted to finish this discussion with a historical chart going back a few years:

S&P 500 Daily Chart - 4 Years 

Hot mess, isn't it?

I want to make 2 quick points:

- first, look at how long it's been, and how much has happened, since prices were last over the 200ma instead of being under it (the dotted yellow line) - and notice the long-range posture of the market in relation to the 200 - how long it stays over in an uptrend, with the 200 providing support, and how long it stays below the 200 in a downtrend, with the 2oo providing resistance.  So we really are at a potential major turning-point in the market right now, depending on whether or not the 200 holds (my gut tells me it won't, but I'll save that for another post this weekend).

- the 200ma area is "sticky".  Prices don't generally just slice through and continue on their merry way.  They cluster around the 200 and stick around for awhile before deciding which direction to go.   If you follow the chart and see where the price interacts with the 2oo (the dotted yellow line), this is clearly evident - interacting with the 200 is never just a one day event.   Now we did have some interaction with the 200 back in June, so this might satisfy it (notice on the chart how most interactions are, at a minimum, 2-pronged).  But even so, I would be very surprised to see much price movement from here in the next couple of days - S&P 936 (the current 200ma) could be a very important number over the next week or two.  Combine that with the major resistance at the 2009 top of 953, and there should be a fairly narrow trading range for the near future, followed by a break-out of very meaningful proportions.  Very meaningful...

I promise to post sometime later this weekend explaining why I think this 200ma run is doomed to fail.

 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!

S&P Daily Chart - 10 Months

I opened the S&P Daily Chart up over a much longer period of time in order to better illustrate where we are in terms of  non-MA indicators that I use the most - Bollinger Bands and MACD and MACD-H.  And both right now indicate good things for the bears. 

Bollinger Bands

The Bollinger Bands are in purple on the price chart.  Some very obvious things to consider:

-Look at how from Oct through March, with the exceptions of a few minor mini-corrections, as prices went down, the price bars generally hugged the bottom Bollinger Band.  After the bottom on March 6 notice how the prices crossed the middle line, and stayed in the top half until mid-June (after the pullback from the 200ma) - and now are in the bottom half, and hugging the bottom Band again, for the first time since March.

- take a look at the center line (essentially a 20ma).  The direction of the center line gives an indication of the direction of the movement of the Bands - and now, for the first time since mid-March, the middle line (and the Bollinger Bands) is sloping downward.  Notice also, that the center line provided support several times in April and May - but once it was crossed in June, it now has acted as resistance several times.    Think about that - a downward sloping line acting as resistance = much worse than an upward sloping line acting as support.

MACD and MACD-H

The MACD in the lower chart window is a derivative of 2 moving averages - a fast 12 day (light blue line) and a slower 26 day (yellow line).   We're comparing momentum and strength of price movement.  When the blue is on top of the yellow line, prices are rising, and the reverse, when the yellow is on top of the blue, prices are going down.  The level of the 2 lines as the travel above and below the center 0 line gives an indication of how bearish or bullish the current market trend is. 

The MACD-H is the vertical orange lines, also travelling above and below the center 0 line.  The vertical lines (and as I've stated before, this is my absolute favorite indicator) show the distance between the blue and yellow lines (when blue (the fast MA) is on top - the MACD-H will be above 0, when the yellow line (the slow MA) is on top, the MACD-H is below 0.  Look at the height of the MACD-H line as it changes from day to day - and that shows you the increase (or decrease) of the rate of change in the fast MA vs. the slow one.   If the MACD-H line is increasing, that means that the prices comprising the fast MA (the most recent 12 days, weighted toward the more recent) have picked up momemtum and are moving higher at a rate faster than the the slow MA (which goes back further and includes the 14 days previous to the 12 in the fast).  And the reverse - when the level of the MACD-H is going lower, the rate of upward movement is stalling - and as it crosses the 0 line going south, means that the fast MA is now acting, on average, on lower prices than the slow MA - and the downward increase in the MACD-H away from 0 now reflects the strength of momentum of declining prices.

Put them together and the MACD and MACD-H show us whether the market itself is a strong or weak position (depending on where the blue and yellow lines are in relation to the center 0 line, and also where they are in relation to each other) - and whether current momentum is sending the market higher or lower.   Traders use MACD crossovers - the yellow or blue line crossing the other, or both crossing the center 0, as trading signals.  As you can see from the charts,  keeping an eye on the momentum extremes of the MACD-H also sends trading signals, as well as the crossing of the MACD-H above and below the center 0 line (MACD-H crossing the 0 line corresponds to the yellow and blue lines crossing each other, in case you hadn't noticed yet).

Now let's look at the chart back in Oct - see how low the MACD got, and also how powerful the downward momentum was at the time.  That level of downward momentum was the most powerful momentum level reached on this 10 month stretch of chart - as well as the initial rebound into November generating the highest upward momentum - even higher than in March.  Look at how from Nov through Mar each succeeding upward impulse generated less and less momentum while each downward impulse generated stronger momentum.   The same thing happened with the March rally - an initial rebound impulse from the bottom generated a strong MACD-H, but every one since then has been weaker and weaker, while the negative momentum impulses started off very weak after March, and have increased in momentum strength with each impulse since then.

Look at the first trip of the MACD-H below 0 in April - barely got below 0 - and prices barely dropped - they actually increased.  The next one, the last half of May, showed a slightly stronger negative MACD-H and prices actually dropped a little bit.  By now, the level of negative MACD-H extreme started getting larger than the level of the positive MACD-H that followed in June (when the price stalled at the 200MA).   The price decline from the 200 generated even more negative momentum for the second half of June and a stronger MACD-H than any level since the initial March rally.  And by the very end of June,  the bulls were only able to *at best* generate a slower level of downward momentum rather than any actual upward momentum - the MACD-H never got above 0.   In other words, we're now in a reverse position than we were in April when the initial rally momentum died out but was still strong enough that the bears could bearly (HA!) pull it below 0.  Back then momentum was in an upward direction and the bears showed no strength at all.  Now the momentum is in a downward direction - and the bulls are the ones not showing any strength at all.   Look at where we are in the price charts and how 880 was a significant support area in May - and look at how much relatively stronger the bears are now and how weaker the bulls are. 

And just one last mention of the MACD itself:  after staying above the center 0 since March, the MACD is now below the center 0 line with the slow yellow line firmly above the fast blue line, indicating lower prices (with relatively strong and increasing momentum).   As I mentioned earlier, the MACD crossing the center 0 is used as a trading signal - many traders who turned bullish and bought back in March are now taking the signal and turning bearish in July - these things  do feed on themselves.  Also, for what it's worth, check out the reversal head-and-shoulders on the MACD. 

I don't expect this minor breach of the 880 level to be temporary.   Way too many indicators are telling us that we can finally put a fork in the March rally.  This coming week could be rough for the bulls - if there are any left.

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

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.

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 

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.

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.

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....

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!

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

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

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

S&P 500 15 Min Chart 4 Days

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

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

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

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

Later

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!

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

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

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

 S&P 30 Min Chart - 20 Days

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

FAZ +19.5%

SKF +13.5%

UYG-12.3%

FAS - 18.6%

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

Later

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.

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

 S&P 500 - Daily Chart - 7 Months

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

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

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

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

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

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

Later

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

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

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

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

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

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

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

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

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

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

Later

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

S&P 500 15 Min Chart 4 Days

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

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

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

I want to show 3 things -

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

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

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

S&P 500 3-Day Chart 9 Months

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

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

Later.

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

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

I think that the bias now favors the upside.

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

 S&P 500 15 Minute Chart 4 Days

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

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

Today was one of those days that wasn't especially special, except that a day that was down on financials coincided with a day that the market was down - and it was really easy to scoop up a chunk of FAZ goodness.  I h0pe everybody did - it's just too easy.

S&P500 15 Min Chart 3 Days

Here's the S&P abandoning yesterday's mini-rally - in such a rush to get away it gapped down at the open.  696 held for a couple of bars, but the new area seems to be the mid 680s.  Once the S&P hit there, bear momentum dried up and price ended up interacting with the 686 line in virtually every bar the rest of the day.

But notice - the bears, having met their objective of the mid 680s basically gave up and let momentum drift toward the bulls the rest of the day - but the bulls were never able to translate that into anything but a temporary halt in the downward slide.  They weren't able to get the MACD-H into positive territory after 2 tries.  If they fail on one more try and give up momentum back to the bears, it could be another fun day downward.  So easy to scoop up 25%.

I wanted to revisit something I talked about a few weeks ago - I posted a chart showing the Dow travelling in a very orderly downward price channel after breaking through the triangle.  So I wanted to go back to the chart, but this time show some additional things.

Dow 30 - Daily Chart 7 Months

First off, remember the old triangle that was reaction to the big waterfall in Sept-Oct, and which was finally violated back in February.  Notice the very orderly price decline since then - continuing a downward price channel.

I've drawn a trendline from the bottom point of the waterfall in Oct through the Nov low - and it comes to very close to where we will be very soon.  Both times hitting this trendline in a robust downswing it bounced back up.  Would that be the signal of the bounce/relief rally that everyone is so frantic about?  So my gut tells me we're going further down some more, maybe a fair amount like today, but then possibly (finally) bounce upward .

I also highlighted the MACD-H line during the triangle.  Look at the MACD-H and the price movement before the traingle, and then how it bcame stilted in the triangle - they couldn't get enough room to get momentum going and so would die when they hit resistance.  And the MACD-H for both bulls and bears decreased in size and intensity.

This is the first MACD-H cycle since the triangle was breached.  And on the daily chart, at least, it's putting on a credible show freed from the constraints of the triangle.

Stay with the downside (inverse) but keep an eye out for a sudden reversal.

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

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

FAZ - 15 Min Chart 7 Day

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

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

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

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

Later.

S&P 500 15 Minute Chart - 3 Days

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

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

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

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

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

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

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

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

Later

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

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

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

S&P 15 Minute Chart 3 Days

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

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

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

 S&P 500 Daily 2 1/2 Months

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

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

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

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

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

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

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

Later.

S&P 500 15 Minute Chart 6 Days

The S&P spent the day in a horizontal price channel the formed yesterday afternoon when the downtrend ended.  An opening push failed almost immediately, and 710 is looking to be the number to beat on the upside.  The area survived at least 3 separate assaults and held each time.  I've included the MACD-H - look at how high it was too - and price stopped cold at resistance and all that momentum was wasted. 

The 700 mark was broken on the downside on several occasions - it doesn't appear to be the obstacle I thought it would be,  but the mid 690s does appear to be sticky with lots of 15 minute business going on.   And after one last bravo effort by the bulls in the afternoon, the price settled down to close at 696 - close to the 692 low.

Obviously a substantial breakout in either direction should raise eyebrows and catch interest.

I wanted to talk a little bit about the MACD-H setup.   Notice yesterday that price was going down, yet MACD-H was going up?  That's something else that should always raise eyebrows.  That sort of divergence generally indicates a bullish reversal, so it's interesting to me, just as the supposed bullish reversal "inverted head and shoulders" failed last week, that the MACD-H divergence is failing this week.  Even though the indicators indicated a reversal, and bullish momentum indeed got stronger and more intense as the day wore on- the bulls were never able to use it to get past 710.  And look at how quickly the bullish momentum dissipated once 710 failed the last time. 

All this indicates to me much further overall weakness on the part of the bulls.  Once the bears get the MACD-H and momentum back on their side, who knows how much havoc they might wreak. 

I initially have been confident that we are due for a bounce/rally of some sort - but I can very easily see things going much further south first - the bulls just don't have the strength to take advantage of the breaks handed to them to start anything.  If the bears appear to be in control in the morning, then get into SKF/FAZ for some $$.

 S&P Monthly Chart - 27 Years

It's always good to look at charts with different time settings - you never know what little gems show up. 

We are currently at point where we can finally draw trendlines with some of the important support/resistance areas in this area while things were going up in the 1990s. 

And first try out we hook up with an important trend line from way back when - total support line after the 1990-91 recession from 1992 through 1994 - and total resistance before and during the recession - from 1989 through 1991. 

But look at what comes next down the trendline - the peak at the time of the 1987 crash. 

I have no idea what to make of it - but this is something else that should be filed in the database.  Possibly there is a very strong support/resistance area in this area that we should be aware of.

Notice too, on the monthly chart the current depth of the bearish momentum on the MACD-H.

One could say that it is by far the strongest trend momentum in the S&P in at least 27 years - and it's in a downward direction.  Wiley Coyote Territory.

S&P 500 10 minute chart - 3 days

The S&P gapped lower at the open and finally took out the November low.  Today's low of 734, though, is still close enough to be considered part of any "retest" of the November low - so the results are *still* inconclusive.

After the low, prices rose in a triangle formation that is still playing out this afternoon.  The gap hasn't been filled and 751 served as resistance going up.  Triangles are generally continuation patterns - since the trend was down before the triangle, I would expect that the breakout when its done will be to the downside.

Interesting though, I thought that the bears would have their way at will today - and the bulls are putting up a nice fight.

Here's a 20 min delay chart that shows MACD-H.

 S&P 10 minute chart - 2 days

Notice that while the MACD-H has been on the bulls side during most of the triangle action,  the bulls effort is nowhere near as deep in intensity or as long-lasting as the bears has been.  It seems to me that the triangle is more due to bearish inattention rather than bulls strength.  When the bears come awake again, they should be able to pull prices down lower.  Bulls are going to have show a lot more strength than they have so far if they want to salvage the day and the Nov low support area.

S&P stayed within the 780-752 range today – starting out with a failed test of the top and ending with a failed test of the bottom.  High was 779.4 – low was 751.75   But check out the MACD-H.  Price hit like a double top this morning- yet the MACD-H was weaker still.  But when price tested the low, look at how strong the MACD-H is.   I wouldnt be surprised if this breaks to the downside.

  S&P 500 - 10 Minute Chart - 6 days

There's an old Street thing about gaps always being filled and the downward gap last Friday morning was filled this afteroon.  But, interestingly, ever since that gap, the 780 area has been problematic and the S&P failed at resistance.  So much for the big bounce yesterday.

The BEST part though, is the very specific inverse head and shoulder pattern that has put itself together since then.   Put on your best Australian accent and agree - "Isn't she a beauty".

The 752 area is turning out to be an important area on the downside - serving as the tops of the shoulders and, the last important support area before retesting November again. 

In the meantime it was hit 3 times today and it proving as toublesome as 780 is on the upside.  A head and shoulders is usually a reversal signal, but this one's reversal was rebuffed at the 780 line

So the S&P is caught between two significant areas.  Where it goes from here will more than likely ignite something (see what happened when the triangle broke) in whichever direction it manages to break out in.  It suffered reversals at important areas of each side today.  At some point momentum will favor one side and I think the breakout will set off a certain enthusiasm to trigger something.  Either way could be an awesome pickup for an enhanced ETF.

I'm actually undecided which way it will go but I think 780 will be the one ending up holding.

S&P 10 Minute Chart - 6 Days

I included the MACD-H on this chart.  Check out the high point of the price today, and where the MACD-H is, and then the price point of the last price high - which is the resistance at 777-780 - and then the MACD-H on those occasions.  The last 3 , the MACD-H high point on those days with high price points has declined from the previous one before.    Today it managed to go higher and actually kiss the other side briefly, but it was immediately slapped down.  And it could barely muster up the strength to work up a decent MACD-H for its trouble.  A higher price high when the highest day's MACD-H is lower isn't good.

To me, that's always a bad sign for the bulls.  And it was making a move off a head-and-shoulders.  It should have gone barrelling through, especially given the joyous "happy days are here again" attitude after Bernanke created his bounce.  The fact that it doesn't says a lot and has the words FAIL pasted all over it.  And the fact that this particular attempt failed could be sending off a huge signal about bull weakness - if this is the best the bulls could do when given the chance, that isn't really saying much.  3 strikes and you're out.

I'm a big believer in the daily battle of the bulls and the bears,  and today should have been another awesome day for the bulls if the bounce was going to mean anything, and instead they go home having the door just slammed in their face.

Now look at the relative MACD-H size of the downward pushes and how the last one after the bad opening this morning shows a much deeper and more impressive strength.  So the bears are getting stronger, keep knocking at that 752 line - at some point after repeated attempts, it just might have the big mo to bust through - and the greater the MACD-H the better the chance of busting through good support/resistance areas - and that trend pretty much favors the bears over the bulls right now.  Who knows, it might even bust through 741.

Sort of got my appetite whetted by discussing the MACD-H aspects of the current S&P in my last post, so I wanted to see what the Dow looked like back during the Depression (the S&P hadn't been invented yet).  Here's the chart - let's run through it.

 Dow Monthly Chart 1926-1938

First off - look at the top in September 1929 - notice that the prices were higher yet the MACD-H was lower than earlier that year.  Don't say that they didn't have warning (imagine if they had FAZ and SKF back then!).

The MACD-H immediately got pretty deep, showing that there was awesome bearish momentum to the downside.  Notice that although that momemtum peaked at the end of 1930, the bears were still in control and prices continued dropping for a full 18 months afterward.   By the time the bottom was actually reached, the MACD-H had again climbed to 0.  The bears strength was played out and the bulls took over.  The next low price extreme, in March 1933, with a much higher MACD-H confirmed that the bottom has been reached and a major multi-year rally began.  The bears never again took control until the 1937 recession.

But compare that to where we are today and you can see that this bear run still has quite a ways to go and anybody who thinks or hopes that there will be a quick turn-around is just engaging in wishful thinking.  Fortunately we know how to make money during bear markets.

I also want to show what is perhaps the most memorable chart that I've seen in the past several months.  This one was posted back in November at the very informative blog My Budget360 http://www.mybudget360.com.

 Dow Bear Market Rallies - 1929 - 1932

What this chart shows is that during the long bear market that defined the Great Depression there were several strong and important rallies.  At each one many people thought that the corner had been turned and jumped back in with optimism (although the optimism declined over time) only to have their hearts and their bank accounts broken when the great bear turned south again.

If they had been looking at their charts and their MACD-H indicators, they would have seen that each bear market rally was a cruel pipe dream destined to fail - the monthly MACD-H never got close to 0 in any of them until July 1932.

We can expect in the coming months some sweet bear market rallies of our own.  If we're nimble we'll switch to UYG/FAS (or whatever is currently working on the long side when it happens) and make good $$$ that way. 

But keep an eye on the indicators such as the MACD-H which will tell you if any bear market rally is the real deal or not.  Until it gets a LOT closer to 0, chances are most likely that it won't be.  Forewarned is fore-armed.

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

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

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

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

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

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

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

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

 Dow Daily Chart - 2 Months

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

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

 S&P Monthly Chart - 1997-2009

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

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

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

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

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

Prepare for a long downtrend from here. 

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

Later.

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

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