In The Land Of The Blind...

The S&P closed yesterday at a new 2009 high of 1052.63 - which is roughly where the futures are now.  Since the futures had declined after the close yesterday, and have since shown a steady uptrend in the overnight, I would expect things to point to higher open this morning.

Surprisingly I have little to say about where we are right now.  The last serious resistance line that I can see for awhile at 1044 has been breached, and theoretically could mean smooth sailing for the next 50-60 points upward or so (kiss of death, of course).

Here's a chart showing the clear uptrend - since the July low it's been higher highs - higher lows:

S&P 500 - Daily Chart - 3 Months

All of my usual indicators are supporting the idea of the uptrend - price is on above the moving averages, and the moving averages are all in the proper uptrend order (shorter MAs above the longer MAs).  MACD has turned upward, after having a downward slope since the beginning of August.  Even the MACD-H is in bullish territory and rising.   There is the bearish divergence that I spoke of last week to consider, but this market has tended to ignore such occurences these past 6 months, so while I'm not going to forget about it, I'm not going to give it a whole lot of weight right now either (kiss of death).

Look at the last MACD-H up impulse at the last couple of weeks of August - see how the maximum barely got above the center 0 line?  The current bull impulse is already much higher, and started from deeper in bear territory - so that tells me that this time around is stronger than last time - and that justifies the higher prices.  Ideally, of course, I want to see the level of the MACD-H get above the high it reached at the end of July - but that also gives something to aim for.

The only thing that surprises me a bit is that volume hasn't markedly picked up after Labor Day - although in the 6 trading days since Labor Day, 4 of the 6 days were above vol 45ma (the 45 day moving average of volume) on up days - so that shouldn't be discounted either.

The 1044 area did serve as a bit of resistance (on the intraday charts, at least - on the daily chart it shows up as the doji three days ago) - so I would look toward that for support on a pullback, but otherwise, I see no reason not to be on the side of the bulls - at least up until above 1100.  

In the back of my mind I still have an ultimate downward bias, but the charts and price action are telling me that the bulls are still dominant - and have further room to run.  And there's no reason to argue with that if there's money to be made by joining their side.

Good Luck!

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

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

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

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

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

S&P 500 - Weekly Chart - 16 Months 

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

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

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

Good luck!

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

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

 S&P500 - 15 Minute Chart - 4 Days

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

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

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

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

 S&P500 - Daily Chart - 3 Months

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

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

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

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

Good luck!

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

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

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

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

Here's a daily chart showing the Doji

S&P 500 - Daily Chart - 3 Months 

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

PEGA

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

PEGA - Daily Chart - 3 Months 

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

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

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

Good Luck!

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

 S&P 500 - Daily Chart - 3 Months

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

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

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

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

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

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

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

S&P 500 - 15 Min Chart - 4 Days

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

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

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

S&P 500 - Daily Chart - 10 Months 

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

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

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

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

Later.

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

S&P 500 - Daily Chart - 3 Months

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

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

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

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

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

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

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

Good luck!

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

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

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

S&P 500 - Daily Chart - 3 Months 

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

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

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

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

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

S&P500 - Daily Chart - 10 Months 

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

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

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

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

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

Good luck!

S&P 500 - 15 Minute Chart - 7 Days

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

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

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

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

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

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

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

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

Back to the salt mines for me.  Good luck!

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

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

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

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

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

Stay tuned - Good Luck!

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

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

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

OK - let's look at some charts:

S&P 500 - 15 Minute Chart - 4 Days

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

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

Here's the Daily Chart:

S&P 500 - Daily Chart - 3 Months

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

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

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

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

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

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

S&P 500  - 15 Minute Chart - 4 Days

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

 S&P 500 - Daily Chart - 3 Months

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

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

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

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

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

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

Will the 13ma hold?

Will the 50 finally cross the 200?

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

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

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

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

S&P 500 - Daily Chart - 3 Days 

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

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

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

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

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

It's a new week.  Good Luck!

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

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

 S&P 500 - 15 Minute Chart - 4 Days

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

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

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

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

Good luck!

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

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

Here's a chart

S&P500 - Daily Chart - 11 Months

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

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

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

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

S&P500 - Daily Chart - 3 Months

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

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

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

FAS en fuego

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

Now consider FAS the past 5 days:

7/30 +6.7%

7/31  +1.8%

8/3    +7.9%

8/4    +6.1%

8/5     +9.1%

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

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

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

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

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

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

 S&P 500 - Daily Chart - 3 Months

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

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

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

Good luck!

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

Back in the day (ok, Thursday July 23) I put up a post about Netease (NTES) as a stock worth keeping an eye on - and as an example of the wonders of using the MACD-H.

Here's the chart I posted:

 NTES - Daily Chart - 18 Weeks

The point that I was making about the MACD-H is that, according to Dr. Alexander Elder, if both price and MACD-H simultaneously make a multi-month high (or low), that momentum indicated by the new highs (or lows) is so strong,  that if the price then backs off a bit, that multi-month price high (or low) will generally (weasel word) be retested.

In practical application, we are looking to jump on a trending stock.  One indication of a good trend is precisely new price and MACD-H highs.  But, wouldn't a new high indicate the situation being a little over-bought? And who wants to buy an over-bought stock only to watch it go down?  That's where the MACD-H comes in.  In this situation, where both price and MACD-H have made a new high, I know that if the price goes down, that it will come back up and should (weasel word) retest that high.   I can either buy now and know that if the trend stalls,  I will at least get the chance to resell in the future at what I paid for it when the high price is retested, so risk is minimized.... or even better, keep an eye on it, wait for the dip, buy at the low point of the dip, and know that, at a minimum, I will at least gain the amount that it's going to take to get back to retest the price high.

So... Here's NTES as of last night:

 NTES - Daily Chart - 3 Months

I drew red circles around the price and the MACD-H as of the original post so we can see where we are.   At the time,  price and MACD-H were both at multi-month highs.  So I drew a horizontal line at the then multi-month price high - this is the price to beat - roughly 44.67.

Let's follow the chart:

The next day, price and MACD-H both went a smidgen higher (basically creating a new price to beat in the event of a pullback - 44.80) and then the pullback started - lasted about 3 days before turning around again.  At the low on July 28, NTES stood at 40.42 - about a 10% correction.  BUT, we know that the price is going to go back up to 44.67-44.80, so we buy on the dip - and, sure enough, 5 days later, the former high price is not only retested, but also beaten as NTES closed at 45.90.  That's almost a 14% gain in 5 days - not too shabby for a stock that isn't a leveraged 3x ETF.  A guy could make a living trading like this.... 

Would I go in on NTES right now?  Look at the chart - price is high, but MACD-H is lower than before when it was a this level - negative divergence.  Uh-oh.  So at this point I expect the price to drop a little bit - and since we aren't at BOTH price AND MACD-H multi-month highs, I don't have the luxury of knowing that it should (weasel word) come back up.  So at this point I would hold off.  In this kind of market, there really are many other candidates to look at for this type of short-term trade.

I used this method fairly successfully back in 2006-2007 once I discovered it and then did a lot of tinkering around for the optimum buy point (subject of another lesson another time). 

Of course nothing is a sure thing, and I've found that the MACD-H magic really only works well in a market that is in a solid trend (either uptrend or downtrend) - the trick doesn't work as well when the market isn't trending.  As a matter of fact, back in the fall of 2007 when this method stopped working for me, was a huge clue that the big multi-year uptrend at the time was ending (and then I discovered the inverse financial ETFs...).  

People have asked me why I use the MACD-H so much - most people just use the plain MACD - and it is precisely for this reason that I do.  It provides a fairly reliable short-term trade opportunity and also helps gauge overall market health.

When I screen for stocks, I first look for volume and "break-out" parameters - and then I generate a list of stocks meeting those parameters that have hit new multi-month highs (I use 3 months as a default).  I then sort that list to find those that not only have the price high, but also have the MACD-H high.   I then put them onto a watchlist and wait for them to dip.  When the dip comes, I calculate which stocks are furthest from their high price that I'm pretty confident (weasel words) will be retested, and will give me the biggest gain going back up to the target - and viola! I'm good to go.

If you haven't become enamored with the MACD-H, give it a try - it's a very versatile tool.   Incorporate it into your charts and learn to look for the multi-month price and MACD-H high combination.  Check out previous charts and see where it has (or hasn't) worked in the past (when I'm looking at historical charts I always look to see if I can find this setup and if it worked out or not).  Also when looking at historical charts, see if you can spot price/MACD-H divergences (price goes up, MACD-H goes down or vice versa) and see if that didn't lead to a trend change.  Do it enough so that it becomes second-nature and your eyes automatically do it without conciously thinking about it.   That's how you learn.