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!

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

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

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

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

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

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

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

So how did we do today?

S&P 500 - 15 Min Chart - 4 Days

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

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

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

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

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

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

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

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

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

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

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

Later

 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!

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

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

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

OK - let's look at some charts:

S&P 500 - 15 Minute Chart - 4 Days

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

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

Here's the Daily Chart:

S&P 500 - Daily Chart - 3 Months

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

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

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

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

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

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

S&P 500  - 15 Minute Chart - 4 Days

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

 S&P 500 - Daily Chart - 3 Months

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

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

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

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

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

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

Will the 13ma hold?

Will the 50 finally cross the 200?

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

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

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

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

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

Here's a chart

S&P500 - Daily Chart - 11 Months

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

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

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

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

S&P500 - Daily Chart - 3 Months

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

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

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

FAS en fuego

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

Now consider FAS the past 5 days:

7/30 +6.7%

7/31  +1.8%

8/3    +7.9%

8/4    +6.1%

8/5     +9.1%

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

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

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

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!!!

I ventured an opinion on Saturday that I didn't expect this trip above the S&P 200ma to be successful and I promised a post explaining why.  Those of you who have been reading me for awhile should automatically assume that this means that the market will do exactly the opposite.

First, I want to discuss a little bit some characteristics of what strong uptrending and downtrending markets look like:

What I want to focus on are the 4 moving averages that I track - the 13 day (orange), 26 day (red), 50 day (blue) and 200 (yellow).   This should be intuitive, but in an uptrending market, prices in the immediate past 13 days reflected in the 13 ma should be at a higher level than prices if you include 26 days, which should be at a higher level than 50 days, which should be at higher level than if you include 200 days.   As the uptrending market chart on the left shows, prices are consistently above the 13 ma (orange) line, which is above the 26 (red), which is above the 50 (blue) and which is above the 200 (yellow).  And in the downtrending market,  this is reversed - the 200 (the longest, which now includes older prices that are much higher than the more recent 50, 26, and 13) is highest and the order is now 50, 26, 13 and then the sinking prices.

What I want to show is how the market looked in the past when it pulled out of a long downtrend and finally successfully crossed the 200 going back up (and, historically, there really haven't been that many of these).

Here's the Dow in 1932 after the famous bottom in July of that year:

Notice that, even though the attempt at the 200 ultimately failed, that approaching the 200, the MA lines were in their proper order so this isn't really a good example, is it.

It took until April 1933 (and several more tries) before the move above the 200 was successful:

Here's 1975 - notice the order of the ma lines in Jan 1975 when the 200 was crossed:

1982 - Here, the MA lines were in the proper order in a failed attempt in May, and were in the reverse (downtrend) order in August when the 200 was finally successfully crossed - but very quickly reversed the order within a couple of days of crossing the 200:

1991- same as 1982:

and 2003 - notice the very strong uptrend that pushed the market past the 200:

and here we are today: 

The ma lines were in their proper position from Apr through the 200 test in June and have remained in a jumble since then.  Compare that to the strong uptrends in 1975 and 2003.  The important thing, to me, is that in order to provide support for a sustained upward move, the MAs need to be rising and in the proper order for an uptrend.

This isn't the sort of thing that's set in stone - more along the lines of you look at this stuff long enough and there are certain things that you look for.  I haven't even mentioned the paltry level of the MACD-H indicating very little upward trend strength.

Anyway, that's the way I see it - unless the 13, 26, and 50 MAs get themselves in the proper order and very soon and also get themselves above the 200, at least in my opinion (kiss of death, as always), the 200 won't hold.

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.

Sometimes it feels like the market is out to get me.   This is several times now that I've put up an analysis, very confidently stated that I thought X was going to happen, and then BOOM! I get a pie in the face.   Yes - the entire market and trillions of dollars of investment power all exists for the sole purpose making me look like a fool.  LOL.  As if.   The other morning I was sooooo confident that the S&P was crashing through the 875-880 resistance level.  And instead it held bigtime and provided quite a boost back up.

So there's a few possibilities going on.  Maybe I'm completely misreading and misinterperting my indicators.  I don't know - they've served me fairly well in the past - although nothing is ever a sure thing.   Maybe, the market is just not respecting the indicators.  That happens too.  Just because things happened mostly in a particular way before doesn't mean that it's guaranteed to happen that way again.   The important thing is not to get emotional and worked-up and make decisions  based on irrationality and fear and then make mistakes.

At a very minimum, the market will still give us clues as to what is going on.  So, let's go to the chart:

S&P 500 Daily Chart - 4 Months

I've kept the chart fairly simple.  After the S&P failed to take out the 200ma back in June, it started descending in a nice orderly price channel.  Lower highs, lower lows.  Today it broke through the price channel and closed higher than at it's last pivot in this area at the beginning of July (faint horizontal red line).  This is definitely bullish.   It also crossed up above the shoulder level of the reversal head-and-shoulders.  I'm not sure if that negates the head-and-shoulders, or if it has to cross up over the head part too (that 953 level).

However... lookey-look-look at what's staring right in the face.  Our old friend the 200ma has declined from it's levels around 940 at the beginning of June and is now around 930 - right where the S&P is right now.   If it breaks through, you know that would be bullish and awesome - and would provide a boost for an assault on the 953 level which is the 2009 high and a big resistance area.  And pretty much that's what you need to know.  

If the S&P goes up from here convincingly (i.e., not closing $0.10 above the 200 - but really breaking through) and then gets past 953, it is all systems GO for a possibly major upward move.   If it fails, it will bounce back and resume it's sideways movement between 950 and 870 that has held since May.   Once it gets back down close to the 870-880 support level, we can revisit how things look then.   I still think that the market can't fight the indicators and the head and shoulders - but as we have seen, I've been proven wrong before.

Good luck!

 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.

OK - so I've been on hiatus for a couple of months now...  Thanks for your understanding and bearing with me.    Let's see what we missed.... 

On the one hand, if you look at where I left off in the middle of May, we're not really that far off - and in points terms, the market didn't move that much while I was away.   On the other hand, a lot has happened and yon chart has tons to say to us.

200 Day MA

 First up, and most important for our purposes, the S&P *finally* put in a top of the big March rally and is now clearly retreating.

Look at the dotted yellow line - this is the 200 day moving average, considered by many to be one of the most important of the moving averages.  My understanding is that major institutions (the "big money") consider the 200ma to define their long-term bias of market sentiment - above the 200 they're looking to buy, below the 200 they're looking to sell.   Just for chuckles, the last time the S&P spent any time at all above the 200 was back in Dec 2007.   And we know how the market has done since then....

And looky-look at the first 10 trading days in June (that's 2 weeks - half a month).   Tried really hard to break through the 200ma (only managed to actually close above it - barely - once) - and was stopped stone cold.  

Crossing the 200ma might have sparked a major rally.   Failing at the 200ma instead is potentially psychologically devastating.  How devastating?  Almost every day of those 2 weeks they managed to push the S&P over the barrier only to see it fall back at the close.  Every day for 2 weeks.  

Imagine you're a big money guy.... Crushed by the events of last fall, you see a miraculous turn-around in March.   Over the course of the spring the rally won't die - each successive MA is taken until, finally, only the big 200ma remains.  The one that turns this into an actual bull market.  The media is going nuts about "green shoots" (give me a break).  Everybody thinks that, well, that wasn't too bad and now we can put all that unpleasantness behind us and ride the gravy train back up to the heights.  Crossing the 200 will turn that from resistance into support and things will only go higher from there.  And for 2 weeks that was dangled right in front of their eyes.... and .... FAIL.  

If you did this stuff for a living you'd be disgusted and depressed too, wouldn't you?

Head-And-Shoulders

The second thing to look at on this little mini-chart is the completion of a head-and shoulders formation, which is a reversal formation.

The left shoulder was put it in May, the head is the June 200ma attempt, and the right shoulder at the end of June and beginning of July.   Notice how both shoulders met resistance at the exact same level.  The market had been moving up from the March rally, met resistance (the left shoulder), pulled back and found support,  rose again past the left shoulder resistance level, hit a new resistance (the head), pulled back again, but almost to the level of the pullback after the first shoulder, rose again, but was unable to break that first shoulder resistance level (and lower than the resistance formed by the head), forming the second shoulder,  and finally gave up the ghost this week by failing to find support at the first shoulder's support level (usually called the "neckline"), completing the head-and-shoulders pattern, and confirming the reversal.

Remember - an uptrend is "higher highs and higher lows" and a downtrend is "lower highs and lower lows".   The head-and-shoulders pattern very nicely illustrates the point where the one becomes the other.

Moving Averages

I prefer to use 13day-, 26day-, and 50day MAs for shorter term clues of market direction than the 200day (should daily price action that happened 9 months ago have any bearing on daily short term movements today?  not so much...).  On my charts they are orange (13ma), red (26ma), and blue (50ma).solid lines. 

Notice that before the "head" in June, that, as is usual in an uptrend,  (and you might wish to scroll back up to look at the larger version of this chart for a better look), the "quicker" MAs (i.e., those that use fewer and so, more recent, datapoints than the "slower" MAs which use more datapoints and reflect a longer history - in this case, the 13ma is "quicker" than the 26ma - and both, of course, are quicker than the 50) are higher than the slower ones.  In an uptrend the order will be price above the 13, 13 above the 26, and 26 above the 50.   The larger chart uptop shows this very clearly in April once the MAs starting reflecting the March rally.  Also notice that the lines are all sloping upward, and that the S&P found support several times at the 26ma during this time period (MAs often act as good support/resistance levels - remember that 200ma resistance in June?).

 When the MAs start crossing over each other signifies a change in the market.  For example, in an uptrend, the prices of the past 13 days that make up the 13ma are higher than the prices for the past 26 days (which is the past 13 days, plus the previous 13 days which, obviously were lower).   When prices during the most recent 13 day average (the "quicker")  become lower than those 13 days plus the 13 before that (the "slower") the 13ma line crosses over and drops below the 26.  If the downtrend continues, both will eventually drop below the 50ma line, and prices will drop below the MAs giving the mirror image of the uptrend.  The order during a downtrend will be 50, 26, 13, price (look back at some of my posts and charts from February to see this very clearly).

So at the end of June (the right shoulder) the 13ma dropped below the 26, and then prices started dropping determinedly below the MAs.  Given enough time (a few more down days, actually), both the 13 and the 26 will drop below the 50 (the 50ma, being slower, still includes many price points from back in May before the top,  but the longer time goes on, those price points will drop out of the average calculation to be replaced with less, uh.. optomistic price points), all MAs will be sloping downward, and the MAs will fully reflect the downturn. 

The Bottom Line

There's lots more I want to talk about, but for right now, the take-away from this post is that I've illustrated 3 different ways that the March rally is now finally over, a top has been put in place, and we are in the beginnings of a downtrend.  I wouldn't be in any long positions are right now - we have no way of knowing how far down this downtrend will go or how long it will last or whether those "green shoots" will wither and turn brown under the summer sun.

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.

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 

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....

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

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

 S&P 500 - 15 Min Chart - 4 Days

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

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

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

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

Later.

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

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

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

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

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

Good luck!

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

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

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

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

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

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

S&P 500 Daily Chart - 3 Months

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

Later

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