In The Land Of The Blind...

Thursday October 8, 2009 - Keep An Eye On 1075

10/8/2009 7:22:00 PM

Haven't been blogging for a few weeks (you've noticed?) - things with the market have been kind of dull - meandering in a range in the mid 1000's and I've had some other things going on including a long needed vacay....

Anyway - 2 very quick things:

1) the latest S&P intraday high to watch for is 1080 with the highest close at 1071.66. Both numbers are suspiciously close to the magic 61.8% retracement of the Oct 2002-Oct 2007 Bull Market. The level didn't really serve as support on the way down, so I'm not sure why it should be significant on the way back up again, but there's always the chance that it will repeat as resistance again on this current little subleg up. I'd treat a bounce back down off of this level as not necessarily a major "top" (yet), but rather, as an opportunity to do some short-term swing trading - jump on an inverse ETF going back down until it hits support and then ride a regular ETF coming back up. On the other hand, if things move right through this level this time like buttah, treat it as a confirmation of being long and stay in until at least the Oct 07-Mar 09 50% retracement around 1115.

2) Speaking of ETFs, for the past few weeks I've been playing the 3x real estate ETFS (DRN long, DRV short) and have been seeing a lot more success (i.e., volatility and profit opportunity) than the financial ETFs (FAS/FAZ). For example - I made 5.5% today on DRN - FAS would have only returned 1.14%. The only downside, is that my belief was that the financials moved closer with the major indices such as the S&P, so that I could watch the S&P and change in S&P direction as a proxy for when to move in and out of FAS and FAZ. I'm not sure that I have the same comfort level with the real estate sector ETFs yet, so I'm finding myself keeping a closer eye on them rather than the index. But so far so good.

Gotta run - seeya

Futures Watch - Friday September 18, 2009 - Quadruple Witching Day

9/18/2009 8:29:00 AM

The S&P hit 1074 yesterday before stalling and closing at 1065.49. Futures were down in the overnight and have since risen back up to yesterday's closing level, indicating a flat to slightly higher opening. Today is a big options expiration day ("Quadruple witching") so the possibility exists that the price action today could be quite volitile - keep the seatbelts handy.

I want to revisist something I wrote last week - that once the S&P moved past the 1044 area resistance, that things would be clear sailing until the Oct 07 - Mar 09 Fibonacci 50.0% Retracement area up around 1115.

I looked at yesterday's intraday chart last night - and there was a definite pivot at 1074 that ended the strong upward move from the 1050s. Here's the chart:

S&P 500 - 15 Minute Chart - 3 Days

You can see how price bumped twice yesterday morning before declining - so resistance of some sort was hit. So what's going on? No recent price action in that area to look at for clues. Prices are above all the moving averages, so that wouldn't have been an issue. And I rechecked my Fibonacci numbers - nothing until 1115.

So, just sort of noodling around I thought I would play around some with the last big trend before the decline from Oct 2007 through Mar 2009 that I've been using for my Fib numbers. That last big trend would have been the big bull market measured from the October 2002 low through to the Oct 2007 high - what would happen if I drew Fib lines based on those points - would they still be relvelent today?

S&P 500 - Weekly Chart - 6 1/2 Years Ending July 24, 2008

Here's a chart where I show the 2002-2007 uptrend that I used to generate the Fib series - I colored this particular Fib series in red to distinguish it from the Oct 07 - Mar 09 series that I've been using that has a grey color. See how that first rebound from the decline that began after the Oct 07 top reversed at the 38.2 Fib line? When the market shows that it respects Fib lines, that we're supposedly on the right track. You know where I'm going with this - check out the level of the 61.8 Retracement line.

Now lets update the chart and zoom in a bit to show more recent price action:

S&P 500 - Daily Chart - 3 Months

And - W00t! There it is! - it turns out that the 68.1 Retracement of the Oct 02 - Oct 07 uptrend comes out to 1077.08- suspiciously close to yesterday's 1074 pivot point. Who knew???

To me this says that yesterday's pivot wasn't necessarily just a random turn, but was based upon a real resistance point. Doesn't mean that 1074 is a top - this resistance point can be overcome the same as the 1014 Fib line was overcome. However, rather than blithely assuming that the way upward to 1100 would be resistance free, it turns out that there is some decent resistance right there.

I don't know enough about Fibonacci theory to know how far back we would have to go to determine at what point Fib lines drawn on a trend from years and years ago wouldn't matter any more - but it does appear that the market is still respecting this older one. I would like to think that the more recent Fib holds more weight and that the S&P will get up above 1100 and interact with the next Fib lines in that series - but for the moment, I will count this particular 1074 resistance from the older Fib as still active and give it the respect it deserves rather than treating 1074 as just a random point.

So there ya go.

Good luck!

Futures Watch - Thursday September 17, 2009 - Who Let the Bulls Out?

9/17/2009 8:54:00 AM

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

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

S&P 500 - Daily Chart - 3 Months

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

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

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

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

Top ETFs By % Return Since Sept 4, 2009

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

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

AGQ - Daily Chart - 3 Months

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

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

Later.

Futures Watch - Wednesday September 16, 2009 - Unambiguously UP

9/16/2009 8:29:00 AM

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!

Thursday September 10, 2009 - S&P Out of the 1030s - Resistance at 1044

9/10/2009 3:34:00 PM

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

Futures Watch: Thursday September 10, 2009 - Bulls Celebrate 6 Month Anniversary With a New High

9/10/2009 8:37:00 AM

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

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

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

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

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

S&P 500 - Weekly Chart - 16 Months

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

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

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

Good luck!

090909 - S&P Stalls Again in the Mid 1030's

9/9/2009 3:18:00 PM

S&P 500 - 30 Min Chart - 14 Days

I was saying something earlier this morning about deja vu all over again and just as it did a couple of weeks ago at the end of August, the S&P lost steam in the mid-1030s (1036.34 to be exact) and quickly dropped back below the 1030 line. This is the 6th time that that has happened - and the bulls aren't going to get things going until they break through this zone.

I drew a horizontal red line on the chart showing the high point today. As you can see, the S&P has only gotten above this point twice this year - and both times on very short spikes that very quickly pivotted and reversed direction. One would have hoped that with the momentum gained from the pullback to 992 and reversal, and with everybody coming back from the summer that the market would continue to rise on its gains - but even with all of that, it's still stalling and reversing at the same old place. Anyone who jumps in on the bull side before it gets through this resistance risks the possibility of getting burned.

Deja vu all over again.

Futures Watch - Wednesday September 9, 2009 - Deja Vu All Over Again

9/9/2009 7:56:00 AM

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

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

S&P 500 - 15 Min Chart - 4 Days

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

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

Here's a daily chart:

S&P 500 - Daily Chart - 3 Months

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

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

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

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

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

Good luck.

Friday September 4, 2009 - Back Into the Valley of Death - Challenging the Fib

9/4/2009 1:18:00 PM

S&P500 - 15 Min Chart - 4 Days

So the S&P made it down to the 992 support level, tested it twice, found support, and rebounded up into the Valley of Death (S&P 1007-1014). This afternoon it is challenging that old buggaboo at the north end of the Valley - the Fibonacci 38.2 Retracement at 1014. Remember, 1014 has served in the past as a very tough resistance level, and also as a support level. If the S&P can get through and close above this area it will be huge for the bulls going into the Labor Day weekend.

S&P500 Daily Chart - 2 Months

Here's a head-and-shoulders pattern that's been forming. The left shoulder is basically that area between 992 and 1014 the occupied the market for the first 1/2 of August. The head was the breakthough of the 1014 line that went up to 1039. Now, if the formation works out, we are already in the right shoulder - having already touched (twice!) the lower bound of the shoulder at 992. For the shoulder (and the pattern) to work however, the right shoulder needs to more or less stay within the upper bound limits of the left shoulder - our old friend 1014. A spike like on Aug 7 that briefly went above that line is ok - its where it is at the close and where it goes from there that counts.

So, for a few reasons this attempt at 1014 could be important - it will tell us if the market is going to continue to print a reversal pattern, or it will signal new hope for the bulls. It's not unusual for particular price points to be hit and retested two or three times - for that right shoulder to form, we would expect that the S&P would go above 1000 and challenge 1014 again, although we wouldn't expect it to go substantially past there. So keep an eye on that level this afternoon.

Later.

Futures Watch - Wednesday September 2, 2009 - RUN AWAY!!!

9/2/2009 8:58:00 AM

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

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

S&P500 - 15 Minute Chart - 4 Days

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

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

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

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

S&P500 - Daily Chart - 3 Months

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

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

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

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

Good luck!

Futures Watch - Tuesday September 1, 2009 - Still In The Zone..

9/1/2009 8:28:00 AM

The S&P closed Monday at 1020 - pretty much where the futures were at this time yesterday. Today the futures are down around 1014-1015 - is that where the close will be today?

Things continue to trade in the trading zone that the market has been in ever since the move above 1014 on Aug 21. Consider that the S&P closed on the first trading day in August at 1003 - and ended the last day of August at 1020. That's 17 very hard fought for points over the course of a month. Not a very good showing by the bulls who want us to believe that we are in an historic bull market.

S&P500 - 15 Min Chart - 4 Days

I shaded in yellow the trading zone - and in red below it, the Valley of Death with the Fibonacci 38.2 Retracement as the upper boundary at 1014. That boundary, which served as very tough resistance earlier in August served as support yesterday. From here, the way forward comes down to 3 choices - either 1014 holds and serves as a boost for another trip upward, the same way that 980 acted a few weeks ago and the uptrend stays intact. Or 1014 gives way, the uptrend ends, and we look towards 1007, 1000, 992, and then 980 for support and clues whether this will be a real downtrend or just a pullback. Or, things will bump along at the bottom of the zone, but not breaking 1014, for the rest of the week waiting for everybody to come back after Labor Day.

Almost everybody is expecting September to be potentially pretty bad. Question - if you were a big fund manager, would you want to hold onto a large stake going into the long holiday weekend? If anything, I would expect that that should put some selling pressure on stocks as we move through the week. See what happens with 1014....

Later

Futures Watch - Monday August 31, 2009 - Life In the Zone

8/31/2009 8:24:00 AM

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

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

S&P500 - 30 Min Chart - 6 Days

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

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

S&P500 - Daily Chart - 3 Months

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

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

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

Good luck!

Mid-Day Check-In - Thursday August 27, 2009 - And.... REVERSAL!

8/27/2009 3:33:00 PM

S&P 500 - 15 Min Chart - 4 Days

So the S&P emerged from the triangle and proceded to drop like a stone at the open. Got down as far as 1016, - spitting distance from the Fibonacci 38.2 Retracement of 1014 -found support, quickly retested it, and then reversed. Kind of like what happened with the quick drop down to 980 support level last week that also sparked a reversal.

It's not uncommon for a triangle breakout to do that - do a head fake in one direction, find support (or resistance), do a quick pivot and take off in the other direction. Breaks a lot of hearts and bank accounts that way (moral of the story: don't jump right at the instant of the a triangle breakout - wait a bit and see what happens).

Right now the S&P is a little bit above 1030 - hasn't yet broken the 1037-38 top of the range that we'd been in all week, although if this is like that run up from the 980 support last week, this reversal may have enough strength to push past that.

Whenever looking at the sort of range bound market like we've been in - first look to the upper and lower limits of the range (in this case it was 1022 and 1038) to see what it would take to get out of the range, and on which side momentum is going to be to give the strength to make the break. But then, keep an eye on the first big support and resistance levels that such a break would encounter to see if its the real deal or the head fake that the triangle pulled this morning.

On the down side, the first big support area is the Fib 38.2 Retracement at 1014 - that held as support this morning and sparked the reversal. On the up side, the first resistance area after passing 1038 would be the early November pivot at 1044. So, even if, for example, we get past 1038 today, I wouldn't commit to the long side in the expectation of a rally unless and until it got past 1044.

Back to the salt mines....

Good luck!

Futures Watch - Thursday August 27, 2009 - Three Dojis and A Triangle

8/27/2009 8:48:00 AM

Futures are hanging out around the 826 line - basically where the S&P closed yesterday and pretty much where it's been hanging out the past 3-4 days. At some point pretty soon things should jump one way or the other - futures aren't giving any clue whether today is the day....

Here's the close for the past 4 days:

Friday Aug 21 - 1025.13

Monday Aug 24 - 1025.56

Tuesday Aug 25 - 1028.00

Wed Aug 26 - 1028.12

The S&P formed another Doji day yesterday - that's 3 in a row - how's that for indecision? It's almost as if neither the bulls nor the bears want the ball. And it does wonders for any indicators such as MACD-H that measure momentum - because there isn't any! Here's a chart:

S&P 500 - Daily Chart - 3 Months

The S&P crossed over the 1000 line on Aug 3 - the first trading day in August - and in the month since then it's gained all of 26 points. Way to go bulls! The question is whether this pause in momentum (and don't forget there was another 10 day pause between 1000 and 1018 to start the month, before the dip down to 980 and then back up again - so pretty much more than 1/2 the trading days in August (there are generally 21 trading days in a month) have been a dead summer calm) after the big run-up for the past 5 months is just a consolidation before things move higher - or, as the indicators seem to want to indicate, and the general consensus by everybody that this market is extremely overbought (up over 40% without any meaningful pullback - what's that about?), and the fact that September is notorious as a bad month - is this statis basically the market turning over? Sometimes it happens on one short shock - sometimes it's a slow process like an ocean liner changing course. The CNBC folks have been wondering all morning why the market the past couple of days hasn't reacted in a better way to "good" economic reports the past couple of days. Dudes - everyone's at the beach. Maybe that's why.

Anyway, you can't argue with 3 dojis - neither the bulls or the bears are in control and things are drifting in a fairly tight range. They should pop - but when? Is it really going to take until after Labor Day?

Here's a clue in the intraday chart:

S&P 500 - 10 Minute Chart - 4 Days

See that fairly obvious triangle? That's been the price action the past 2 days - doesn't show in the dojis on the daily chart, does it? According to this, things should be getting ready to pop pretty soon, no? Which direction? Triangles are generally (but not always) continuation patterns - so since the market has been in an uptrend, the odds are that the pop will favor the bulls and pull things upward. Will it happen - or will the summer doldrums smother any movement for lack of interest and participation?

As was the case yesterday - look for a break past 1038 on the upside to favor the bulls - and anything below 1022 to favor the bears. Anything in between may set us up for another Doji. Lot's of people expect all hell to break loose one way or the other come September - this may be just the calm before the storm.

Good luck!

Mid-Day Check-In - Wednesday August 26, 2009 - Range Bound Between S&P 1022 and 1037

8/26/2009 2:29:00 PM

S&P 500 - 15 Minute Chart - 4 Days

After the first hour of trading on Friday - the day of the big breakout - the S&P had already done it's big move of the day, broke through the big resistance, hit a wall and fell back a squintch, and found support at the 1022 level. And that has been the floor for the past 4 days - tested on at least 4 separate occasions. Above it, the S&P has been trading in a tight range that only spans about 15 points with 1037 being the ceiling.

Those are short term targets - treat any sustained move (i.e., a real move - not a 2 minute poke) above 1037 as a victory for the bulls - and any sustained move below 1022 as a victory for the bears. It all comes down to 15 points....

Futures Watch - Wednesday August 26, 2009 - Double Doji

8/26/2009 8:43:00 AM

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

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

S&P 500 - Daily Chart - 3 Months

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

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

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

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

Good luck!

Futures Watch - Tuesday August 25, 2009 - Day After a Doji Day

8/25/2009 8:21:00 AM

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

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

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

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

Here's a daily chart showing the Doji

S&P 500 - Daily Chart - 3 Months

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

PEGA

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

PEGA - Daily Chart - 3 Months

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

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

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

Good Luck!

Futures Watch - Monday August 24, 2009 - BOFFO BULL BREAKOUT BUMS BEARS

8/24/2009 12:40:00 AM

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.

Futures Watch - Friday August 21, 2009 - Big Showdown in the Valley of Death

8/21/2009 8:57:00 AM

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

S&P 500 - 30 Minute Chart - 20 Days

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

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

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

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

Good luck!

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

Futures Watch - Thursday August 20, 2009 - Mini-Reversal

8/20/2009 8:31:00 AM

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

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

S&P 500 - 15 Min Chart - 4 Days

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

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

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

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

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

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

S&P 500 - 30 Min Chart - 20 Days

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

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

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

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

We'll see, won't we?

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

So that's where we are. Good luck!

Futures Watch - Wednesday August 19, 2009 - Rebound FAIL

8/19/2009 8:19:00 AM

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!

Tuesday August 18, 2009 - Rebound Can't Get Past 992

8/18/2009 4:30:00 PM

S&P 500 - 30 Min Chart - 20 Days

Today's rebound after the declines of Friday and Monday got the CNBC folks all excited this morning. It wasn't much of showing by the bulls (the blue price bars on the right of the above chart - kinda puts it in perspective), but I guess from the bull point of view, at least it wasn't another down day.

I've mentioned several times during the past few weeks how crucial the 990-992 area has been as a support/resistance area for the S&P (especially support). As I think I stated this morning (and I know several other times when discussing support/resistance), when a particular price area serves as strong support when prices are above it - and 992 did the job admirably before being gapped yesterday morning - then it's likely that it will also serve as strong resistance once prices are below it. And that's what happened today - the S&P got as high as 991.20 in today's little bounce.

No idea what will happen tomorrow (actually I do know, but I've been sworn to secrecy ), but keep an eye on that 992 level. If the bulls are going to make any kind of comeback and try and salvage things, they absolutely have to get past that resistance area before marching again towards the Valley of Death. If they can't muster that strength, then there's little hope for them.

I got into an online fight the other day with someone who (apparently proudly) doesn't know anything about charts but is extremely opinionated about the market. My point was that after that last try that hit 1013 the day before and failed and then opened the next morning sharply downward, that it "looked like" the March rally was finally at an end. And we got into a big fight because this guy claimed that I was basing my argument on one day's observation - and that therefore I was "wed to predictions" as opposed to "watching the market and then deciding" as he thinks successful traders should do.

The point that I was unable to get across to this guy is that chart reading isn't based upon making an emotional decision/prediction based upon one day's worth of price action - that knowing and following a situation like this 992 support/resistance line (or knowing that the S&P has bounced off of the Fib 38.2 at 1014 several times and failed) gives you a better feel of the importance of the meaning of what actually does happen (or, just as importantly, doesn't happen). The charts are always creating certain crossroads which, depending on what happens when they are reached, give guidance to future market direction. My point that the March rally "looked like" it was finally over wasn't based upon a single observation of the down morning on Friday - but on 2 weeks of watching the S&P bump against that important Fib ratio and then retreat. That's what knowing this stuff does - it gives you eyes and ears to see and listen (figuratively, of course) to the clues that the market is sending out. And this 992 support/resistance level and how the market reacts to it is currently very much one of those clues.

Futures Watch - Tuesday August 18, 2009 - How Big A PullBack?

8/18/2009 7:42:00 AM

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

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

S&P 500 - 3 Day Chart - 10 Months

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

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

S&P 500 - Daily Chart - 7 Months

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

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

23.6% 935.11

38.2% 883.84

50.0% 842.40

68.1% 800.95

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

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

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

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

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

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

Good luck!

Tuesday August 18, 2009 - Best ETFs Since the August 7 Top

8/18/2009 7:07:00 AM

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

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

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

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

Futures Watch: Monday August 11, 2009 - Say Goodbye to 992 in the Rear Mirror

8/17/2009 8:40:00 AM

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!

Mid-Day Check-In - Friday August 14, 2009 - Keep an Eye on S&P 992

8/14/2009 12:19:00 PM

S&P 500 - 15 Minute Chart - 7 Days

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

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

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

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

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

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

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

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

Back to the salt mines for me. Good luck!

Futures Watch - Friday August 14, 2009 - Nothing New Under The Sun

8/14/2009 8:40:00 AM

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

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

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

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

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

Stay tuned - Good Luck!

Futures Watch: Thursday August 13, 2009 - In The Aftermath of the Fed

8/13/2009 8:40:00 AM

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!

Futures Watch - Wednesday August 12, 2009 - Waiting On The Fed - As If They're Going To Raise Rates

8/12/2009 7:56:00 AM

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.

Tuesday August 11, 2009 - Sectors to Keep an Eye On

8/11/2009 8:36:00 AM

Some interesting individual stock charts have been coming up on my screens.

First off, in the paper and paper products area (and intuitively I have no idea why these guys would be HOT):

Clearwater Paper - Daily Chart - 3 Months

Schweitzer-Mauduit International - Daily Chart - 3 Months

Then there are auto-related stocks. Not the GM's of the world (although the rump GM was up 20 cents - 27% yesterday - but still under a dollar) - but things related to cars such as auto parts and auto rentals:

Tenneco, Inc. - Daily Chart - 3 Months

Dollar Thrifty Automotive Group Inc - Daily Chart - 3 Months

Buy high - sell higher.

Tuesday August 11, 2009 - It's Hammer Time! ... Again

8/11/2009 6:48:00 AM

S&P 500 - Daily Chart - 2 Months

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

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

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

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

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

Futures Watch

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

Monday August 10, 2009 - A New Head-And-Shoulders?

8/10/2009 9:10:00 AM

S&P500 - Daily Chart 7 Months

The Head-and-Shoulders is one of the more recognizable chart patterns, signalling a reversal. There was a very famously failed H+S earlier this summer (first circle on the above chart).

But I keep seeing something when I look at the charts that I want to throw out there for consideration. Maybe that H+S is just the left shoulder of a bigger H+S of which we are just now in the midst of forming the head (second circle).

Think of the implications for the near future. The H&S is fairly symmetrical, so we should spend as much time coming down from the top of the head as we went spent going up - and then spend roughly the same period of time as the first shoulder in completing the right-hand, second shoulder.

Say that we've reached the the top of the head now. It would take about a month to go back down and finish forming the head - moving in a range from 1015 down to 880 (notice that that is also the lesser used 23.6% Fib Retracement - which served as support on the left shoulder) which should take us to mid-September or so. Add another 6-9 weeks for the formation of the right shoulder (ranging from 880 back up to 950 and then down again) - and we're into the end of October (traditionally a time of market crashes) and early November.

Maybe this will happen or maybe not. But it is a way to project the future (stock forcasting is as much about time as it is about price movement - check out the works of William Gann).

As I said, whenever I look at the S&P chart this is what I see. It looks very obvious to me. Anyone else? Just wanted to throw this out there.

Futures Watch - Monday August 10, 2009 - Did We Hit A Wall?

8/10/2009 8:25:00 AM

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

S&P 500 - Daily Chart - 3 Days

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

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

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

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

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

It's a new week. Good Luck!

Futures Watch - Friday August 7, 2009 - A Good Jobs Report

8/7/2009 8:32:00 AM

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

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

S&P 500 - 15 Minute Chart - 4 Days

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

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

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

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

Good luck!

Futures Watch - Thursday August 6, 2009 - FAS En Fuego

8/6/2009 8:38:00 AM

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!

Wednesday August 6, 2009 - Resistance At The Fibonacci Corral

8/5/2009 11:33:00 PM

Ok - today we're going to get into some more advanced chart esoterica - Fibonacci Retracements.

It can get complicated, but basically all you need to know is that there are certain ratios that often repeat in nature that also work in chart analysis.

If you think big picture - once a trend is complete and reversed direction, the distance that that reversal will go before it in turn hits resistance and reverses is often a specific proportion of the distance from trough to top (or top to trough) of that first trend. These proportions or ratios are .382 and the more important .618 with .236, .50, and .786 of lesser importance.

What this means, and I'll show the chart - the previous ultimate S&P high back in 2007 was 1576. We bottomed at 666 in March - so the S&P travelled 910 points from peak to trough. So how far will this bounce that started in March go? Take the various Fibonacci ratios and apply them to 910 and then add that number to 666 and they will identify potentially very strong support/resistance and reversal lines.

The reason that I'm bringing this up? S&P hit a high 2 days ago of 1007. The first big Fibonacci Retracement - the 38.2% line - is right there: (910*.382)+666=1014. That could be very strong resistance or a reversal area.

S&P 500 - Weekly Chart - 24 Months

The Worden Telechart software has set the top line at the Oct 2007 high and the bottom line at the March 2009 low. It has put in lines at the (reading up from the bottom) 23.6%, 38.2%, 50%, and 61.8% retracement levels. I gather that the 23.6% level isn't an important reversal level, but it served as support a bunch of times back in May. After that, look at the 1000 area (where we are now) for the 38.2% retracement, the 1100 area for the 50%, and the 12oo area for the 61.8% retracement. Serious Fibonacci followers will nail it down to the exact number, I'll settle for areas and keep a watch from there.

So now when we think about support/resistance areas to monitor for potential trend reversals, we need to think about 1) past chart pattern reversal and support/resistance areas; 2) important moving averages such as the 13, 26, 50, and 200 day; and 3) Fibonacci Retrenchment lines.

Hey, I didn't say this would easy - but think about how back in the day they used to have to do all of this by hand.

Did I mention that tonight is the Full Moon?

Futures Watch - Wednesday August 5, 2009 - Meh....

8/5/2009 8:23:00 AM

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

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

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

S&P 500 - Daily Chart - 3 Months

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

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

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

Good luck!

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

Tuesday Aug 4, 2009 - The Case for FAZ

8/4/2009 8:43:00 PM

FAZ - Daily Chart - 9 Months

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

Just saw this on the Washington Post website -

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

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

According to the article:

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

OK - Still awake? This is important:

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

Here's how the article puts it:

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

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

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

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

Tuesday August 4, 2009 - NTES - MORE ON THE MACD-H

8/4/2009 1:03:00 PM

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

Here's the chart I posted:

NTES - Daily Chart - 18 Weeks

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

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

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

NTES - Daily Chart - 3 Months

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

Let's follow the chart:

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

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

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

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

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

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

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

EXTRA! EXTRA! S&P CLOSES ABOVE 1000!!

8/3/2009 4:46:00 PM

S&P 500 - 15 Minute Chart - 4 Days

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

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

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

EDC +11.26%

ERX +7.78%

TNA +5.57%

MWJ N/A

USD +2.47%

UYM +7.82%

FAS +7.90%

DZK +7.44%

BGU +4.98%

UPRO +5.03%

UMM +3.67%

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

Futures Watch - Monday August 3, 2009 - Up, Up, And Away!

8/3/2009 7:45:00 AM

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

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

So here's a daily chart instead:

S&P 500 - Daily Chart - 29 Days

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

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

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

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

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

Good luck!

Futures Watch - Friday July 31, 2009 - Pause Above 980?

7/31/2009 9:08:00 AM

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

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

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

S&P 500 - 15 Minute Chart - 4 Days

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

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

Here's a daily chart:

S&P 500 - Daily Chart - 3 Months

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

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

Later

Futures Watch: July 30, 2009 - Above 980 or Below 970?

7/30/2009 9:08:00 AM

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

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

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

S&P 500 - 15 Minute Chart - 4 Days

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

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

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

Good luck.

Futures Watch: Tuesday July 28, 2009 - S&P 980 Proving a Tough Nut to Crack

7/28/2009 9:07:00 AM

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

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

S&P500 - 15 Minute Chart - 4 Days

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

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

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

Futures Watch - Monday July 27, 2009 - Will the rally continue?

7/27/2009 8:52:00 AM

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!

Thursday July 23, 2009 - NTES

7/23/2009 3:06:00 PM

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?

Thursday July 23, 2009 - Indecision Leads to .... BREAKOUT!!!

7/23/2009 1:38:00 PM

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!!!

Futures Watch - Wednesday July 22, 2009 - ECLIPSE ALERT

7/22/2009 8:15:00 AM

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

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

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

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

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

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

Tuesday July 21, 2009 - A Trio of Technical Goodies

7/22/2009 12:52:00 AM

First, the good news - the S&P hit a new 2009 intraday high right at the open, taking out the June intraday high by a skooch. But while the bulls were enjoying the fireworks and the hoopla, things took a sharp turn-around before recovering by the end of the day for a new 2009 closing high. But that drop as soon as it took out the intraday high - almost like a scared little girl - has potentially put things in great jeopardy.. which brings us to our other 2 technical points.

Here's the chart:

S&P 500 - Daily Chart - 2 Months

Those who know and love Japanese Candlesticks should automatically recognize today's price action as forming the dreaded HANGING MAN - a bearish reversal signal that forms at the top of an uptrend.

For those still unfamiliar with the Candlesticks, the way it is read is - because the body is clear, you know that it is an up day, and therefore the lower horizontal line forming the body is the open, the top horizontal line is the close, and the wicks at either end are the high and the low. In the case of today, it opened just above yesterday's close, went up, then went way down and then came back up again to close above the open.

Here's what the good folks at StockCharts.com have to say about the HANGING MAN:

The Hanging Man is a bearish reversal pattern that can also mark a top or resistance level. Forming after an advance, a Hanging Man signals that selling pressure is starting to increase. The low of the long lower shadow confirms that sellers pushed prices lower during the session. Even though the bulls regained their footing and drove prices higher by the finish, the appearance of selling pressure raises the yellow flag. As with the Hammer, a Hanging Man requires bearish confirmation before action. Such confirmation can come as a gap down or long black candlestick on heavy volume.

They even provide a nice picture:

So we've had an advance, and we hit a resistance level (956). And like many Candlestick signals, the HANGING MAN requires confirmation by the next day's price action to confirm the trend reversal - preferably an open below today's open of 952 - and heading south from there (like in the picture).

And if that does happen, then we will have our third technical goodie - also a reversal pattern - the psychologically devastating DOUBLE TOP which will form because we hit resistance at 856 in June and now again in July. There is a long uptrend. The bulls meet resistance and fall back and regroup, and then mount another strong challenge only to hit a brick wall at the same level again. Often when this happens, the bulls quit the field in disgust and the bears take over completely.

So the fact that the S&P hit that new high today but then immediately dropped back sharply definitely puts the current uptrend in serious difficulty and may prove to be the stake through the heart of the March rally that wouldn't die.

If the open and the price action on Wednesday are up, then a bullet has been dodged (which is still a reminder that this uptrend isn't invincable regardless of the new highs). But if the open and the price action is down, there are 2 major reversal patterns that are in position to play out bigtime and the bears will be out.

Bottom line - Wednesday, especially the open, is do or die for the bulls.

Futures Watch: Tuesday July 21, 2009 - New 2009 Highs Today?

7/21/2009 8:38:00 AM

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

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

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

Dow 30 - Daily Chart - 7 Months

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

Here's a close up chart

Dow 30 - Daily Chart - 2 Months

2 observations:

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

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

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

Breaking the 200 in the Past

7/20/2009 9:09:00 AM

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.

Futures Watch - Monday July 20, 2009 - A Boost Above the 200

7/20/2009 8:48:00 AM

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

S&P - The 200 MA - PIERCED

7/18/2009 12:15:00 PM

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.

Tuesday July 15, 2009 - A New Rally?

7/15/2009 5:29:00 PM

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!

The View From The 3-Day Chart

7/13/2009 3:08:00 AM

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!

Stick A Fork In It - It's Done

7/13/2009 1:15:00 AM

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.

"Just when I thought I was out, they pull me back in. ..."

7/11/2009 11:43:00 AM

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.

June 2, 2009 - Done and...DONE

6/2/2009 1:50:00 AM

The S&P made a new 2009 high today - 2 months after I opined that the 1Q earnings would drive the market down. And in that 2 months, while the market has driven inexoribly higher, the indicators that I watch and rely upon have proven to be wrong. Very very wrong. Obviously I have absolutely no idea what I am talking about and I am crazy and worse to expect that people are putting their hard-earned moolah down where I tell them to. So with this post I am bidding adios. I have no wish to do any further harm to anyone else with my babblings - you may as well just throw darts at a dart board.... So goodbye and good luck. Someday the market will go down - someday the market will go up. And someday there will be somebody around to tell you when that is going to happen - it just won't be me.

Viele Gluck

Futures Watch: June 1, 2009 - "What's Good For General Motors...."

6/1/2009 8:59:00 AM

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

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

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

S&P 500 - Daily Chart - 5 Months

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

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

Good luck

Futures Watch: Friday May 29, 2009 - Sell In May... And Go Away

5/29/2009 8:45:00 AM

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

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

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

Good luck.

Futures Watch: Thursday May 28, 2009 - Still Waiting On The Set-Up

5/28/2009 8:00:00 AM

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.

Futures Watch: Thursday May 21, 2009 - HEH HEH....

5/21/2009 8:48:00 AM

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

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

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

Here's a chart:

S&P 500 - 15 Minute Chart - 10 Days

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

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

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

Good luck.

Futures Watch: Wednesday May 20, 2009 - Setting Up For The Shoot-Out At The 930 Corral

5/20/2009 8:54:00 AM

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

S&P 500 - 60 Minute Chart - 16 Days

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

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

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

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

Good luck.

Futures Watch - Friday May 15, 2009 - Are We In A Handle?

5/15/2009 8:05:00 AM

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

S&P 500 30 Minute Chart 14 Days

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

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

S&P Daily Chart - 6 Months

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

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

Good luck.

Futures Watch - Thursday May 14, 2009 - Bears In Control Below 900

5/14/2009 8:44:00 AM

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

Futures Watch - Wednesday May 13, 2009 - Not Looking Too Good For The Bulls

5/13/2009 9:23:00 AM

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

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

S&P 500 15 Min Chart - 4 Days

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

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

Good luck.

Futures Watch - May 12, 2009 - DANGER, WILL ROBINSON!!

5/12/2009 7:36:00 AM

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

First, another brief lesson in Japanese Candlesticks.

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

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

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

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

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

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

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

S&P 2 Day Chart - 2 Months

S&P 4 Day Chart - 4 Months

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

Good luck

Futures Watch - Friday May 8, 2009 - The Market Likes Exogenous Events

5/8/2009 8:58:00 AM

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

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

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

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

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

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

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

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

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

Apple - Daily Chart - 2 Months

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

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

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

Good luck.

Futures Watch: Thursday May 7, 2009 - Stress? What Stress?

5/7/2009 8:20:00 AM

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

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

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

Here's a daily chart showing where we are:

S&P 500 - Daily Chart - 3 Months

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

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

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

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

Later.

Futures Watch - Wednesday May 6, 2009 - Stress or Employment

5/6/2009 9:20:00 AM

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

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

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

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

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

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

Later

Futures Watch: Tuesday May 5, 2009 - OK - I'm Impressed

5/5/2009 8:51:00 AM

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

S&P 15 Minute Chart - 4 Days

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

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

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

But in the meantime....

Futures Watch: Monday May 4, 2009 - 877 - That Don't Impress Me Much....

5/4/2009 8:17:00 AM

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

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

Here's the issue:

S&P 500 - Daily Chart - 5 Months

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

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

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

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

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

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

Good luck

Futures Watch: Friday May 1, 2009 - We STILL Haven't Closed Above 875

5/1/2009 9:15:00 AM

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

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

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

Here's a chart:

S&P 500 - Daily Chart - 1 Month

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

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

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

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

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

Later.

Futures Watch: Thursday April 30, 2009 - The Little Market That Could

4/30/2009 9:24:00 AM

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

S&P 500 15 Min Chart - 4 Days

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

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

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

Futures Watch: Tuesday April 28, 2009 - Nothing Much Has Changed - Has It?

4/28/2009 8:34:00 AM

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....

Futures Watch: Thursday April 23, 2009 - The DownTrend That Didn't Want To Go Down

4/23/2009 9:06:00 AM

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

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

S&P 500 15 min Chart - 4 Days

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

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

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

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

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

Later.

Futures Watch: Wednesday April 22, 2009 - A Funny Thing Happened On The Way Back Down To 666

4/22/2009 8:20:00 AM

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 Watch - Tuesday April 21, 2009 - Will Everybody Who Made 256% On FAS Raise Your Hands

4/21/2009 8:47:00 AM

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

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

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

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

S&P 3-day chart - 6 months

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

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

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

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

Later.

Futures Watch: Monday April 20, 2009 - Pullback or --- ???

4/20/2009 8:38:00 AM

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!

Futures Watch: Friday April 17, 2009 - Ending the Week on a High Note

4/17/2009 7:33:00 AM

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

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

S&P 500 15 Minute Chart - 4 Days

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

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

Later.

Futures Watch - Thursday April 16, 2009 - The Bullish Case?

4/16/2009 9:08:00 AM

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!

Futures Watch: Tuesday April 14, 2009 - Will The Market Rise On Goldman Lies Or Fall On The Truth?

4/14/2009 9:05:00 AM

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

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

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

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

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

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

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

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

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

Futures Watch - Monday April 13, 2009

4/13/2009 9:13:00 AM

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

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

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

S&P 500 15 Min Chart 4 Days

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

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

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

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

Later

Futures Watch Thursday April 9, 2009

4/9/2009 9:15:00 AM

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

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

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

S&P500 15 Min Chart - 4 Days

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

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

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

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

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

Whatever happens - good luck!

Futures Watch - Wednesday April 8, 2009 - Earnings Season Begins as Expected

4/8/2009 9:05:00 AM

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

S&P 500 15 Min Chart 4 Days

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

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

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

Good luck.

Futures Watch - Tuesday April 7, 2009 - Here It Comes

4/7/2009 7:20:00 AM

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

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

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

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

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

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

Later.

Futures Watch: Monday April 6, 2009 - Waiting on Alcoa

4/6/2009 8:54:00 AM

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

Here's an intraday chart of the last 4 days

S&P 500 15 Min Chart - 4 Days

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

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

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

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

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

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

Good luck!

Futures Watch - Friday April 3, 2009 - Ambivilence and Uncertainty

4/3/2009 9:12:00 AM

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

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

S&P Daily Chart 6 Months

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

S&P 500 15 Minute Chart - 4 Days

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

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

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

Good luck!

Futures Watch Thursday April 2, 2009 - FASB Comes Through On Mark To Market

4/2/2009 9:04:00 AM

We're huge. HUGE! And getting HUGER!

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

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

Here's our current intraday chart:

S&P 500 15 Minute Chart - 4 Days

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

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

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

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

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

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

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

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

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

Good luck!

Futures Watch - April 1, 2009 - Welcome to 2Q 2009

4/1/2009 8:28:00 AM

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

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

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

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

S&P 500 15 min chart - 4 days

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

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

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

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

Good luck!

Futures Watch - Tuesday March 31, 2009 - We're Being Toyed With

3/31/2009 9:04:00 AM

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

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

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

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

S&P 500 3-Day Chart - 3 Months

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

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

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

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

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

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

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

Mid-Day Check-In - Monday March 30, 2009 - Life Is Good If You're An Inverse ETF

3/30/2009 2:15:00 PM

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

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

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

S&P 30 Min Chart - 20 Days

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

FAZ +19.5%

SKF +13.5%

UYG-12.3%

FAS - 18.6%

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

Later

Futures Watch: Monday March 30, 2009 – Back Below 800?

3/30/2009 8:47:52 AM

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

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

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

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

Good Luck

Futures Watch Friday March 27, 2009 – Keep An Eye On The Trend

3/27/2009 8:41:00 AM

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

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

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

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

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

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

Good Luck.

Futures Watch – Thursday March 26, 2009 – Futures Are UP

3/26/2009 8:36:00 AM

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

Futures Watch – Wednesday March 25, 2009 – Will 800 Hold?

3/25/2009 8:10:10 AM

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

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

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

Futures Watch – Tuesday March 24, 2009 – Well, That Was Fun….

3/24/2009 9:01:00 AM

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

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

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

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

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

S&P 500 15 Minute Chart 4 Days

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

S&P 500 3 Day Chart 10 Months

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

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

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

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

Mid-Day Check-In - Monday March 23, 2009 - S&P Clears 800

3/23/2009 3:18:00 PM

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

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

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

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

Good luck.

Futures Watch – Monday March 23, 2009 – Holy Exogenous Event Batman!

3/23/2009 8:12:18 AM

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

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

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

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

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

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

Exciting times.

Good luck.

Mid-Day Check-In - Friday March 20, 2009 - Below 780

3/20/2009 1:35:00 PM

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

S&P 500 - 15 Minute Chart 4 Days

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

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

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

Later.

Futures Watch – Friday March 20, 2009 – Quadruple Witching

3/20/2009 8:14:30 AM

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

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

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

Recap - Thursday March 19, 2009 - 800 Calls Out the Big Guns

3/19/2009 9:20:00 PM

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

Futures Watch – Thursday March 19, 2009 – Was Yesterday A Game Changer?

3/19/2009 8:42:34 AM

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

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

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

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

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

Mid-Day Check-In - Wednesday March 18, 2009 - A Time Of Reckoning

3/18/2009 1:07:00 PM

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

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

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

Dow and S&P 500 15 Minute Charts 4 Days

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

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

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

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

Futures Watch Wednesday March 18, 2009 – Backing Off of 780?

3/18/2009 8:39:15 AM

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

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

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

Futures Watch – Tuesday March 17, 2009 – Rally? Is There A Rally?

3/17/2009 8:36:11 AM

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

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

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

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

Mid-Day Check-In - Monday March 16, 2009

3/16/2009 1:36:00 PM

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

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

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

S&P500 15 Minute Chart 4 Days

Futures Watch – Monday March 16, 2009 – Futures are UP

3/16/2009 8:19:00 AM

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

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

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

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

Have fun.

Recap - Friday March 13, 2009 - Support Again at 742

3/15/2009 4:30:00 PM

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

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

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

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

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

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

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

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

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

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

Later

Futures Watch – Friday March 13, 2009 – Still Buying On The Mark To Market Rumor?

3/13/2009 8:23:00 AM

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

Recap - Thursday March 12, 2009 - Will Everyone Who Made 25.62% On FAS Today Raise Your Hand?

3/12/2009 11:23:00 PM

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

S&P 500 15 Min Chart 4 Days

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

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

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

I want to show 3 things -

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

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

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

S&P 500 3-Day Chart 9 Months

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

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

Later.

Mid-Day Check-In - Thursday March 12, 2009 - A Healthy Day As We Near Big Resistance

3/12/2009 1:46:00 PM

S&P 500 15 Min Chart 6 Days

The markets are enjoying a healthy day today. The S&P Cup-And-Handle was completed this morning when the price broke out of the handle and passed the 724 pivot point (on nice volume, I might add) and is now rising in a way that one would expect in "normal" times after the cup-and-handle breakout.

Things are just now approaching the major 741 resistance that marks the failed Nov low - remember it did act as support on the way down, so I would expect it to act as resistance on the way up - the first of the big 3 resistance areas that I expect to encounter while the S&P climbs back through the 700s.

I do expect the S&P to clear this area, however, even if it hits some turbulence - I expect it to have more trouble with 751-52 if only because there is a very recent history of that area already serving as major resistance in the final drop before the 700 level was broken. Hopefully this time the bulls are in much better shape and it will merely be a horizontal stall rather than a full reverse.

But in the meantime, let's enjoy this uptrend while we can. I hope everyone is making lots of $$$ in UYG or FAS or another long ETF.

Later

Futures Watch – Thursday March 12, 2009 – Whither Mark To Market?

3/12/2009 9:02:01 AM

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

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

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

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

Recap - Wednesday March 11, 2009 - Doji Day

3/12/2009 12:15:00 AM

I'm going to start off with the daily chart - and there's a lot going on here, so listen up:

S&P 500 Daily Chart 3 Months

I realize not everyone reads charts or knows about Japanese Candlesticks (the method of illustrating the price bars - on an up day the lower horizontal line is the open, the upper the closed, and you have your high and low. The body is the area between the open and close and is clear on an up day. On a down day the body is solid, the upper horizontal line is the open and the lower the close). Today was a special day known as a "Doji" day - "doji" being the Japanese term for "indecision". There's an open - it goes up a ways, it goes down a way, and it closes very near the open.

It generally symbolizes a change in direction - in this case, the mini-little bounce off of S&P 666 that we're enjoying (and pinning all sorts of enthusiasm on!). Look back at the chart and there are several - nearly all either ended a strong uptrend or downtrend or otherwise ended and reversed momentum. The psychology of it is that the bulls had momentum - they pushed the price up and couldn't hold it - the bears then pushed it down but they couldn't hold it either - and it ended up near the open and nobody really had the advantage of the day.

But since the trend was upward, that is now stopped. It may reverse or it may just pause, maybe have yet another doji day while it makes up its mind, and then takes off again.

On the bullish side, the price broke through the downward price channel which had characterized price movement since the triangle was breached back in mid-February - so this downswing is now ended and I'm assuming an upward bias. The 3-day chart changed direction also.

The S&P still needs to get past that 731 line (there's a gap waiting to be filled just above that, after all), but even if it does it then runs smack into the 741 Nov low line - which should be resistance going up. A doji just when the uptrend is trying to gain momentum isn't the most auspicious of signs. But so many indicators are still showing everything so oversold that its hard not to root for the uptrend, if only to work all that off.

One nice little chart feature today shows a cup and handle (blue circle) on the 15 minute chart (the inverted head-and-shoulders that I talked about yesterday is still intact, btw). On the left-hand side is the pivot point at 724, which was matched and passed this morning at the open . The rest of the day was spend forming a downward-sloping handle. Next we should expect to see a breakout on heavy volume as it crosses that 724 pivot point again - but it may spend some time forming the handle, first - I wouldn't be surprised to see 710 revisited either.

S&P 500 15 Min Chart 10 Days

Futures Watch – Wednesday March 11, 2009 – Up, Up, And Away?

3/11/2009 8:29:20 AM

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

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

Recap: Tuesday March 10, 2009 - In Which The Market Plays Head And Shoulders

3/10/2009 8:31:00 PM

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

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

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

S&P 500 - 3 Day Chart

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

Futures Watch – Tuesday March 10, 2009

3/10/2009 9:21:00 AM

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

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

I think that the bias now favors the upside.

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

S&P 500 15 Minute Chart 4 Days

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

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

Futures Watch: Monday March 9, 2009 – How Important is S&P 666

3/9/2009 7:57:00 AM

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

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

S&P 500 Monthly Chart 1990-2009

and here's how it looks close up:

S&P 500 - Daily Chart 1996

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

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

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

Recap - Thursday March 5, 2009 - Everybody Who Made 24.39% On FAZ Today, Raise Your Hand

3/5/2009 11:31:00 PM

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

S&P500 15 Min Chart 3 Days

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

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

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

Dow 30 - Daily Chart 7 Months

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

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

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

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

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

FAZ - A Double In 5 Days

3/5/2009 2:22:00 PM

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

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

FAZ - 15 Min Chart 7 Day

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

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

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

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

Later.

Mid-Day Check-In - Thursday March 5, 2009 - A Good Day To Be A Bear

3/5/2009 1:55:00 PM

S&P 500 15 Minute Chart - 3 Days

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

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

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

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

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

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

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

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

Later

Futures Watch – Thursday March 5, 2009 - Back Down Below 700

3/5/2009 8:02:00 AM

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

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

Recap - Wednesday March 4, 2009 - EXTRA!! MARKETS RISE WITHOUT BERNANKE!!!

3/4/2009 5:34:00 PM

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

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

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

S&P 15 Minute Chart 3 Days

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

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

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

S&P 500 Daily 2 1/2 Months

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

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

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

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

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

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

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

Later.

Mid-Day Check-In - Wednesday March 4, 2009 - The Land of Broken Bull Hearts

3/4/2009 1:32:00 PM

For the second morning in a row, everybody got all excited about up futures and an up opening, thinking that it would be the start of an over-sold relief rally.

For the second day in a row, the S&P looks like it might fail to deliver.

S&P500 - 1 Minute Chart 2 Days

This is a 1 minute chart of yesterday and today. As intraday S&P charts don't generally include volume since the S&P is an index, I've superimposed the S&P chart over the chart for SPY - which is the ETF that is most closely associated with the S&P. I do this as a proxy for S&P volume. If we are going to see a bounce or a bull rally of some sort, volume has to increase on the upside as buyers jump in to take advantage of an uptrend.

As you can see, the market started very strong this morning - juumping up to the 710 resistance on strong volume within just a few minutes of the open. It actually cleared 710 on the second try, and commenced a very nice series of higher highs and higher lows, accompanied by a corresponding pickup in volume.

And then, shortly after noon, after having reached the rarified air of 714 (Babe Ruth Territory!) twice, something happened and things just died. No more higher highs and higher lows. No more increasing volume. No more living the good life above the 710 resistance line.

So long story short, the markets just aren't moving in the way that one would expect them to move if there was a nice bounce or rally going on. Starts off strong, sputters out, volume disappears, sink back below resistance again. That's how you break a bull's heart.

Futures Watch – Wednesday March 4, 2009

3/4/2009 8:51:00 AM

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

Recap - Tuesday Mar 3, 2009 710 Unvanquished

3/3/2009 11:49:00 PM

S&P 500 15 Minute Chart 6 Days

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

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

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

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

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

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

S&P Monthly Chart - 27 Years

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

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

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

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

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

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

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

Mid-Day Check-In Tuesday Mar 3, 2009 - No Bounce

3/3/2009 12:42:00 PM

S&P 500 - 15 Minute Chart 2 Days

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

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

FUTURES WATCH – Tuesday Mar 3, 2009 – S&P 700 – A Line In the Sand

3/3/2009 9:03:30 AM

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

Recap - Monday Mar 2, 2009 - Gee Those 700s Were Fun!

3/2/2009 10:35:00 PM

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

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

S&P 500 15 min Chart 6 Days

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

FUTURES WATCH – Monday March 1, 2009 – WELCOME TO WILEY COYOTE TERRITORY

3/2/2009 8:19:00 AM

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

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

Strategy - Playing the ETFs - Other Options Besides the Financials

3/1/2009 3:22:00 PM

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

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

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

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

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

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

TOP RETURN ETFs - 2/13/09-2/27/09

BOTTOM RETURN ETFs - 2/13/09-2/27/09

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

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

Recap - Friday Feb 27, 2009 - The Next Leg Down - 752 Now Resistance

3/1/2009 1:45:00 PM

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

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

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

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

S&P 500 - 15 Minute Chart 10 Days

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

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

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

S&P 500 - 3-Day Chart 4 Months

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

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

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

Mid-Day Check-In Friday February 27, 2009 - S&P Retest Again

2/27/2009 2:47:00 PM

S&P 500 10 minute chart - 3 days

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

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

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

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

S&P 10 minute chart - 2 days

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

Futures Watch – Friday Feb. 27, 2009 – DIVE! DIVE!

2/27/2009 8:32:00 AM

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

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

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

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