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Gold Price Pattern reveals a symmetrical Broadening wedge

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The gold price is trading in what appears to be a symmetrical broadening wedge formation.  This pattern has the potential to manifest itself as a continuation pattern with an upside measurement.  My current view is that it will resolve to the upside and reach possible targets near 1400 range.

There are a few things that have developed in the gold price as of late.  First on the 4 hour price chart the gold price has recaptured the 1300 level which is psychological important.  Not only did it recapture it, but it did so in the form of a 2B buy signal relative to the previous swing low of July 15th, 2014.

goldbroadeningwedge

The NEXT 4 TRADING DAYS are absolutely crucial for the price of gold because we finish the MONTHLY July price candlestick for gold.  A strong move up into the end of the month would help paint the monthly chart very nicely and help the argument that gold will continue to skyrocket into August September 2014 time frame.  If you are bullish gold then you want to see a very strong move into July 31st 2014.

The pattern above allows for such potential, but we will just have to wait and see how it evolves.

Interestingly next week we have the Fed Meeting mid week and we also have a potential Argentina debt default on Wednesday.  These two items are of course entirely speculative and I have no idea whether they would lead to an outcome that is bullish for gold.  But during the last Argentina debt default in January 2002, the gold price surged about 4%.  Oh yes, I almost forgot I believe we also have GDP result coming out next Wednesday as well !  So we have 3 potentially highly charged fundamental events that could trigger a massive short squeeze higher in the metals.

The modus operandi for forward looking news events is for them to be typically bearish gold and then give the stock market a renewed bullish bias.  Maybe it will be different next week?  Maybe we will see an A.  Argentina debt default   B. Then a fed meeting result that shocks stocks and is somehow bullish gold and then C.  A GDP result that is much weaker than expected and destroys the case of ‘A continued strengthening economic expansion’.

If the above chart bullish bias is correct then it would seem like one or more of next weeks potential trigger events gives a bullish bias to gold…

GOLD AND SILVER MAKE MAJOR LOW AND ARE NOW POISED TO SKYROCKET

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Both gold and silver have been old news and boring news for quite some time now.  Once again both of these markets have lulled everyone to sleep and are now quietly staging their revenge on both bulls and bears alike.

What type of revenge?  Price revenge and rapid price revenge.

Allow me to explain.

It is a simple fact that the gold price since 2001 has made an enormous persistent price run higher into the peak of 2011 near $1920 per ounce.  Yes, everyone keeps talking about the old high price in gold that was so amazing, but what is more important is the nature of the run that occurred between 2001 to 2011.  It was a persistent almost perfect technical run that receives A+ scores for performance, orderly tape action (on the monthly long term price chart) and swiftness of price recovery.

So we have that previous bull run phase as clear history of proven price performance of the gold price.  It was an enormous sign of strength and simply the best performing market out of any other on a relative basis.

But recently we have seen the gold price do a 2 to 3 year price correction.  The correction has been nasty and confusing.  But now it has ended (for reasons the will become clear later in this article) and it brings up the question:  how should price react after finishing a multi year correction given that gold had such a spectacular performance during the 2001 to 2011 time frame?

The answer?  The answer is that price should react very swiftly back up to the old highs.  This should occur because we already know the previous bias of price strength.  Now comes the resumption of the price strength.

This can occur for several reasons.  One big reason is that typically at bear market lows there are large short positions from lingering bearish positions.  To close out these short positions traders need to ‘buy to cover’ and this can cause a massive short squeeze that leads to further buying and in some cases near vertical price moves higher.

Another reason is that we are about to enter the strong seasonal zone for precious metals as we move into the end of the year.

There are various other technical analysis reasons why I think we could see the gold and silver price spike higher in persistent monthly price bar advances into the end of this year.

Here are a few in summary:

  • The monthly MACD has crosses north on the XAU gold silver mining stock index as well as the gold and silver price.  This means that the ‘wind is at our backs’ in the metals going forward.  It means bullish bias and up trending price action.
  • The large head and shoulders bottoming patterns that we are seeing in the gold price on the monthly time frame put the gold price in a technical position where it could easily break north and trade very persistently for a full 6 months into the end of the year.  I will show you a price chart example of a different commodity that did exactly that after recovering from a head and shoulders bottoming pattern.
  • Remember that when a commodity (such as gold and silver) transfers from mini bear market to a resuming bull market, it sometimes does this in a fashion that is very swift and does not allow the previous bulls and bears enough time to stake easy low price positions.
  • The combined power of new buying and massive short squeeze covering can lead to the gold price getting back to its old high and even breaking to new all time highs to finish the year.

The chart below is a commodity chart that is daily prices but I want you to see the head and shoulder bottoming nature of the pattern.  But more importantly look at the price recovery portion of the chart highlighted in yellow.

 

huinvhs

What the above chart shows (despite the fact that it is a different commodity and on a different time frame) is the power of an enormous short squeeze after a head and shoulders bottom formation completes.

If a similar move occurs in the gold price going into the end of this year, it could likely place the gold price near 1800 or even 2000 dollars per ounce.  After that I would expect some type of consolidation again, but the key point here is to not underestimate the power of an unprecedented short squeeze and can push price up very persistently with almost no or very short price corrections.

Despite the potential ‘craziness’ of it, it is technically quite normal.  There is a large tradeable void in the gold price up to 1500.  A move above 1500 would trigger a quick buying panic quickly back up to 1800.   And this swift price move would create an almost perfect symmetry of a much larger head and shoulder’s bottoming pattern. See the chart below to understand the visualization of how it might look.

 

gold2000

The opportunity here is enormous.  Gold should reassert its strength going into the end of this year as a ‘signal’ that the bull is still very much alive and this move should only be the ‘warm up’ for the fireworks that will continue into 2015 and beyond.

I think the story that will light a fire under the metals markets is inflation going forward and the continued devaluation of the US Dollar will once again become a dominant and perhaps mainstream media theme eventually.  Other potential fundamental catalysts are war in the middle east, oil supply shocks and price spikes and foreign countries decisions to stop hoarding dollars and instead seeking alternative currencies such as gold and silver.

The MOST DIFFICULT aspect of a rapid and persistent price rise in any commodity or stock is the ability to interpret it as a massive sign of strength and expect continuation rather than viewing it as a top or being ‘overbought’.  Assuming that we do start to see some very strong spikes up in the gold price, it will be important to view them as ‘signs of strength’ and pre cursors to more price strength, rather then being overbought or ‘too high’.

Robinhood Broker intriguing entrant into the discount broker space

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Do you like the idea of paying $0.00 in total trading commissions ?  No minimum initial funding amount to open the brokerage account ? How about saving a few hundred to a few thousands of dollars per year ? (depending on how many total trades you make per year ).

In case you have not heard or read about them yet, Robinhood.com is a new entrant into the discount broker space (read: ultra discount broker space) currently in pre launch phase.  Their mobile trading app is currently only available to a select few early beta testers who were lucky enough to sign up early to their waiting list.  You can get on the waiting list yourself quite easily just by submitting your email to them and then wait patiently for a personalized invite.  There are already close to 400,000 total potential accounts, but it would be false to assume that all of them will turn into live accounts.  Still, this is a significant number consider that discount broker Tradeking/Zecco have about 500,000 total accounts.

So what is all the excitement about and why should anyone bother to be interested in yet another discount broker ?

Well for starters they are not just discount, but ultra ultra discount, as in ZERO commissions on NASDAQ and NYSE stocks.  There is still limited information available since they are still so early in the beta, but it appears the zero commissions will be valid for trades either on their mobile app or website.  My understanding is that the zero commission rate is for market orders only.  This is a bit of a concern because it might lead to less than ideal execution prices.  But that partly depends on what the liquidity of the individual stock is.

I am personally looking forward to trying their brokerage app out to see what kind of executions I get on Nasdaq and NYSE stocks and if they are comparable to what I have received from Fidelity and E*trade.

robinhood venture backingIf the execution prices are reasonable, then I think Robinhood could be onto something very big, especially if they are able to achieve scale in terms of total account user base.  There are also plans to offer API access for possible integration of zero commission trading with other current social trading websites (for example stocktwits.com).  Robinhood is also backed by reputable venture funds.  Instead of being a mixed finance and technology operation, it appears to be mostly a tech company approach to this space focused on operational efficiency and an extreme cost control type operation. I would love to see them succeed in this space.

What kind of savings are we talking about ?

A round trip trade is defined as a buy and sale of the same security. And let us assume of an average cost of 8 dollars per trade.

Lets say you make:

10 round trip trades a month = 120 round trip trades per year = $1920 savings per year.

20 round trip trades a month = 240 round trip trades per year = $3840 savings per year.

Those are very significant savings and frankly I do not care if you have a 500 dollar account or a 100,000 dollar account, who does not want to save that kind of money per year ?

But again, it will be important to investigate the quality of execution prices.  However, keep in mind that the quality of execution prices is not the only factor that makes for successful trading.  A clear and sound trading plan and goal combined with a winning strategy is what makes for long term success.

The key selling point and leverage of the robinhood platform is the fact that one can literally open a new broker account at robinhood with as little as 10 dollars and then start to trade that 10 dollars profitably over time !  This fact is quite astonishing to me, and I look forward to testing it out. It potentially removes all barriers to entry in the trading business.  Why?  Because previously in order to start trading an account successfully over time, it is an essential requirement that one start trading with at least 1000 dollars, preferably more.  A round trip commission of 20 dollars is 2% of a thousand dollars and 4 percent of 500 dollars and 20% of 100 dollars.

Clearly, anyone interested in trading with less than 1000 or 500 dollars to start is at a key disadvantage right from the start.

Zero commissions changes that, and theoretically allows a person to start trading with only 10 dollars while at the same time still allowing them to practice sound money management and cut losses without the ‘penalty’ of the commission adding to the loss.

Lets say for example you decide you want to start trading with only 10 dollars and aim to make 10% per trade trading small cap stocks.  Then also assume you decide that you want to pyramid all of your profits into the next trade.

If we also assume that you do not suffer any losing trades using this method, how long would it take to reach $100,000 ?  The answer is 97 total trades.

That feat is impossible to accomplish with any other broker.

The assumption that you would never suffer any losing trade is of course unrealistic.  However assuming you have a proper trading system in place and you already know that you are a proven profitable trader, then the task of trading $10 dollars into $100,000 is just as feasible as trading $10,000 into $1,000,000.  The only difference is the starting capital amount.

Look at the following trade process assuming no losing trades and 10% compound growth per trade. 

compoundgrowth10percent1

compoundgrowth10percent2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Column D is the cumulative growth of capital.  Column E is the gain per trade.

You can see from the progression that it takes a total of 97 compound trades to reach over $100,000 with only $10 starting capital.

Can this hypothetical trade process really be achieved ?

It could, but clearly there will be losses along the way that need to be carefully controlled.

Instead of 97 trades, it might take 200 or 250 total trades to achieve the $100,000 threshold.  But the main point is that it is still possible from such a small starting capital amount assuming you are using a zero commission broker.

I look forward to testing this out in the future and documenting the progress here at BestOnlineTrades.

As I already mentioned, having a zero commission broker and no minimum equity starting point is only 1/10th the battle.

The real key is winning the war of being consistently profitable as much as possible over time and making sure that losses are taken very quickly when necessary.

A bullish bat pattern in the DIA and sPY ETF

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The SPY ETF and DIA ETF have bullish bat Fibonacci patterns that suggest any accelerated decline during the next 5 trading days (USA markets are closed on Friday April 18th) will likely be contained or stopped near the .886 Fib retracement level.  It is possible that the target levels could be reached this Tuesday April 15th, or on the following Monday April 21st 2014.

In the SPY chart below the .886 retrace equates to the 175.53. In the DIA chart below that we see the .886 equates to 154.60

SPY20140413

DIA20140413

It is important to recognize that sometimes some of the Fibonacci reversal levels are never reached. It all depends on what the overall state of the market is and what kind of trend preceded the fib pattern. Using a combination of different time frames, additional indicators, and price tape action interpretation helps to provide clues on what any particular bullish or bearish Fibonacci pattern is telling us.

In the two price charts above there exists the potential C to D leg which is the last potential price leg of the pattern. It is not uncommon to see price gravitate very quickly towards the .886 Fibonacci level in this type of pattern. In fact I have seen many spike moves down in stocks occur on an intra day basis that tests the .886 but then closes the day at a much higher price.

There are two targeted astro/cycle dates during the next 5 trading days that could serve as magnets helping to pull the market down. April 21st is a major one and then April 15th is a second. A comment poster to a previous post clued me in to the April 15th date as having significant Astro/cycle significance.

So basically we are working with a possible window of 5 trading days to see if we can get to the .886 Fibonacci retracement levels.  Assuming we do get down there in accelerated fashion some may refer to it as being a crash, but it is nothing more than a gravitation towards the key .886 Fib retracement level which is likely to act as important support.  The determination of whether or not the .886 (assuming we reach down that far) will stop price will be better determined by focusing on signs/signals of candlestick reversal behavior and price support behavior.

Sometimes I like to use the super long term charts to get a better idea of probable price ranges. For example take a look at the quarterly price chart of the SPY below (3 months per price bar). It is clear from this quarterly price chart that during the year 2000 top, and 2007 top there were two quarterly price bars (highlighted in yellow) that made up the final topping process. The first quarterly bar was a hanging man candlestick, and the second was a consolidation bar that marked the final topping process.

SPY20140413quarterly

I have to say it is quite interesting that we see a quarterly hanging man candlestick showing up in each of the 3 years 2000, 2007 and 2014. The 2014 hanging man still needs bearish confirmation.

The current quarterly candlestick (April May June)is obviously still being formed in the SPY but it is important to gauge how it will react relative to the previous quarterly low. In the year 2000 and 2007 top the previous quarterly candlestick low was a zone of strong price reaction and support.

The Fibonacci support level 175.53 in the SPY ETF and 154.60 in the DIA ETF both make sense as support zones in the coming weeks. It could be that the much more serious decline will have to wait until the July August September quarter.  Remember that major tops are a process and it would be quite unusual for a top to be formed with only 1 or 2 quarterly price bars.  Even during the highly speculative March 2000 top it took at least 3 quarterly bars before the real devastating decline ensued.

The second quarterly bar in the year 2000 got to the .886 retrace level and slightly exceeded it before rallying up.  In 2007 the second quarterly bar moved slightly lower than the .786 retracement.  So here we are in 2014 and the second quarterly bar.  What retracement level will be achieved on the second quarterly bar before some type of rally ?  We might know the answer within the next 5 trading days.

Bullish Bearish Bullish Bearish Whipsaw and 1987 Comparison

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I am fully short the SPY as of mid day today again after going flat near the peak of yesterday’s bounce. I was too heavily short going into the 2 day upwards bounce the last two days and it really caused me to get a major case of whiplash. Note to self: Next time scale into a position much slower than normal especially in an already whipsaw trading range type environment.

I apologize for the recent whipsaw nature of some of my postings, but I have been having a bit of a hard time adjusting to the recent volatility and difficult trading range.

It appears as thought this will be the norm the next few weeks where a huge move down leads to a huge move up and vice versa.

Key action today in the SPY was the fact that the SPY closed under the key 184 support range. This 184 support range is really critical because a break below it means it then turns into resistance, and the ability of the market to break back up and through this 184 resistance is quite remote in my opinion, at least not anytime soon.

We closed marginally under the 184 today but honestly need a full price bar under the 184 level to seal the bearish deal.

The VXX volatility ETF seems to be reacting favorably to the bullish butterfly identified a few days ago. Today saw another strong reaction up from this pattern which seems to be confirming its bullish signal.

VXX (VIX) ETF Bullish Butterfly Pattern

VXX (VIX) ETF Bullish Butterfly Pattern

Looking ahead a bit, I am of the mind right now that one of two things will happen first.

  • We reach the key date of April 21st 2014
  • We reach 174 on the SPY which matches the crucial key swing low of February 3, 2014

April 21st is only 7 trading days away. If 174 is hit much sooner than expected (ie. a few trading days) then it would seem to open the door to a northward reaction rally occurring from 174 only to be followed by the real ultimate decline into April 21st. However if 174 approached in a much more cumbersome manner (lots of minor upside counter trend rallies), then obviously reaching 174 is going to take some time and maybe it would not occur until on or after April 21st, 2014. That is the market dynamic I am currently considering.

Finally, I would like to point out that during the lead up to the 1987 stock market crash from June to September 1987 (roughly 3.5 months) the sp500 broke up and through a key resistance line on the second attempt, moved to new all time highs, then a sell off began which led to a double bottom retest of this support line, then rallied once more and then finally tested it a third time only to break under it and crash.

The present time frame sees a similar roughly 3.5 month pre cursor rally, a double attempt to break up and through resistance, and then a move to new all time highs. Then a double bottom retest and then one more move to new all time highs and then the final retest of support which is then broken.

I am not suggesting that the price action is the same in the 1987 and 2014 time frames, but I am suggesting that the sequence of steps towards the break down is quite similar. Not only that but the number of times it was tested either as resistance or support. Also, the key support line is absolutely crucial in both cases.

2014 SPY 1987 sp500 Crash Comparison

2014 SPY 1987 sp500 Crash Comparison

I will let you be the judge on the similarity characteristics. It is clear on the chart how the horizontal dotted line turns into resistance two times, then support 3 times, but the third time it transfers to resistance again after a minor 1 to 2 day bounce.

I am not predicting a 1987 style situation the next 7 trading days, but I will say that if it were to happen similar to the way it occurred in 1987 then tomorrow April 11th, 2014 we should see another maribuzu candlestick price bar which is essentially a large rectangle and shows a closing price at or very near the low of the day. Then another one should occur after that also closing at the lows and with a wider range, and then a final one that is a maribuzu bar 5 times the size of the first few maribuzus and also still closes on the low of the day. The odds seem astronomically against such a thing happening again, especially since we have already seen the nasdaq and sp500 trade more in rotational fashion with waterfall upside reactions and then resumptions down… but I am just saying if a 1987 is going to happen again, watch for this large rectangle type candlesticks that incrementally increase in size.

Does a Bearish Scenario for USA Market Indices Still Exist Near Term ?

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I think it is time to pull the plug on the bearish USA stock market scenario for now. The SPY ETF had the opportunity today to break under 184 and kick start a bearish follow on move, but chose the bullish option once again. In addition to that, other indices such as the NYSE composite index did an almost text book technical retest of the apex of the symmetrical triangle it broke out of a few weeks ago. So the NYSE did a retest and then sign of strength move off of the apex. Technically that is text book price action.

I have to also say that it has been quite amazing how the sp500 and the NYSE has been able to almost completely absorb the bearish sell off in the Nasdaq Composite Index. At first the interpretation could have been that the Nasdaq was leading the way down and would take the sp500 and NYSE with it. But now it is starting to look much more like the Nasdaq and Biotech decline was just a way to work off their overbought excesses. The nasdaq composite is currently bouncing off of a bullish butterfly pattern which could mean that this correction is over for now in the nasdaq.

It could very well be that it is just not the right time to expect a 10 to 20% correction. Maybe in May? or August to September 2014 time frame.

Trying to pick a top in a market index is extremely difficult, not impossible, but very tough because of the predominance of the previous bullish trend and the seemingly endless choppy nature that usually accompanies market index tops.

The astro dates that are coming up are still the wild card. Perhaps the market will run right up into the April 21st date to form some type of peak ? It could be that they are just ignored this time despite the supposed bearishness of them. Nothing in market analysis is ever close to 100%, including astro.

So for now it is back to individual stocks analysis which I meant to do anyway. Soon I plan on modifying the BOT site to focus exclusively on individual stock setups from some powerful scans I have developed ( volume based scans, candlestick pattern scans and some Fib scans as well).

SPY ETF and the Critical 184 Support Zone

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The SPY ETF today once again reacted to support near the 184 zone and managed to close slightly higher for the day. The daily chart of the SPY ETF below shows the current trading dynamics.

SPY ETF Daily Chart January to April 2014

SPY ETF Daily Chart January to April 2014

There are a number of indicators that suggest the market has topped out near term and that we are entering at least a 10% correction going forward. However, the best indicator has been and always will be price itself. It is simply the best leading indicator.

Looking at the SPY ETF price chart above it is very clear that the 184 level MUST be broken to the downside before any more bearish scenario could engage during April 2014. Today’s bounce from the 184 is the third time down into this zone (or 4th if you consider the March 1st 2014 drop into the zone).

The 184 level has proven to be an important area from which past bounces have occurred and in some cases very strong upside bounces. I will say that since this is the 3rd time down to 184, my interpretation is that we are spending too much time playing in this zone. The market is getting too comfortable down here and at this point should have zoomed higher off the zone into new all time highs by now. The 184 level is sort of like the forbidden fruit that you are not supposed to be eating.

The SPY ETF needs to get a strong reaction up from here the rest of this week to ‘save it’ from the risk of breaking under it.

Line A in the SPY ETF chart above represents the APEX resistance level which was previously support.

Line C is the up trend line from the critical February 4th 2014 low. We can see that this line C was broken with a sign of strength yesterday, April 7th.

Line B represents the critical 184 support line which must hold to keep the bullish option still open for the SPY ETF. If line B is broken, then it would transfer this key level into new resistance and would really help drive home the more bearish potential scenario. In fact it is an absolute requirement to kick start the bearish scenario.

Any upside bounce the rest of this week should ideally be contained near 186.25 . Even better, holding under 185.78 would be the better choice since that would be a rally right back up to just under the symmetrical triangle pattern (the dotted blue lines).

The problem with these resistance levels just mentioned is that if they are even slightly exceeded it can cause a potential eruption in short covering and add fuel to any meager upside rally. So we will just have to wait and see what kind of bounce, if any, the market has in it at this point.

I will say that the most bearish scenario I can conjure up at this point would be a gap up on Wednesday, April 9th, 2014, to 185.78 and then a sell off during the rest of the day that fully engulfs the April 8th high and low and closes near the low of the day or slightly lower, just under the 184 level.

Lastly I will say that all three previous times the SPY has moved into the 184 level (the first bar into the 184 zone), the next day immediately saw an upside opening gap up and spring higher. However today we witnessed the SPY open very close to yesterday’s close and meander pretty close to the previous days closing range. This could be a subtle sign that today’s upside bounce was only a one day bounce, to be followed by fairly swift market weakness the rest of this week.

SPY ETF is Currently in Strong Sell Mode

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The downside action right now in the SPY ETF is orderly and measured however I believe we are about to enter a cascade decline situation. The speed of the decline is impossible to predict, but I would not be surprised to see a ‘flash crash’ type move maybe similar to the May 2010 decline. The vast majority right now are not of the mind to just sell everything and get out, but I think we are getting close.

I drew up a chart of the SPY and my current thinking is that the SPY decline will be significant but the max downside will be contained and sustained by the relentless bid we have seen for months and years of the bull run. My point is that I am expecting the SPY near term to take a serious hit, but there will be very strong reaction rallies and bounces that will make it imperative for any short positions to be closed decisively and promptly.

See the chart below of the SPY for my current thinking on the next SPY moves. I think the SPY will zoom down to near 174 perhaps even by the end of this week or sooner. 174 is clearly a key low and I think it will be defended again one more time. Exactly how it will be defended I do not know, but the tape action that reveals itself after that low is tested will be worth gold in my opinion. It is important to keep an open mind as to how we will move into the April 21st, 2014 cycle date. I have been saying for many days that it will be a low, but in fact a much more bearish interpretation would be if we swing down very early this week and then bounce up into that date as a high. I will speculate more on this later as we get more price bars, but for now I suggest keeping an open mind and to consider the scenario drawn up in the chart below.

Breaking UNDER 174 in the SPY is extremely bearish on the longer term time frames. But I just do not see it happening in one slice move. Remember, market action is a process.

2014 SPY Mini Crash Scenario Trading into the 174 Low

2014 SPY Mini Crash Scenario Trading into the 174 Low

P.S. There is an alternative scenario to the one depicted in the chart above, but for now I will hold off on it. It is much more bearish but at the moment not very probable. I may post a second chart that describes this scenario today or tomorrow.

– Best

Trading Scenario for the Nasdaq Composite Index

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Today’s action in the USA market indices was certainly interesting. Just yesterday I was about to conclude that this supposed ‘panic cycle week’ said to engage starting on March 31st 2014 was a failure. But today’s price action in the indices, and especially so in the Nasdaq seems to have redeemed the signal as we clearly have high volatility today as well as significant price destruction.

Before I get into the Nasdaq discussion, just a few thoughts on the Sp500 and the DJIA.

DJIA Quarterly Hanging Man

DJIA Quarterly Hanging Man

First, regarding the DJIA, I want to point out on the longer term chart that the DJIA has what looks to me like the most bearish looking potential hanging man candlestick on the quarterly price chart. It has a very long bottoming tail, and a small candle body. This is obviously a very long term potential candlestick reversal signal, and it is not confirmed bearish until a quarterly close under 15,340 occurs on the quarterly price chart. That feat actually does not seem too difficult given the typically weak seasonal time frame that includes the next 6 months, or two quarters. By the way, I should also mention that quarterly hanging man candlesticks marked the major tops in the sp500 in the year 2000 and 2007. Perhaps it is no coincidence that we are seeing yet another hanging man candle mark what could be another major top here in 2014.

sp500 busted pattern setup 2014

sp500 busted pattern setup 2014

The sp500 sell off today has changed the interpretation on the recent upside ‘breakout’. Instead of the breakout being confirmed, it has now changed into a failed breakout and is opening the door to a ‘busted pattern’ setup. The busted pattern I am referring to is the breakout north from the symmetrical triangle formation in the sp500. The low today on the sp500 (as of this writing) is 1863.26. This level comes close to the apex of the triangle formation it just broke out of. It is not that uncommon for a stock or index to come back to the apex of a symmetrical triangle formation to test the breakout level. However, a new bearish signal is given if price breaks under the apex support and then under the bottom boundary of the symmetrical triangle. Based on everything I am looking at this busted pattern setup in the sp500 will give a bearish signal in the coming days.

The Nasdaq has definitely been the weaker dog of the USA market indices recently. I am looking for the Nasdaq to move down into the nice even round number of 4000 like a magnet in the coming days. There are two key swing lows near the 4000 range in the Nasdaq Composite and I suspect they will be briefly taken out (the stops taken out) and then some type of swift multi day rally could occur setting up the B point of a B to C leg down.

Nasdaq Composite Daily Break down scenario 2014

Nasdaq Composite Daily Break down scenario 2014

The thinking behind the scenario is that the Nasdaq is already close to a traditional oversold level and so it opens the door to some type of ‘flush’ intraday move down near or slightly below 4000 level (instilled panic). But then upon clearing out those stops, making a sharp 3 day spring board rally back up to the B point as indicated in the chart above. I would not be surprised at all to see the Nasdaq slide down intra day to slightly under 4000 and then end up closing near the high of the range by the end of the day.

The monthly chart shows that 4000 is also a key level of support and likely bounce zone:

Nasdaq Composite Monthly 2014

Nasdaq Composite Monthly 2014

The bearish gartley pattern that existed in the DIA ETF seems to have stopped the DJIA and is holding a lot more credibility now that we have seen the markets push off it with a big sign of weakness. The sp500 also had a small bearish butterfly and we see now as of today’s weakness that there was a strong reaction from the top of the pattern reversal zone. This seems to be suggesting that the reversal patterns are valid and that we should start to see an acceleration of weakness going into April 21st 2014.

Last but not least, I have mentioned a few times the similar pattern setup to the July 2011 time frame where we saw the sp500 attempt to make a new breakout high but then after it double topped, went straight down for almost 11 to 12 days straight. We are currently about 11 to 12 days away from April 21st 2014 and the pattern setup is similar to the July 2011 time frame. The RSI levels are also similar, so at the very least we can say that if such a persistent 11 to 12 day decline were to start from today onwards, there is plenty of ‘RSI fuel’ to keep the decline going from today forward.

sp500 2014 to 2011 Comparison Chart

sp500 2014 to 2011 Comparison Chart

Small Bearish Gartley Pattern in the DIA Setting up a Very Bearish Scenario

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A small bearish Gartley Fibonacci pattern has been identified in the DIA ETF (the ETF that tracks the Dow Industrial Average) and it could be a key factor in how the market structure develops into the end of this week.

There are only 4 days left in March 2014. So that means end of Month and end of Quarter and one has to consider the possibility that a little ‘upside tape painting’ would be logical to occur for a few more days into end of this week. This is interesting because if this small amount of upside tape painting occurs, it would help the set up of this potentially bearish Gartley Pattern in the DIA ETF.

DIA ETF Daily Chart March 2014

DIA ETF Daily Chart March 2014

As one can see from the chart, this very small potential bearish Gartley pattern is projecting 3 potential reversal zones between 164 and 164.40. The proper way to asses whether or not such a Fib pattern is going to work is to watch price candlestick action as it moves into the potential reversal numbers. When and if the numbers are hit, then one must try to focus on the candlestick price behavior for clear signs of reversal and then confirmation that a new bearish leg wants to engage. This signal can come in the form of a candlestick reversal pattern (for example shooting star, doji, gravestone doji, gap up and then full bearish engulfing candle, hanging man candlestick etc etc.).

Just to be clear, the discussion centers around daily price bar signals and interpretation.

What I have seen in the past is that sometimes the situation occurs where a small Fib pattern nails the top or bottom in a stock or index. During my scanning over the years of previous market tops and bottoms I have seen some market tops get nailed quite precisely with a Fib reversal pattern. Sometimes they are precise, and other times they work on a slight delay factor. For example in January February 2009 there was a bullish Crab Fib pattern that was setting up and it was indicating a reversal in the sp500 near the 750 zone. As it turns out that level was only about 7 days and about 75 S&P points away from the final market bottom on March 9th, 2009.

So now we have this very small bearish Gartley pattern in the DIA that is suggesting to watch the 164 to 164.44 zone for reversal potential. Ideally we would drift up there into the end of this week and maybe finish the week with some type of doji or shooting star candlestick.

Sometimes these Fib patterns do not result in price moving up into the reversal zone and instead price reversals down fast very swiftly before any of the aforementioned levels are tested. In fact sometimes they are never tested and the market or stock just reverses earlier. So one has to be open minded. The market may reverse down hard at any time this week.

The week that starts next week is very key because I am relying to a certain degree on Marty Armstrong’s model which says it is slated to be a panic cycle week.

The fact that March 31st next week is slated to be a panic cycle week is very interesting to me because of the current context of this small potential bearish Gartley reversal pattern. The pattern makes it quite clear that there is a small window more of price advance, but after that we should start to head down. This fits in very nicely with the timing of the beginning of the Marty Armstrong panic cycle week to start on March 31st 2014.

I would also suggest that one take a look at the price structure and the MACD for the period up to July 22, 2011. The sp500 made a small double top at that point and it resulted in the daily MACD moving into a bullish crossover. It appeared precisely on that date that the market was ready or pretty close to breaking to new highs. But yet it was still below previous peaks as is the case in the current market action over previous several months.

This move into a double top ended the market advance in late July 2011 and then the market plunged for an approximate 15% decline for about 15 trading days. The decline was persistent and was cascading in that we see price candlesticks that were increasing in size as the move continued.

The decline that began from October 2, 1987 lasted about 12 days to the panic low. 12 to 15 trading days is essentially 3 calendar weeks. So if we project out 3 weeks from March 31st next week (the week that is supposed to start the panic cycle) then we get close to the April 20th to 21st cycle magnet date.

So one can see how a potential scenario is developing right now where the market drifts around a bit more this week waiting to show a serious sign of weakness to the downside. If and when this kickstart move to the downside begins, it could very well be the fumes that lead to the fire of a major market downside move into April 21st.

I keep mentioning this April 21st date and the Marty Armstrong March 31st week panic cycle date. I want to be clear that I did not come up with those dates but I am relying on my sources that they have strong potential to lead to highly volatile market action, perhaps even crash type market action.

By the way I do find it quite odd and unusual that this supposed April 21st Astro date is also Easter Weekend and April 20th was Hitlers birthday. I will let you try to come up with an interpretation of what that means, but the bottom line is that April 21st date something ‘huge’ is supposed to happen or at the very least it should be a key market magnet date (either a high or a low). At present I am unable to see how April 21st could be a major market high, at least for now. Certainly anything is possible with the market, but everything I am looking at right now suggests it will be a key low.

The US Dollar continues to show probability of making a solid bottom and a ferocious upside rally. The Bonds TLT ETF also looks like it is in a stance to skyrocket. These two factors are also consistent with a downside market move.

The VIX right now is basically like a rubber band at full tension and is being pushed on time and time again and yet it fails to budge any more to the downside. That tells me when it is finally ready to get a rally going to the upside, it will move very swiftly to the upside with pullbacks being modest and contained.

The McClellan summation index continues to be in a bearish stance and show more downside momentum despite today’s market rise.

I am looking to go ‘all in’ short this market, but am presently on the sidelines. I am awaiting confirmation and want to give the market a little more breathing room to the upside.

If one looks at certain individual stocks such as IBM or JPM one would think we are ready for another huge upside leg in the market. However on some of the strong DJIA Stocks such as CAT and MSFT there exist bearish Fib pattern setups that could halt their advances in short order. JPM also has several bearish FIB patterns that suggest it’s advance will be stopped soon.

If the scenario starts to show confirmation we should start to see serious persistent downside price action in the DJIA and sp500 starting sometime this week or very early next week. Then, once initiated, the target resolution for the low would ideally be near April 21st 2014.

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