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.

Stock Market Top Scenario is Alive Again

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I think yesterday, March 20th I became a bit too quick to raise the white flag. Given today’s sharp reversal and the break down in the BBH biotech index, the re establishment of downtrend in the Mclellan oscillator and moving averages and the nature of the high volume reversal, I have to go back now to my original short thesis ( seen here ).

The market is taking a long time to rollover which is not unusual. The problem is if one watches it too closely for too long, waiting for it to rollover, then it becomes a psychological disadvantage. It is moving like a slow oil tanker waiting until the last minute to break down. Today was enough of a key reversal day that we can label today’s high as the final ‘line in the sand’ of the bull versus bear debate. If we close above today’s high in the SPY of 189.02 then the bear scenario should prove ineffective. However, any further weakness from today forward should serve to slowly start to increase downside momentum. Of course there will be upside reaction rallies, but this market right now looks like it is on borrowed time and we should start to see very high volatility at the latest by the week that starts March 31st 2014.

Index Analysis Paralysis

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The tape action in the SP500 today is definitely NOT confirming the bearish thesis forecast over my previous two postings. The tape action today basically did a ‘stick save’ and now has once again flipped the bias to the bullish side.

In addition today the financials are very strong, not to mention many of the DJIA stocks after having been in consolidations. In fact many of them are now turning higher creating bullish divergences.

If there is one lesson out of this, never short a market too early and above all focus on the ability of the tape action to show extreme weakness at critical points. The fact is that the market continues to show strength exactly at the most critical moments when there is potential for a switch from bull to bear.

I can come up with so many possible reasons why the market should go down, but if the tape action does not confirm it then it would be a pointless exercise.

So now, back to focusing on individual stock setups on Nasdaq and NYSE… and let the bull keep running…

SPY Analysis for March 19th 2014

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Today was Fed decision day and it did not disappoint in terms of providing some volatility today.

My gut instinct today was that the market would do the typical thing today and sell off a bit on the 2pm announcement and then rally into the close and blast higher after that. I actually thought today the market would close up a few hundred points (on the DJIA). So we did not get the aforementioned rally. Instead we got a decent sell off and more notably the sell off was on significant volume. This is never a good sign near market highs.

Today was clearly a pivotal day and the market had the opportunity to turn today’s daily indicators and weekly indicators into a bullish stance. Instead, the daily indicators re affirm the more bearish short term stance. Still, there are 2 days left in the week before any final verdict. Right now there exists a bearish triple P on the daily MACD histogram which opens the door for a close under today’s low which would be a confirmed sell signal.

We will have to see how the week finished out, but right now it is not looking good for the bullish side.

Key today also was the US Dollar index which rallied strongly and the gold price took a huge hit to the downside. This is important because we may be at a very key long term reversal in the dollar (from down to up) which supports the longer term theory that the markets have made a major top in this zone (and that we are headed for deflation again ? ). While true that one day does not a trend make (in the US dollar), but today was a sign of strength in the US Dollar which seems to confirm a very large bullish gartley fibonacci pattern (in the UUP ETF) which has been in existence from May 2011 to present time frame. Large Fib reversal patterns show evidence of confirmation when we see strong price reactions near the end of the pattern reversal zones.

SPY ETF Chart

SPY ETF March 19th 2014 Daily Candlestick Chart

The chart of the SPY above shows that we still appear to be trading in a large broadening wedge type pattern. The recent price action over the last few weeks has been essentially ‘hugging’ the top portion boundary of the broadening wedge and appears to have formed a small head and shoulders top pattern. Today’s high volume break down could be a sign that the right shoulder of the pattern is near completion which could result in a high volatility break of the neckline to the downside and the initiation of a new leg down trend into April 7th 2014.

Notable on the chart is that on Thursday March 20th at 12:57PM Eastern Daylight Time is the Vernal Equinox. This is mentioned because it could serve as a reversal point from up to down in the context of the small head and shoulders topping pattern.

The next key notable aspect of the chart is the pink horizontal line that is likely to serve as key support and/or resistance. Assuming it is broken through to the downside with a lot of thrust, then we could see it turn into significant resistance for the market going forward.

The week that starts March 31st could be an epicenter zone for volatility and market mini panic. It is possible that some type of market low forms during this time frame. If this scenario is correct and it lands the SPY near 170, then a further scenario is for a bounce to occur from that zone possible into the very key cycle date of April 20th/21st. This scenario is highly speculative right now. The clarity of the potential scenario should become more clear as we move into March 31st/April 7th 2014.

I will say that the potential scenario shown in the chart above is the most bearish potential scenario because it allows the market to bottom before the April 21st date, and then runs UP INTO the April 21st date.

A more lasting market bottom scenario would involved the market taking plenty of time to just roll into the April 21st date as a major intermediate term low.

In the near term, the first sign that this scenario could possible engage is a move on a closing basis of the SPY BELOW 184.44.

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