S P 500

I just wanted to say a few words about the general broad market (Dow, Nasdaq and S&P). I will keep it short, but felt it was important to mention for the simple reason that knowing the primary direction of the TIDE in my experience is very important for the individual trades and individual stocks. If you have the TIDE on your side then there are much better odds that the individual trades or setups will work out. Yes or course it is always a trader’s market and there is always a trade somewhere, but it does not hurt to have the 800 pound gorilla (broad market) as your body guard.

I have been following the S&P 500 closely during the last few months and all the other major indices. Anyway the bottom line is that all of the indices are OUTSTANDINGLY BULLISH! Even now as we are at the 52 week highs, I see bullish breakouts in the indices and powerful sustained trends UP in the major averages.

The reason why I am mentioning this is now is because if I have good knowledge about where the broad market is going then it raises my confidence level on individual trades, especially during broad market breakout periods! And even more so during statistically bullish seasonal week of Thanksgiving!

Perhaps you know this already so then it is just a double mention in your mind. But I cannot overemphasize enough how important movement in the broad market averages is to individual trades.

In my experience, there are occasionally sweet spots in the market. These occur when you have new 52 week high BREAKOUTS in the major indices. What the breakout to new 52 week highs in the broad markets does is start to light the fuel of a speculative frenzy. It is a time of excitment and relief all at the same time. The OTC BB market starts cooking as well. The Dow Jones Industrial Average has been trading in a sideways trading range for 2 FULL YEARS! This is an enormous amount of cause and I believe the breakout we are not witnessing will give us a good sustained run at a bare minimum right into the end of this year.

So we have the TIDE on our side.

Ok, so we have the backdrop for a speculative frenzy…

I cannot make you believe we are going to enter a very bullish upswing in the broad averages.. everyone has a different opinion. My only point is that knowing we are going to have a very bullish upswing in the broad market averages can add to your confidence in some of the individual trades I am about to mention here.

The S & P 500 powered down with volume today.. Quite heavy volume too. A test of 1163 is starting to look like a very good possibility now and would at least open up the possiblity of that reverse head and shoulders pattern setup I mentioned in an earlier posting.

After looking more carefully at this index it appears that a sell signal was triggered on June 22nd 2005. The high for that day was 1219.59 which tested the high for the 17th of June which was 1219.55. Not only did the 22nd price bar test the June 17th price bar, it also finished with a close below the 17th price bar and on dramatically lighter volume.

The volume for the 22nd of June 2005 was 1.38 billion and the volume for the 17th of June was somewhere near 2.5 billion. The June 17th volume was skewed by quadruple witching.. so I am a bit perplexed as how to make a judgement on whether I can make a valid volume comparison given the quadruple witching skew. Either way it looks like a comfortable sell signal to me.

The other thing going on with the S & P as you may have heard me mention several times on other indices is a potential bearish monthly MACD cross coming up on this index. We do not have a negative or bearish crossover yet, but it is starting to look like this is the way it wants to go..

So as of this writing the bias to me is definitely bearish with the next possiblity and analysis being a run for and test of 1163. It will be interesting to see how the volume comparison is at that time and whether it means more selling or a bounce and reverse head and shoulders pattern.

For the S & P to avoid a bearish monthly MACD crossover, it is going to have to pull a rabit out of the hat going into the end of this year.

Thomas

P.S. An interesting side analysis here is the way this could play into the gold market. SOMETIMES the gold market moves inverse to a bearishly moving broad market as a hedge. An extra bearish broad market could further support some of the bullish gold clues I alluded to in my previous post on the Gold Market.

I am still open to the possibility of a reverse head and shoulders pattern being created on the S & P 500 index.

Today we declined on big volume from the highs and makes me think my previous article of ’summer doldrums’ could be kicking into effect thereby delaying the big upwards breakout in the S & P 500.

The fact is that July and August can be horrible months to trade and a horrible time to get real momentum and adequate volume upwards in the market. Let’s face it, a lot of the big money is at the beach and body surfing on cape cod!

So here in this chart I just drew a brief sketch of a different possibility, a reverse head and shoulders pattern that could be in process right now. Further confirmation is needed however and the first sign will be a return to 1170 on the S & P to complete the creation of the right shoulder of this reverse head and shoulders pattern.

I am not saying that this WILL be a reverse head and shoulders pattern. Just open to the possibility of it being one given the probabilities of slow low volume lethargic summer trading…

Time will tell as they say.

I am still viewing this as an overall consolidation before break out to new highs down the road. This is the preferred scenario analysis for now.

Will update if new developments warrant on the S & P 500.

Out.

Tom

The one thing I forgot to mention in my previous post regarding the S&P 500 breaking to new highs was that we cannot rule out a delay of the breakout due to ‘low volume summer trading’ ! The low volume factor was ignored however on June 17th. And it was a Friday at that! So at this point I do not know whether to ignore the factor of summer slow trading or open myself up to the possibility that it will not be a factor this time.

This does bring up a general point worth mentioning. Is it even worth trading or following the markets during the slow summer months? I suppose it depends on what you favorite flavor is. If you love to dabble in small stocks or the OTC BB market then the summer is probably definitely NOT a good time to be trading too much. The problem is that during slow summer months there can be so much whipsawing, minor ranges and lackluster volume that the only thing it really accomplishes for you if extra commission charges from your online trading firm.

But alas, there are alternatives. You could concentrate solely on trading QQQ’s or spyders on an intra-day basis and make your trades quick and light.

Anyway, the bottom line is that experience suggests to keep your trading very selective during the summer months or you are setting yourself up to be eaten for lunch!

P.S. Right now the S&P 500 is hovering like a bat right under longer term resistance… If the ’summer doldrums’ effect kicks in, the first sign will be a price break back down under the previous high volume swing mentioned previously! That could mean a bit more backing and filling will occur to weed out the weak hands before the big breakout!

P.P.S. As far as the occurence of the actual breakout, when it happens, we want to watch for long price spread and confirmed volume, then after that a low volume retest back to the new support area, but ahhhh… I am getting ahead of myself !

The S & P 500 will break to new all time highs. I have no doubt in my mind as of June 20th 2005 that the S&P 500 will eventually break out to new all time highs and likely head for a test of the next swing point of May 22nd 2001.

We saw very good volume expansion on the S P 500 on June 17th, 2005. This volume came through despite typical slow summer trading activity. But more importantly the volume came through significantly higher than the previous price swing of January 3rd 2005. March 7th, 2005 still needs to be tested in terms of price and volume, however given how the S P 500 has pushed up against this resistance line with above average volume, the evidence suggests a break of resistance is coming.

How do I know that we will break to new highs and likely attack the swing point of May 22nd 2001 ??? Well the evidence comes mostly from the S P 500 volume analysis, the most powerful analysis you will ever encounter in your trading matters. As you can see from the chart I have created to the left there is the specific resistance level of 1220 on the S P 500. On June 17th 2005 we tested this level. The volume on June 17th was 2 billion shares. This volume was about 33% greater than the previous swing (Jan. 3rd 2005) volume of 1.5 billion shares. The three price swings around the date March 7th 2005 have volume betweeen 1.4 and 1.6 billion shares. These have not officially been tested yet.

The volume expansion on June 17th was extraordinary! This market wants to push higher and do so in a big way! The volume is the energy, the force and the reason why the market will move higher above the 1220 resistance level and head for the May 22nd, 2001 swing.

“If the market tests a previous swing on equal or greater volume, ultimately that swing will at a minimum be tested and likely exceeded”.

Not only did we test the Jan 3rd, 2005 swing on equal volume, we did so on about 33% greater volume!

The bull market lives on!

Thomas

P.S. The gold market is also extremely interesting at this point! Will the gold market head to new highs? It would be truly extraordinary to again see gold and the S P 500 breaking to new highs at the same time! If it happens it will be absolutely fascinating to me! Stay tuned for my gold analysis.

This is just a brief post and mini follow up on the S&P 500. In a previous post I had mentioned that the S P 500 was creating what appears to be a rising wedge pattern.

Today it looks like we broke down out of this pattern with fairly heavy volume of 1.65 billion shares. Prices usually move swiftly when they fall out of or rise up from wedge patterns. Assuming we get to 1165, that level will be key to examine to see what the volume test is relative to the previous swings. There is no doubt that the entire up move in the S&P 500 from the 2003 lows has been impressive, but the question always is when is the next intermediate trend change coming?

Is the S P 500 destined to create a massive trading range between 800 and 1200 ?

The support that must hold on the S P 500 is the 1125 to 1150 level assuming we make it there.

Also important to note is the monthly MACD indicator seems to be quite mature in its advancement and may be giving early indications of the beginning of a intermediate term trend change. A negative crossover by the monthly MACD on the S P 500 index would be quite a bearish sign and obviously have implications for most broad market stocks.

The CRB index blasting to new highs daily.. Crude Oil hugging resistance at 55 or so. And GOLD creeping up every so slowly and quietly. Could it be that we are on the verge of a major trend change in the S P 500 and Gold/Commodities?

For the longest time commodities have powered higher, and so has the S P 500 and the broad market. It has been an across the board run up in almost everything to be quite frank. But the question some people have to be asking is how long can this go on?

It is true that inflations can exaggerate moves in everything, gold and commodities, real estate, the broad market. But who will ultimately be the winner in an accelerating inflation? If you answered commodities I believe you are correct.

The key here is to try to identify if 2005 will be ‘the year for gold’. I have some evidence that suggests this could be the case, but ultimately as I am sure you agree it all depends on the price charts and specific levels either being broken or unsuccessfully broken.

The next series of charts I post on here will be gold and silver charts, hopefully before the end of this week.

Determining which way gold will go this year could be the factor that helps to decide what everything else will do (broad market, bonds).

It sure won’t be easy but I will post some charts up that may shed some more light on the subject!

tc

The S P 500 is creating what appears to be a rising wedge consolidation pattern. The technical analysis pattern referred to as a ‘rising wedge’ is not necessarily a major topping pattern. It is usually more of a consolidation type pattern or pause before moving higher.

S P 500 index rally getting tired?

As you probably already know, most stocks on the exchanges follow a similar path as the S P 500 does. Not all of them, but the majority do. So clearly it is pretty important to know where the S P 500 is going on a short, medium and long-term basis. Otherwise you risk fighting the predominant trend, and that my friends is a very quick way to get in trouble. Since 2003 the S P 500 has powered higher with extraordinary strength and resilience. The move from that time has for the most part been with consistently good volume and price action. The almost one year long retracement which occurred during 2004 was I believe only a .382 fibonacci retracement from the lows of march 2003 to the high at the end of 2003. The fact that the retracement was so minor is indicative of significant internal strength in the this particular index.

But the question always remains, when will we top out in the S P 500? And what will be the signal? To find the answer to this question all we can do is follow the index on an intermediate term basis and see where technical levels are either held or violated. For example in the technical analysis chart shown on this page there does appear to be a rising wedge pattern. I don’t like this pattern too much because it depicts a gradually weakening demand situation in the technical sense. However as I mentioned above rising wedges are usually not final topping patterns. In many cases after the price breaks down from within the pattern, price simply returns to the base of where the pattern began, in this case for the S P 500 it would be the 1165 level. If the S P 500 does move to that level then it will be very important to examine the volume on the test of 1165 in comparison to other price swings also at that level. If the S P 500 does get to 1165 and tests the other swings at 1165 on substantially higher volume, then it could spell some trouble for this index and warn or a longer term consolidation and possible break down lower.

Will the S P 500 be able to maintain its strong up trending action since 2003?

Stay tuned!

Peace. I’m out.

tc

Dear Friend,

I have been trading for about 11 years. I remember when I first started I went on an information gathering campaign so that I may discover whether or not technical analysis really works. I remember having some confusion about how to draw a basic trendline. Do you draw it over the highs of prices or the lows? I also remember going back and forth (waffling, if you will) about whether or not the MACD is a legitimate indicator, and whether or not it truly works. I eventually came to the conclusion that it does work, sometimes. But in order for it to be effective, it must be combined with other indicators and other analysis.

By the way, that photo you see perched up there on the right hand corner of this editorial is not of me. It is of none other than Richard D. Wyckoff. Wyckoff came up with a form of market analysis known as the Wyckoff Method. You probably have not heard of it unless you are a seasoned trader. It is in my opinion one of the best, if not the best way to look at the market for beginners and experts alike. Wyckoff teaches a method that lets you get a good appreciation and understanding of how to truly watch markets. It is a system and a way to frame your analysis of every market move based on supply and demand. I put the photo up there because part of my analysis today takes a principle he relied on.

Anyway, I went off topic there a bit. I will discuss the S&P500 and the Nikkei in a second, but I wrote the two preceding paragraphs to point out simply that technical analysis does work, and that it is much to your advantage to use it and to continue to learn to use it as best you can. It definitely puts the odds in your favor and helps take the emotion out of trading.

The question really is though, how complex does market analysis really need to be? In my opinion it is always better to keep the analysis more simple than complex. In a typical day, look at all the analysis that is going on over the world about the markets and individual stocks. A lot of the commentary is of fundamental nature. Millions of analysts write their research reports and make their predictions, and millions more try to figure out where the S&P 500 is going through their economic analysis. So many millions and millions of people, making so many predictions and analysis all fixated on every tick mark of the S&P500.

But in the final analysis, how are you going to make your decisions about what the market will do next? Which report will you base your decision on? A fundamental one or a technical one? From bloomberg or CNBC? From your sister or your brother? or perhaps by you yourself? But how good are you at understanding market timing and analysis?

So many questions, and so little time… The point I am trying to make here is that market analysis does not need to be extremely complex. All you need to do is learn to watch the market and make a judgment of what it will do next, based on what it is telling you it wants to do. At this very moment there are thousands if not millions of analysts on TV and internet message boards and basically everywhere making judgements about what the market will do next. Is it in a bear or bull, what will it do next… ?

And here I sit in this quiet little room with nothing but a quiet little price chart of the S&P500, that has the price bars and the volume on it. My ears are deaf to all those screams from the trading floor, all those emotionally tainted comments on network business TV and all those comments from friends and family members about what the market will do next.

In an interview about Jesse Livermoore, I remember the author saying that Livermoore had his own quiet trading room with his assistants and he did not permit them to talk at all throughout the trading day. This was in order to avoid breaking his concentration. So it seems he was really separated from ‘outside market influences’. I suspect this is one of the traits required for long term success in trading matters. Perhaps it is also a necessity to know what you are doing :razz:, when it comes to trading and the market. And my God… there are so many things that are to be known to survive in this business…

On that note, I will procrastinate no longer and jump right in to a brief analysis of the S&P500 (my take, out of millions of others).

And so below we have a price chart of the S&P500 plotted against the NYSE volume. The chart is a daily price chart.

Remember what I said about simplicity? Well, the thing that should instantly jump out at you from looking at this chart is what is known as a classic Wyckoff Jump Over the Creek with volume, and then subsequent classic retest of the creek level.

The CREEK and ICE are labeled on the chart. Wyckoff referred to price resistance as the ‘creek’ level and price support as the ‘ice’ level. Those two levels on the chart identify a trading range or cause building. Two possible things can happen from this trading range, either a breakout or a breakdown. The S&P has chosen to break out from it obviously as seen in the chart…

But, is it a valid breakout?

To answer that question requires that you look at volume, in this case the daily NYSE Volume plotted against the S&P daily chart. That breakout price bar in the beginning of November 2004 was on 1.782 billion shares. If you compare this volume against all other price swings going back to early 2004 you will be able to verify that the breakout was valid. It was a confirmed breakout in terms of volume and price spread (wide price spread).

The next thing the S&P did was trend above the creek (now converted into support or ICE since it successfully broke through it) on some follow through price action. But then, what did it do after that? It did a retest of the ICE level at about 1165. This retest is classic wyckoff and is one of the lowest risk entry points available in any market, stock or other index. But before you clap your hands, realize that the retest must be analyzed volume-wise with respect to the previous price swing highs that made up the creek level…

In late January 2005, a retest was attempted and it was done with maximum volume of 1.610 billion shares. That was about 10% less, relative to the breakout price bar, and thus, in my analysis I conclude that this was a successful retest, and opens up the potential for the S&P to resume its uptrend and eventually attempt to take out the 1215 late December 2004 swing high.

That retesting action happens with pretty high probability. In my experience you can expect such retests to occur 9 out of 10 times. It is the normal action of the market.

So what is my take? Well based on all the information I have available to me today, I believe the S&P will power higher, resuming its uptrend and have a good shot at taking out the 1215 December 2004 swing highs.

Now on to the next chart. It is of the Japanese Nikkei.

I previously created a mini video report on this index which also has IShare tracking shares (symbol EWJ). In that report I stated that I believe the Nikkei is at a significant bottom formation and is likely set up to make a sustained breakout move above its reverse head and shoulders neckline of 12,000.

I still believe that is the case.

Here is my latest chart:

Note the green colored arrow points to what is known as a double inside day (quarterly price bar is colored in blue). Many times, these double inside days preceed big price moves in either the up or down direction.
Note that again I have drawn the neckline of the reverse head and shoulders.

I believe that an explosive breakout still awaits the Japanese Nikkei index and that we are soon approaching that point. A decisive move above 11,600 would be early indication, that the boat has been set in motion. In the little chart inset, note that the index has formed somewhat of a messy downward slanting flag pattern, a bullish pattern. It is now perched right up on the edge of the downtrendline that makes up the flag. The flag is a bit messy, but nevertheless seems valid. Let me put it this way, I would rather see a messy down slanted flag then an upslanting wedge pattern.

I am going to stick my neck out here and say again that I think the Nikkei will be a headliner soon, perhaps before the end of the first quarter of this year. This could be a huge, dare I say it, longer term buy opportunity… that will only be truly recognized years later.

And finally, I would probably be remiss without a brief mention of google. Clearly, they are the 12 cylinder engine of the internet.. I use their search engine all the time and I love it. I also use their new email service ‘gmail‘, and I love that even more. It is in fact the best email application (web based) that I have ever used. And I get a whole gigabyte of storage! wow. That is real value being offered for free. I can see them dominating the web based email market within a year or two. Right at this moment you can be sure that yahoo and microsoft are scrambling, to redesign their web based email networks. Email is such a powerful application and will probably do wonders for google’s bottom line as we head deep into 2005. Intriguingly, google still officially has their gmail email service in beta, offering current users the ability to send ‘gmail invites’ to others.. perhaps they will leave it in beta for quite some time? This gives gmail a higher perceived value and maybe even will grow the user base faster than if they had done a regular release of the service. What I love about google is that they get back to basics. Within the email application there are no banner ads, no loud flashing icons, in fact there are almost no images at all. The only thing that occasionally shows up is their google adwords text advertisements and the are damn useful too! What a concept.. useful advertising.. I was writing an email to some family members about empanadas, a south americna specialty food, and sure enough there was a relevant ad for some companies selling this rare food item… that is genious in my book, and I clicked on the ad too! Adding .05 pennies to google’s earnings release… :razz: . But the bottom line is they design web pages that are clean and pleasing to look at. They design them for readers, and for those that seek information. Hmmm, kind of what I am doing here at Trading Top 100 Forum… :smile:

Anyway, the google chart shows indeed that the breakout GOOG did over its CREEK is valid based on volume. However, it remains to be seen whether or not this price bar will be an upthrust. Upthrusts do not necessarily mean bearish ending price action. When they occur, they do show that short sellers are blasted out of the stock and new longs are sucked in as well. The key now will be to see how GOOG reacts and to its ICE or new support level at 200. If it breaks back down inside there then it would indicate that it was indeed an upthrust, and that more cause building between 165 and 200 is necessary before a real breakout. On the other hand, if we hold 200 and the retest is on relatively lighter volume, GOOG could be setting up for a run. For now, things are inconclusive. Lastly, it should be mentioned that the high of today will eventually be retested given the extraordinary volume that came in today.

Ok thats it for today…

Sincerely,

Thomas

P.S. It may be some time before my next post. I have some personal business that will delay me from adding to this site. How long? I don’t know yet. I suspect though that by the time I am back the S&P will be hitting new all time highs.

Peace.

Im out…