The Russell 2000 today is printing a reversal hammer that looks quite typical and reminiscent of the reversal hammer of 6/8/2010.  In the large swing trading we have been in over the last few months, these reversal hammers have been somewhat famous for picking exact bottoms in the markets large swing trading range.

Today’s reversal hammer is also significant if you look at it in terms of the previous reversal hammer on 6/8/2010 in that it shows possible symmetry.  The symmetry I am referring to are left and right shoulders of a head and shoulder bottoming pattern.

The volume pattern on the SPY and many other indices has been a series of surges at these major swing trading lows since beginning of May 2010, but relative to the previous surges they have been progressively less.  That drying up of volume on a relative basis does not seem to be the stuff of a new bearish breakdown.

When you consider the drying up of volume (plus the high TRIN reading yesterday) with the pattern in the Russell 2000 below it would seem to confirm that we are once again near a reversal point here.

Having said that, a hammer reversal candlestick is not a hammer reversal candlestick until it is confirmed.  We need to see a close above the high of today’s Russell 2000 Hammer before it can be said we have some kind of reversal going.

The last point to be made about the chart above is that today’s low is still a higher low relative to the last two valleys of July 6 and July 19.  The better sign of a character change in the market would be a break below the 7/19/2010 low of the Russell 2000 of 602.64

Despite the recent market index weakness I continue to like very much the strength in VKNG or Viking Systems Inc. The SPY was down almost 3 percent today and yet VKNG managed to trade slightly higher on the day printing a doji indecision candlestick.

This is a classic example of how we are always dealing with a market of individual stocks that tend to have their own personalities.  Generally speaking the very small cap or microcap stocks can tend to have a complete mind of their own and ignore what the market indices are doing.

Their own supply demand relationships that exist within each individual stock is what ultimately determines how it will move.  Sometimes you will see small stocks that trade sideways, flat or down for a long period of time while the market indexes are doing something completely different.  So when the marked indexes finally do decide to get their own decline going, the individual stock does not participate since it has already exhausted its selling pressure.

The .34 and then .37 levels represent very key important resistance levels for VKNG.  If they are broken topside then in my opinion VKNG has possible targets in the $1.00 range.

The last two trading days in VKNG showed bottoming tails and showed good demand.  If the market indices do decide to plummet severely in the next few days I would view that as a chance to accumulate VKNG on the cheap only as long as it holds .28 support firmly.

The current structure of the Financial Select Sector SPDR ETF bears a similar resemblance to the SPDR S&P 500 ETF price chart in a different time frame.

If you look at the 1998 time period for the SPY you can see that it had a similar ‘domed house’ top and then a sideways rectangle formation quite similar to the sideways rectangle formation in the XLF.  The current rectangle in the XLF is obviously much longer and in fact the overall pattern before that is much longer as well.

The point is that if we are about to break down through support then we are likely to see a quick slice through the bottom support of the rectangle and a CLOSE under the rectangle formation.  Then perhaps a rally back up the bottom of the rectangle and then an all out plunge or crash after that.

I gotta tell you… I have talked about these Astro Aspects a lot during the past few months, and right now we are sitting right dead center in the middle of one of the most negative ones (August 10th to August 12th) and so when I look at the two comparison charts below it is making me think that we could bust through the bottom of the rectangle and get a similar measured move just as was the case in 1998.  It appears as though the extremely negative Astro aspects are working now.  The mainstream media said the decline was due to bad trade deficit numbers and could not seem to explain the decline.

We have a lot of sideways cause in the market right now which has built up a lot of energy for a big move.  The key in the next few days will be to see what support the market shows if any. 

Look at the 1998 portion of the chart above and you can see how clearly the market showed its conviction to break down through the bottom of the rectangle formation and lead to a mini stock market crash.  The duration of the move was roughly equal to the move that preceded the rectangle formation.

So we seem to have similar dynamics right now.

As of this writing I noticed that the market is down quite heavily afterhours as well.  ‘They’ may be ready to let the market fall for real this time…

The Arms Index today closed at an amazing number if you are superstitious.  It closed at 6.66 according to my data provider.  I am not going to go into the superstitious aspects of that number but I will say that on a very short term basis the market is deeply oversold.  This was the highest reading since 6/4/2010 record high closing value of the TRIN and before that it was the highest reading since 2/10/2009, quite a long time ago.

The volume on the SPY ETF today was 273 million shares which is a dramatic increase from the last few weeks but still not of the level that I would consider it panic volume.  In fact the steady declining volume trend in the SPY since the April 2010 highs still shows this pattern even after today’s mini flash crash.

So the very high closing TRIN today tells me we get a one day bounce higher tomorrow to work off some of this short term oversold condition and get back into the range of today’s 20/20 candlestick bar.

I think it is very telling that today we did not get down below the 7/30/2010 price hammer candlestick low of 1088.01  We had all this price destruction today, the high ARMS index reading wholesale dumping of almost everything and at the end of the day the bears could not even push us down a little bit more to break the 1088.01 swing ? (red dotted horizontal line) Hmmmm.  It bolsters my short term take that we bounce higher tomorrow within this somewhat larger rectangle.

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The TRIN or Short Term Trading Index also known as the Arms Index hit a spike high of 5.53 today.  The TRIN or Arms Index is a good short term measure of oversold and overbought conditions in the stock market.  Extreme closing values can be important clues about the possible next market direction.  It will be interesting to see what today’s closing TRIN is.

In bull market trends you tend to see occasional spike high closing TRIN values that indicate a quick dumping of stocks in a shot gun type fashion that relieve the market from overbought conditions and then allow it to rally thereafter.

On June 4th, 2010 we saw a record extreme high closing value for the TRIN above 12.  Since then we have seen two more very high TRIN closing values above 5.  Whether or not we close above 5 again today remains to be seen.

The chart below shows the spike high TRIN closing readings and the relative state of the SPY at the time.  It is an interesting way to look at the market levels of overbought/oversold.

I am not drawing any firm conclusions from this chart, but it is interesting to note how quickly the TRIN shot higher right from the top of this rising wedge.  This could mean that today’s decline is one of those ‘shotgun’ type declines without more extended staying power.

It would have been much better if the TRIN had stayed in the same stance as it looked in the late April 2010 time frame.  TRIN never really got into a deeply oversold stance until early June 2010.

The Market Vectors Gold Miners ETF monthly long term candlestick chart looks very constructive right now.  The GDX has pretty much been left for dead for almost a year now.  The argument has been that because the mining stock index has not broken out to new all time highs, that we should assume it is not confirming the upside move in the gold price and that gold should break down going forward.

I prefer to judge the chart of the Market Vectors Gold Miners ETF on a stand alone basis.  We can clearly see that the GDX has formed a massive almost 3 year long head and shoulders bottoming formation that has a long term upside measured target of about 85.

The symmetry of the long term GDX candlestick chart shows that the left shoulder runs about 9 months long and the current right shoulder is also about 9 months long.  Head and shoulders patterns usually tend to symmetry in terms of time.  This could mean that the GDX is headed for a massive upside breakout from this pattern above the 53 neckline in the months ahead.

Many have waited for this gold mining ETF to break down but if we make an objective read on it over the course of the last 9 months it cannot be said that any break down has occurred at all.  On the contrary the GDX has simply built more sideways cause for the next big move.  This ETF has basically put everyone to sleep at precisely the time they should start to focus on the GDX closely.

I cannot say whether or not this mining ETF is going to get a massive breakout in September.  But the bullish seasonal time frame for gold and mining shares during September give extra weight to a breakout scenario soon.

For a breakout to be valid we need to see a massive monthly candlestick breakout bar on massive volume.  Because the chart here is so long term, the monthly price breakout will of course appear to be happening in slow motion on the daily and weekly charts.

If the Market Vectors Gold Miners ETF gets a monthly price breakout going it could potentially start a feeding frenzy in the junior and big cap gold mining sector and finally start to kick start the mining shares again.

If there is one simple truth about the recession of 2008, it is that supply has been further constrained. 

I still have seen no sign of a mass public love affair with gold mining stocks. Where is the hysteria? It doesn’t exist.

I think the GDX is going to play catch up to the gold price soon and break out topside and alight a fire under many junior and micro cap mining stocks.  A breakout above the neckline in this index could start to cause very heavy upside speculation across the board.

The junior mining ETF is the Market Vectors Junior Gold Miners ETF symbol GDXJ.

The market got a reversal going today but it was somewhat sloppy.  The signal I was hoping to get from the SMH Semiconductor HOLDRs (ETF) did not really transpire.  The SMH got a pretty strong looking reversal hammer today but for it to be confirmed it must close above 27.45 tomorrow, otherwise it could be a false reversal.

The volume in the Semiconductor HOLDRs (ETF) today was 24.2 million shares which tested the 7/30/2010 price swing which had 21.5 million shares.  So we tested that price swing on 12.5 % greater volume.  So it still looks like the SMH could break down from here completing this A B C down leg and maybe drag the sp500 with it.  But this will probably not be the case if the SMH can tomorrow confirm today’s hammer reversal candlestick and close above 27.45 tomorrow.

The sp500 itself is still bound within the same pattern I have been talking about for quite some time now.  There really is no ‘news’ about the next trend until the market tells us what the news is.  Today on the sp500 we every so slightly busted below the up trend line in force since July 1, 2010.  The volume was also much heavier and similar to the level of last Friday.  But the market still finished with a hammer type reversal candle today and we did not test yesterdays swing high, nor the swing low from the day before yesterday.

We are close to a big move in the sp500 and a lot of stop orders are about to be hit at the top of the recent 7 day sideways rectangle trading range or at the bottom of the range.

I have been trying to step ahead of the market and guess which way it will bust based on the trading pattern of the SMH.  So maybe the SMH will reveal the final clue tomorrow based on what I said earlier in this posting.

If you look at the NYSE McClellan Summation Index chart there appears to be a divergence developing between the oscillator and price.  Also the oscillator is coming close to breaking below the zero line.  I think the summation index is about to curl over negative soon but it might take the rest of this week to do so.

The stance of the summation index chart and the SMH gives me a little bit more added confidence that the market could roll over to the downside soon.  We are sitting right now within the 3 day range of this extremely powerful astro cycle (August 8 to 10th) and it could very well be the market is topping right into this cluster of days.

More confirmation is needed for a stronger sell signal.

A powerful confirmation signal will come in the days ahead if the 5 day exponential moving average crosses down through the 10 day exponential moving average of the summation index.

I will be watching for this signal in the days ahead.

In a previous post on the Semiconductor HOLDRs ETF I indicated that it looked like it was about to break down in an A B C style decline.  It has already broken the uptrend since July 1, 2010 and today is breaking down again on what appears will be a very heavy volume day maybe greater than 20 million shares.

My theory was that the Semiconductor HOLDRs ETF would drag down the rest of the market below its lower rising wedge supporting line.  So far that has not happened but the sp500 is sitting once again right on the bottom supporting line of the recent channel that began July 1, 2010.

The SMH looks like it wants to test the 26.95 level which also represents the very important swing reversal low of 7/30/2010.

I wish I could say whether or not the SMH is going to blast below the 7/30/2010 swing low today on very heavy volume.  The problem is that the pattern lately has been early weakness and then a reversal by end of day.  Plus we have the FED meeting as a possible catalyst and/or turning point.

It is very clearly seen that the SMH is right now almost dead center in the middle of this long trading range since end of April 2010.  We recently failed to break out topside from the the top part of the trading range in the form of a small double top.  Since then we broken down on heavy volume and then rallied on light volume and are now breaking down on heavy volume again.

If I put my Astro hat on, it tells me to expect unprecedented volatility the next 2 days.  The way the chart looks and the way the Volatility Index is setup right now tells me a huge downside move could come out of nowhere.

You know what?  I think I just convinced myself that we are about to trade down in a big way.  This is my sense from looking at the SMH chart right now and the sp500 chart side by side.  I don’t think the bulls are going to be able to get enough of a reversal today.  I think we are going back down to the bottom side of the trading range on the SMH.  That is how the volume pattern looks right now.

The setup looks a little bit similar to the way the May 6, 2010 flash crash began.

The SMH has tested the topside of its trading range 4 times and the bottom side also 4 times.  If it cannot break through topside then it will turn around and try to take out the bottom side of the range, just like a tiger in a cage.