The sp500 has blasted lower in almost vertical fashion and is now at neckline of head and shoulders support. The BOT short signal is still on and will very likely be on for the rest of this year. Until further notice the only signals I will give in the future will be new follow on BOT re-short signals. However in my postings I may indicate when we have reached a bottoming zone, but not give it an official signal.
We could be at a bottoming zone right now. RSI is near the 30 level on many indices and puts the market into extreme selling pressure. Breaking under the RSI 30 zone would put the market into crash territory.
Right now we are just inches away from the KEY 1249 swing low that occurred on March 16, 2011. This was a very high volume swing on the SPY ETF (470 million shares). Today we traded right down into this swing low but we did not actually exceed it and the volume today on the SPY was 350 million shares. So it appears we do not have enough energy yet to bust through.
So we have option A and B at this juncture. Option A is that the market gets a sharp upside bounce (oversold bounce from 30 rsi level) off of neckline support and then builds a small shelf so that it can later on bust through the neckline.
And then option B is that we just ‘jump the creek’ and blast right under 1249 creating a HUGE wide candlestick that looks like a mini crash.
Even if we do option B, if the market does not have enough volume in it then it may sell off under the 1249 on an intra day basis and then trade flat by end of day right on the neckline and then bounce up from there.
I have a hard time believing we are just going to slice under 1249 right here and right now without any chance to take at least a couple of breaths. If I had to choose option A or B, I prefer to go with option A from here because of the oversold level and high ARMS reading today. Tomorrow is a new day and maybe someone will pump the market higher with some announcement.
Regardless of whether we do option A or B, we are clearly into the oversold zone. Closing ARMS was close to 5 today I think ? And VIX did not spike higher today. So it would seem a bounce is on deck at the preferred scenario.
Perhaps some of the ratings agencies will put out a PR in the morning about re affirming the AAA rating for now and gap the markets higher.
It would seem that late August 2011 and Early September 2011 would be the most ideal months for maximum downside and crash type action. I guess I would be a bit surprised to see this market get crushed completely in August alone.
Today’s candlestick was clearly a MARIBUZU candlestick where the open price is equal to the high and the low price is equal to the close. it is almost a perfect MARIBUZU candlestick.
But sometimes these very wide candlesticks can mean that the market has exhausted itself in the short term and needs a breather.
It will be very interesting to see how the market reacts to the VERY high volume March 16, 2011 price swing low. I would look for signs of an upside bounce on the intra day charts tomorrow around the 1249 level. Look for the market’s ability to try to work into bounce from that level.
The PERFECT re shorting opportunity would be a 1 to 3 week Low volume bounce into mid to late August 2011 and set up a massive catapult to bust neckline support into September 2011, typically a very bearish month for equities.