sp500 at Neckline of Head and Shoulders Support

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.

sp50020110802

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.

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4 comments on “sp500 at Neckline of Head and Shoulders Support
  1. ed says:

    Well I had been mostly short since July 25th but went long this morning. Should have stuck with my original premise.

    When the FED was active in the market I would hold my short positions only to get burned by their buying. Now that they seem to be out of the market, I pull the plug on my shorts prematurely. Go figure

    I had also seen the Peter Brandt piece a few days ago but was looking for one more bounce based on some oversold indicators. Perhaps we will get a one day bounce tomorrow

    I have often seen a bounce after a TRIN reading above 2.00 or more, two days in a row, which we have now had.

  2. Tom says:

    I believe the next FOMC is only 4 or 5 trading days away from today… The market may stabilize in the current zone and then blast higher on the FOMC QE3 or something like that… we may get a violent bounce up to 1290 or 1300 which could set up a dream shorting opportunity going into September..

    I am starting to favor the bounce scenario from the current range given high ARMS, SPY volume that is not into the 470 million range yet, and the current oversold RSI that went straight down…

    August is typical for whipsaw action… it would be ideal to see a low volume bounce for 2 or 3 weeks into August, it would be too perfect…

  3. Tom says:

    Oh yea one other thing… I think the market elephants want to take their vacations pretty soon… so they could engineer a bounce during August and before Labor Day, and then when they come back in Sept. dump the market with real volume.

    I could also possibly see a bounce lasting about 20 to 25 trading days for a major portion of August…

    The real DUMP should occur when big money crowd comes back in September 2011.

  4. Geoff says:

    the site “zerohedge” had a posting late today of a picture of a deer in the headlights. that is what the market feels like. that is what the market felt like just before 1987. as i mentioned before the constant drip of down days. yes, i know extremely “dangerous” to compare to 87.

    you have been talking of high trin / arms. that is true, but only for Tues Aug 2 at 4.95- – – interesting that the 10 moving average of Trin / Arms is only at 1.48 (that is bearish but not at all obscenely so). the 10 day moving average of advance decline is only up to day #12 in a string of negatives days and the reading is negative -652 – – – all of which very very far from an extreme reading.

    i totally agree that a bounce might happen, we have been conditioned to a bounce happening. but will it? for my part, i am keeping my shorts on including a leveraged short etf which i have been riding for a couple months and am willing to ride for another couple months if need be.

    i have a very “funny” feeling – – – like what i presume a deer would feel like in the headlights of an onrushing car.

    note: i am a bit anxious about my gold position. if a market bounce comes than gold mutual fund will soar – – even if the bounce is tepid, but if the market craters, gold stocks will crater also, just like in 2008 – – everything will crater.

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