Stock Market Crash Part 2

The sp500 today showed bearish action to me.  Today was a HUGE opportunity to bounce this market and close on the HIGHS, OR bounce this market, then sell off near the close, but then FINISH at the highs or near the top of the range.

Was it accomplished? No.

The tape looks quite weak to me.  Having said that, I have to admit that we find ourselves near the bottom of the recent swing trading range and the typical behavior near previous swing trading ranges is the desire to continue the range (ie.  more bouncing action between resistance and support).

My sense is growing more and more that we are setting up for a spectacular stock market crash.  I think the market can be very deceiving as it tries to disguise its true intentions with a day such as we have seen today.  Green price action, the sense that things are somewhat normal and calm.  But we have already seen the personality of this market after the recent rally attempt into 8/17/2011.  It peaked on a pseudo tri star doji pattern and then plummeted about 5% almost out of nowhere.  This is the nature of this bear and I suspect we will see more of these sneaky surprises.

My take is that a lot of the markets REAL action is going to center around this Jackson Hole Meeting and BB is scheduled to speak this Friday.

If the market rallies very hard from here up into Friday (I don’t see this as likely for now), then I think whatever Ben B says on Friday will strongly disappoint the market and cause it to turn down into overdrive.

If the market sells off from here down into Friday, then I think Friday could be a big turning point to the upside.  This is my early speculation.

The volatility index continues to behave similar to the way it did in 2008 and seems to be building more structure for another series of blasts higher which would mean some big down for the market coming up.

It could also very well be that we simply tread water for the next 4 trading days and then make the decisive move this Friday which spills over into the week after.

Looking at the sp500 Upside Down

If we look at the chart of the sp500 upside down it starts to get very interesting from a bearish perspective.  The upside down version chart of the sp500  looks like a cup and handle pattern which is quite a bullish pattern. 

sp50020110822

It also has a measurement rule which can be forecasted.  The measurement rule of this cup and handle projects to about 900 on the sp500.  A more conservative measurement comes in at about 1000 in the sp500.

So the bottom line is that the inverse chart of the sp500 looks very bullish to me which would mean that we should assume the exact opposite, that we are in for some very bearish action during the next two weeks.

Notable also is the way the last two days price candlesticks are hugging right under resistance without taking out the previous price swings.  It could suggest the market is simply building up a bit of energy to bust out when it is finally ready.

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7 comments on “Stock Market Crash Part 2
  1. Geoff says:

    Your comments are very interesting. Thanks for the time spent.

  2. jxxd says:

    re Cup & Handle in keeping with the inverse c&h, the volume dried up in the handle, which is a key characteristic of c&h. also, the handle slants down (in the inverse) another key characteristic of a handle – i think you nailed it. will need volume on any break to downside

  3. Geoff says:

    while very perverse, i think the market will rally very hard from today’s (Monday, Aug 22) close. almost everything that i own (be it on short side or long side) is currently trading outside its bollinger band.

  4. RMT says:

    From what I’ve been seeing it looks like the dollar on the DXY is forming some kind of a base. From a technical perspective, I’m beginning to think that the DXY will actually start a rally sometime at the end of September or possibly early October. The fundamental catalyst could come from any number of things but most likely would be from the turmoil in Europe. As we all know by know, the markets move inverse to the dollar. So any kind of rally in the dollar will cause this market to sell off quite violently. Tom I think your “crash scenario” points to a massive fall sometime in September or October if I’m not mistaken. Now obviously if helicopter Ben comes up with more easy money, then things can change very quickly. But that’s my prediction as of now. Ideally, I’d like to see some sideways consolidation or even a weekly bounce on the SPY to create more momentum for a move lower.

    Today’s price action was bearsih but I wouldn’t put too much weight behind a daily candlestick. We still haven’t taken out the low from 8/9 pivot, and technically speaking, we’re still in “bounce” mode as long as we don’t take out that low. If we take out that pivot low on heavy volume, then things could get a little ugly. But considering the oversold nature of this market, I think it would be very difficult to have another sharp move lower especially with the holiday weekend coming up. And crashes don’t happen when everyone is expecting it. Ideally, I’d like to see a retest of the 8/9 pivot low, and a possible bounce for a few weeks. A three week light volume bounce inside of last week’s candlestick and under the 200 weekly moving average would be a mouthwatering shorting opportunity.That would set the stage for a massive drop in the fall.

  5. ed says:

    We are also falling back to the neckline of the monthly QQQ chart H&S, after having broken out several months ago.

    This is a crossroads for the market

  6. ed says:

    That’s Inverse Head and Shoulders. Neckline at approx $50.00

  7. Tom says:

    Nice call Geoff… looks like you made the call here. This bullish divergence in Equities could last rest of this week..

    looks like this market wants to blast up into Bernanke and GDP Friday…

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