SP500 - tag category postings

Today we saw big price destruction in the sp500 which gave back a good portion of the hard earned gains of last Friday’s reversal.  I was looking for a confirmation of last Friday’s bullish reversal today but clearly we did not get anything close to a confirmation today.  Instead we got a deep retracement that has to be truly testing the resolve of any bullish opinions.

Today the ARMS index closed at 3.8.  Not a record closing number but still in the high range of recent months.  And despite today’s high reading I do not see any new lows being taken out, not yet at least.

I have been trying to get into the mind of the market so I can figure out what it has in store for us this week to close the week  out going into Labor Day Weekend.  I am suspicious that today’s big drop and ‘give back’ of the action from last Friday is the beginning of another big down leg.  It just seems too convenient to give the bears everything they hoped for right on a low volume Monday to start this week.

The summation index still looks bearish and is in a downtrend but has not crossed below the zero line again (not yet at least).  The volume today was very light across the board which is part of the reason I am skeptical of the bearish action today.  Yes, we had plenty of price destruction, but where is the beef ?  The volume was absolutely pathetic today.

The volume analysis I did before still stands and is one of the main criteria that is keeping me bullish right now.  If this volume analysis does not work and not show some more bullish price action the rest of this week I might have to throw it under the bus.

Both the XLF, the SPY and the IJR did recent volume rests and reversals on 44 to 54% LESS volume and then closed back higher into the range.  So despite today’s big points drop, the volume analysis still holds in my book.  I have seen volume tests on 10% lighter volume that lead to big reversals.  But 50% volume reversals are rare and usually very strong signals.

The sp500 needs to bust through 1040.12 with strong conviction to flip me over to the bearish side again.  The XLF needs to bust down through 13.29 on a closing basis and the IJR (The S&P 600 small cap ETF) needs to close below 52.01.  If all three of these events occur during this week sometime then I will have to raise the white flag and declare the volume analysis a complete failure.

These volume reversals to me suggest that we should be heading back up to the top of the swing trading range.  The swing trading range is so large at this point that it could mean quite a large upside move.  The IJR chart is below:

I realize that is seems unthinkable that the indices could move back to the top of the range from a fundamental standpoint.  I too have a hard time believing that such a thing could be possible at this point.  Still, I am a very fearful long right now, but I will pull in my horns should the market tell me to do so in the days ahead.

But for now I am sticking to this forecast.  The IJR really looks quite strong to me in the chart above.  These small caps can show earlier signals than other large indices.  I am thinking the IJR will show the way for us.

The XLF daily chart below shows the same type of situation.

If I am correct then we should start to see some big signs of strength soon this week in the form of 20/20 candlestick bars also known as ‘belt hold candlesticks (wide price spread and closings near the highs).

A close look at the longer term sp500 chart shows that the sp500 really needs to start going up very soon otherwise it will be at risk of breaking the long term up trend line since the March 2009 low.  We are touching this long term up trendline for the third time which makes it significant.  We rejected it last Friday and bounced off of it sharply previous to that.  But this time we are hitting it on light volume and we have yet to see a strong reaction topside off of this line.  I have to admit that a big down week this week is going to bust this final bull market trend line and could perhaps seal the bear case.   On the other hand a strong topside reaction off of this trend line once again will confirm its strength and bode well for higher prices in September.

My biggest confusion over the years has to do with being able to separate the technical aspect of the market with the fundamental and news side of the market.  The news out there right now makes me feel like the market should drop 2000 points this week.  But the chart is telling me the exact opposite… and so the journey continues…

P.S.  My posting this week may be somewhat lighter than is usually the case.  Expect posting to be at regular speed after the Labor day holiday weekend.

The market today was unable to confirm yesterday’s candlestick reversal pattern on all the popular indices and the IWM Russell 2000 ETF was unable to confirm the potential bullish triple P  pattern on the MACD histogram.

The sp500 is showing that the histogram continues to show downward momentum and does not have any clear signs of reversal yet.

For the bullish case one can point out the relatively light volume today on the SPY ETF of only 224 million shares.  But a bearish case can still be made in that we don’t have any confirmed reversal and also that we are hugging the bottom of the swing trading range without a decisive downward break.

This hugging of the bottom of the swing trading range (and also very near support levels) is still potentially very bearish because it could set the market up for a ‘jumping of the creek’ tomorrow on the GDP report where the market busts through support after the recent 3 day build up.

It could go either way tomorrow.  I did not like the close today either.  I hate to say it, but this one is a coin toss.  I have evidence that seems about equal on both sides of the market.  So it would seem the GDP report in the morning is either going to gap and go this market up in the morning. Or gap it down below very key support.

The SMH in particular looks like it is hanging on by a thread.  It closed right at the bottom range of its supporting channel line.  But the volume today was really light on the SMH. 

I really thought we would not get a clear break up or break down signal until the next two weeks.  But there exists the possibility (based on today’s close and lack of confirmation of yesterday’s bullish candlestick and MACD Histogram setup) that we could get a significant break down signal tomorrow morning with the GDP.

We are once again at a crucial juncture in the market and possibly a very significant turning point.

The SPDR S&P 500 ETF SPY today did yet another reversal and showed that the market is lacking enough energy to bust through the very critical lows of the large swing trading range since April 2010.

Today was a very very important day in terms of what the SPDR S&P 500 ETF told us.  Today the SPY tested several very important key swing trading lows going all the way back to March of 2010.  In each instance the lows were tested on substantially lighter volume which is a bullish reversal sign for the market once again.

The ultra bearish scenario may be completely dead as of today and I would say at this point to be extremely careful about being heavily short this market going into September 2010.

We closed out our short trade today on the SPY ETF and intend to go long in the morning with the following two conditions:

• We need a bullish confirmation of the recent two day bullish engulfing candlestick pattern.  This means we need a close above 106.39 in the SPY.
• Secondly, we need a bullish close above 605.71 on the Russell 2000 as a confirmation of a MACD Histogram buy signal.  The Russell can tend to lead the market on both the bearish side and the bullish side of the market.  Right now it seems to be leading and showing a leading bullish possible buy signal on the Histogram

Probably most traders to not pay that much attention to trading volume.  But if you think about it, volume can potentially be the most important clue the market can give us because the volume is essentially the energy that moves markets.  It is the real money, the power that either has the force, or not.

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The sp500 today once again briefly pierced the lower Bollinger Band and the Bollinger bands themselves have continued to expand wider.  This is an indication that we are entering early stages of a volatility expansion which is in contrast to the volatility contraction that occurred during the last several months.  The movement higher in the VIX volatility index today is confirming this fact as it broke out today from its large falling wedge formation.

I really have not used Bollinger Bands that much in my analysis but I might start to use them a lot more because they can be a very useful tool for trend direction signals.  They are most useful to me when I see the Bollinger bands move from a state of low volatility (a contraction) to expanding volatility.  The expansion of the bands often signals the start of a new more volatile move.  The piercing of price under either the higher or lower band can be an indication that price now wants to trend or hug closely that particular Bollinger band line.

Sometimes price moves so fast that it can trade almost completely outside one of the lower or upper Bollinger Bands.  This is very rare and is usually a point where the market has climaxed and ready to trade sideways again.

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Here is the Bollinger Band comparison chart between the time periods 1987 and 2010.  The time similarity does not exist whatsoever.  I am only trying to identify the overall pattern similarity irrespective of time.

The chart below pretty much does the talking.  The market in both time frames does a double bottom on the lower Bollinger Band line and then goes up and through the mid line for a final rally attempt which fails at the top Bollinger Band line.  Then a big sign of price weakness breaks the market back through the red dotted mid line again and price finds short term support at the bottom Bollinger band line in the form of reversal hammers.

Then one last very minor rally attempt is done back towards the mid dotted line but that fails and leads to a very sharp decline that is indicated by price hugging the bottom Bollinger Band line.

The expansion (curling outward) of the Bollinger Band lines begins to occur right now in the 2010 time frame and is an indication of a volatility expansion that is about to start.  Of course we already know the volatility expansion that occurred in 1987.  Whether or not we get the same degree of volatility expansion now remains to be seen. . .

So far the action to start the very early part of this week looks very bearish to me.  I really think this is the week that we finally start to see some very significant bearish follow through for a change.  The S&P 500 futures were typically trading higher Sunday night and then into Monday morning.  But so far the early morning bounce seems to have faded quite a bit.  There is a steadily climbing mountain of evidence that suggests downward price momentum should increase the next 1 to 3 weeks and in particular this week.

Today I see that AAPL has (so far) bearishly engulfed last Friday’s gravestone doji and may finally get a break down from its large trading range.  GE has also bearishly engulfed last Friday’s candlestick (so far) and is currently trading below the May 6, 2010 flash crash intra day low.

I would really like to see the SPY ETF get down near 106.75 to end the day today as it would strongly confirm the daily MACD histogram sell I was referring to last week.

The one nagging factor that makes me nervous about being ‘all in’ bearish is the lack of heavy volume today.  The week is just starting off and the big money is headed for the beach.  I am going to become a lot less concerned about volume if we can manage a daily MACD histogram sell confirmed signal today and some real weakness into end of day.

I see the 25th to 26th of August this week either serving as a massive acceleration point down for the market or possible low.  It is looking like the 26th will be an acceleration point instead of a low right now.  It is impossible to figure out until we see how the market looks going into the end of the week.  The speed of price action will be the determining factor.

I really do not want to see any price action trading above 108.25 on the SPY ETF this week.  If you look at the chart above you can see why.  I want price to stay ‘broken’ under the up trend line shown by the yellow arrows.  If this week is destined to be a hard down week, then there is absolutely no excuse for prices to be trading above this up trend line again.

Note: The above portion was written near mid day.  The below portion was written at the close.

I am quite pleased with the bearish closing action today.  The risk today was that some of the reversal hammers shown on a few indices would be confirmed as bullish today.  This was not the case.  Instead what I see at the close is bearish continuation and bearish engulfing showing that the bears want to exert some more control as we get into this week.

We could be in for 2 really wild down weeks with a possible massive acceleration or epicenter of the decline either mid week or Thursday of this week.

AAPL looks extremely bearish into the close (with the exception of relatively light volume).  The bulls will say that every time AAPL has traded at the bottom of this very long trading range a strong bid came in and supported it back to the top of range again. This is true, but my current read of both the daily and weekly chart shows that this time we will get a breakdown that lasts.

I also see at the close today that we have a confirmed daily MACD histogram sell in the sp500.  We needed to close under 1070.66 today to get that confirmation and we did get it with a close at 1067.36 today.

I got a weekly confirmed sell on the sp500 to end last week.  The weekly candle on the sp500 looks quite bearish going into this week.  I suspect we will bounce higher early in the week for a typical mutual fund Monday but then end the week very hard down.

The most recent two weekly candlesticks look similar to two other monthly candlesticks that occurred way back in 2002.  I don’t know if they fit a precise candlestick pattern setup but I think the comparison is still interesting.

The first weekly candle was a belt hold candle strong full candle down.   Then the next candle was an attempt at a rally but then a failure and showed a topping tail and closed near the low of the candle.  In 2002 that led to the next month being hard down.

Since the current pattern is weekly one would presume that the next week will end hard down by Friday.

I think we break below 1063 by end of this upcoming week.  Ideally an early bounce this week would not get above the 50 day moving average at 1090.

I really have not talked much at all about the large head and shoulders topping pattern in development.  But that is still in play here as well.  The right shoulder appears to be on quick formation now and should slice through the neckline as a break of support.

The sp500 needs a close below 1070.66 to confirm a MACD histogram sell signal.  We are under that level right now and show confirmation, so the bears need to keep the market ‘down enough’ by end of day to get the job done.  Will they get the job done today?  I think they have a good shot at the getting the job done for a change   Downward momentum and volatility should start to increase dramatically next week.

The WEEKLY Russell 2000 index is showing a very ominous and bearish looking gravestone doji candlestick right now as I write.  If this weekly candlestick in the Russell 2000 confirms by end of day today then it is going to imply in my opinion some very hard down price action next week, probably right into 26 August.

Last weeks candlestick close in the Russell 2000 was quite bearish looking as well.  Showing a wide range body and close near the lows.  So clearly this was a sign of weakness.  This week we tried to rally but so far failed and now we are printing a gravestone doji.  So as far as I am concerned any upside price action for the rest of today is simply noise and distracts from what I see as the beginning of a nasty leg down in the market.

In the sp500 chart above you can see that the uptrend since July 1, 2010 was at first briefly pierced with the tail of small candlestick.  That was the warning sign that a break would come eventually.  It did.  Now we have traded down again and today broken below what could have been another uptrend support area.  But instead of acting like support we busted below it today.  That is not bullish action at all.  The bulls should have been able to hold the lower trend line today to keep a remote chance of a picture of market strength.  The trend is clearly down here as I see it.  Next week is going to be very interesting for those on the short side of this market in my opinion. . .

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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