SPY ETF - tag category postings

This may be one of the most important posts I have ever written here at BOT.

There is a key technical analysis event taking place RIGHT NOW in the markets that forces me to tip my hat to the bullish side right now and advise extreme caution on any bearish bets going into next week.

Recently I did a volume analysis of the SPY ETF and it was flashing signals to me that the downward force in terms of volume was not enough to get the job done for the bearish case.

Today we are seeing the market rally and assuming the IWM closes above 60.68 then we will have a confirmed bullish buy signal in the IWM ETF daily price chart versus the MACD Histogram.

Best Online Trades is going long here based on the current setup and our indication before that we would do so assuming a confirmed MACD Histogram buy signal on the IWM.  It is not confirmed as of a closing price but I am speculating that it will be by end of day.

There are other things going on as well.  The volume today.  It is not even mid day or end of day.  But I can tell you right now that the volume on the SPY is already 140 million shares which is very heavy before mid day.  Whether or not we are able to get double this amount by end of day or close to 300 million shares remains to be seen, but it would be a very significant event if we do in my opinion.

The other important analysis has to do with the IWM Russell 2000 ETF chart structure.  Look at the chart below and notice a few important points about this chart structure:

If you look at the IWM chart there is an important context with which to understand the recent action in my opinion.  We have the long term bear market resistance line from the April 2010 highs.  This line was BUSTED with a price breakout on 7/23/2010 with two price bars and a sign of strength.  Volume was robust but not blockbuster volume.

So you had that initial breakout north from the bear market down trend line in late July 2010.  Then, the IWM drifted down lower in a retracement back down to the recent lows on LOW VOLUME in the form of a slow retest.

This drift down created a pattern that looks like a falling wedge formation (shaded in red).  Now today we are only slightly busting the top of this falling wedge formation on very robust volume.  This is an indication to me combined with the MACD histogram buy signal that we are going to bust through this falling wedge and head for the 66 range on the IWM which is the measured target.

The fact that we have fallen back down in the form of a double bottom and falling wedge on low volume is important.  I have seen many stocks behave this way at bear market bottoms.  They do an initial thrust higher trying to break out topside from bear market trend but then do a 100% retracement and double bottom retest on light volume.  Many times this type of market setup leads to a big topside move.

This post was written at 12 noon Eastern Time today.  It remains to be seen still how the market closes and whether or not it can close near the top of the range and on the robust volumes I am predicting for end of day.  A lot can happen during the second half of the market day, but based on this new look and interpretation of the IWM I have to take the bullish side here and go with it.  The IWM chart is speaking to me very loudly today and it is not looking bearish at all right now. 

The big money will be back in September to take this market in a determined direction.  It is still early, but I think they want to take it higher from here and current prices may be the final bear market lows right now.

Could it actually be possible that Glenn Beck, with his Hindenburg Omen talk on 8/25/2010 has actually nailed the final low in this market ????

Yesterday we touched a very important long term up trend line.  The up trend line that has been in force since the March 6, 2009 low.  This long term up trend line has now been touched 3 times including yesterday. 

The line represents the bullish trend.  Despite all the sideways price action over the last several months the fact remains that we are still trading above this key longer term up trend line.

I usually like to see a strong reaction up from a trend line to show that there is real demand in the market.  We already had a  strong bounce up off of this trend line after July 1st, 2010.  Whether we get another one during the next week or two remains to be seen.

A pretty simple chart but important to watch closely because if the bears are not able to bust below this up trend line with conviction during the next two weeks then it is going to significantly weaken the longer term bearish scenario. . .

Today I give the bears 4 out of 5 stars.  I think it can be said with a reasonable degree of confidence that they got the job done and done well.  On the other hand, given the bearish news today, I would have thought a 5% down day would have been more appropriate.

After the gap down and downside follow through into the news the market got an extended typical rally going that probably had a lot of bears feeling disgusted once again.  But despite the attempt to get a strong hammer reversal by end of day the bulls did not accomplish anything significant in my opinion.  The opening gap was not filled and still remains open.  The other day I talked about how the very large WEEKLY opening gap higher in the TLT was a sign of strength and could lead to another few weeks of upside or a parabolic blow off.  Part of the reasoning for that is the view from the Japanese interpretation of gaps is that they can serve as ‘opening windows’ or beginnings of very large moves.  But that interpretation of course depends a lot on the context of where the gaps are.

So in my view, the daily opening gap down in many of the major indices today will serve also as an ‘opening window’ towards more weakness into the end of this week.  Eventually there will be a capitulation, but I think it is way too early to be talking about that yet.

The chart above shows the long sideways channel trading range on the SPY ETF and shows clearly that today’s gap down on high volume broke below the channel trading range.  I see this as initiation of a larger move down.

In order to cancel the bearishness of this gap down today the SPY ETF is going to have to close at 106.88 or higher during the next few days.  That is an extremely unlikely scenario and I do not expect that to occur.   However, it would not be that unusual to see a rally tomorrow right back up to the underside of the channel that ‘kisses’ it briefly (to a maximum of 106.60 on the SPY ETF).  If that happens it would serve in my opinion as an outstanding ‘reload’ shorting opportunity or new shorting opportunity.  I am still heavily biased to more downside price action as the week progresses. . .

The stock market right now is not looking constructive.  It appears now that an aggressive move back to the top of the swing trading range of the last few months is not going to happen.

In fact it looks like we are about to break the bottom of this very long and significant swing trading range which should lead to a very fast and large move perhaps similar in magnitude to the end of April to early May 2010 move.

The SPY ETF right now is showing a bearish triple P on the MACD histogram which will be confirmed on a closing below today’s low.  Volume is heavy and the end of day volume number will be interesting.

The long swing trading range of the last few months looks like one big rectangle formation with a slightly rising slope which is bearish.  So this large rectangle appears to be just a pause in the downward trend which was initiated in late May with the straight line move down.

I feel more confident now that this market is going to bust this range to the downside.  The seasonality right now for this drop is perfect.  Paper equities are likely to be thrown out the door.  And gold seems to be catching a nice bid as I was predicting in a precious post (that gold would move inverse to the stock market).

In fact I would not be surprised to see a massive topside breakout in gold to new all time highs that coincides with a stock market mini crash or deep plunge.

I feel like we are inches away from this big drop now.  The daily MACD is in the same stance that the market was in right at the April top.  It has plenty of room to move down below the zero line.  The weekly MACD is still showing a bearish kiss and a failed bullish cross and a possible move below the zero line which is very bearish.  The Russell 2000 Index is showing very close to a weekly confirmed sell on the MACD histogram.

The market has become too comfortable at the bottom of this large swing trading range.  It is going to break it to the downside.

There is still some confirmation that is needed but I think the clear signal right now is for a total break down.  Everything is lining up for it now.

The market decided to curl back up into the swing trading range as predicted yesterday.  Volume was lousy today on the upside.  Still, price closed higher and managed to hold most of the gains.

There is a bullish triple P setup right now on the MACD histogram versus the SPY ETF.  It is still an unconfirmed buy signal right now but if we close above today’s high of 110.39 it will confirm the MACD histogram buy signal.

Since the July 1, 2010 low the market is still technically in an uptrend showing higher lows (A , B , C ) even though the most recent higher low is only slightly so relative to the previous one.

If one looks at the DJIA 30 stocks, there are quite a few of them that are showing patterns that resemble head and shoulders bottoming patterns (General Electric Company) and cup and handle patterns (United Technologies Corporation).

Looking at the SPY chart below I shaded in green a possible cup portion and then orange the possible handle which could be forming now.

If that pattern turns out to be valid it is going to push this market above the red bear market trendine in force since April 2010 and start to open the door to all sorts of different bullish possibilities for this market.

I am skeptical that any clear decisive break through could occur before early September however.

The bearish case is supported on a breakdown through 107.18 on the SPY ETF that could keep the MACD histogram in a bearish trend and evade the bullish signal I alluded to earlier in this post.  It is going to be very important to see if this market can get a bullish confirmed MACD histogram buy signal this week as it could possibly lead to quite a dramatic character change in the market.

I say this because there is not much room between where we are not and the top or the bearish descending channel line.  We are squeezing between minor current support and topside channel resistance at about 112. . .

By all current appearances we seem to be stuck in typical lazy August trading in the SPY ETF.  The volume today looks to be quite lame and typical of this time of year and makes it hard to speak with any conviction about the next big trend.

Instead of conviction, the SPY continues to trade like a bouncing basketball between a large swing trading range.  Volume continues to contract within this trading range and is likely to finish today at a relatively low level of the recent average range of volume.

If there is going to be a big decline still yet to come it would seem that the only place left for it to happen would be in early September.  There are a little bit more than 10 trading days left in August so perhaps the SPY ETF will get another typical low volume rally the next two weeks and then another drop that starts with more conviction in early September.

But the current read is that the market got quickly oversold again and is still contained within the large trading range.

I mentioned before about how if we were going to break support then the market needs to show us it wants to do so quickly and to show it with high volume.  This has not happened.  Instead it appears once again that we are lingering near support and could start to move in a stance for another reversal topside.

The summation index looks like it may start to transfer into a sloppy sideways drifting mode leaving little conviction about the next trend.  Still, a bearish cross of the 5 day exponential moving average over the 10 day exponential moving average should be a sign of momentum shift in the market.  Ideally when that shift occurs the market will also confirm it by breaking key support levels.  If it does not then it is saying we are just consolidating instead of doing a robust trend change.

Anyway for the near term 106.50 is the must hold level in the SPY ETF in the days ahead to keep it constructive within this trading range.  A break under there and it could start to open the doors to much lower levels.  But again as I already mentioned, it seems unlikely this would occur in the next two weeks.

The SPDR S&P 500 ETF has still not after 6 full trading days managed to break above or test the 113.20 swing high which was on 212 million shares back on 6/21/2010.  Today the volume on the SPDR S&P 500 ETF was only 118 million shares.

We basically have traded sideways in a rectangle formation for the last 6 trading days right under the critical 113.20 swing high.

Here are the bullish and bearish points for the SPY:

Bullish:

1. Price during the last 6 trading days has not given much back and instead only moved sideways.  This is 6 days of sideways cause on low volume.  It is potentially bullish in the sense that the 6/21/2010 swing has not been tested and may get tested tomorrow on a sign of strength.  It would have been much more bearish setup if we had tested the 6/21/2010 swing on one of these recent very low volume days of 112 million shares and then closed under the 6/21/2010 swing high.  INSTEAD, we are hunching right UNDER the 6/21/2010 level and have now built 6 days of sideways cause.  I suspect the bulls want to pop this market over the 113.20 tomorrow.
2. If the bulls CLOSE the SPY above the 113.20 tomorrow then it can still allow for more room to the upside even if the volume is very light as it has been recently.
3. The bulls now have 4 full touches on the green rising up trendline since July 1st, 2010.
4. WEEKLY MACD is just mere inches away from a bullish crossover.
5. The 50 day moving average has curled up and if we start to move quickly higher in the next 5 to 10 trading days it will start to position the 50 day moving average into a stance for an upside cross of the 200 day moving average negating the previous bear signal.

Bearish:

1. If the market moves above the 113.20 swing high tomorrow and then closes under the 113.20 AND also shows very light volume (maybe 150 million or less), then that would be a valid sell signal and the market has shown us it wants to trade back to the other side of the range which is down from here or near the bottom of the rising wedge formation near 112.
2. If somehow the SPY can break well under 112 tomorrow it would be a break down from the green up trendline and a break down from the rising wedge.  This scenario now looks very unlikely to me but I am open to being surprised.  Surprises can and do happen in a low volume type month like August.
3. The bears really have their work cut out for them.  They are going to have to bring in all the kings horses and all the kings men to try to defend the 113.20 level on the SPY.  I am afraid they are not going to succeed.  It does not look good for them right now.
4. If I had to name just one thing in favor of the bears it would be that many times in the past mid to late August is an ideal time for massive corrections to begin into the October period.  So if the bulls do manage to take us higher we may get to the next critical 118 level as a possible bearish topping level for some type of correction again.

It would seem that some very big volatility is about to come into the market during the next 3 trading days.  The key levels are very clear and the patterns and structure of the market will guide the way…

The next three trading days are supposed to be extremely negative cycle and Astro dates.  But if you look at the chart of the SPY it would seem as though the market could care less about any astro effects at this point.  Unless the market is moving up into these dates as a high.

I think at this point I can almost stick a fork in all the astro dates I was talking about before.  They have not delivered anything substantial.  In fact them seem to have inverted.  Whether or not they invert during the next three days remains to be seen.  But the weekly trend is now poised to move us up.

It will be very interesting to see how the market closes tomorrow, perhaps there will be a surprise in the tape action.

One of the problems with rising wedges is that they can sometimes fail just like any other technical analysis pattern.  I have been thinking about the rising wedge I just discussed in the post previous to this one and it occurred to me that rising wedges are probably more reliable after they form from a clean straight line move.

The rising wedge in recent weeks has formed after a series of complex sideways corrections and I am starting to doubt the validity of it.

Today’s hammer candlestick reversal was quite powerful and although it was only a one day move, it may be confirmed as bullish on this coming Monday if we close above today’s high.  It looks like a very strong hammer reversal and the bounce was off of the bottom supporting line of the current so called rising wedge.  The long tail on today’s candlestick shows demand.  The fact that this reversal came on a Friday is also important.

The other odd aspect of rising wedges is their ability to keep squeezing prices higher and higher further into the apex of the wedge than is seemingly even possible.

The current market environment reminds me a little bit of 2003 time frame when the market had done a triple bottom and then took off north when the bombs fell in Iraq.  That first advance did take somewhat the form of a rising wedge but instead of breaking down from the wedge it just kept sort of squeezing its way higher and higher.  There was a little bit of a break down but it was never enough to call it a real break down of any magnitude.

Today’s test of the bottom supporting line of the so called wedge is the 4th test of support which appears to be successful.  This is significant because it may start to give the bulls a lot more confidence about an uptrend if they keep touching this line and bouncing higher off of it.

Remember, the element of confidence builds more slowly in the market than fear causes a market to fall.

The SPDR S&P 500 ETF today so far at the trading day mid point is decline on what I consider to be very heavy volume for a Friday and also in early August.  By 12:45 PM eastern time volume looks to be close to 140 million on the SPY.  If we double that we come at a projected target of 280 million shares for the full day.

It remains to be seen what the final trading volume will be by the close, but this heavy downside volume and super light upside volume is a pattern that has been repeated time and time again in this so far ‘mini bear market’.

The very light upside volumes into the peak of the rising wedge formation I talked about yesterday is a concern and consistent with the structure of the rising wedge.

Break downs from rising wedges can be swift and occur with a big surge in volume.  Todays substantial increase in downside volume is a hint that we are about to break down from this rising wedge in the SPDR S&P 500 ETF.

The MACD histogram and the MACD are signaling that a bearish downside cross could occur next week coupled with a break down below the bottom supporting line of the rising wedge formation.

I would be remiss if I did not once again mention the August 10 to 12 Astro cycle dates that have the potential to lead to very volatile market action.  The much touted Astro dates earlier this week did not seem to lead to anything unless you consider that they served as a topping or turning point for the market this last week.

Looking at the chart above it is still quite clear that we have still not broken below the supporting green up trendline.  If we do so with volume to start next weeks trading then it could imply 105.82 as a first target on the SPY.  It could get there rather quickly if this wedge plays out consitently.

The 105 range is still quite a strong range of support and if we do drop down to that range I think one still has to assume that the market could bounce higher from that range at least for a few days.

It is amazing to me that the market has not managed to test the 6/21/2010 swing high either on the SPY or the sp500.  It came close within a few pennies but never actually got the job done.  This is sort of a problem because it would have been better to see an actual test of the 6/21/2010 swing high on much lighter volume and then a close below that high.  The fact that the market has not tested it and also not yet broken under the green supporting up trendline still leaves a little room for doubt about a big break down.

Still, I have to trust this rising wedge pattern which is near perfect in terms of structure and declining volume pattern within the rising wedge.

There is also a gap on 8/2/2010 on 188 million in volume on the SPY. Today we are pushing into that gap probably well north of 188 million which is a bearish volume relationship sign since gaps act like support and resistance and the volume comparisons into gaps reveal clues about the next direction.

The setup here looks like very significant volatility is about to hit the tape early next week.  Rising wedges can lead to very rapid break downs.  I would not be surprised to see a 500 point down day (in the DJIA) early next week.

This market is bouncing up and down so much lately that I am starting wonder what is the longest time period that I will maintain a consistent market stance, either bullish or bearish.  I have been talking bullish lately on the intermediate term time frames, but looking at the near term daily chart today has me thinking we could start to break down soon again from this rising wedge.

The fact still remains that the SPY has still not broken up above the key 6/21/2010 price swing and until and if that happens, there is no new bull trend up.  That 6/21/2010 price swing is a very important guidepost.  It correlates to important swings in other markets as well.  For example in the XLF ETF it represents the top very significant resistance level that must be broken topside in order to sustain bullish momentum.

So here we are in low volume August and it seems to me that it will be very difficult to break above the recent important ranges I have been talking about lately.  There simply is no volume this time of year.  If we were in early September I might have a different opinion.

So basically my stance is that I am quite bullish the market IF the SPY can jump above 113.20 and hold above there.  Anything under that represents still lingering bearish risk to me.

Speaking of lingering bearish risk.  There is still risk of a break down from this large rising wedge formation.  The very light volumes into the apex of the wedge are consistent with the wedge formation.  Sometimes price declines out of rising wedges can be quite sudden and seemingly come out of nowhere.

I once again refer you to a previous post I did on the Semiconductor HOLDRs (ETF) pointing out that the SMH can sometimes be somewhat of a leading indicator as it may be more economically sensitive.

If you look at the SPY and SMH price chart side by side you can clearly see that the SMH has broken down through its uptrendline on very heavy relative volume.  Since the break down, it has attempted to rally higher but only done so on very lousy volume.  This leads me to believe it is doing an ‘A B C’ down move perhaps to the 26.4 range.

If this is true, then it would seem to make sense for the SPY to follow suit and get a break down through its recent supporting up trendline ( the line that defines the bottom of its rising wedge).

It is also worth mentioning that the recent rising wedge apex seems to match up nicely with this powerful August 10 to 12 cycle date.  So it would seem like this could be a price high.  Regardless of that cycle date, the SMH chart already seems to be revealing the big clue about the next direction for the SPY.

I have to say honestly that the break down in the SMH tips the odds in the bears favor for the next 5 trading days or so.  But in the same breath I do have to repeat my stance that this market is very bullish above 113.20 on the SPY.