SPY ETF - tag category postings

Believe it or not, the chart above is a chart of the SPY ETF.  But instead of showing you the chart the normal way, I flipped the chart upside down and then mirrored the chart.  So the price action you see at the right portion of the chart shows the SPY in a strong uptrend.

It shows a strong uptrend with trendline support and also a tight flag formation that appears to have room for another price bar within the flag formation tomorrow February 10th, 2010.  But after that there should be a rapid resumption breakout upwards out of this flag formation that should lead prices significantly higher.  I don’t believe this flag qualifies as a ‘high tight flag’ but it certainly looks like a tight flag, but not necessarily a ‘high’ one.  The volume action is consistent with the formation of the flag.

But of course since this is the inverse chart, that would mean we should see prices break down by end of this week and/or into next week.

Price tends to move down much faster than it moves up because fear is such a strong emotion in the markets.  So the funny thing is that when you look at the inverse chart as shown above the price advance looks unnaturally persistent.  Normally price advances are more choppy and slow and climb a wall of fear.

So this is my take now on the SPY ETF and signals that new short positions between the end formation of the flag and the supporting uptrendline are ideal.

So far the market as represented by the SPY ETF is behaving in a somewhat similar manner to the decline that occurred in 1975 time frame.  I mentioned in a previous post about how I was curious to see the nature of the price decline this time around to see what kind of bear market animal we are dealing with (1929 style or 1975 style).

So far anyway my read of the tape action suggests that we are in a 1975 style market.  We are trading in a similar manner with persistent lower highs and lower lows.  If you look carefully at the 1975 decline you will see that almost the entire decline did not give shorts a good chance to re-short the market.  You really would have had to go short near the top and then stay short.

Looking at the chart above you really have to look into the nuances of tape reading and study the price reactions near support and the volume at those levels as well.

• First, the price REACTION on the SPY near channel support and near the yellow dotted supporting line has been lackluster.  Usually when you see price drift around a supporting channel or support line like that too long, it is not a good sign.  Best is to see a quick reaction off the supporting area to show new demand and reconfirmation of trend.
• Second, we are still trading in a range with lower highs and lower lows
• Third, the volume near the channel and support area has been extremely high (relatively speaking) and dealt some major hits to channel support and horizontal support.
• Not only was the volume high near this key channel support area but price also busted through it briefly. So the combined effect of the price damage and high volume weakens the channel line and suggests it could eventually break.
• The recent trading action of the last 5 days or so appears to be of the ‘rolling correction’ type which would be a sign of internal weakness.

Whether or not we continue to mirror the 1975 style remains to be seen but so far that is my read of the market.  Looking at the chart below you can see that there was barely a chance to get short a second time during that decline.  One could have made the decision to just ‘jump in short’ during that decline, but that is usually not the preferred type of ‘re-short’ setup that most traders would like.

Today’s GDP one day intra-day pop may be one of those ideal opportunities to get short again.  I think it is a mistake at this point for shorts to be expecting very significant extended upside rallies.  They may still come, but from much lower levels.

I find it very interesting that the market so far is not giving easy opportunities for people to get short again.  This type of behavior is the 180 degree exact opposite of what we saw during the entire rally period of March 2009 to January 2010.  Why should the market give the shorts another easy entry?  In typical fashion the market is not ‘giving us’ what we want.

The ‘China like GDP Growth’ news we got seems seems to be a ‘sell the news’ type of event and is definitely not leading.  The market wants to lead us somewhere else, namely down .

Initiating a new short position or added short position near this channel supporting area is not a bad idea in my opinion.  Key is to use tight stops near the channel area.  Perhaps the best thing to do is wait for Monday next week confirmation that the next leg down will begin right away.

Today is also the last day of the month of January and so we have the final closing monthly candle leading into February.  It looks bearish enough to me to suggest that the first couple weeks of February will be down.  So the weekly bearish trend remains in tact.

Trading the volatility of the last days and weeks can be really difficult.  I have traded in and out of the TZA because I, like many others have been expecting the much awaited bounce to get another good entry.  It has been a whipsawing experience.

I am long the TZA again going into the next couple of weeks and will look for confirmation early next week that the next down leg has begun.

If the first two weeks of February do not show significant downside price action in the broad market, I am going to be very surprised. 

This past weekend I looked at every single stock in the SP500 one by one.  It occurred to me after looking at all of them that they were in a stance to move higher after significant consolidations during the last half of October.  Sure enough today we get all indices moving higher and a few moving to new high ground.

The indices continue to exhibit ‘bear busting’ behavior and have avoided bearish divergences, broadening topping patterns, rising wedges and head and shoulder tops (XHB is an example of that).  When that many technical sell signals fail you have got to ask yourself if something else is going on.

I do think something else is going on and the name of it is inflationary prosperity.  We are not going to suffer a deflationary crash or a break down of the March lows any time soon.  This is my conclusion now and I intend to stick with this forecast into the end of this year. 

I think it is real critical to try to get the longer term forecast correct at this point otherwise the next year and a half can be very hazardous to your financial health.  I did play the short side of this market the last few weeks with some success but I gotta tell you it was really somewhat stressful.  Stressful because we are dealing with a market that is not showing ‘ease of movement’ to the downside.  The tape is not falling apart and the benefit of the doubt goes to the bulls.  That is not a scenario where you want to be short the market for too long a period at a time.

At some point we will have an intermediate correction of 3 to 6 months duration, but it will likely not be more than 15% and will serve as another long buying opportunity in the context of a much larger run topside.

This was my original take a few other times here at BestOnlineTrades and I am sticking to this forecast.  It makes the most sense to me from all the indicators I follow and the entire context of this bear market which really started in the year 2000.  Here is the chart that I posted before that I think is important.

That chart shows that in 1975 the market was able to blast through the initial bear market down trendline initially significantly weakening it.  It would be quite amazing if we are able to do that again with the current market because it would be telegraphing the same bullish signal.  The more I look at the 1975 market the more I begin to think it is almost like having tomorrow’s newspaper today.

It could very well be that we break into and above the bear market down trendline in the sp500 going into the end of this year and then come January start the necessary 15% or so correction that starts the consolidation phase.

Another clue that we are in an expansionary inflationary trend is the GDX gold miners index (The ETF that represents the XAU gold mining index) and the gold price itself.  I looked at the longer term chart of the GDX today and it is telling me that it wants to blast out to new all time highs going into the end of this year.  I think that is interesting because it is saying that the Gold mining indices will be the first ones to break out to new all time highs.  The broad market indices are about half way there.  So clearly we see the gold sector leading the charge and the rest of the market playing catch up.  All this to me looks inflationary and supports the forecast that we trend higher into end of year, correct for a few months and then head higher again after that.

Ultimately I think the gold sector will win the race, but for now still the whole market wants to participate in this inflationary trend.

So anyway to conclude, I think it is a mistake to be in the deflationary camp at this point.  The tape action is not suggesting it and the bigger picture is not supporting it either.  In my opinion the final nail in the coffin of the deflationary scenario will be a busting of the bear market trendline in force since the 2007 market top.  So that is what I am on watch for now from a bigger picture perspective.

The S&P 500 as represented by the SPY ETF continues to look real bearish to me and I continue to see confirmations all over the place that we have hit ‘the top’ on October 18th, 2009 and are now in long term correction mode.

The UUP US Dollar ETF had close to record volume again today and a nice up close as US Dollar short covering kicks in and the MACD bullish divergence works magic.

The TZA 3X triple bear ETF also advanced today on near record volume again today.

The downside volume in the SPY ETF was pretty heavy relative to advancing volume trends and continues to drive home the point that sellers are stronger than buyers and benefit of the doubt should go to the short side in the month(s) ahead.

The great trader Tim Ord identified a broadening wedge pattern in the SPY ETF which is a tricky pattern but definitely a bearish one according to the CLASSIC book Technical Analysis of Stock Trends by Edwards and Magee.  Edwards and Magee say that it is bearish “9 times out of 10” and that, “they appear most often at or near an important topping out of the trend”.  They have a few chart examples in the book and a few individual stock chart examples.  Apparently many of these broadening topping patterns were being formed

By the way, the book I just mentioned, Technical Analysis of Stock Trends is one of the most important Technical Analysis books I have and I highly recommend any trading newbie or pro keep it in your trading library.  It is a true classic and extremely well written.  I was lucky enough to get my copy in the basement of a library that labeled it “Discarded Library Material” what a big mistake they made there!

Anyway, we have 3 trading days left in October to finish creating the monthly price bar and I have been going back and forth how this is going to play out.  I wish I knew exactly but I can only go by subtle hints.

Today’s action in the SPY ETF suggests to me that we could get another down day tomorrow.  If we had gapped down today and had some sort of mid range or reversal close then I might be inclined to think more bullish for tomorrow.  But the action is telling me we go down again tomorrow.

I think a decline tomorrow could once again be related to the recently strong US Dollar Index (UUP ETF).  If we manage to get another bounce in the UUP to both its 50 day moving average and down trendline resistance level then that could equate to the SPY moving down to either the March uptrendline support line (the solid rising black line) OR the dotted blue line at the bottom of the broadening top formation.

I would MOST prefer to see the SPY ETF BREAK through the black long term uptrendline support level creating damage to it and then see us hit some kind of intra day low near the dotted blue line representing the broadening top formation.

THEN, I on Thursday I would like to see the market bounce UP off of that dotted blue line on some possibly positive GDP report news and then bump its head UNDER the long term black uptrend line (solid black line).

That is what I would like to see!  I would like to close out shorts at the dotted blue line and then re enter on some sort of bounce off of this dotted blue line.  That is my game plan for now but I am drawing a very specific forecast that is unlikely to play out exactly as I am planning it.  But I will cross my fingers and hope for the best.

An alternative scenario is that we head UP tomorrow after an intra day low that touches the black up trendline and then on some possibly bad GDP data on Thursday head down very hard Thursday and Friday.  Gee, the possibilities seem endless!  But no matter what the specific possibilities are, my bias is still bearish.  The question is when the bounce materializes.

Looking at the chart of the UUP ETF (US Dollar Index) above you can see that the downtrendline is almost at the same point as the 50 day moving average.  I would expect the UUP ETF to bump its head right on the down trendline and then get at least one day DOWN after that as a normal reaction of hitting resistance. But then after that a massive move that shoots the UUP well above the 50 day moving average.  That massive move is the one that ought to help the SPY ETF SLAM down into the broadening top target of the 98 area or so as seen in the first chart above.

This is one heck of a specific ‘script’ I have drawn up here and I tell you I will be AMAZED if it plays out EXACTLY as I am forecasting here!  As I said, I would like to close out my short positions on intra day tests of the key levels above and then re short aggressively after a 1 to 3 day upside bounce!

Lets see what happens going into the closing monthly price bar of October (this Friday) !

Who says they don’t ring bells at the top?  This was the top in my opinion.  The evidence is overwhelming and I consider today the most pivotal day we have had since this entire automatic rally advance began in March 2009.

I have more confidence now than at any other time that we have hit the top in this market and have in store at least a 15% correction and perhaps much more.

Volume ?

You have probably seen this yourself or heard it elsewhere but the advancing volume on this entire rally has been weak at best and there have been repeated non confirmations with respect to price swings and volume tests.  In order for price advance over a previous swing to be valid, you want to see volume come within 3% or greater.  There have been plenty of occasions during the entire advance where this simple price advance rule has been violated.

More recently the icing on the cake with respect to volume and price swing test failures has been the recent test of the 10/6/2008 gap on the SPY.  Take a look at the chart below of the SPY.

You can see that ironically on October 19th 2009, we fully filled and tested the 10/6/2008 opening gap but only on 144 million shares!  All the other price advances into the gap where on similar volume.  Now if you compare that the gap volume of 10/6/2008 you are looking at a gap test on 75% LESS volume which is an extremely bearish sign.

That super weak gap fill is the icing on the cake in my opinion.  In a previous post (I think a month ago or so?) I was hinting how amazing it would be if the SPY was able to work itself up right into fully filling this gap and then ‘give it up’ thereafter.  This is exactly what appears to have happened, and today’s negative price high volume reversal was the confirmation.

There is also a slight bearish divergence pointed out in the chart between the recent action on the MACD and the two recent price thrusts upward.  While it is true that we have had repeated bearish divergences between MACD and price for a good portion of this entire rally, I think this time the market will not be able to evade it given all the other evidence of a top.

The Mcclellan Summation Index has finally ticked down after drifting sideways for a couple of weeks and floating up in the clouds so long and now appears ready to initiate stronger downward momentum which reflects broader internal weakness in the market taking hold.

The Larry Pesavento Astro date of October the 18th, 2009 appears to be confirming all the other points I make in this post.  That astro date which was on last Sunday was extremely negative according to Larry.  I know almost nothing about Astro dates, but when I combine them with other data, some of which is in this post, it paints a picture of a confirmed top.

The Time Factor 

The time factor is crucial as we go into the end of October.  Up until now if you look at the MONTHLY price bars on the SPY or any other major market index for that matter you will see strong robust price advances that appear to be almost vertical in direction and show strong price closes near the top half of the range.

But here is the KEY.  There are only 7 trading days left in the month of October.  Obviously we are still forming the monthly price bar this week and next.  The most important factor however is how we close the month of October.  If we start to get severe price decay over the next 7 trading days and if we close somewhere near 103.03 (the price close on October 1st, 2009) by the end of next week it is going to set up a very ugly looking MONTHLY price reversal bar that gives a high confidence indication that November will also be hard down in terms of price action.

So the best case for the bears going into the October monthly price close by Friday October 30th, is a close somewhere near 103.  That would be a very ominous sign for what November holds.

I can’t wait to update the weekly MACD indicator by Friday of this week.  If I am correct in saying that today is the final top and we will soon see hard down price action it is going to be interesting to see how weekly MACD looks by the end of this week.

The most bearish setup I can think of for tomorrow is a gap opening down that would create an island top in the SPY and kick into gear the 2B sell signal that I was talking about yesterday.

It is going to be very interesting how we close this week out! I could still be wrong, but I am about as confident as I have ever been that we have seen the top as of today and that it is time to focus on the short side of the market for a while.

If you look through some of my recent posts you will see how I was turning heavily bearish at certain points in some of my commentary lately.  I mentioned about how I was going to start looking for short candidates and focus mainly on the short side of the market and not even consider the long side for some time. I did trade the TZA for a few days during the last week and a half  (the 3X Ultra Bear ETF) and was lucky enough to squeeze a few percentage points of profit out of it during the last week and a half or so.

During this last week and a half I also tried to go short Bank of America with some put options only to close them out very fast with some small losses.

So why am I telling you this?

I am telling you this because I realize now that it was a mistake for me to talk about being ‘aggressive’ on the short side and a mistake for me to be talking about crashes or even astro aspects.  Astro aspects can sometimes invert which can make their interpretation very risky.  Better to focus on better sell signals like a simple breaking of support or resistance.  And by the way despite all my bearishness the last week or two, it remains a fact that the SP500 never even broke DOWN through the longer term support line that remains in force from the March lows.  So the fact that I was even considering going short or even looking to go heavily short until such a break actually occurred was a huge error on my part.  I do apologize.  And I sincerely hope that this post marks a good lesson learned.

Once again I can only blame myself.  And once again I think what got me derailed was ‘too much research’.  Too much looking what other people’s opinions are.  Too much looking at posts on trading message boards.  And too much listening to the bears talk of deflation and crashes instead of simply focusing on one simple thing…

Price, Support, Resistance and Trend and Tape Action!

and the violation of, or NON violation of price, support, resistance and trend.

Instead of me focusing on the ultimate price decision points and the tape action itself, I started to worry that we are in a deflation scenario that could mark a critical top in the market now and that could send the market plummeting fast similar to what happened in 1929.  So let me put this ‘deflation scare’ to rest now.

I just cannot see a deflation scenario happening.  Gold is at all time life time highs.  And the powers that be will at all costs pump as much money as humanely possible into the system to prevent deflation because if they had to chose between the two I really believe they would prefer inflation over deflation.  And that is exactly what is happening now, the markets are getting pumped up with an inflationary easy money recovery.  It is slowly spilling into many different parts of the economy whether it be housing or retail or commodities.

Now at some point this inflationary pumping will probably cause the economy to suffocate, but I think we are along way off from that, maybe 1 year or more away.

Yes we will have a correction eventually in the broad market and it will probably be somewhere in the neighborhood of 10 to 15% and probably a good portion of it will be sideways basing action in the form of multiple double or triple bottoms.  At the bottom of that correction I can guarantee you that you will hear all kinds of forecasts and predictions about how we are going into a 1929 scenario and how we will soon break the March lows etc. etc.  Ignore it.  And realize that this sentiment will be precisely what supports the market in the form of short covering near the bottom of the next major correction (10 to 15%).

But for now I expect this market to slowly grind higher and keep teasing the bears. 

Going forward, I am not going to keep my commentary in the mindset of trying to pick a top every other day.  That is the road to ruin.  If I see CRITICAL levels being broken to the downside and the WEEKLY MACD turning down in a confirmed bearish cross then I will probably make a post about how we are ready for some 10 to 15% NORMAL corrective action to calm down the bullish consensus a bit before another move higher thereafter.

Going forward we know this:

1. The current primary trend is UP, strongly up and we must assume this to be the bias until we see critical levels and indicators telling otherwise.

2. Many individual stocks have a mind of their own sometimes.  Some stocks since March have not gone straight up since March 2009.  Many of them have been in sideways consolidations that look quite bullish.  So what I need to do is identify these stocks and or ETFS and then find profitable setups regardless of what the Indices are doing.  I am not going to be completely blind to the indices, but I am not going to go into panic mode every time the DJIA declines 30 points either.

3. The weekly price close on the SPY and the QQQQ look like they will be quite bullish this week.  The SPY has not yet fully filled the gap up to 109.60 and I suspect it will probably try to do that in the week ahead.  After that it probably has a decent shot at 115 which is right where the down trendline is.  As you can see from the chart at the top of this post the QQQQ has already pierced its long term bear market down trendline AND also tested it on the daily chart.  On the weekly chart is has pierced this down trendline and this week looks like an intra day weekly reversal.

So there you have it!  The road map in my mind going forward.  Find good stock setups and ETF setups and focus on capturing profit at well defined levels.  I just need to be a machine and focus on that like a laser because it really is key in trying to get ahead. 

And no more visits by me to super bearish sites or heavily bearish opinionated sites or forums or twitter posters.  That whole conversation about crashes and deflation and end of the world talk is a total utter distraction from the business of finding profitable setups.

Lesson learned!

  The SPY ETF got some bearish downside continuation today from yesterday’s key reversal day on heavy volume.  The bulls tried to get a rally going many times throughout the day to try to create a price swing reversal bar but failed to accomplish anything meaningful by the close.

Volume came in heavy again on the downside on the SPY ETF at least relative to the upside volumes we have been getting over the last month or two.

Tomorrow’s action is key because it will create the closing weekly price bar on the SPY ETF, and if we close near the lows tomorrow or at least have a decent down day then it will create a bearish looking weekly reversal bar which will be the first one since June 14th, 2009, the time period of our last more extended correction.

Then next week the first three trading days of the week will finish off September and will create the closing monthly price bar on the SPY ETF.  If we get enough price destruction the next 4 trading days then it may even set up a bearish looking MONTHLY price bar on the SPY ETF which could potentially signal more bearish continuation into a good part of October.

I suspect this will be the case because I am already seeing the bearish divergences play out and generally the price destruction starts slow and then gets to an acceleration point after the bulls finally give up.  But we will have to see how the weekly and monthly price bar closings come in during the next 4 trading days.

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The market topped today in my opinion and caution is advised for the next few weeks as I think we are in for some pretty severe downside.  There were plenty of significant reversals today and it looks like the SPY ETF showed a bearish engulfing candlestick pattern on heavy volume.

The structure of the market right now is still setup in a bearish divergence when we compare it to the pattern of the MACD.  It says that we should now have at least a month of downside price action with a few intermittent rallies in between.

Almost everything reversed today and a lot of the indices look bearish now whether it be stocks or commodities.  There are bearish divergences all over the place.

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I have gone back and forth with my bullishness and bearishness on the broad market recently.  I just think it is important to be prudently cautious at these levels.

There is supposed to be an important astro aspect early next week that may stop this market dead in its tracks and case the long awaited correction according to Larry Pesavento.

Tomorrow there is a new moon, then next week we have the fall equinox as well as combust (an astro aspect).  We also have options expiration tomorrow but that does tend to have an upward bias.

Anyway if you look at the above chart you can see that the triple bearish divergence based on the MACD indicator versus price is still in force.  It will be activated if we get a histogram bar that is LOWER than the recently rising ones.  So far they are still rising and so no confirmed signal has developed yet.

If a signal does develop I suspect it should develop over the next 6 trading days or so.

If we do not fail and break down very badly by end of next week then the astro aspects failed to nail any top yet.

If a confirmed sell signal does develop in the SPY then I might take a closer look at the TZA ETF (small cap bear 3X shares) for some possible upside from a developing correction.

It is very difficult to pinpoint an exact top.  And honestly if we do not turn down hard tomorrow then it hard for me to see how this sell signal is going to develop in time for the astro stuff next week.  I think we need to see a hard down day tomorrow to get this divergence in motion.  Stay tuned, if I see a confirmed sell signal I will mention it here.

The SPY ETF has a very key day today.  Today was in my opinion probably a bigger nail in the coffin for the bears than any other day.

Simply put, we broke north out of this large rising wedge pattern on a nice increase in volume and suggests that the SPY is in no mood to get any severe correction going any time soon.  Rising wedges can be bearish patterns, but if broken topside they can turn into super bullish patterns.  This appears to be the case now.

It looks like we are going to fill the gap area that occurred in October 2008 and have a decent shot at touching the longer term downtrendline that has defined this entire bear market so far.

At some point we are going to get a more involved correction and I suspect that it will start near the bear market down trendline and will probably also coincide with the US dollar index hitting minor support near the 70 level.  I think we will get an upside oversold bounce in the US Dollar index from those levels and that will start some sort of 3 to 6 month correction in the SP500.

The nature of that correction will be key in determining how much higher the SPY goes.  I suspect there are plenty of people who have been too scared to jump into this rising market so far and will use the next major extended correction to get their entry.

Jesse Livermore, the great trader from the early 1900’s said that a stock is never too high to buy and never too low to sell.  He was right.  Just because this market is ‘high’ does not mean it cannot go higher. 

The most fascinating thing about the market action of the past year has been the dramatic turnaround and then persistent price action that followed it.  We went from extremely oversold to extremely overbought almost overnight.  I think it is difficult for human nature to be quick enough to absorb such a radical shift in market sentiment.

So the bull rolls on… Don’t fight the tape!.. Not yet anyway…