stock market crash - tag category postings

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.

Glenn Beck on the radio this morning was talking about the Hindenburg Omen and maybe even specifically quoting parts of that article that referred to percentage chances we get a crash.  I briefly turned on CNBC a few times in recent days as well and the crash and depression talk is pretty thick.

It is a concern that mainstream media is talking so bearish and they may help to identify the bottom of this drop, but for now I am shrugging it off. To a certain degree we have a bull market in reverse that makes picking up on sentiment hints from the major media a bit more difficult.

We have been in a long term bear market since 2007 and now appear to be entering the next phase of this long term bear.  The news from major media has been quite persistently negative or bearish about the economy for a long time now.  It seems to be getting worse now.  This is consistent with the idea that sentiment would get more extreme negative at the most bearish phase of a bear market.  During a very long bull market sentiment reaches many levels of bullishness and the market continues to trade higher even during persistent bullish sentiment.  So we may be in that situation now where persistent negative coverage of the market by mainstream media just leads to lower prices.

If this was a ‘shot gun’ type bear market where bearish price trends only last for short periods of time then I think the recent bearish talk would be much more concerning.

I suppose this bear market has become so popular at this point that a lot of people have a vested interest in seeing the market collapse so that they can add a notch on their belt to say they ‘predicted the crash’.   It has me thinking that the market will not get a 1 day 10 or 20% drop to prove them right.  The market can still drop 10 to 20% from here but make it seem like it is an orderly correction down and then get another big 3 to 4 month rally from the lows.  That would still keep people hoping that the bottom is in.

It will be interesting to see if the market gives the mainstream what they want this time . . .

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.

(more…)

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. . .

Here we are early in the last week of August 2010 and guess what?  My 1987 crash fantasies are creeping in again.  Perhaps I need to dial a 1-800-crash-aholics anonymous support line if there is one?  When the market gets into a stance that I find somewhat similar to the 1987 crash I start to look at the charts and indicators and see if there is any interpretation that could result in a similar occurrence.  Every single time I have done this in the past has failed so far.  But now I am about to do it again…

I am sure you have already read about the double Hindenburg Omen sell signal which I previously never really followed.  It seems to have a very interesting record which I was reading about over the weekend.  It is interesting to me that this signal is now ‘live’ in the context of the overall price action right now.  It is also interesting to me that the expected occurrence of the crash could start as soon as 1 day or several months.

Right now there really does not seem to be any price pattern symmetry between the two periods in terms of time.  The 1987 topping formation formed rather quickly and resolved itself just as fast.  The current topping formation since our April 2010 high has dragged on forever it seems and the price action appears much more complex.

Still, the overall pattern of the 1987 stock market crash was basically an A B C down as well as some other characteristics which I will get into in a minute.  The B to C portion of the 1987 crash was the final upwards retracement rally before the plunge.  In the 1987 period this was a 61.8% fibonacci retracement.

During our 2010 upwards B to C retracement rally we only managed to get to a 50% fibonacci retracment level near the 1030 level (actually it was slightly more than a 50% retracement but not quite 61.8%).

(more…)

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 extremely negative astro aspects in the first part of August did not seem to work too well.  However according to Larry Pesavento there was a big one on August 11, 2010 which did show a big drop in the market and there is another one on August 26, 2010.

From my understanding the August 26, 2010 aspect is many orders of magnitude greater than all the previous ones.  Apparently it is also possible this date could coincide with some type of ‘event’. 

After reviewing all my charts and the bearish MACD and Histogram setup, the cross over the zero line down and the bearish McClellan summation index, the VIX and the Bonds, it looks like this market is going to make a major high volatility low right into August 26, 2010.  If short the market now (I am as of 8/19/2010), then it looks like August 26, 2010 is the ideal date to close out those shorts as a major possible spike low.

That is my game plan right now.  The setup is there, the charts are confirming the Astro timing into the 26th.  There are 5 trading days until the 26th (the 26th is the 5th one).  A lot can happen in the market during 5 trading days.  The price action before and during the May 6, 2010 flash crash was about a 3 day affair.  So it would seem 5 days is more than enough time to get this market prepped up for a big drop.

Complacency is everywhere.  There is no fear.  That is why this market can drop as much as 1000 Dow Points. . .

It is going to be very interesting to see how the price action unfolds next week.  I thought end of August was going to be a boring non event.  But now I think it could actually be the best market action we have seen in months . . .

Also of interest in case you missed it from the WSJ (abstract).

The iShares Barclays 20+ Yr Treas.Bond TLT ETF has just entered the power RSI zone above the 70 level.  The last time this occurred with decisiveness the market plunged into the May 6 2010 so called flash crash.

We are into the power zone again now and the TLT is blasting higher into what looks to be a blow off type move.  If the correlation repeats in similar fashion to the early May 2010 time frame then the stock market should be in for a huge plunge starting either tomorrow or early next week into end of next week.

The volatility index is still perched right under the top channel line of a huge falling wedge formation.  It appears ready to bust out topside within a few days.  So tomorrow being options expiration probably will see some type of upward bounce and then maybe a reversal by end of day into the close leaving the market with a flat close going into next week and some type of bearish reversal candlestick.

The chart above shows where the RSI blasted into the power zone and the corresponding move in the SPY ETF. 

Right now the SPY ETF and most of the other indices are in a bearish triple M pattern on the MACD histogram.  So the setup is there.  Now we just need confirmation which would occur if we get a daily close below today’s low.

We are perched right on the bottom of the swing trading range again today.  The best scenario I can think of for the bears would be a gap down tomorrow that puts us under the swing trading range and shows a doji indecision candlestick.  That would set up next week perfectly for hard down.

The heavy volume today in the SPY seems to be an early indication that the volume contraction that has trickled lower and lower since the May 6, 2010 flash crash is about to end.  Today could be the beginning of a new surge in downside volume trend.

Despite the heavy bearish looking setup right now, I still have to say that no real bearish follow through can be considered real until and if we close below today’s low.  I really don’t know if that can happen tomorrow with OPEX.  And OPEX having a slight upward bias.  Probably not.  So perhaps a close below today’s low will have to wait until next week.

The McClellan summation index ticked down today and seems to want to start getting downward momentum again which should limit upside potential in the market.  It is also on the verge of a moving average bearish crossover signal. . .

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…

Here is another quick look at the 2010 and 1987 stock market crash comparison charts again.  This time I have also plotted the DEMA smoothed MACD on both time frames which tends to give 1 to 5 day earlier sell signals as compared to the regular MACD.

Right now the DEMA smoothed MACD is inches away from a new sell signal on the market.  The only thing missing from the comparison is a big down candle in the 2010 time frame that would bust under the minor uptrend since July 1, 2010.  Do we get that Monday? It sure would help the comparison a lot. 

The up trendline on the RSI (Relative Strength Index) since July 1 is also showing that a downside break from it could come at any time, similar to the 1987 period.

MACD histogram continues to drift lower towards the zero line showing that bearish momentum is still slow but also still dominating for now.

This comparison chart by the end of next week is either going to look a lot more interesting (if your bearish) or not interesting at all (also if your bearish).  The end of next week is clearly going to move the current indicators into more defined stances and reveal much more concrete information as far as the next big move.

The Semiconductor HOLDRs (ETF) already has both a bearish MACD cross and a Dema Smoothed MACD downside cross.