Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Wednesday, January 28, 2015

S&P and VIX Forming Large Triangles

The market action in the past two weeks has been excessively choppy but there is a rhyme and reason to it as the S&P 500 and the VIX are both steadily constructing large symmetric triangle patterns on their daily charts.  




Looking at the daily chart of the S&P above we can see that it is still maintaining its red channel after slipping out of the two-year blue channel.  The inlay chart shows the developing large symmetric triangle that is clearly visible now.




The daily chart of the VIX above shows we can officially say goodbye to the six-year downhill brown line channel.  The horizontal blue channel which took the VIX out of the brown line channel is still containing the VIX but now that the uphill red line channel has become dominant it is quite possible that the blue channel could become history in the next few months if the red channel forces the VIX up out of it.  The inlay chart at the top shows the large triangle also developing on the VIX which is very similar to the S&P.

These large triangles imply that a large sustained move may not be far off in the S&P and the VIX.


Trade well my friends

Alan

Sunday, January 11, 2015

Did Oil Put In A Bottom Friday Morning?


With the falling price of oil rattling the global stock markets everyone is trying to figure out just when oil will hit a bottom.  Friday morning oil found support at the lower lines of two primary channels.  

Taking a look at oil viewing it through the weekly chart of the USO (shown on the left side below), we can see that this is the first support of any kind for oil for some time as it now has support from both its long term blue line channel and its midterm red line channel.  We touched down to both Friday morning.  

Taking a look at the daily chart of the USO (shown on the right below), we can see that oil has developed bullish divergences in the CCI, RSI, and MACD plus printed a hammer reversal candle Friday.  Traders will be watching for the possibility of either a pin bounce or consolidation at these lines which would boost optimism that oil has found at least a bottom if not the bottom.  




Friday, January 9, 2015

A Phoned in Market Intervention..............Really?

Friday's action in the stock market was very bearish as investors rejected Fed Chief Evans' call-in market intervention executed at 10 PM Wednesday night where he put out on the newswires that the Fed may not raise interest rates until 2016.  This caused the overnight S&P Futures to explode twenty points higher in about as many minutes which continued into a big gap open Thursday and another Fed induced short squeeze Thursday. 

This verbal intervention was almost identical to the mid-October maneuver by Fed Chief Bullard.  In both cases their tactical surprise dovish statements sent to the newswires during the thinly traded overnight futures completely reversed the global stock markets and marked the bottom to the very second it came across the newswires.  Friday's give back of Thursday's short squeeze was a symbolic statement by investors that such an artificial rally is just not going to cut it anymore.   If you were following the Wall Street Journal online Thursday evening in their market data center page, they showed that there was a huge outflow in the SPY money flow reading Thursday as investors sold big into the strength of Thursday's squeeze.  

How about something with a little more meat on the bone guys?




Trade well my friends

Alan

Tuesday, January 6, 2015

S&P Loses Short-Term Support, Closes Tuesday at Long-Term Support


The stock market suffered another wave of selling Tuesday quickly breaking through the short-term support I focused on in Monday's article.  Tuesday's close left all four equity indices sitting at major moving average lines and at the bottom of long-term channels.  




In the top chart above of the S&P we see that it touched down to its lower channel line and its 150 day SMA line shown in blue.  In the second chart above of the NASDAQ we see that it touched down to its lower channel line and its 100 day SMA line also shown in blue.  These indices cannot move much lower without causing a break of both the moving average and trendline support for both.  




In the next two charts above, we see that the DOW & the Russell 2000 both touched down to their 100 day SMA lines shown in blue.  The DOW & Russell 2000 are in a slightly different situation from the S&P and NASDAQ as they could slip through the SMA support and could still catch the support of the lower channel line just below where they are at now.  

The Fed really needs to step in here as there is too much long term support under all four indices to have them all fail at the same time.  If the market does turn red Wednesday we can't rule out the possibility of a "hard test" of the support lines where they slip through but then come right back up topside printing a bullish hammer candle in the process.  They could also come in on the futures and we could have a gap up open Wednesday which could then force a short squeeze or there could simply be too many sellers weary of the fact that the S&P has tripled in six years and has its newly opened yearly candle grossly overextended from its year 20 EMA line as I showed in the last chart of Monday's article.


Trade well my friends

Alan

Monday, January 5, 2015

S&P Closes At Multiple Support Lines

Those who bought SPY Puts or shorted the SPY when I posted my over-extension charts in my last article on December 26th have made a lot of money in a short time.  After today's big down move it really is time to start watching for a Fed intervention as the S&P 500 closed Monday at several key support lines. 




First we need to take a look at the chart above, a midterm channels chart of the S&P using two-hour bars.  Most notable is the blue line coming across from the mid-September high which the S&P closed right at at today.  Also, today's closing found us right at the lower line of the red downhill channel and at the center line of the uphill green channel plus the lower line of the steep, thin purple line uphill channel.  We had a closing that is essentially right at four key support lines at the same time.  




Looking next at the updated chart above which I last showed on 12/26 when the S&P had reached maximum extension, I have inserted two thin red lines up through the center representing the area or "band" where the Fed intervenes in the market.  Today's closing was just pennies into that band confirming that it is time to be watching closely for the Fed to come in.  In the past year and a half they reversed every sell off in that narrow band except for the early October plunge which took the S&P all the way down to the 324 EMA line.  Taking that into account, it is certainly possible that they may save their powder and just plan on a monster short squeeze from the 324 line a week or two from now or they could come in during the night with one of their trademark Futures ramp jobs. Nobody knows but if you are still holding Puts or short the SPY from the 12/26 max extension, it is time to weigh the risk/reward of holding further since we have entered the area where an intervention can happen at any time.  After Tuesday's close we will probably have resolved the multiple lines support situation and we will have a better feel for where the market will be heading next at least in the short term.

Finally, taking a look at the S&P yearly candles chart below we now have a new yearly candle open. 




One might say it is just a little too far above the blue 20 EMA line.   



Trade well my friends

Alan

Friday, December 26, 2014

Comparing the S&P To the NASDAQ

The Santa rally that had a last minute start has shown to be a success even more so than many might have thought.  It's time to take a look to see how high the S&P and the Nasdaq have climbed over the past week and a half.


click on image to enlarge


The S&P chart shown above has a reading of 202 points above its 324 EMA line at Friday's close.  Anytime the S&P gets above the +200 level it is living on borrowed time.  While Friday's 202 is still one typical up day from its 219 point average extension of the past twenty-four months, it is already at the peak over-extension trend line shown in red.  Considering both the red over-extension line and the current numerical distance from the green 324 line enables us to get the best read on when the current market run is done.  The S&P may be able to get a little higher in the next few days but we are very close to a maximum over-extension.  


click on image to enlarge


Looking now at the NASDAQ chart shown just above, the most noticeable difference is that in the past eight months the maximum over-extension of the NASDAQ has been reduced considerably from the over-extensions of last January and March.  The market is only allowing approximately 600 points of extension in the past eight months, reduced from the approximately 700 points from last January and March.  Friday's close on the NASDAQ was +595 which is also very close to its max and the NASDAQ is also above its red over-extension line which is the frothiness that the NASDAQ develops sometimes before it starts a decline.  

While the Santa rally could float us up a few more points on both indices over the next several days, having both so close to their  maximum extension is definitely a heads up at least for those who go in and out of the market every couple of months or so.


Trade well my friends

Alan

Tuesday, December 23, 2014

Examining the 35-Year S&P Chart

As traders and investors begin thinking about the new year and what may come, it's critical to thoroughly examine where the S&P is at now and in previous multi-year runs.  


click on image to enlarge


In the chart above showing thirty-five years of trading in the S&P using yearly candles, I have recorded how overextended the 1999 internet bubble got above its twenty-year EMA line and fifty-year EMA line.  I have also recorded where the S&P is at now relative to its twenty-year and fifty-year EMA line.  It's not difficult to see that we are at the long term over-extension again.  The small chart to left above shows the same thirty-five year view.  


click on image to enlarge


In the monthly bars chart above,  the S&P shows that it has maxed out in both its six-year bull run channel shown with red lines and its twenty-year incline channel shown with blue lines.

For the time being the Fed's all powerful buying algorithm is keeping the market up and continuing to inch out new highs.  How long they can continue to do so is what everyone wishes they knew.  

Trade well my friends

Alan