Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Wednesday, November 24, 2010

Snap back rally...11/24/10

Stock Market Technical Analysis


click on above images to enlarge

Today we saw a full snapback in the market although on low holiday volume.

In Chart #1 - The S&P daily bars chart, we saw the S&P gap up and move back up to its brown channel line.

Chart #2 - The VIX violatility index or fear index  which trades in inverse to the markets. We see that the VIX deflected down from the underside of the purple channel it ran up against at yesterdays close.  It dropped back down to its the lower line of its blue channel and bounced up some in the afternoon as volume dried up for the holiday.

Chart#3 - Th US Dollar index daily bars chart.  We see the dollar climbed a little more, diverging from its normal behavior on market rally days.

Chart #4 - The S&P 2 hour bars chart.  We see that the black line channel did indeed bounce the market up today as was discussed last night.

Chart #5 - The SPY Daily bars chart. This is the chart that keeps everyone a little nervous.  This chart normally leads the action and is bearish right now,  but instead the long term moving average charts  #8 & #9 are running the market instead.

Chart #6 - The VIX daily bars 5-10 ma chart.  The VIX red 5 line got up underneath the green 10 line and turned sideways as I discussed last night  in the chart 6 notes.  If Fridays short, low volume session ends positive the red 5 ma line should continue to curl downward to set up for a forced drop on Monday.

Chart #7 - The 2 hour candles chart of the S&P.  We see that the morning trading took it up through several lines but was stopped by the pink 50 line but found support just below it at the brown 100 line  during the third and the last candle today.  A neutral bias situation.

Chart #8 - The daily candles chart of the S&P.We once gain lifted from the support of the light green 40 ma line, crossed the dark green 10 ma line, and finished the day up against the blue 20 ma line.  This is a bearish situation if and until it breaks up through the blue 20 line.  Being up under the bottom side of that line is not a place it wants to be for very long.

Chart #9 - The weekly candles chart of the S&P. This weeks bar looks like it will close using the dark green 10 ma line for support for the second week.

Chart #10 - The 30 min advance/decline chart. We see that today close put up high into the intra-week sell area.  Friday is likely to give back some at the open, but being a very light volume holiday session, the odds favor the advdec only dropping to the center black line on Friday.

Chart #11 - The S&P 30 min trendlines chart.  We see that todays rally leveled out at the upper red channel line. Plus we also re-entered the blue channel by doing so. Which channel we go by for Friday and Monday will have to be resolved.

Chart #12 - The 30 min S&P moving average chart.  We see that a 5-10 lift was set up into the bell today. This is bullish but the advdec being so high could easily stop that small lift set up, unless we happen to break out of the red channel in chart # 11 right away Friday morning.

Chart #13,14,and 15 - These long term weekly bar  trendline charts show little visible change from last night. 

Chart #16 - We see that the UYG financials ETF is trying to get back up on top of the rose colored 108 ema line.

Chart #17-20 -  Thes 3 long term charts show little visible change from last night.

Chart # 21 - The Daily bars 10/20 ema chart of the S&P. If you look closely you can see that the red 10 ema line is becoming more visible on top of the green 20 line.  If Fridays market starts upward this up biased set up will give big lift.  If Fridays market  starts downward, it cant do a lot of damge to the setup in just one day. 

Overall, the path of least resistance is up Friday, but we need a small pullback at the open to get the advdec back to at least the center 0 line and then we could float up slowly as often happens on super low volume 1/2 day sessions,  assuming no bad news pops up Friday morning,  which could drop the indexs in a heartbeat.

Alan








Tuesday, November 23, 2010

N Korea serves up market smackdown... 11/23/10

Stock Market Technical Analysis



Click on above images to enlarge

Following up on last night's closing paragraph, I mentioned that the market would be vulnerable to any bad news across the wires and this morning we got hit good with the North Korea attack.  Considerable damge was done to a number of charts, but just as many show to be holding at support.

In Chart #1 - The S&P daily bars trendline chart, we see that we dropped all the way from siting on the lower brown channel line last night to as far out of it as we fell last week.

Chart #2 - The VIX vilatility index, or fear indicator.  we see that the VIX jumped well up into its blue channel after closing slightly below it last night.  This move is a short term sell signal on the markets.

Chart #3 - The US Dollar Index ETF. we see the Dollar reversed dramatically giving a short term signal for the markets.

Chart #4 - The S&P two hour bars chart.  We se that the S&P found support today at shadow channel that I drew in heavy black lines.  This implies that the Bulls have not lost control yet.  Since this channel caught the S&P I am holding off on transferring the VIX and the Dollar sel signals up tp the S&P chart as I normally do.
If the knee jerk reaction to Korea is done then this black channel shows the S&P is still trending up. If we lose this 5 week chanel then I will transfer them immediately.

Chart #5 -  The SPY trading ETF for the S&P.  One again this is the primary chart for the bear case tonight.  We can clearly see the red 5 ema line is starting to push downward from the blue 21 ma line.

Chart #6 - The daily bars chart of the VIX.  we see a complete reversal of the red 5 ema lines direction. It has done a "U" and turned back upward.  Note however that if the market has an up day tomorow this line could easily get turned sideways underneath the green 10 line, a set up for a downward pushdown the next day possibly. 

Chart #7 -  The two hour candle chart of the S&P.  We see that we hit intraday resistance at the light grey 150 ma line.

Chart #8 - The Daily candles chart of the S&P, shows that we slipped down through the light green 40 ma line briefly today but closed back up at it. This 40 line has been used 4 times out of the last 5 days for support.

Chart #9 - The weekly bars chart of the S&P shows that the dark green 10 ma line is still providing intraweek support for the S&P.

Chart #10 - The 30 min bars chart of the advance-decline indicator.  We se that we are now sold down fairly deep down into the green buy area. Tomorrow favors being a bounce day because of that.  This is another reason I am hesitant to transfer the VIX and Dollar sell signals up to the S&P on a knee jerk reaction to international news.  

Chart #11 - The 30 min bars chart of the S&P shows the Bulls had to abandon the blue line channel and now are set to work the very slightly inclined thin red line channel. 

Chart #12 - The 30 min bars ma chart of the S&P show a tiny symmetric triangle as a price pattern intraday. That pattern is a pivot point with no bias up or down.

Chart #13, 14, and 15 show very little change in the long term view of the major indexs.

Chart #16 - The finacials ETF took a big hit today,  this is real ammo for the Bears.

Chart #17,18 and 19 show no visible change from last night. 

Chart # 20 - The day bars chart of the S&P with 10 and 20 ema is still holding that parallel compression as of tonight.  Tomorrows direction will heavily affect which direction this pivot point breaks .

Chart# 21 -  The 2 hour bars chart of the S&P with 10/20 ema show the green 20 ema sent the red 10 ma line downward firmly today, but is now slightly overextended away from the red 10 line, implying some snapback potential tomorrow morning.

Overall the market has shown how quickly it will hit the sell button on bad news right now. Todays selling seems to be overdone though and we could easily bounce back up at the open considering the channel support held in chart #4 and the advance decline (7) is fairly deep down into the buy area now.  Tomorrows Bull-Bear battle may very well be fought at the grey 150 line in chart #7.

Alan



Monday, November 22, 2010

A Mixed Day... 11/22/10

Stock Market Technical Analysis


Click on above images to enlarge

In the markets today we saw a bearish opening as the sentiment regarding Ireland's bailout worsened.  The bears seized the opportunity and took control of the market early on, but not without a struggle as trading was choppy at a negative level.  As the day wore on the bears tightened their grip and we sold down considerably until midday when the bulls established a new not so aggressive 4-day channel shown in blue on chart 11, a compromise from the steeper pink channel they were working yesterday.

Chart 1:  we dropped back out of the uphill brown channel again but in the afternoon rallied back up to the brown line once more.

Chart 2:  the VIX last night was at a double channel pivot point and is pretty much still at that pivot point tonight.  It needs to either drop down into the red or brown channel and move in it or pop back up into the blue channel and move in it to give us a firm market direction either way for the next week or so.

Chart 3:  the dollar caught a small bounce this morning but pulled back in the afternoon assisting the bulls afternoon effort to bring the market back up. 

Chart 4:  during today's 4 trading bars we dropped back down to the pink descending channel of the past 2 weeks but found support at its upper line and allowed the bulls to take back control of the market in the afternoon.

Chart 5:  the 5/10/21 interaction (red/green/blue lines) improved somewhat today in that instead of the red 5 being stuck underneath the blue 21 as we were last night, this evening we see all three moving averages restricting to a point which has no bias but implies a sudden strong move in either direction is coming.

Chart 6:  the VIX 5/10 chart shows a firm downward cross which is bullish as long as it follows thru tomorrow morning and doesn't have a nasty gap down from the opening tick that could twist the 5 EMA back up above the green 10 MA line if the gap down is deep enough.

Chart 7:  the 2 hour candles chart shows that today's second candle found support at its 150 bar EMA and lifted throughout the afternoon but notice that it stopped up against its 40 MA line as it did yesterday afternoon also.  If you look back to 11/15 in that chart you will see the light green 40 MA line was also resistance there.  This is a fairly firm intraday resistance level for the time being.

Chart 8:  the daily candles show that we are using the light green 40 MA line of the daily chart as firm support for the past 5 trading days leaving us with the situation that we are range-bound between the daily chart & 2-hour chart.

Chart 9:  the weekly candles show that this morning's selloff found support at the dark green 10MA line and rallied in the afternoon up from it.  This was also the intraweek support last week as seen on its candle and once again we closed above the black weekly 200 MA line.

Chart 10:  the 30 min. advance/decline breadth indicator shows that we sold down to the shallowest byline and rallied back up to the black zero line at the bell.  Normally this would be bullish but the descending fine red line above it is having some control over the market for the past several days.

Chart 11:  the 30 min. S&P bars chart shows that the bulls adopted a not so aggressive channel by connecting the 3 points of the bottom blue line today giving up on last night's quite aggressive pink channel that I've removed.

Chart 12:  the 30 min. S&P intraday moving averages chart shows the red 5 EMA was just barely caught by the orange 324 EMA at midday today.  Allowing the S&P to pop above the red 108 EMA.

Chart 13:  S&P 500 with the opening of the new weekly bar we can barely see the dip and rally back up but once again today's low found support at the longterm brown line channel.

Chart 14:  the Dow shows that the new weekly bar found support midday today at the lower line of its longterm brown line channel.  It looks to be the case that on the S&P and the Dow that the bulls really want to hold that lower brown line of their respective longterm channels.

Chart 15:  the NASDAQ - overall this chart looks the most bearish because it has been stopped twice at the lower line of its blue longterm channel.  The new weekly bar actually held its ground and didn't take the dip and rinse that the S&P and the Dow had.

Chart 16:  UYG big financials ETF - shows that the bulls are trying to build a floor at the 55.75 level.

Chart 17:  S&P qrtrly bars chart - no noticeable change today.

Chart 18:  S&P monthly bars chart - no noticeable change today.

Chart 19:  S&P weekly shows that the bottom of today's dip found support at the red 10 EMA line.

Chart 20:  S&P daily chart is at exactly the same pivot point with slightly upward bias as we had last night in that the 2 lines are compressed together for another day.  The red 10 EMA is on top of the 20 which gives it a bullish bias and having the tiny dragon doji bar at the tip increases the bullish bias a little more.

Chart 21:  S&P 2 hour bar chart shows it is also in the same position as last night in that the red 10 line is still trying to cross above the green 20 line.

Overall, we are still at a major VIX pivot point (2) with the S&P hanging on for dear life to its brown 7 month up channel (1) but considering that the weekly NASDAQ chart looks to be starting another run at the blue channel above it and the S&P & Dow are finding footing when setting on the lower line of the their longterm channels.  The bias feels modestly bullish this evening but we have a lot of serious economic problems in the news and any really bad developments premarket could easily tank the market considering how high up the NASDAQ summation index is and how high the percentage of stocks above their 50-day moving average is.  It could be a day by day market until the VIX picks a direction and goes with it.

Alan

Sunday, November 21, 2010

VIX at a pivot point 11/21/10

Stock Market Technical Analysis


Click on above images to enlarge

I have reformatted my regular twin chart cluster and numbered the charts for easier reference.  In chart 1, the SPY reached the upper gold horizontal channel line and sold down to and even dropped thru the lower line of the brown ascension channel.  After falling out of the brown channel, the next day we had an inside bar because of what happened in chart #2, the VIX, and chart #3, the dollar index below that.  Looking at chart #2, Tuesday morning when we opened below the brown channel on the SPY the VIX reached the top line of its blue channel it has been working for six months.  This caused the VIX to turn back down giving a buy signal to the SPY for a 3-day run up in the market which took the VIX down to its lower blue channel line & went a little farther below and stopped at a two channel junction.  One is the upper line of the brown downhill channel from earlier in the year and the other is the upper line of the red downhill channel from May to Nov.  If the VIX bounces up from the brown channel and red channel on Monday, it could cause the SPY (1) to lose its lower brown channel line again.  If on the other hand the VIX punctures down thru into both the made in Nov downhill red channel and the yearlong brown downhill channel, it will cause an explosive rally securing the lower brown channel line for the SPY.  I marked that pivot point on the VIX chart with a tiny red & green dot reflecting the pivot point.  In chart #3, we see that Thursday morning the dollar fell out of its steep rising red channel sending an additional buy signal to the SPY. 

Chart 4 is the closeup view of the SPX/SPY ascension over the past 3 months as that is a 2 hour bar chart.  On that we see that Friday morning's dip (4th bar back) produced a hammer reversal candle that bottomed out at the top line of the pink 2 week downhill channel and lifted slowly thru the day with it threatening to break into the upper half of the 4 week sideways red channel as is shown.  In chart 5, we see that the SPY's red 5 EMA actually did cross down thru the blue 21 last Tue & Wed.  As we rallied up, it has produced a bearish setup whereas the 5 is now stuck under the blue and could easily start a retest downward from the blue 21 line.  A great deal of traders and market commentators have gone bearish because of that failure and no doubt has increased the short interest tremendously.  I believe a great deal of the participants in the market place are relying solely on the 5/10/21 chart failure and have gone fully bearish because of it.  Granted it is a bearish situation on chart 5 the SPY but if you consider the pivot point scenario in the VIX chart 2, it's easy to see that the market could go either way this coming week. 

Chart 6, also the VIX, while the red 5 and green 10 have met, when the new VIX bar opens Monday it will clearly show a 5/10 down cross unless we were to have horrible news come out premarket causing the VIX to gap open to a number above 20 which would bend the red 5 EMA line into an upwards retest instead of a down crossing.

In charts 7, 8, &9 we see the traditional moving averages: the 10/20/40/50/100/150/200 SMAs plus the 108 EMA.  Starting with chart 9, the weekly candles, this past week's candle formed a dragon doji that drew support from the green week 10 MA line.  It also closed above the black 200 week MA line.  Chart 8, daily candles, the S&P bounced off light green 40 MA line Wednesday.  Chart 7, 2-hour candles, shows Friday morning's opening 2 hour bar formed a hammer reversal candle drawing support from the red 108 EMA line.  All three of these candle charts have bullish setups for the market in contrast to the 5/21 failure in chart 5. 

Chart 10 in lower cluster, the 30 minute bars advance / decline shows we gained support just above the black zero line and is threatening to cross the red downhill drawn in channel line.  With plenty of room to move up until we get into the overbought area.  Chart 11, 30 min. bar chart of S&P, Thursday's market action established a new short term channel upward shown in pink lines.  Chart 12, S&P has its 5/10/21 and 108 MA lines compressed to a knot pivot and starting to lift from that point into the close Friday. 

Chart # 13, 14, 15 and 16 are big picture charts of the indexs.  In chart #13 we see that the  weekly bar S&P show last week as a dragon doji drawing support and climbing from the lower line of the long term brown line channel - very bullish.  In chart # 14 we see that the DOW weekly bars chart did exactly the same thing, successfully testing the lower line of its long term brown line channel - also very bullish.  Chart # 15, the Nasdaq composite is mixed bag.  While its candle of last week is a dragon doji reversal candle,  we can see that the Nasdaq stopped at the underside of its long term blue line channel just as it did back in April which is bearish unless the reversal candle takes us on up thru this time.  Chart 16, the UYG big cap financials ETF, I am showing daily bars instead of weekly bars because there is a lot going on in that chart and it needs to be looked at more closely.  First we can see how strongly it relates to its 108 EMA line shown as the thick rose colored line.  It gave the financials support from mid Oct to early Nov and provided the launch lift on Nov 3rd that broke us above the heavy 6 month ceiling shown with dark red line.  As the market sold off from its peak, so did the UYG ETF but we can see that Friday's daily bar is a dragon doji drawing support from the topside of the 108 EMA line.  This also is bullish for the broad market.

Charts 17 - 21, I show 5 charts of the S&P, chart 17 is quarterly bars, 18 is monthly bars, 19 is weekly bars, 20 is daily bars, and 21 is 2-hour bars.  All 5 charts are shown with 10 EMA lines in red and 20 EMA lines in green.  Chart 17, the S&P is threatening an upward 10/20 cross.  Chart 18, the past 3 month lift has come from a successful and gradual 10 EMA line retest up from the green 20 line.  Chart 19, the recent run up off the 10/20 upward cross on 9/1 along with a rather high peak 2 weeks ago and then a retest bar drawing support from the 10 line for last week.  Chart 20, is the focus chart for tonight and it can clearly be seen that the red 10 EMA line is working a smooth gradual retest upward from the green 20 EMA line - a very powerful bullish setup that simply needs the completion lift on Monday.  Chart 21, Monday morning looks to have a 10/20 upward cross which would complete the 10/20 daily chart to the left of it. 

Overall, I believe that the overwhelming technical analysis is on the bullish side tonight with the only opposing TA being chart 5.  If the 5/21 down pierce did draw in fresh shorts into the market, I suspect it would be very easy for the market to lift tomorrow with a successful 10 EMA / 20 EMA lift in chart 20 which would cause a serious trendline breakdown in the VIX which could cause a powerful short squeeze in all the indexes.

Alan

Thursday, November 4, 2010

Bernanke's Short Squeeze Shifts into High Gear...11/4/10

Stock Market Technical Analysis


Click on above images to enlarge

The market roared today off of the news that QE injection will be in the market shortly.  Looking at the upper chart cluster row 1, today's move broke us out of the 2 week ceiling the S&P had run up against and barely got above its upper black line of its ascension channel.  It will be interesting to see if the market turns vertical here or if it pulls back into the ascension channel as it did 9-22 and 10-14.  If we actually break out of this already steep ascension channel into an even steeper one we might be seeing the beginning of a new stock market bubble.  The US economy has continued to be strong over the years by going from one bubble to another to another.  We had the gold bubble in the late '80s, the stock market bubble in the '90s, real estate bubble from 2000 to 2006 and personal credit bubble from 2005 to 20008.  There has been lots of discussion on the internet as to where we will have our next bubble as it's widely viewed that we must have another one to continue borrowing from Peter to pay Paul.  As recently as a couple of months ago, the whole world was beginning to think the bond market might be the next bubble, but it is apparent that Bernanke firmly believes that the key to a strong economy is high stock prices.  A new stock market bubble would be like the tail wagging the dog in that the economic outlook for the next 6 months is widely viewed as deteriorating but the stock market is roaring.  The stock market has always been a leading indicator of what's to come in the economy 6 mos from now.  We may be about to see the biggest divergence  between the stock market and the economy that has ever taken place.  It's apparent Bernanke believes that instead of a strong economy producing a strong stock market,  we are going to see if a strong stock market can produce a strong economy.  

Alan

Monday, October 25, 2010

Caution tonight 10/25/10

Stock Market Technical Analysis



Click on above images to enlarge

Today the market did one of its trademark Monday ramp ups but then gave most of it back.  This is fairly bearish  considering where we are at.

Looking at the upper chart cluster, row 1, we see the the S&P keeps slipping out of its 8 week ascension channel and then clawing back up into it and then slipping again. The three inverse indicators, the VIX/fear index in row 2 and the 20 year bond and the US Dollar in row 3, are all trending upwards as can be seen in each one's small red channel.  The S&P should be doing just the opposite right now and trending downward, but the Fed just can't bear to let that happen right before elections.  Nonetheless it is easy to see that it is getting harder and harder to keep putting the S&P back up into its brown line ascension channel.  In row 2, now the Vix cannot be allowed to rise into its blue channel without crossing the heavy red breakout line which is where a market selloff could trigger if we cross above this red line.  With all three inverse indicators pointing to a down leg starting soon in the market, The FED had better act swiftly and forcefully with a major intervention or the market will start doing what comes naturally when it is at where it is right now.

In the lower chart cluster, row 1, chart 2,  we see the volume dropping off the past couple of days when it should be rising nicely considering how what a nice red/green line 5/10 line retest they are crafting just above it.  This is an indication that few are buying into it.  In row 1,chart 3, we printed a bearish candle today.  In row 2, chart 1, in the upper small card we see the VIX is trying to start another red/green line 5/10 retest upward indicating we are really close to a sell off.  In row2, chart 3 we see that the S&P keeps trying to get back up into summer's red line bull channel but keeps falling back out with every attempt. 

Considering how many bearish conditions we have showing tonight, those who are long stocks should be cautious here, this market could roll over fast if too many of the flash trading supercomputers get triggered into sell mode.

But ironically, anyone who is short the market should be very cautious here also.  For the past two months, every time the market starts to show it's at the brink of rolling over, the FED has intervened in a big way, causing huge short squeeze rallies.  

This is why so many people are so disgusted with this market lately, there is no longer any natural trading, just supercomputers humming away in locked rooms accounting for 70 % of the daily volume.  The market just drifts sideways with no direction bias until each time they come in and juice the pre-market futures, gapping the market way up with the first trading tick and then the talking heads on CNBC break out the pom poms and say the the market is "trading" higher nicely.

Alan



Wednesday, October 20, 2010

Daily chart 5/10 test tomorrow 10/16/10

Stock Market Technical Analysis


click on above images to enlarge

Today's market bounce back from tuesday's drop was designed to draw attention to the day chart 5/10  (red-green line) test that is coming tomorrow as shown in the lower cluster, row 1 chart 1.   The real story though is in the three rows of the upper cluster.  TheVIX/fear indicator, and the 20 year treasury and the dollar index have all three have been quietly uptrending for a week now as can be seen in the small red channels at the end of each chart (row2 and row 3 -chart1 and chart 2).

The S&P has been inversely trending down for a week now shown by its small red channel. This is an indication that the investing and trading community isn't completely sure the FED will intervene with another day 5/10 pump.  Everyone knows that many traders don't want to ride the momentum right up to the last election, knowing that the exits get crowded real fast if everyone wants out at the same time.

Granted everyone really expects the pump to happen, but if you study the violatility chart closely (upper cluster,row 2) you can see that when the vix moves back up into its 4 month blue channel it will be forced to also break above the thick red line, which could change things real fast. Safety has been found underneath the red downtrend line for 4 months. Now though, the VIX can no longer trade in the comfort of its blue channel without crossing the big red line also (the red line is normally considered the rally ender breakout),  Now the FED will have to jam the market higher big time to keep the VIX below the blue channel and below the big red breakout line. In naturally trading markets this is where everyone reverses their positions to profit during the down leg.

This market though is being fiercely driven higher, mostly through cheesy premarket gap ups on no news.  There is an old trader saying "Don't fight the FED"   If they want this market still higher you had better not be standing in their way.

Alan

Tuesday, October 19, 2010

Where we are at...10/19/10

Stock Market Technical Analysis

Click on image to enlarge

The past week we have seen a somewhat successful squeeze of the shorts to take the market higher.  The problem is that at the levels we are at, we are very vulnerable to any negative news such as China's interest rate hike today.  The chart I posted above shows the percent of S&P 500 stocks above their 50 day moving average.  This year's huge spring rally peaked at the end of March at 93% as is shown in the top center of the chart.  September's rally peaked at 93%.  Examining this chart closely helps to understand how far we have come so fast and exactly where we are at now.  Anytime this percent passes 90, typically major legs down in the market follow. 

That is the voice of reason.  Realize that the pressure on the fed to keep the market going higher right up to election day is tremendous.  Once this election passes and the pre election market pump is over, everyone will be looking at this chart to see just how high we are.  Just a little food for thought...

Alan

Sunday, October 10, 2010

The big picture & short interest 10/10/10

Stock Market Technical Analysis

                                       click on the above images to enlarge

The two charts above are of the S&P 500 index. The lower is a 35 year chart and the upper is a 8 year chart.  We are now at a major long term pivot point.  The four year down trend line is shown in red.  The 20 year uphill channel in brown lines. With fridays close we are right at the juncture of both.  If we move higher from here we will have a double line breakout and a monster short squeeze potential.  If we move lower from here we will have a failure at double line resistance and it might not be pretty.

To make things even more pivotal there is the short interest on the Nasdaq 100.  The so-called smart money,  is now massively short.  According to the latest CFTC report, "smart money" commercial hedgers are now net short $7.9 billion worth of Nasdaq 100 large & E-Mini Futures.  That is an increase of 5.2 billion from the previous week. The previous record short interests were $4.3 billion in mid Oct 2007 which was followed by a 4 month, 20% loss in the market and $4.2 billion in mid Dec 2004 which was followed by a 4 month 15% market loss.

This is a very powerful double edged sword.  If the Fed starts to lose their ability to keep propping the market up, there could be a very strong downdraft.  If they are successful and continue to prop it and move the market higher, this massive short interest could turn into rocket fuel  for a monster short squeeze higher.

When you consider it all,  the fact that we are at a big double line pivot point, and opposite of all the massive shorting  is a very determined election ramp up in progress,  it is easy to assume that we might just see a little bit of violatility in the next couple of weeks.

Alan

Friday, October 8, 2010

High Frequency Trading on 60 minutes Sunday night...10/8/10

High Frequency Trading on 60 minutes Sunday night...

There has been a lot written this summer about the studies showing that at least 60% of all volume on the  stock exchanges is now nothing but super computers making thousands of trades per second, known as High Frequency Trading (HFT).  This Sunday evening, 60 Minutes will run a segment on one of these firms that is heavily involved in HFT.  It should be an interesting clip to catch...

Alan

Thursday, October 7, 2010

US Dollar Index 10/7/10

Stock Market Technical Analysis


Click on above images to enlarge

Today's market was basically another sideways day on low volume.  There was one event in the currency markets that everyone needs to be aware of.  In the upper cluster, row 3, I reduced the 20 yr bond chart and added a chart of the US dollar index as chart 2.  There are 2 reasons why I am doing this, the first is that it has become widely known that the govt. is going to be stepping into the bond market again and buying bonds in a big way soon, this causes distortion in the bonds inverse relationship to the S&P 500 index.  There will be a lot of speculation going on, manipulation to get better pricing, etc. for a while so the 20 yr bond needs to become the #3 leading indicator of big moves in the S&P 500 and the US dollar index will be the new #2 leading indicator, it also normally works inversely to the S&P 500 index.    The bailout team's continuing pumping of the stock market for the past 4 weeks has actually received considerable backup from foreign investors who rotate back and forth between our dollar & our index ETFs.  Looking at the new US dollar index chart you see that the dollar had a critical breakdown on 9/1 and then again on 9/13 which lead to a steep dollar sell down over the past 3 weeks which caused huge amounts of global investment money to hop over to the US index ETFs to ride their momentum until the dollar index gets down to its lower line of its horizontal mother channel shown with the red line on the chart.  I put a yellow #3 line on the chart on today's trading to emphasize the caution that should be taken since the dollar historically turns back up here.  It is widely anticipated that the US will support the dollar and cause it to start rallying at this level as it normally does.  This will cause global investors to rotate money quickly back out of US stocks and into the US dollar for its ride up.  Granted we all know the US government's official policy is to support a strong dollar while they actually let it fall when it is politically beneficial to do so because in the world market this makes our products cheaper and gives the US an economic boost.  Considering how tenacious the bailout team has been on getting this market higher as we approach midterm elections, we can't rule out the chance of an unprecedented maneuver where they let the dollar fall out of this horizontal trading channel for a little while to juice the short term economic numbers even though it would be very risky for our position in the world currency markets. It seems though that the overwhelming sentiment is that we will have a normal reversal turn up in the dollar which on its own should cause large scale selling in stocks in which the bailout team will have to try to compensate for or we will fall out of the 4 week up channel that is drawn with the thin brown line in the upper cluster, row 1. 

One other notable item is in the lower cluster, row 1 chart 1, you will notice the divergence between the On Balance Volume trend and the S&P index trend (a reminder that the on balance nets out total buying and total selling on a daily basis to give either a positive or negative reading for the day and then plots it ongoing with the blue line as shown).  You can see that from 9/1 thru 9/13 the blue OBV line went up proportionately to the rise in the S&P index.  Since 9/13 though, the blue OBV line has been steadily trending down while the market has continued trending up.  This means that since 9/13 there has been massive unloading of stocks into each and every up move in the index.  This is an extremely bearish divergence that lets us see visually how the masses of investors and institutions are getting out of this market while there are still liquid up moves to do so in belief that the fed will not be able to continue to prop the market. 

The bailout team is really in a conundrum here in that if they step in and support the dollar at this level as the world expects them too,  it could jeopardize their ability to continue to prop the stock market into elections.  This developing scenario will be very closely watched here in the US and globally.
Alan

Wednesday, October 6, 2010

Market Breadth

Stock Market Technical Analysis


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Very little changed in the charts today, basically a sideways day overall.  I am going to take this opportunity to discuss market breadth for a moment.  Market breadth is commonly measured by the % of stocks above their 50 day moving average.   Major legs up in the S&P 500 index often take it to the point that 90% of its stocks are above their 50 day moving averages.  This 90% level is where most major rallys end and major down legs begin in the market. When we get above 90% we are considered to be entering bubble territory.

Yesterday's big short squeeze in the market took the S&P to the 91% level.  If they take us higher, even the bulls may begin to voice concerns.  This might be a good place to tighten your stop loss settings on open trades.

Alan

Tuesday, October 5, 2010

Stock Market Technical Analysis Blog


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LOL, You just have to love it...

After spending a week trying repeatedly to break out of its sideways channel using every trick in the book, today the bail out team decided to heck with legitimately trading the market higher method and decided to  pull out plan B - the old "Gap and Squeeze" and it worked quite well causing the shorts to spend the day trying to get their short positions covered.

In the upper chart cluster, row 2, the VIX / fear index, I drew in a red break out line to show why it was critical that they get the market higher regardless of how.

In the lower chart cluster, row 1 chart 1, we see how today's move twisted the red/green 5/10 downward pierce into a doglegged 5/10 bounce. 
In row 2 chart 2 we see that the bears kept the 30 min S&P from crossing above the lower line of the early summer red line bull channel, once again. 
In row 3,chart 3 we see that the advdec chart is up in the overbought area, so we will have at least an intraday pullback in the morning.

Where do we stand now?  We avoided a bullet when the VIX chart (upper cluster, row 2) came back down below the red breakout line. Yet it is equally as bearish that the 30 min S&P chart couldnt get back up into the red bull channel (lower cluster,row 2 chart 3).

Hopefully we don't start another week of drifting sideways that leaves few trading opportunities.

Alan





Tuesday, September 28, 2010

Stock Market Technical Analysis Blog

Before I post tonight's usual charts and analysis I would like to post a really good article about one of the more stealthy methods the FED has been using to pump the markets up artificially this year:
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"The Only Reason Stocks Have Rallied This Month"    by Graham Summers

The Fed generally claims that it stopped its first Quantitative Easing (QE) program back in March 2010 and that there were no additional debt monetizations between then and the announcement of its QE lite program in August.

Yet, as I’ve proven time and again, the Fed has continued to monetize Wall Street’s debts EVERY options expiration week since QE 1 ended… proving beyond a doubt that the Fed’s QE program did NOT actually end in March.

Here’s the chart of the Fed’s recent actions for those of you who haven’t seen this before. Options expiration weeks are in bold.

Week
Fed Action

July 22 -$8 billion

July 15 +$8.6 billion

July 8 2010 +$1 billion

July 1 2010 -$13 billion

June 24 2010 +$175 million

June 17 2010 +$12 billion

June 10 2010 -$4 billion

June 3 2010 +$2 billion

May 27 2010 -$16 billion

May 20 2010 +$14 billion

May 13 2010 +$10 billion

May 6 2010 -$4 billion

April 29 2010 -$1 billion

April 15 2010 +$31 billion

April 8 2010 +$420 million

April 1 2010 -$6 billion

You’ll note that the Fed ALWAYS made its largest capital contributions during options expiration weeks. Heck it pumped $31 BILLION into the system in April 2010, just ONE MONTH after it claimed QE 1 ended!

However, since that time the Fed has pumped a total of over $65 billion into Wall Street on options expiration weeks. On non-expiration weeks the Fed either withdraws money or makes small money pumps.

This pattern finally ended in August 2010 when the Fed failed to pump the system on options expiration week. But then again, why bother? The Fed was about to announce its QE lite program in which it would use the interest on maturing securities to purchase Treasuries from Wall Street Primary Dealers via its Permanent Open Market Operations (POMO).

I realize that last sentence is a lot to take in. So let me explain how this new QE Lite Program works before we continue.

During Treasury auctions there are 18 banks, called Primary Dealers, who are given unprecedented access to US Debt (Treasuries) in terms of pricing and control. These are the BIG BOYS of finance including firms like Goldman Sachs (GS), JP Morgan (JPM), Bank of America (BAC), Credit Suisse (CS), and others.

During its QE 1 Program, the Fed bought over $1.0 trillion in securities from these firms. Its new QE lite program consists of it using the interest and proceeds from the securities in its portfolio that are maturing to buy Treasuries from the Primary Dealers via Permanent Open Market Operations (POMO).

In simple terms, the POMO actions allow the Fed to pump money into Wall Street (by buying Treasuries from the Primary Dealers) without DIRECTLY monetizing Treasury debt (the Treasuries had already been issued). The Primary Dealers then take this fresh capital from the Fed and plow into stocks, forcing the sort of ramp job we saw last week on Friday.

All told, the Fed has bought $20 billion worth of Treasuries in this fashion, $11.15 of which it purchased last week alone. With this kind of weekly money pumping in place, Bernanke and pals don’t need to continue their “behind the scenes” games (like the options expiration week money pumps).

Or do they?

Unbeknownst to most investors, last week Ben Bernanke pumped an additional $11.05 BILLION into the system ON TOP of the $11.15 pumped via the POMOs. In plain terms, the Fed juiced the system by $20+ billion in a single week, bringing its liquidity pumps RIGHT BACK QE 1 LEVELS.

If you want to know why stocks have rallied in the last month, this is THE reason. The economy isn’t improving and the European Crisis isn’t over. Nothing has improved. All that has happened is the Fed funneled money into the Primary Dealers who ramped the market.

This is also the reason why the latest rally has almost entirely consisted of gap ups: the Primary Dealers ramp the market and then the computer trading programs take care of the rest.

In plain terms, the market is being juiced higher, plain and simple. There is no fundamental reason for stocks to be rallying. Moreover, we have numerous signs of a top forming (mutual fund cash levels, insider selling to buying ratios, negative divergence, etc). Those who choose to buy into the farce of a rally are going to get what’s coming to them. And when they do, it won’t be pretty.

(end of article,  my post for tonight follows below)
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Tensions rising ...


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Today the stock market received a second prop visible in the lower chart cluster, row 1 chart 4.  We now have two props holding us up from the lower line of the brown mother channel.  The reason for these props is visible in the chart directly below that one ( row 2 chart 3 ) , where we see that the S&P has now tried and failed four times to get back up into the red line bull channel from early summer.  This struggle is causing the VIX/fear index to build a setup for moving higher.  To help follow the key relationship between the VIX and the S&P I am adding a second pair of charts into the lower cluster, row 2 position 1. These are daily bar charts with 5/10 moving averages to give us a different perspective on the inverse relationship  between the S&P and the VIX.  (we have been following the VIX and S&P on 2 hour bar charts with channels drawn in the upper chart cluster,row 1 and row 2. )  These 2 new charts are of the VIX and are stacked on top of each other directly below the S&P chart which is it's market inverse.  What we see happen in the S&P chart (with green side bar print) should be the mirror opposite of what happens in the 2 VIX charts below it which have their side bar print in red.

Which leads me to tonights big issue -  the S&P put/call for today is a incredibly bearish 3.53 which means the vast majority of options players see that the past 3 days market action has been grossly manipulated upward and may be about to fall back in everyone's face.  This manipulation can actually be seen in the lower chart cluster, row 1 chart 1 (S&P) when compared to row 2 chart 1( the 5/10 ma chart of the VIX ).  If you study the red 5ma line and the green 10 ma line in one and then the another you will see that in the VIX the red 5 crossed above the green 10 line last week and the S&P should have done exactly the opposite - its red 5 line should have crossed down through it's green 10 line to match perfectly but inversely. But Friday the bailout team intervened big time and the S&P 5 line bounced up from its 10 line instead instead of piercing down thru the green 10 to match inversely with the Vix.  A classic bearish divergence.  Now, as the VIX 5 line has been starting to be pushed upward by its 10 line,  the S&P is supposed to have its 5 line up underneath its 10 line and it should have started to push downward by its 10 line over the past couple days - like the VIX but upside down. As you can see though their market jamfest last Friday altered these lines so that the S&P 5 line is still above its green 10 line.  

This divergence is revealing that the past 3 days is not real trading and artificial moves typically reverse in an ugly fashion.  The S&P put/call shooting up to a nightmarish 3.54 is reflecting the widespread anticipation that this forced market action is about to fail. 

The Vix is a complicated tracking device for measuring fear in the market.  This is an indicator that does not lie and cannot be manipulated by design.  When the S&P is not the mirror inverse of the VIX, the S&P is being manipulated to keep the market from pulling back when it really should be and seasoned traders and investors know to keep their hand close to the sell button.  It is going to be interesting

Alan

Sunday, September 26, 2010

That will work...

Stock Market Technical Analysis


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Thursday night's make or break situation in the market rocketed to the upside at the open Friday.  All four items I discussed Thursday night successfully resolved to the upside Friday:

- In the upper chart cluster, row 1, the S&P did the price retest up from the upper blue channel line. 

- In the lower chart cluster, row 1 chart 1, the red 5 MA line turned up quickly from brushing against the 10 MA line instead of piercing down thru it.

- In chart 3 row 1, the S&P successfully retested the gray 150 and black 200 MA lines.

- In chart 4 row 1, we successfully retested and bounced up from the lower brown line of the mother channel.

The only item that might give one pause is row 2 chart 3, showing the 30min bars of the S&P and how with Friday's blast upward was stopped at exactly the lower red line of the steep bull channel from early summer.  This is also what stopped us back on the Sept.20th & 21st.  Once the S&P is back in the red line channel, the bulls will have good control of the market but the bears will be looking at the lower line of the that red channel as a place where they will take their last stand to stop this rally. 

In row 3 chart 3, the adv/dec is extremely overbought Friday afternoon and needs at least some sort of a pullback on Monday before it can go higher. 

Alan

Thursday, September 23, 2010

Make or break retest is here...

Stock Market Technical Analysis



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After a couple days of pullback the S&P has come back down to retest the upper band of this summer's  horizontal trading range after breaking up through it 2 days ago. This can be seen in the upper chart cluster, Row 1.  If the upper blue line holds as support now we have a bonafide breakout.  If it falls back down into the blue channel, S&P 1040 will become a magnet pulling us back down to it.  In row 2 of the upper cluster, we see that if the S&P breakout line holds then the VIX will get turned back down when it is near its upper  blue channel line, which would allow the bulls to take control next week.  If the S&P slips through the blue S&P upper band this will cause the VIX to break out of its blue channel which would earn the #3 Sell signal on the stock market. 

In the lower chart cluster, row 1 chart 1, we see that tomorrow is also make or break day for the 5/10 moving averages, either the market sells and the red 5 will pierce down thru the 10 MA line marking an official end to the rally or if the market rallies tomorrow the red 5 will begin bouncing up from the green 10 MA line to begin another wave up in the market. 
In chart 3 of row 1 we have another make or break in that we will be retesting the black 200 ma  and the grey 150 ma lines tomorrow.
In chart 4 row 1 we have yet another make or break tomorrow in that we will also be retesting the lower brown line of the mother channel.
In row 2 chart 3 We see that this morning's open and today's close are a nice double pin set up starting.  In row 3 chart 2, the intraday chart, we see that they are setting up a nice 5/108 ema bounce set up.  In row 3 chart 3 we see that today's double pin bottoms are both down fairly deep into the buy area of the advance/decline chart, a big plus.

Tomorrow is Friday and over the summer the prevailing pattern has been for Fridays to be the slow float upward on low volume day, followed by a gap up at Monday's open.  This makes really convenient timing for the bulls and the bailout team. The problem is the bears know this also and they will be ready to short big at the first sign of weakness.  Three weeks of driving the market up means nothing without a successful retest of the breakout line.  Don't bet more than you can afford to lose either way on this one.

Alan

Tuesday, September 21, 2010

A bit of a concern here...

Stock market technical Analysis

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On the first day after a historical breakout in the market, the vix and 20yr bond are both projecting concerns here.  In the upper chart cluster, row 3, the 20yr  bond climbed back into its black mother channel significantly today earning a #2 sell signal on the stock market.  In row 2, the vix now has a triple bottom in place at the 21.00 level and poised to start upward earning a #1 sell signal on the market. 

In the lower cluster, row 1 chart 1, today's pullback volume was considerable stronger than yesterday's breakout volume, a very bearish situation.  In row 2 chart 3, the S&P tried twice to  get back into the red steep bull channel from late spring / early summer and fell back out both times. 

The most overriding concern today is the big volume on this pullback day and having only modest volume on yesterday's big technical breakout day.  This implies there was major selling today and or new short positions in the market.  The two volume bars should be reversed, big volume on the breakout day and small volume on the pullback day.  This bearish volume situation is very likely what is causing some of the short term bond money players to move back over to bonds.  The vix not dropping down below the 21 level (lower blue line of current channel) is very bearish also.  Yesterday the S&P broke out of a 4 month sideways channel to the upside.  The vix should have broken out of its channel to the downside an equal amount but it didn't happen, instead we put in the third bottom of a triple bottom at the 21 level which could easily be a springboard for a big jump in volatility here.  This is somewhat disappointing in that a couple of weeks ago, the bailout team seemed to be getting serious about getting the market up but if they think an occasional short squeeze by itself is going to do the job, I have real concerns that they don't truely understand that this is a heavy market that will drop if they don't consistently keep pushing it and follow through consistently so that the masses of disgruntled investors will start to trust it and come back into the market. 

By the way, today's S&P put /call ratio is 3.67, extremely bearish.

Alan

Monday, September 20, 2010

Resistance breaks, the squeeze is on...

Stock Market Technical Analysis

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Finally, the upper band of this summer's trading range gave way today and the big standoff between the shorts and the longs is resolved with the shorts scrambling to cover their short positions once again. 

In the upper chart cluster row 1, the S&P breaking out of its blue channel earned the #3 buy signal line.  In the lower chart cluster, row 1 chart 1, today's volume just barely reached its average level which is really disappointing considering how big this breakout is and that a good amount of volume was added by the shorts covering.  In row 2 chart 3, we see that in the last 30min the S&P barely got up into the steeply inclined red channel from earlier this summer.  Row 3 chart 3, we see that the advance/decline is in the sell area now but that doesn't necessarily mean we will have much of a pullback. 

Technically today's breakout is the beginning of the execution of an inversed head and shoulders pattern as can be seen in the lower cluster, row 1 chart 4.  The first shoulder is the wave down from 5/20 to 6/18, the head goes from 6/21 to 8/9, and the right shoulder from 8/10 to this past Friday.  The vertical measure of this inversed head and shoulders pattern goes from S&P 1015 to S&P 1125.  This is a 110 point measure, if you add 110 points to the 1125 breakout level you come up with S&P 1235 as a potential target.  Under normal circumstances this would be a really nice secure position trade for the fall but be aware that the rally off of the 1040 floor of the summer range and today's breakout from the upper band are meticulously crafted and brutally forced rallies with heavy political underpinnings behind it.  Even though this inversed head & shoulders measures for a good run up thru the fall, the reality is it will only go as far as the powers that be continue to sponsor it.  Granted I am expecting them to really push this thing to help undo the bad sentiment against Wall Street and Congressional imcumbents.  This rally could end tomorrow or go another 3 months. In the current market, the path of least resistance is down but the short squeeze is a powerful force and that is what they are using to make the market go higher.

Over the past few months it has been shown that 60% of the avg daily volume on the exchanges is ultra high speed automated trading where computers make literally thousands of trades every second.  The abnormally low volume that we see on the chart indicator would be much less if you took out the 60% attributed to the new phenomenon of ultra high speed flash trading by computers.  If you took out the volume attributed to the shorts being forced to buy to cover their short positions, there is just not a whole lot of regular investor volume to be counted.  The average investor is a small participant in these rallies.

Alan

Thursday, September 16, 2010

Waiting to see who blinks first...

Stock Market Technical Analysis

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In today's market we had our 4th day of sideways trading on the S&P that amounted to very little change in the overall situation since my blog post last night.  The most important thing to mention is a divergence that is occurring between the adv/dec and the 30min bars of the S&P chart.  Looking at the lower chart cluster, row 2 chart 3, we see that since Sept 2, the S&P has been climbing steeply then leveling off sideways for the past 4 days but when you look at the adv/dec chart directly below it (row 3 chart 3) we see that the adv/dec ratio on the vast expanse of stocks has been basically in a downhill channel since 9/2.  This is a fairly strong divergence and might very well be causing the sideways holding pattern we've been in the past four days.  The mega caps have been exhausted by being driven up relentlessly while the vast expanse of the other stocks have been having more and more of their numbers starting to sell off during the same period producing the downhill channel in the adv/dec chart.  Since the S&P 30min chart shows that it's not going to be able to break out of the upper blue channel line with a bunch of exhausted megacaps on their own, it looks as though we are having to wait for the adv/dec ratio on the full breadth of stocks to get deep down into the green buy area where big opening gaps spring up from, especially when we can't move higher any other way.  While the adv/dec just barely touched down into the first sell area line, most traders would feel that it would need to go deeper to get more springboard power under the vast expanse of stocks so that they can help push the S&P and megacaps above the blue upper channel line.  Conventional wisdom says that the adv/dec needs to go down closer to the -3500 to -4000 area to get some true lift power but if the shorters are thinking the same and not taking any of their short positions off until we do get farther down in the adv/dec, the bailout team might decide to get ahead of the pivot point again and try to bounce the market up tomorrow when the shorters are not covering their positions yet figuring that they don't have to until the adv/dec get does get into that -3500 to -4000  area.  This would be another short squeeze opportunity for the bailout team if they think they have the ability to break us out and follow through. 

Another notable item:  S&P Put/Call ratio dropped down to .54 which means that the great majority of traders and investors believe that we are getting ready to break out of the blue line channel to the up side and are positioning themselves for that.  This is a very bullish number.  There is one wild card tomorrow in that it is quadruple witching expiration day.  Contracts for stock index  futures, stock index options, stock options and single stock futures (SSF) all expire.  This often produces strange and illogical movement in the indexes.

Alan

Wednesday, September 15, 2010

Bulls & Bears both take pause...

Stock Market Technical Analysis
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Today's market activity can be best described as both the bulls and bears stepping back, neither side sure of what tomorrow will bring.  The underlying bias is definitely toward the possibility that the powers that be are going to force an upside breakout of the summer's horizontal trading range shown in the upper chart cluster, row 1.  The put /call ratio on the S&P 500 index dropped all the way down to .77, a quick shift to bullishness during the mid day today.  No doubt giving worry to the new shorts that were obviously a big part of yesterday's strong volume.  

In the upper chart cluster, row 3, the 20yr bond sold off strongly right from the open indicating some of the short term bond money players are having second thoughts and some are moving back over to the stock market in case a breakout to the upside may be coming.  This earns the smallest buy signal on the stock market, noted with the #1 green line.  Row 2, the vix/fear index rolled over and turned back down into the bell also earning the #1 green line buy signal on the stock market.  In the top row, the S&P made its third attempt to break above the upper blue line of the summer's channel but stopped right at it. 

In the lower chart cluster, row 1 chart 1, today's volume was substantially less than yesterday's which implies indecision in the masses considering where we are at.  Chart 2 row 1, the price bars are still riding on the red 5 EMA line and today's move was a push up from being exactly on the red 5 line which typically means 1-3 days of up movement  from the price/5 EMA bounce.  Chart 3 row 1, today's candle is a modestly bullish one with this morning's low receiving support from the black 200 MA line.  Chart 4 row 1, even though the brown mother channel is steeply inclined, we are still pretty much maintaining our distance above its lower line that we crossed last week.

Row 2 of the lower cluster, I added an additional chart at the number 1 position.  This is a three year chart of the SPY showing monthly bars and it has the monthly 108 EMA in it to show how the upper line of this summer's trading band also coincides with the 108 EMA on the monthly bars chart which makes it a larger pivot point and no doubt, a very volatile area.  Chart 2 row 2, shows the upper blue line band is still containing the past four months of trading.  Chart 3 row 2, the S&P is still maintaining its bottle rocket trajectory with the super narrow, vertical ascension channel shown in gold.  You can also see it took three tries at that blue line in the past two days if you look closely.  Row 3, the 30yr chart /yearly bars, this 2 week rally has pulled the tip of the red 5 EMA line up really tight against the underside of the green 10 MA line.  In the big picture, this is a very critical point, either the 5MA punches up through the green 10MA to begin a possible multi year run up in the stock market or the 5MA line gets pushed back down by the 10MA which would be a nightmare scenario that the S&P has not been exposed to before.  Chart 2 row 3, the intraday 30 min bars chart, the red/green/blue (5/10/21 MAs) active MA lines compressed together in the early afternoon trading implying the path of least resistance (at least  tomorrow morning) is to the upside.  Chart 3 row 3, advance/decline action is not so bullish.  Yesterday and today's green line buy area bounce both failed shortly after crossing the neutral center black line.  This implies that the collective mass of all stocks is not participating as well as the mega caps which is what is being used to drive this market spike.  We really need to see all the rest of the stocks participating more in line with the mega caps to give credibility to this short squeeze that they keep driving up.

Alan

Tuesday, September 14, 2010

Here come the shorts...

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Today we finally reached the fourth hurdle that I spoke of last night, tested it twice and then the market turned back down into the bell.  This could get real serious really fast if it turns out the biggest short squeeze we've seen in years was nothing more than a move across the channel from the lower line to the upper line of the summer's blue line trading channel. 

In the upper chart cluster, row 3, we see the bonds are continuing to rise as short term bond money has been returning to the bond market after a week and a half in the stock market.  In row 2, the vix index has bounced back up from the lower line of its blue channel for the third time in the past 2 days which earns a #2 sell signal on the stock market.  In row 1, I drew in the blue summer trading range channel to help make it a little more visible & it shows yesterday's #1 bond sell signal and today's #2 vix sell signal on it. 

In the lower chart cluster, row 1 chart 1, we see strong volume today when normally you will have really weak volume when we come up against such a major barrier as the upper band of the summer trading range.  The extra volume is from shorts piling on, expecting this to just be a channel move instead of the beginning to a big end-of-year multi-month move up in the market.   When shorts come in big within a couple of days, it creates a volatile situation.  If the bailout team does not intervene to stop the impending drop, the market will sell hard and all professional traders know it which will draw more short selling.  If there is an intervention to pop us out of this 4-month sideways channel in the next couple of days, there will be a new and equally fierce short squeeze on these new shorts that will make the market rocket up. 

In row 1 chart 3 of lower cluster, today's candle is a reversal candle which short sellers will like considering where we are at.  Row 2 chart 1, you can clearly see the upper blue band of this summer's trading range and how we are stopping at it.  In row 2 chart 2, this morning and afternoon's attempts to break above the blue line both failed.  In row 3 chart 3, this morning's move up from the lower green buy area failed during mid-day and turned back down, no doubt from the massive short selling volume piling in fast. 

Will intervention happen tomorrow and will it break us out of this sideways channel or will the S&P ramp down to the 1040 lower line again?  No one knows but there sure are a lot of bets being placed today.

Alan

Monday, September 13, 2010

One last hurdle


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As of today we have three of the four things we have needed to clear the way for an end of year bull run.  In the center chart cluster, row 1 chart 4, we have regained the uphill brown mother channel after hopping across the 108 EMA line.   Second, today we broke out of the congestion MA lines which are shown in the center cluster row 1 chart 3.  Third, the financials finally broke out of their summer downtrend channel as shown on the bottom chart.  The last thing needed is to break out of the horizontal summer trading range that goes from S&P 1040 to S&P 1125 as shown in the center cluster row 2 chart 2.  To make this horizontal blue line trading range we've been in more visible, I've added a less focused in chart in the middle cluster, row 2 chart 1, where you can clearly see the blue bands of this summer's trading range and how today's close got us up really close to it but we still must break out of the top of this sideways channel or all of the past 2 weeks means very little.

In the upper chart cluster, the 20 year bond reveresed today which is the smallest sell signal on the market.  This can be interpreted as the bond traders believing that the last obstacle to be cleared, the upper blue band of the trading range, will be what stops everything.  They may be right or they may be wrong, we will see, but one has to also remember that Bernanke is starting to buy treasuries again and this would sure be the right time so that a bond market sell off can be prevented if the stock market does completely break out.  One other thing, in the middle cluster row 1 chart 1, we see today's volume broke out of the 2 week declining volume downtrend.

The S&P closed at 1121 today and the final hurdle is at 1125.  Everyone will be watching to see what happens in the next couple of days.

Alan

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