Still holding S&P 1040

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The market continued sideways showing support at S&P 1040 versus the downhill black channel (lower charts, row 2) that continues to put down pressure on the market, but tomorrow or Thursday either the 1040 level will be lost or we will break out of the black downhill channel as the intersection of these two come to a point and force a pivot one way or the other.  Nothing else in either chart cluster is really showing us market direction tonight.  When the black downhill channel squeezes the price down smaller as the channel crosses the 1040 level red line, we should get a decisive market direction quickly.  This could happen late tomorrow afternoon but if not the market should be forced to take one direction or the other on Thursday,  but may end up getting stuck drifting sideways into Friday morning because everyone will want to see Friday morning's payroll numbers, that's an important one.  Until Friday it might get a little boring.

Alan

It's going to take more than talk

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Friday's feel good rally in the markets gave it all back today because the  black line downhill channel (lower cluster row 2) is still controlling the markets.  We got up against the upper line of this channel around mid day but couldn't break out so the market sold down the rest of the day.  I thickened the lines of the black channel in that chart to emphasize that until we break out of this channel the market is just eating up the money of anyone going long.  I had one reader email me this morning asking if I was discontinuing the late Sunday night scan for trades for the week.  I told him exactly what I am saying here, until we break out of this steep downhill black line channel all the indexes and virtually every stock will get smacked down with each piece of bad economic news that comes across the wire and we are getting those pretty much every day. This is a time to sit tight.

When the markets are trying hard to sell down and the powers that be are trying hard to push it up, the market becomes an intraday trading market only wherein only the people that buy and sell intraday and don't hold overnight are the only ones doing ok in this bipolar disaster they have created.
 Looking at the upper chart cluster, the vix and the bonds both broke out of their channels to the upside giving #2 sell signals just one day after giving #2 buy signals on Friday.  One other thing that is key to watch is in the lower chart cluster row 1 chart 2 - until we see a single daily price bar break up thru the green 10 MA line and close above it, the only thing that is going to happen is that the price bars will start pushing downward from the underside of the green 10 MA line causing a 5/10 downpush and thus another wave down.

Alan

Bernanke sells a relief rally

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The markets rallied nicely as Bernanke spoke, he reminded everyone that they have a lot of tools at their disposal if things get worse and they might even take "unusual measures" but did not specify what they might be.  The real reason the market rallied Friday is that we completed a nice "W" setup as can be seen in the lower chart cluster, row 2, from Aug 24 to Friday's close.  This W bottom is also using the 6/8 low, marked with the thin red line, as its basing level.  This had a profound effect on the bonds and the vix seen in the upper chart cluster.  The bonds fell out of their pink line ascension channel and dropped all the way back into the thick black line mother channel.  Which means a lot of people closed their short term longside bond positions and jumped to the stock market quickly.  In the vix chart just above it, we see the vix dropped out of it's ascension channel and just barely re-entered its blue line downhill midterm channel.  This triggered a #1 & #2 green vix and bond buy signal as I have marked. 

In the lower chart cluster, row 3 chart 3, we see that the advance decline is approaching seriously overbought at the close Friday.  So at least a little pullback would be in order unless they do the classic move I mentioned a couple of times before where they hold all big caps firm and drop the other stocks considerably so that the adv/dec returns to the bottom green buy level without the indexes having to fall back with it. 

Obviously, Bernanke and bailout team want this to be a level they hold and build from.  However, Bernanke did make it clear that although they have all these tools at their disposal that they would not implement them for the foreseeable future which equates to either the economic situation is not bad enough for them to act now or they want to create the impression that the economic situation is not bad enough to act now.  A little reminder that we are heading into election season and it is rare if anything helpful, good, or constructive gets passed by lawmakers during the run up to election.  The Fed has a history of laying low and trying not to seem political until after the Nov elections have passed.  If they could drive the markets up from this level, no unusual measures will be needed before then and every point higher we get on the S&P will help to undo the upside down red 5 green 10 pushdown retest that has setup on the 30yr chart in the lower cluster, row 3 chart 1.  That is truly the chart to watch as it changes during an up move if they can keep it going.

Alan

Waiting on Bernanke

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Today's trading gave back most of its breakout gains from yesterday and has drifted into waiting mode to see if Bernanke can pull a rabbit out of a hat tomorrow.  In the upper chart cluster, we see both the bonds & vix are still in their uptrend. 

In the lower chart cluster, the only real changes were in row 2 where I drew in a pink line channel showing what they will be trying to work tomorrow if Bernanke's overall speech is taken as neutral overall to the markets.  Directly below in row 3 chart 3, we see that right after the open the advance decline hit the medium red line sell area and rolled over for the rest of the day.  It did stop in the last hour at the small green line buy zone but considering the fed speech tomorrow, no direction can be drawn from that.  Row 1 chart 4, the 3 bar consolidation pattern we see for the last three days is what's called a tornado pattern but for it to trigger, tomorrow must be its up day otherwise it has no bullish potential unless it is slowly built into an ascending triangle with 2 or 3 more trading days but it's too early to tell on that.

Alan

Bounce at June 8th low

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Short blog tonight...In the upper chart cluster the VIX and the bonds are both still uptrending but may have a day or two of pause here if we can get some traction from the bounce we made this morning off the June 8th lows shown as the lowest red horizontal line in row 2 of the lower chart cluster.  In that particular chart the key test point if we are going to have a relief rally will probably come tomorrow when we get up to the lower blue channel line and possibly the upper black channel line.   We did break out of the 5 day downhill channel marked with the thin brown lines. 

Still looking at the lower chart cluster, we did print a quite bullish candle in  row 1 chart 3 on good volume as seen in volume bars in row 1 chart 1.  In row 3, the advance decline has passed the halfway point, the black line, on its way back to the sell area.  Looking at chart 4 row 1, we are starting to get modestly short term oversold because of the distance from this morning's low up to the red 108 EMA line.

All in all, we could easily get at least a small bounce here but any bad economic news could easily halt an up move as it has in the last couple of weeks.  We'll have to see...

Alan

+++++ 30 Year Chart Night +++++

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I am going to forgo tonight's general discussion of the above two clusters of charts to focus on the 30 year chart of the S&P 500 Index. (last night's blog comments about each individual chart apply quite well to the charts tonight, only things have worsened.)

I have added a 30 year chart of the S&P at the bottom left corner of the lower cluster.  This is a simple 5 ma and 10 ma chart. Each bar represents a year of trading. The last bar, the 2010 bar, will still be an active bar until Jan. 1, 2011. 

The 5 and 10 ma lines work the same regardless of what time period of bars they are applied to. This yearly bars chart works the same way as the The Daily bars chart seen in the lower chart cluster also, Row 1, charts 2. 

As you see on the Daily bars 5/10 chart, when the red 5 ma line is above the green 10 ma line we have a situation where each time the red 5 brushes against the green 10 the price is driven up, sometimes several times.

When the red 5 line is below the green 10 line, then we have the situation where each time the red 5 brushes against the green 10 the price is driven down, sometimes several times, ( such as what is happening right now on the daily bars 5/10 chart - lower chart cluster, row 1 ,chart 2)

The reason that I am posting this 30 year chart of yearly bars is to show that a underside 5/10 pushdown has now set up. THIS 5/10 PUSHDOWN SET UP HAS NEVER HAPPENED BEFORE ON THE S&P 500.

It is critical to understand how a 5  period moving average works. The last bar - the active bar  - the price goes up and down that bar as the price does so. As the price goes up and down that bar the tip of the red 5 ma is pulled up and down to wherever the price is at any point in time during that bar. ( A bar is simply a visual  reprentation of that paticular time period.

Earlier this year when the S&P index price was at its high, the tip of the red 5 ma was actually starting to peek above the green 10 line, which if this yearly bar finished with the red 5 slightly above the green 10 line it would indicate a 5/10 up cross and foretell of at least a year or two of  upward market. The reason that the tip of the red line stays so closely to the price is that the 5 is an EMA - exponential moving average, whereas the 10 is an SMA -  simple moving average. This is the most commonly used moving average pair in charting.

Now that the market has broken down the tip of the red 5 line has come down with the S&P price and is now underneath it. The problem is that the red 5 line is also below the 10 line during the 2009 trading bar, and during the 2008 trading bar the 5 crossed down through the green 10 line.

The reason that I have been saying that they absolutley had to stop the collapse of the daily chart last week is because the situation of it selling down any lower than we were last week is it would cause the red 5 ma line to start curving downward - the powerful phase of a 5/10 pushdown.

Trading and investing professionals all over the planet follow the U.S.  S&P 500 for leadership. Everyone is seeing this morphing take place right before their eyes. This has never happend before. If the current yearly bar closes out Dec 31 at no higher of a level than where we are now, then we have a full steam 5/10 pushdown that could easily take the markets down much lower over the next few years.( Far more than the 2008-2009  40% sell down.

This chart is not a done deal until Dec 31.  Until then the powers that be have 4 months to turn the chart back upward in a big way. Being 4 months away, at this point this chart only projects what is likely to happen if they don't get the market considerably higher than where its at now by year end.

I am going to keep this chart in the cluster from now on.  Over the next 4 months we can monitor their progress in trying to undo what is already setting up.

Alan

Risk to the downside escalates

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Today the market climbed during the morning until we came up to the bottom line of the brown mother channel in chart 4 row 1 of the lower cluster.  As soon as it touched its underside the market rolled over and sold hard.  This is a classic retest of the breach of that lower channel line. The market has now done a confirmation of it's lower channel line failure.

Looking at the upper chart cluster, we see that today's S&P failure caused the "line retest" in the VIX and in bonds that I have mentioned I would be watching for.  In row 3 we see that the bonds sat down on the upper channel line it broke out of and pushed back upward from it   - The Retest.    In row 2 we see that the VIX/fear also retested up from the blue upper channel line.  This is where I drew the number 3 sell line (#4 is the thickest line and the biggest sell signal)  on both the bonds chart and the VIX/fear chart and transferred it up into the top row S&P chart.  The risk of losing money now greatly outweighs the risk of missing out on upside gain.

Looking at the lower chart cluster now, in chart 1 of  row 1 we see the follow thru of the red 5 ma line being forced down thru the pink 50 and the orange 324.  I added a new chart right next to it that isolates the red 5ma and the green 10ma lines.  When the red 5 line is above the green 10 it uses bounces off of the green 10 line to send it higher, as we saw three times in July.  Now the red 5 line is underneath the green 10 line & will use each brush against the green 10 line to send the market lower, possibly multiple times. (three red-green interactions is by far the most common pattern, when going up and when going down.

In chart 3 of row 1 we see that the brown 100 day moving average line is threatening to cross down through the black 200 day moving average line. The last time this happened was on Jan 3, 2008.  A 14 month down leg in the market followed. If this 100 line does down cross in the next few days, like all other ma crosses  the brown 100 line would need to come back up and do a retest pushdown from the lower side of the black 200 line before it is confirmed, which could take a week or two or more. Still though if the down cross happens it is a huge red flag before we even see if it confirms.

In row 2 we see the tiny 2 day red ascension channel failed this afternoon, sending the advance-decline on the path back down to the bottom as can be seen in Row 3 chart 2 just below it.

The flight to bonds is quickly becoming a panic to bonds, to avoid the potential downside risk of the stock market now that it's daily chart is broken.  Where the next intervention by the bail out teams happens is anybody's guess. It could be tomorrow morning. The effectiveness of each new bailout attempt is becoming less and less effective each time it is done, though.

I should go ahead and mention price patterns also. The biggest price pattern sell signal is the "Head & Shoulders" pattern. It is named that because it is has 3 up moves in the market back to back, with the center move going higher than the first and the last. Hence the "head and shoulders" name.  If you look at Row 2 of the lower cluster you can see that we have developed that pattern.  The left shoulder goes from July 8 to July 22.  The head goes from July 23 to Aug 12.  The right shoulder goes from Aug 13 to today.  The neckline of the head and shoulders is at 1065, if we fail that number on the S&P convincingly, 80% of the time the selloff will go down as far as the height of the top of the head which is at 1128.  So 1128 minus 1065 is a potential 63 point drop in the S&P which would take us right down to the S&P 1000 level which should be at least good short term support.  Notice that I marked the July 19 low with a red line at the 1057 level.  I am expecting the bailout team to defend that level vigorously but if they fail it's reasonable to expect the full downside measure that the head & shoulders pattern computates.

Alan

P.S.  In the lower chart cluster, in row 1, chart 3 todays candle wont print. All of the professonal data services are having overload trouble with their feeds.  The entire planet is logged in and the professional maket data services are having serious trouble handling it, causing in and out failures of various indicators.  I whited out the OBV in the chart just in front of it,  it too is having constant problems. This only happens at truely historic pivot points in the market.

I have sold all 3 of my current trades, as they have broke down with the market.

Also, I will be posting a good number of the 20 year "is your stock overextended?" charts this evening into the blank blog post space I have already created just below this posting.  Anyone who has any stocks they would like for me to include can email me the symbols and I will post them also.

Additionally, tomorrow morning we get the existing home sales numbers. The consensus is that they will be bad enough to cause another market opening smackdown.  The housing maket is dragging down the economy and the economy is dragging down the stock market.  Fasten your seatbelts.

"Is your stock overextended?"

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INVESTORS - These charts will help you to decide for yourself whether the stock you are holding may be getting to be a little too high in the chart, or whether your financial planner may have put you into a stock when it is already near the top of its chart.

The charts I am showing tonight are 20 year charts. Each single price bar represents 3 months of trading. The red line is another special moving average line that serves as sort of an anchoring point for all stocks and indexes. You can think of the current price bar as being tethered to the red line with an invisible rubber band. The higher the current price goes the more stretched out the rubber band becomes and the pullback tension increases proportionally. Most stocks generally only get so far stretched away from the red line before the tension becomes too great and the big pullback sell off happens.

The purpose of viewing a stock like this is to look at its history and see how far it typically gets up away from the red line before it gets pulled back down. If the current price is about as high above the line as it ever gets, then there is a good chance it may not get stretched any higher up this time also. If you are holding a stock that is in that situation it might be good to give it a second look.

Granted sometimes a stock stretches even higher up than it has in its 20 year history, but as it continues to go higher the pullback tension on the rubber band becomes higher also.

For the past 2 years as long as the indexes are going higher, most all stocks go higher, even those stretched really high above the red line already. The problem with holding one of these overstretched stocks comes in when the market starts a sustained leg down. Those overstretched ones usually have huge sell downs, whereas the ones that are not that high above the red line have relatively modest percent losses in a market down leg.

Its called "being high in the chart". If you are picking a stock or a broker is putting you in a stock it's a good idea to be sure it's not already too high in the chart for comfort just in case the market starts a long leg down.

This view of stocks is only good for identifying the ones that look too high already, you cannot assume that if the price is down at the line it necessarily will turn back upward, nor can you assume that if the current price is below the line, or even overstreched down below the line that this gives any indication that it will get pulled back up. Many stocks are low in the chart for good reason.

The only other thing this view tells you is to be aware that quite often after a stock's rubber band pulls it back down to the red line, it may bounce back up from the red line and go higher again. Just how high it can go up from the line again is not something you can project from this view. A whole host of other technical analysis determines that and I can, over time, go over a lot of it.

Floor falls through, big intervention & reversal

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I need to save a default post for this situation, LOL.   On Friday the big MAs pushed the five down through two more MA lines and we fell out of the brown mother channel and brown 4 week descending channel.  Then by late morning the bailout team worked its special brand of magic and the market reversed and went back up.   

Looking at the top chart cluster in row 2 we see that the vix/fear index fell back down in Friday's four trading bars but stopped right on the blue line which does not give us direction either way, it has to either slip thru or bounce from it.  In row 3, the bonds are starting to go sideways now but are still above the channel.  If the bond price comes back down to the upper channel line and draws back into the channel, people will assume that was it for this upwave in this last 2 weeks in bonds and the big hedgefunds will slush money back into the stock market for a while.  If the bond price bounces up from the upper black channel line, that would be a breakout confirmation and short term bond money is going to stay put for a possible ramp up in bond prices (ie. you don't want to miss the first upwave in a new bubble).  No vix or bond sell or buy signals are showing yet because the vix chart is sitting neutral and the bond chart more or less went sideways the past 2 days. 

Looking at the lower chart cluster, for viewing convenience I added the 108 into that chart so you can see how both the red 108 is pushing Tues & Wed price bars down and the green 10 pushed the 5 thru the orange 324 and pink 50 MAs.  They have punctured thru and this is called a broken chart.  The S&P / SPY has no technical reason to go back up now. As you see in chart 3 of 1, Friday we fell out of the brown mother channel.  In chart 2 row 1, Friday's candle is a reversal which is what always shows when the market sells down and comes back up in the afternoon.  Basically we have broken down bullish technical analysis but intervention by the bailout team with a closing below the brown mother channel in chart 3 row 1. 

In row 2, I added the third blue line of the horizontal channel which is obviously what the bailout team is trying to sell to us.  Friday's rescue did bring us back up into the 4 week brown downhill channel.  If the bailout team will just allow the market to trade freely in a sideways channel from 1070 on the S&P up  to 1125 on the S&P and just stay out of the market as long as it is in this channel, it will allow traders to start coming back into the market and hopefully, fairly normal trading will resume.   They will have to leave it alone however, within that trading range.  There will be many oscillations inside that horizontal channel and there has to be a down move in order to have an up move, this is how the market works.  If they instead decide to come in and try to keep even tiny oscillations from coming back down a little and then their failed attempt to do so produces a sharp drop down instead of the controlled normal down oscillation, they will continue destroying investor and trader confidence in this market. 

The article I posted Friday night was about the great Stanley Druckenmiller, one of the few fund managers that has managed to show positive gains for 30yrs back to back, thru all the bear markets, recessions, internet  bubble crash, and everyone expected him to be the #1 guru for another 10 years, the man is only 57 years old.  He has grown so sick of the market interventions that happen every week this year that he has basically decided he has had enough and is walking away from the game.  He, along with everyone else, knows that markets must be allowed to trade freely in either direction.  A market that is not allowed to ever go down is also a market that does not have the ability to go up.  It ends up a shadow of its former self , stuck in a long term sideways trading range similar to the non-precious metal rare coin market.  There has also been a large number of hedgefunds of all sizes closing shop this year because the market is not really a market anymore.  The market has had extreme difficulty maintaining 3 up days in a row because they do everything they can to keep it from having 3 down days in a row.  The cost of doing this every week has to be mind boggling.  Prior to 2008 the Plunge Protection Team (PPT) (set up by Ronald Reagan) was taking care of the markets.  Interventions only came in after there were very long legs down and very long legs up.  They were not used weekly as a  way to keep voter sentiment upbeat.  Since Geithner's team became the bailout operators, the markets just haven't been the same.  Granted this is election season and market manipulation is heaviest at this time in the cycle but every 2-3 days is just ridiculous.  By doing this so frequently, they are scaring investors into bonds in droves and eventually there is not going to be enough willing investors for the stock market and then they will find that they will have to hold it up full time because of what they created,  which won't be possible because it's no secret that these relentless bailouts are unsustainable.

Ok, I am getting down off of my soapbox now.

Let's just hope that in a few days all of the different colored channels drawn in row 2 of the lower cluster can be removed except for one sideways blue channel, 2 weeks up and 2 weeks down like the old days. Looking ahead to the coming week, the S&P daily chart is broken,  but the powers that be are determined to "fix it". The only thing you can say for sure about that is it's going to be an interesting week

Alan

P.S. I added a 30 minute bars chart to the left of the adv/dec chart in Row 3 of the lower chart cluster, to show intraday trading.

A good read

I was out this evening and I will have to post my regular blog update tomorrow evening. I would like to post a link to an article about what the constant government intervention in the market is doing to it. ( Yes, the bailout team jumped in this morning when we lost the big pivot point)  It also talks about the exodus to bonds that is taking place.

www.thehousingtimebomb.blogspot.com/2010/08/is-it-time-to-take-timeout-from-capital.html

Alan

The stakes are getting high

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Today the market sold down on big volume right from the open. The unemployment new filing numbers were bad and the Philadelphia Fed  economic numbers were a disaster. The economy is giving warning signs nearly every day of where it is going.  Any investor not paying close attention on a daily basis would never dream how serious of a situation were are in now.

Looking at the top chart cluster, in row 2 we see that the VIX/fear index broke out of the downhill brown and the blue channel for a medium size VIX sell signal. The Bond market broke out of its channel to the topside, another medium sell signal.  Today may be the day that everyone will look back upon later and say was the first day of the great Bond market bubble of 2010-2011.  The bond market dwarfs the stock market several times over.  No one wants to even speculate the events that would unfold if the bond market bubbles up and then pops like the internet stock bubble of 1999-2000. Yet we are still seeing masses of investors bail out of the stock markeet and flee to the bond market. Considering how high the bond market is already, this migration of investment money will be all it takes so start pumping up a bond bubble.  All bubbles begin with a topside breakout of an already steeply inclined channel. Such as we did today.

Looking at the lower chart cluster, In chart 1 of row 1,  I added in the 324 ema as the orange/rose line. It is completely covering up the pink 50 line.  We now have the rare situation where the 108 ma (chart 3 of row 1) and the green 10 ma line (back in chart 1 row 1) are pressuring the red 5 ma line to cross down through both the pink 50 and the orange 324 - at the same time.  I scrolled back 18 years in the S&P daily chart( allow one hour for doing that, LOL)  and I found that this type of a pressured pivot point has not occured before.  This is a very high pressure and very volatile set up.  If the 5 cannot withstand  the pressure and crosses down thru both critical ma lines, it will also fall from the brown uphill mother channel shown in chart3 row1 - at the same time also.  This could send us spiraling down to the early July lows. 
If they drive the market up like a rocket tomorrow they could potentially twist the 5 ema enough to morph the 5-50 into a bounce rather than a down cross. They certainly have the motivation with the huge PUT inbalance, but it would truly have to rocket up.

In row 2 we see that the S&P stopped it's fall this morning with the lower line of the new downhill brown channel.  In row 3 we see that went down deep into over sold territory today also.

Another market rescue is absolutely necessary again tomorrow.  If they drop the ball tomorrow or if the exodus to the bond market is just too overwhelming for them, a lot of stock investors may be really wishing that they too had switched to bonds.

Alan

Still in limbo

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The opening this morning was absolutely perfect execution of the technique I mentioned in paragraph 2 of last night's blog.  At the open they held all the big caps firm exactly where they were at and dropped the rest of the stocks so that the advance/decline fell without the indexes falling.  Last night I mentioned that I thought the best they could do would be to bring it down to the center black line of adv/dec but they actually did that plus in that they managed to drop it down to the first green buy area line at the bottom.  All without causing the indexes to come down.  This is a perfect execution of one of their classic maneuvers and just in the fact that they were able to do this shows traders just how much in control of the markets they were this morning.  Thru the morning the traded the market up nice and steady and even built a nice ascending triangle before lunch, probably just to show off.  In the early afternoon, the market hit up against the same resistance that it topped out yesterday, the 1100 mark on the S&P. 

Granted there is always some resistance at the big round numbers but what is really stopping the rally can be seen in chart 1 row 1 of the lower chart cluster.  The price peaked and rolled back over both days when they hit the blue 21 EMA.  Yet in that same chart that's holding the market there is also promise in that the red 5 has started doing the curve up bounce from the pink 50.  This is how the middle wave of most three-way up legs in the market begin.  Tomorrow the 5/50 bounce will have to be strong enought that the price bar punctures up thru the blue 21 line and as of today also the green 10 line  on top of it - double resistance there. 

In chart 2 row 1,  today's candle represents indecision.  In chart 3 row 1, we can see that the red 108 line is actually a third layer of resistance right above the blue 21 and green 10 shown in chart 1.  So we basically have a pancake of moving averages the 10, 21, and 108 stacked up right on top of yesterday and today's high.  This is serious resistance.

In row 2 of the lower cluster, I have drawn a new channel, the brown line descending channel that we can now plot and see easily.  I also went ahead and added the tiny thin red line intraweek channel that we are trying to keep climbing in.  We closed today right on the line, another limbo situation. 

Row 3 of the lower cluster shows how they dropped all the stocks this morning except for the big caps so that the indexes stayed tight and didn't lose anything.

Looking at the top chart cluster row 2, today's morning rally dropped the vix back down inside the safety of the brown downhill channel.  Into the bell, however, if you look closely you can see that it came right back up to the black line and just barely peeked over.  Once again, leaving us in limbo.

Row 3 of upper cluster, we see that at the open this morning the 20yr bond popped out of the channel but then thru the middle of the day came back down in it but not far enough to be convincing with either move. 

The biggest weight on the market is the fact that we have the 3 important moving averages pancaked right on top of yeterday and today's high which is also the 1100 mark on the S&P.  Looking at row 2 of lower cluster once again, you can see that we regained and lost the horizontal blue channel twice when we peeked out yesterday and today.  Tomorrow's trading action will force us either up into it or we will fall out of the tiny red line intraweek channel.  EIther one will end this stalling point.

Alan

P.S.  I am lowering the trigger price on SGMS to 11.21.

Well....they had it going...

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Today started out looking like just what we needed. The markets climbed quickly and steadily. In row 2 of the lower chart cluster we can see that at about 1:00 today the S&P ran right up to the bottom side of the red channel.  Instead of crossing up into it, the S&P was turned back down by it. This happened at the same time the advance/decline in row 3 touched up against the big sell line. They had it going and then they lost it at the first real resistance.  Now they  are in  the situation where they have used up the ammo of the advance/decline going from oversold up to overbought without getting us back up into the red channel.  Now it is time for the down oscillation in the market to take the advance/decline back down  to the green area. This will take considerable intervention again tomorrrow to counteract today's failed channel recovery attempt.

In chart 1 of row 1, we see that the red 5 did lay down on the pink 50 today, but now must turn up tomorrow despite the overbought advance/decline situation. This will be difficult.  The only way I can see for them to pull it off would be to bleed off all the stocks except for the big caps, but hold the big caps firm. If they only let the rest of the stocks go down modestly and then reverse them at the center black line of the advdec chart before too much downdraft happens, then push all stocks up at the same time, then they may succeed in  making another attempt to get back up in the red channel of row 2. 

Also in chart 1 row 1, today's volume was higher than yesterday's volume which is a positive.  In chart 2 row 1, we see a somewhat bearish candle but it did cross above the 324, the long term neutrality line which  together are a bit of a mixed bag.  In chart 3 row 1, we see that we didn't quite make it back up to the 108 MA red line.

Looking up at the upper chart cluster, the top two are the S&P and VIX we have been following for a few days and you will notice that this morning's market move up turned the vix/fear back down into the brown downhill channel thus earning the medium green line vix buy signal which has been drawn.  As you look to the last 2 hour bar on the vix chart though you see that in the late afternoon the vix turned back up and is threatening to jump back out of it.  Can you say bipolar?  The vix closed exactly on the brown line. 

You will notice in the top chart cluster that I've added a third chart - the TLT,  the ETF trading vehicle for the 20yr treasury bond which marks its moves precisely.  Yesterday there was a big gap up in the bond prices and there was widespread sentiment that it was going to breakout of the channel to the upside because of the inflow of stock market money moving to bonds for safety.  Yet, it did not happen, you can see the TLT could not break out and was turned down at the upper black channel line.  This I marked with the medium green buy signal.  This is a huge plus for the efforts to push the market higher.   Huge hedgefunds that simply rotate back and forth from the bond market to the stock market, because they trade almost perfectly inversely, will now be rotating back into the stock market for a little while.   Most bond traders though will be looking for the confirmation of the TLT price coming up and touching the upper channel line again and pushing down from it a second time.  If that happens we will have a huge flood of bond market money slush back over to the stock market for a few days. 

The big wall street firms that desperately need the market higher by Friday because of the Put inbalance I discussed last night will be waiting with open arms for the short term bond money to rotate back over to stocks.  Until of course the TLT gets back down to its lower black channel line again and then they will pull all the money back over to the bond market once again.

To summarize the 20 yr treasury and the Vix trade almost perfectly inversely to the S&P but are typically 2-4 hours ahead of the S&P so that those that study their charts closely can get a jump on their S&P trade decisions.   More importantly the vix and 20yr treasury only maintain a couple of channels at a time and breakouts & reversals of their channels sometimes are 2-3 days ahead of the opposite move happening in the S&P and the broad market.  If you plot all the channels on the S&P 500 in a 6 month chart right now there are actually 16 channels of all various sizes being used.  They do this to keep people confused but if you follow the vix and 20 yr treasury, their channels are very few, clear, and simple and will really give you a lead on what's coming in the broad market. 

Since today's channel recovery attempt failed we are still in limbo once again tonight.  Everyone will watch each 2 hour bar of the 20yr treasury and vix tomorrow.

Alan

P.S. Two more of the untriggered buy orders have triggered and moved to open orders

Note:

I wanted to mention that I added some discussion about this being options week to the post below for those that read tonight's post earlier.

Tomorrow will be the key day...

click on above images to enlarge

From a post earlier today, the bailout team stepped in this morning and made it very clear they were there by sending in continuous 1million+ share block buys ridiculously above the current ask.  I have my  time and sales log programmed for when these come thru they are highlighted in neon green and let's just say it was a colorful morning.  You can see on the vix chart at the top, the double vix / S&P chart, that today's trading - the last four bars - was basically sideways action outside the opening blip as was the same for the vix.  Nonetheless, the vix closed outside the blue channel again which makes it farther out of the brown downhill vix bull channel. 

You will also notice that I added the day chart 108 EMA into this more focused chart as a red line.  You can see how the vix/fear also uses the 108 line as a neutrality point.  Now we are on top of it. 

On the lower group of charts, chart 1 row 1, we can see how they are trying to rescue the market by having the red 5 EMA line catch the pink 50 EMA line so that the red will trade sideways on top of the pink 50 before curving up for the start of a new rally.  This is a pivotal point, if in tomorrow's trading the market goes down, it could cause the red 5 to pierce down thru the 50 pink and that could trigger 2-3weeks of ugly selling.  If the market is sideways or slightly up the red 5 EMA will turn sideways and lay flat on the pink 50 positioning itself for a nice retest rally to begin in the days to follow that. Tomorrow is critical for a successful rescue.  If they do manage to start a 5/ 50 bounce it will put the vix / fear back down into the brown downhill channel that allows the market to rally.  If on the other hand it pierces thru the 50, the vix will very quickly jump up into the black uphill bearish channel for a prolonged sell off.  Also notice that the volume is declining, another bearish indicator that people are just not buying the rescue that they are trying to pull off.

In chart 2 row 1, we are underneath the heavy rose colored line - the 324 EMA - which is a really long term neutrality line similar to how the 108 is a midterm neutrality line.  Today's candle was a reversal candle which tells us tomorrow they are going to try to make the move.  In chart 3 row1, I posted a large 9 month chart of the SPY / S&P500 and in it we see how we dropped thru the 108 line as soon as we broke thru the uphill blue trendline.  As you can see, they are catching us where they absolutely must do so - the lower line of the new uphill brown line mother channel.  They will try to hold that line with everything they have tomorrow.  If they somehow cannot hold it, the market rescue will have failed and the next support is not until the July 1st lows that you can see in the chart. 

In chart 1 row 2, my data feed service is having problems with the graphical representation of on balance volume tonight.  I rotated into alternate server farms but still the same so we will have to ignore this tonight as the blue line is not working correctly.  In chart 2 row 2, you can see the various support levels below us but we don't have any moving averages support below us, we are below all of them now.  That is why it was so crititcal that they begin the rescue today as I discussed Friday night.  Granted they are working it now but they are having trouble making progress.  This can be seen by comparing chart 3 of row 2 against the advance/decline chart directly below it.  You can see how in the S&P chart, Thu - Fri - and today's trading has been slowly drifting downward while at the same time the advance/decline has been climbing up from the depths of the buy area and is approaching the moderate sell area already.  If we get up a little higher into the sell area tomorrow and people see that all that happened during the 4 day advance/decline ascension was that the S&P drifted lower during the 4 days when it should have gone up proportionately everyone will realize that the 4 day upward push in the market netted a loss for 4 days and that when the advance/decline heads back down again, the down draft could be a tremendous force. 

This is a classic adv/dec bearish divergence that normally would be ominous of a serious market sell off over the next few days.  However, the bailout team is working to turn the market around before a multi month down leg gains steam and tomorrow is their D-Day.  If tomorrow's close doesn't show promise, Wednesday morning might be a dangerous open unless they serve up a monster gap open out of the blue, which will only be a gap and trap as shorts will pile on a big gap up in force. 

It's encouraging that they are trying to save the new mother channel that is shown with the heavy brown lines in chart 1 row 3.  If they lose that, the path of least resistance will be very heavily weighted to the downside for some time.

One other factor, options expiration is Friday.  When the third Monday in every month comes around, the big wall street firms spend the next four days focused on one thing, making as many options as possible expire worthless on Friday expiration day.  If on Monday the total S&P Put/Call ratio is below 1.00, it means that more people have placed option bets on the market going higher than the market going lower so the gameplan for this type of week is to push the market down as we approach Friday so that it will wipe out the Call side option imbalance.  If on the other hand the Put / Call ratio is above 1.00, which means a Put side imbalance or more people betting the market will go down, then they will want to drive the market up by Friday expiration to wipe out the Puts that have been bought.  This is an ongoing game that is played the third week of every month.  Whatever the market is doing during the first, second, and fourth week of the month is absolutely irrelevant to what happens in the market during options expiration week, which is this week.

Tonight the total S&P Put/Call ratio is 1.55, this is very heavily weighted to the Put side which means the majority is betting that the market will continue to fall.  If the market does continue to fall thru Friday wall street will have to pay out on all these Puts and it will be a hefty price.  So the gameplan will be for them to get the market as high as possible by Friday to wipeout this Put side imbalance.  For them to do so would be a major cash windfall for all wall street firms.  When the options week imbalance is minor to one side or the other sometimes they won't bother with pushing the market the opposite direction. 

This desire by wall street to drive the market higher by Friday (even if they end up letting it drop like a rock next week) will be a real boost to the bailout team at this point in the charts.  On the other side of the coin the bond market is receiving cash from people bailing out of the stock market that is truly remarkable.  The public is nervous about the economy and stock market both.  Since the bond market is seen as the safe place to park money thru unsure times there is a downward pull on the stock market from people rotating into the bond market.  This is another reason for the low volume we have right now.  Whether or not the bailout team and wall street's options expiration week game plan are enough to offset the flight to the bond market remains to be seen.  We will see a lot this week one way or the other.

Alan

P.S.  I will post the individual 20yr "is your stock overextended?" charts on the weekends instead of nightly, and post a good number of them at a time.  Also one of my untriggered buy orders, FBR, triggered today and is in open trades now. 

They are on the field now...

The bailout team has taken the field.  Let's see what they can do...

Alan

Late Sunday night stock scan...

I found three more symbols I liked for this coming week that I believe are high enough quality setups to withstand however much down draft we have this week.  They are FBR, SGMS, & CVH.  These are in the untriggered buy orders section now.

Alan

A quick note...

I see that my DPZ from a few days ago withstood the downdraft quite well, so I am setting up another limit buy order to get back into it tomorrow morning at $13.22.  It closed friday at 13.17.

Alan

Not looking good...

click on image to enlarge

Most of the day today the trading world was just watching and waiting but in the last hour, the vix breakout  began.  When the vix breaks out of or restests from one major channel line it is a medium vix sell signal - medium red line.  When the vix breaks out of or retests up from 2 major channel lines it is the large vix sell signal and the thickest red line.  If the vix breaks thru a major trendline, it is a small signal when it first crosses, becomes a medium sized signal if we actually close outside of a major channel line and becomes the big vix sell signal if when after crossing it pulls back to the line it crossed and uses it to push away again (a retest confirmation).  The current trading channel, the blue line channel is only a minor channel.

Today we broke out and closed out of a major downhill channel and in addition broke out of the small blue channel we have been in the past 6 weeks.  Since the blue channel is a minor channel it does not count as a 2 line breakout so it is still a medium sell signal. 

This is really serious. This is how the major downlegs begin. Yet you can not ignore the fact that  when  the market is really in trouble the bailout team has been coming in for the save at the last minute, or even after the sell off has begun to intervene and reverse the market. Typically they do their interventions on Monday mornings with a huge cheesy opening gap up. Sometimes it is almost comical watching the financial media scramble to come up with a plausible reason for the monster gap up from out of the blue. Of course everyone goes along with it as long as the music is still playing.

The music has stopped.  They did not step in a couple of days ago when it was necessary to do so. Are the market rescues coming to an end?  Nobody knows.  Monday will be another test of  whether they are exiting the picture on not.  In the past 1 1/2 years I can not think of any other time it was as critical to intervene as it will be Monday morning. 

The medium VIX sell signal can cause the market to be ugly for some time - without a rescue.  This bail out  team has shown a pattern of taking a stand, and if it doesn't work out they seem quite willing to fall back some and then take another stand at a lower level.  If they don't do the monster gap up Monday, they will have to bring the market up the old fashioned way - trading it up - and that has not been working well for them.  The next place they would likely take a major stand at would be if  the VIX gets up to the lower black channel  line in the 33.00 area. If we cross up into that channel that would mark another VIX sell signal - the medium sell signal - the medium red line. If the VIX retests the line the then it would become the big sell signal.  You can count on one whale of a fight at that line. It the bulls and the bailout team prevail at that line and the VIX turns back down then we would have a medium size vix buy signal.

All eyes are going to be on the futures premarket session starting at 7:00 am Monday

 

Alan

Another note

I had a reader email me this morning and ask about the brown line that is visible down in the bottom left corner of the VIX chart I posted last night.
That line is actually the upper line of the previous downhill chanel in the VIX/fear that procuced the Feb-April rally in the market. You can see that at the end of April, the VIX broke out of the brown downhill channel, then a few days later it pushed up from the topside of the brown downhill channel line for breakout confirmation, which is where I marked in the thick red line the strongest VIX sell signal and a 7 week sell off in the market began.

Alan

Extremely critical pivot point tonight...

click on image to enlarge

I am foregoing all of my regular charts tonight to focus on one thing only, which is at a historical pivot point this evening. That is the Vix volatility index or also known as the fear indicator. The stock market is all about fear versus greed and it swings back and forth from one emotion to the other. The vix lets us track it visually so we can see changes in market direction starting to happen.

When you click on the above image you will see that I have posted a 4 month chart of the S&P index on the top and a chart of the vix below. The lower chart is to be analyzed first because changes in it causes changes in the market chart above. There are three sizes of lines: thin, medium, and thick red and green lines. The thinnest red lines are minor vix sell signals, the medium red lines are medium vix sell signals, and the thick red lines are major vix sell signals that you can see if you study the vix and its channels closely. The thin, medium, and thick green lines are small, medium, and large vix buy signals. Each bar represents 2 hours of trading and the start of each Monday is marked with its date.

A few of the major pivot points:

4/26/10: we left the bullish brown downhill channel and popped back up into the bearish black channel which is the largest sell vix signal possible, thus the thick red line. A 7 week major down leg in the market followed.

5/14/10: the vix crossed from below the center line to above the center line forming a medium sized sell vix signal for the vix and thus the medium red line.

6/22/10: the vix bounced up from the lower line of the black channel issuing a medium sized vix sell signal.

7/1/10: we got a shooting star candle that kept us from crossing over the center line of the black channel and also kept us from breaking out of the bull's downhill brown channel which is a large vix buy signal and thus the thick green line. The market went up for the 6 weeks to follow.

7/9/10: we slipped out of the bearish uphill black channel for a confirmation signal.

7/13/10: the vix formed a tiny ascending triangle meaning fear was going up for a few days and I marked in the first tiny red vix sell line.

7/16/10: the vix popped up into the black channel briefly so I marked in a small red vix sell line there.

7/19/10: we slipped back under the black line channel and pushed down from underneath so I marked a medium sized green vix buy signal line. At this point in time I could see that we were establishing a downhill channel and I drew a blue channel. That was also the day of my first post where I stated that they were trying to turn the market back up in a convincing way here.

7/21/10: we hit the top of blue line fear channel and turned back down so I marked a green vix buy line above it.

7/27/10: The vix / fear bounced up from the lower blue line meaning fear was going to start heading back up so I marked a small red vix sell line and the market sold for a few days.

7/30/10: the vix / fear bounced down from the upper blue line indicating fear was heading downward again so I marked a small green vix buy line and the market went up for a few days. After that the fear stayed at the lower blue line which is the vix sell signal line of the blue channel but kept hugging it instead of crossing to the upper half.

8/10/10: the vix jumped up past the center point of the blue channel and I marked in a small red vix sell line.

8/12/10: this morning at the open we jumped above both the blue bullish channel and the brown bullish channel but pulled back into both during the first 30 min. of trading. I went ahead and marked a thin red vix sell line then because we momentarily jumped out of both channels.

8/12/10: at today's close the vix closed exactly on both the intersection of the blue and brown channels. If the vix trades above that tomorrow and closes above it I will be drawing the thickest red line vix sell signal tomorrow night. If the vix falls tomorrow, I will be drawing medium green vix buy line. The reason I wouldn't draw a thick green vix buy line is because, fear can only go down just a little to its lower blue line before it could bounce back and turn back up again which would mean another thin vix sell line. If within the next couple of days the vix breaks out to the downside of the blue channel, I will find the fattest green marker I can find and proceed.

Alan

Watch out

The jobless report this morning showed the numbers have worsened again, tanking the pre-market Futures. A bull run purge is a two sided coin. If it doesn't cause panic it clears the way to go much higher. If it backfires on them and panic sets in fast then they caused the new leg down in the market that they were trying to prevent. This could be it, they may well have caused too much panic in the crowd that rode the Sept 2008 leg down, and those people sure don't want to take the chance of going through that again. If the bailout team doesn't jump in today and save us.......look out below.

Alan

Purge day number 2...

Click on image above to enlarge & see 8/1/10 for how to interpret the bottom 3 charts

Sure enough we got the second day of controlled purge I mentioned in closing last night. As long as that does it, it was truly a masterpiece. I was a little surprised to see them open the market just slightly below the 108 EMA this morning as shown in chart 3 row 2. This did exactly as it was supposed to do which was to trigger massive sell / dump it all programs. Everyone who wanted out of the stock market because of the direction the economy is going may well have gotten out today. As the sell programs took us farther down, they stopped it right to the penny where it has to stop on a short term basis - the 50 MA.

I have added the 50 MA to chart 1 row 1 and also I added the 21 MA to that same chart. These 4 moving averages (5, 10, 21, 50) are the "active" moving averages. Plays start, end, and restart off the interaction of these EMA lines.

Chart 2 row 1 shows the cluster of traditional moving averages that are the "static" moving averages, they rarely interact with each other. You will notice in this chart that the 50 MA is also shown here along with a thicker rose colored line which is the 324 EMA, another one of those special numbers that I will discuss at another time. Notice how they bottomed out today's selling at exactly at the 50 & 324 support. As long as they hold that 1087 number on the S&P500 we are still in business.

On over to chart 3 row 1, you can see that although we did slip thru the bottom red line of the bear channel we did turn sideways at the support of the thin green line you can barely see passing thru the center of the chart which is actually the center line of the 9 month downhill channel that I posted on 8/5/10. As long as we hold that we are also still in business.

In chart 1 row 2, we still have a divergence but it lost about half of its air today. In chart 2 of row 2, I posted a new chart, the support and resistance level chart, showing key support resistance levels on the SPY. You can also see where I darkened the line at 113 to show the really strong resistance we are trying to break thru which pretty much coincides with the brown 100 MA line in the chart directly above it. This particular chart is quite disturbing that we couldn't pull off the breakout of the 113 resistance level.

In chart 3 row 2, I have added market pivot point lines based upon pivot points in the volatility index which is a new chart I posted directly below it - the $VIX (volatility index). The vix is a visual method of keeping track of fear levels over the short, medium and long term. When we hit peaks of really high fear or fear is complacently low, the market turns to the opposite direction. It is a numerically indexed chart that you can draw trend lines and channel lines as if it were a stock or a market index. The vertical red green lines start with turning points in the vix below and then transfer vertically up into the SPY chart above it showing how changes in the volatility or fear causes the market to change direction.

On 1/21/10, the vix formed a small ascending triangle signaling fear is about to increase fast. As it climbed on that day you can see that directly above it the market tanked as fear rose. At the end of the second day 1/22/10, the vix had reached the upper trendline and fear reversed but basically went sideways with only a slight decline producing the odd sideways trading from 1/27/10 to 2/3/10. At that point we had external events shoot the fear right back up to the red line on 2/5/10 for a "double top" in fear which traders really like. As the vix fell from 2/8/10 thru 4/26/10 the market rose correspondingly. On 4/26/10 the vix started turning back up fast which transfers visually to the top of the market in the above chart.

Through the month of May we had erratic action on the volatility in the upper half of its red channel, but you can see how when the vix reverses at the upper or lower or centerline of its channel the market also reverses at the same point. On 6/21 we saw the volatility index reverse at its lower trendline for a 2 week selloff up to the center trendline. On 7/8/10, the vix actually slipped out of its inclined fear channel and rallied up thru 7/15 but then got back up in the channel for a couple of days causing selling but then on 7/20 fell out of it convincingly which started the run up we've had for the past 3 weeks.

The market has been in the big fear channel for the past 9 months but on 7/19 slipped out of it which is why I stated on my 7/19 blog that they were trying to turn the market up as of that day and they did. Fear is now downtrending below and away from the big fear channel as shown by the small green channel you see going down thru today's date. As long as the green channel continues downward and we never pierces up thru its upper green line, the bull run is still on. Today intraday we went right up to it exactly then pulled down from the line just a little into the close. Very short term swings are caused by the vix swinging back and forth between these 2 green lines of this channel. As long as they have control over this double purge, and so far it appears that they do, it will have been a successful release of massive built up sell pressure and we are still in business to the upside. If come tomorrow they don't work their magic and that vix breaks out of the green channel to the upside, it will get real ugly real fast. The fact it was stopped at the line shows there is some element of control over this twin purge, but we absolutely, absolutely must turn back up tomorrow.

Alan

P.S. I added one more chart tonight, the advance/decline at just left of the vix (chart 1 row 3). The symbol is ADVDEC-QC, you can see how yesterday we hit the 4500 line, the first green line, and then today we purged well on down close to the second green line, the 5500 level as I mentioned last night that I was looking to happen soon.

Also my 4% trailing stop loss took me out of DPZ & SHLD for losses and they are now in the closed trades. I will leave the untriggered buy orders at what are now high levels until tomorrow night then see if I want to keep them but reduce the trigger price or remove altogether.