Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

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.