Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

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.