Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

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.