Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Wednesday, August 31, 2011

Big Decision Point Arrives 8/31/11

Stock Market Technical Analysis

Click on above images to enlarge

The market wringed out another small gain today as the VIX did indeed slip down through the center line of its four year horizontal blue channel that I mentioned it would have to do last night (shown in chart 2 above).   As the markets reached the high of the day, the VIX bounced up from the lower line of its four week downhill red line channel (also in chart 2 above).  Right as the VIX bounced from there, the NASDAQ bumped its head up against the 50 EMA line shown in pink in the top chart and also the underside of ten month wide horizontal red line channel in that same chart.  In addition to that, the SPY (S&P Trading ETF) bumped up against its pink 50 EMA line and also the underside of its three year blue line mother channel.  This is really serious that the SPY and the NASDAQ hit double major resistance at the same time and also right as the VIX finds support and reverses at two support lines. 

To make things worse, today's candle on all three above charts is a Doji reversal candle.  The market absolutely cannot stall out here or the bears will pour in with a vengeance.  The situation on the SPY & NASDAQ charts above is going to give the bulls pause as they decide if they think they can push the market up through double resistance on the two key charts. 

If the VIX stays above the green center line of its four year horizontal channel, the markets will once again become vulnerable to any bad economic news.  The bulls really want the VIX to break down through the long term green center line and out of that descending channel.  Although the thin red channel on the VIX is descending which is bullish, staying in that channel could have the VIX making a run back up to the about the 40 point level.  If that begins tomorrow, the SPY will be in double trouble as it would only get deflected down by its 50 EMA and it will also have executed a channel recovery attempt failure unable to get back into its three year uphill blue channel.  Also if the VIX reverses here, the NASDAQ's 50 MA could swat it back down out of its four month downhill brown channel for a channel recovery attempt failure on that index.

The bulls must put their money where their mouth is tomorrow as the bears are sitting, watching, and ready to maul this low volume rally.