Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Friday, September 9, 2011

Midday Chart Update 9/9/11

Stock Market Technical Analysis

Click on above images to enlarge

In the upper cluster, the stocks to bonds signal switch is marked in but I did it without a lot of conviction because of two things:  one, the bonds are lifting from a position already farther above the key moving averages than normal for an entry point; second, the market is developing somewhat of a disconnect between the inversely traded stock market and bond market.    More specifically, the SPY (S&P ETF) shown in the lower cluster, top right corner, has already come back down to its lower blue channel line and finding support there which will cause the NASDAQ to rise from where it's at if the SPY lifts from there.  Also, the VIX (Volatility Index) in the lower cluster has already shot up fairly close to its upper channel line where the stock side entries begin.  Looking at the UUP (Dollar Index) its dramatic move took it up to its upper red channel line which is where it also stopped its move back on Aug 5th.  

Considering this slippage in the inverse connection between bonds and stocks this bond entry may last for  a few hours instead of a few days.  As I mentioned earlier on Twitter, bond traders don't like entering a new leg up starting at the center line of a channel instead of the lower line of the channel.  This is leaving the bond traders in a bit of a conundrum.

The gold traders (GLD bottom right corner chart) see the confusion in the bond chart and how quickly the SPY is recovering on its lower blue channel line and they are not trading gold up at all today because they sense we might have a minor blip in the bond/stock inverse consistency and they are holding tight where they are at.

With the UUP reversing so quickly at the upper red channel line, all the attention now will be on the SPY chart this afternoon.   Even though the SPY has found quick support at its lower blue channel line, it now has to break out of the downhill brown channel once again in order for the stock market to resume its climb.  These types of days happen occasionally and most traders will watch for a while to see how it resolves.  The SPY chart is key though.   If it trades sideways into the bell it will be forced into a tiny triangle down to a point  where it will either be forced back up into the blue channel or forced back down into the downhill brown channel.  This is a serious pivot point coming late this afternoon or Monday morning.

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