Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Monday, October 15, 2012

Sentiment EMAs & Weekly Charts Coming Into Play

Stock Market Technical Analysis Blog

Click on image to enlarge

Tonight I am focusing on just the most critical charts.  The top four charts are daily charts of the sentiment EMAs on the DOW, S&P, SPY, and VIX.  Last night I discussed the make or break situation that these top four charts had as their sentiment EMAs merged to a point.  I also discussed that if the market went south today the red EMAs would pierce down through the green on the DOW, S&P, and SPY which would cause the VIX to have its red line cross above its green line which would be a huge sell signal.

At 3AM this morning we had an intervention and the SPY started trading at a considerably higher level because of the economic and CitiBank news that would come four hours later.  Once the regular session opened the squeeze was on.

Looking at the DOW, S&P, and SPY charts in the top row tonight we can see that today's squeeze was enough to pull the red just slightly above the green on the DOW and S&P and prevented the red line on the SPY from piercing down through.  In the fourth chart of the top row we see that today's market action also kept the VIX from having its red line cross above its green line which would have caused a widespread sell off.  Preventing the red / green down cross in the three indexes shown keeps the sentiment bullish at least for the time being.  The real story though of what they are trying to make happen is shown in the four lower charts posted above.

These four charts are weekly bars charts with the traditional 5/10/20 and 50 EMAs.  Looking at these which are AAPL, SPY, Nasdaq, and QQQ we see that they all are setup nicely for a multi-week leg up in the market  as each one's red / green 5/10 lines are trying to start a layup line bounce while at the same time three of the four have found price support at their blue 20 EMAs with last week's bar.  If they keep pushing this market over the next week it will produce another line bounce in the sentiment EMAs which will stop the selling and cause the four weekly charts to start lifting with another weekly 5/10 leg up in the market.

The key for them to have success in producing another weekly chart leg up in the market, after having recently reached an overextended peak, is follow through.  They cannot expect just scaring the shorts will sustain a multi-week rally.  They have to be in there every day preventing the small intraday pivots from breaking downward so that the slow moving weekly EMAs continue to climb.  This is a setup that two month rallies typically use to lift from.  What will be working against it is the tremendous amount of overhead that is present at the market peak four weeks ago.  If they can't keep it going this could easily morph into the first bounce on the downward backside of an overextended market peak.  Now that so many EMA lines have merged it has created a double edged sword situation.  If they can continue driving it upward it could be a strong rally but if they let up anytime during this week or next while the red / green EMAs are still compressed together they would be risking one ugly selling day's ability to pull the tip of the red EMAs below the green line and trigger cascading selling.


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