Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Wednesday, November 7, 2012

Selling Begets Selling Begets Selling

Stock Market Technical Analysis Blog

Click on image to enlarge

In the wee hours this morning, after the world saw the election resolved without the possibility of a two month legal battle, the Futures were up, which didn't last long.  A little later in the early morning Europe's central bank president Draghi told the world that Germany's economy is finally starting to get pulled down from the euro zone crisis, something the world hoped would not come to pass as Germany's financial stability has been the glue holding the euro zone together.

Within minutes everything starting selling fast. CNBC didn't help anything as they ran the phrase "Post Election Sell Off" all morning to help the big dogs on Wall Street get a little revenge on the American voter for the coming regulation that they will be facing soon, ending their era of insane risk taking because they know that if they bet wrong the Government will have no choice but to bail them out, as was done in 2008 when Wall Street's greed nearly collapsed the entire global economy.

As the regular session opened AAPL opened below its 200 day EMA line and started tanking hard (shown in the upper chart cluster, bottom right chart).  The Wall Street media then started running banners that the sell off was happening because of fears of the fiscal cliff situation that is approaching.  Then the selling really kicked in.

To throw gas on the fire, the UUP (dollar index) opened up higher, wreaking even more havoc on stocks.  With 70% of all trading being done by automated trading computers now and the market at a big pivot on the weekly charts, the mood became a sell because everyone else is selling scenario and down we went.

Taking a look at the triple index market direction charts posted in the top cluster, we see that the sell off has brought the weekly bars sentiment EMAs to a complete merge on all three indexes.  A multi-month market direction will soon be established as we see whether the red EMA line starts up or down on the three indexes probably within the next two weeks.

Two potentially bearish situations began developing in the technical analysis today that are important.   I posted two charts in the lower cluster above to show these.  In the top chart, we see the sentiment EMAs on the XLF daily bars chart.  Over the past month everything has been selling down except for the big financials as shown in the XLF ETF.  Monday its two EMAs merged and yesterday we saw the lift start.  With today's route the merge twisted back down to a pending down cross situation, potentially ending the six month position trade.

In the bottom chart we have a bigger more critical situation developing.  Nearly four years ago in March '09, we saw investors enter AAPL at the up cross of the sentiment EMAs on its weekly bars chart.  AAPL has gone from 100 to 700 in the 3 1/2 years since.  Today's market route caused the current downward angle of its red EMA line to steepen and started many investors to question whether the red EMA will get turned back up by the green EMA line in the next couple weeks stopping AAPL's decline, or whether it will slice down through the green line, a major investor sell signal.

We are at really big pivot here.  AAPL is going to resolve its weekly chart sentiment EMAs merge at the same time the VIX, the Nasdaq, and the TLT bonds ETF are doing the same.

This could easily take one to three weeks to be resolved and then we should have the next stock market direction established.


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