Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Tuesday, November 27, 2012

Red Flag for the Bulls

Stock Market Technical Analysis Blog

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Forty-five minutes into the trading day on Friday 11/16, I called out the price bar / 324 EMA line pinpoint bounce buy signal on the SPY on my Twitter feed.  I also called out the 5 / 324 EMA pinpoint buy signal on AAPL.  At that time AAPL was at $520.

This morning when AAPL reached $590 I tweeted the exit for a $70 / 12% gain on AAPL in a week and a half and also closed out my SPY position for a nice gain.  When I called out the entries on 11/16 I went from being neutral to 100% bullish at those two pinpoint bounces on AAPL & SPY.  Today I tweeted my stance from bullish to neutral and also posted an early morning blog to mark it.

Looking at the charts above I would like to explain why I made such an extreme move so quickly this morning.
  • In chart one the SPY failed for the third day to cross above the pink 50 day EMA line and hold it finishing the day printing a bearish candle.  
  • The reason why SPY failed yesterday and today can be seen in chart two, the weekly Bollinger and where we see that this morning's early morning high touched the center basis line and quickly pulled back even though it crossed its day 50 EMA getting up to it.  This marks the weekly Bollinger basis line as being resistance for the SPY until it breaks through it.  
  • Looking at chart three, the SPY also failed at the 50% Fibonacci where it stopped at on Friday.  This marks the 50% Fibonacci as another major resistance at the exact level as the weekly basis line in chart two.  
  • Chart four also shows that at the same time and numerical level, the SPY attempted to break out of its two month downhill channel and failed there marking it also as resistance.
This morning when I saw the SPY being stopped cold because of hitting all four barriers in almost exactly the same moment it was a red flag for this rally.  Personally, I was hoping we could convincingly cross above the 50 EMA line in chart one today which would have pulled us above the center basis line in chart two, the 50%  Fibonacci in chart 3, and the upper channel line in chart four.  Instead they are four barriers to the SPY and they are all four at the same price level which would make all four considerably more difficult to break up through.  I mentioned in my early morning tweet that I would reenter on the long side after a new daily setup has developed primarily seeing the SPY cross through all four of these synchronized barriers and then setting back down on top of them to test the cross and then bush them back up from those barriers for confirmation.  Until that happens I am remaining neutral, the risk is just too high until that is accomplished.

Looking now at the bottom row of charts above to see what damaged was caused:
  • Chart five:  a candle breakdown  setup is now showing on the XLF, which was the designated breakout leader. 
  • Chart six:  the VIX, I've applied two large EMAs that trigger meaningful moves in any symbol.  It can be seen that two lines are at a perfect pinpoint merge.  If the smaller red EMA starts emerging topside of the green EMA in the next few days the bulls will be in big trouble.
  • Chart seven:  the turn back up in the UUP that was caused by the market interpreting the Greece deal as nothing more than a paper over mirage with the ridiculous extension in terms which caused the UUP to jump up out of the horizontal channel this morning and spent the day building a small ascending wedge threatening to jump again on up into the steep red channel which has wreaked havoc on the stock market.  
We may have several days of back and forth fist fighting between the bulls and bears here.


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