Stock Market Technical Analysis Blog
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Over the past three weeks we have seen more market manipulation happening than in the past three years combined. From the "spin the dial to a desired number" style opening of the evening S&P Futures, to the 4am SPY pumps on vapor thin volume, to the day after day after day of gap up openings in the market and refusing to let the market trade intraday, to the after the market was closed bombshell Bernanke dropped late Wednesday, we've seen it all. Friends it is what it is, welcome to the new normal.
To successfully play this market we need to step back and look at the big picture and focus on where the manipulation is taking place which will also show us why.
- Chart 1: In the 20 year monthly bars chart of the S&P 500, we have broken out of the 20 year channel. We must forget that manipulation was used to break us out and instead focus on the price action itself.
- Chart 2: A weekly bars chart of the S&P lets us zoom in and see where they stepped in with the massive intervention. It was right as the price set down on top of the upper channel line allowing the intervention to push us up away from the upper trendline for a confirmed technical retest for the market to go higher without the channel constraints. Looking at what was at stake at the moment that one weekly bar touched down on the line makes it easy to see why they have been doing what they have for the past three weeks.
- Chart 3: A weekly bars chart of the VIX showing the 5 EMA in red and 75 EMA in blue, the EMA pair that WallStreet has been using for major scale ins and scale outs of the market for the past 15 years. Looking closely at each time the red line reversed and was pushed down by the blue line, we had major multi month market rallies triggered. Looking back to July 2011 we see that the last time the red could not be prevented from crossing above the blue which caused the huge plunge in the market as can be seen up in chart 2 at the first of July 2011. Bernanke had to do something there and thus we got the v-shaped reversal that everyone hates.
- Chart 4: VIX weekly chart with red 5 and green 10 EMAs. Everything above really explains what happened from three weeks ago up until the closing bell this past Tuesday. Looking at this chart, at noon Tuesday the 5 was trying to start turning sideways on the green 10. This absolutely could not be allowed to happen because a bounce there instead of a down cross could have easily turned the 5 back up enough to cross above the blue 75 line in chart 3 which would have triggered multiple 300-400 point down days in the Dow. To prevent this from triggering something extremely bullish was needed by Wednesday morning and it did, Bernanke turned dovish in his tone and the entire risk on/ risk off balance was changed in a matter of minutes to the on side.
While technically the S&P bouncing up from the topside of its upper channel line is the biggest single technical event in the 20 year chart of the S&P, most traders loathe what has been happening and are still going to be biased to keep shorting which does nothing but provide fresh kindle for the following day's short squeeze. If they can keep the shorts coming in and then squeezing the market higher with them, who knows how long this could keep going. However, if the shorts get tired of getting burned and go to cash or to the longside then I will have a lot less confidence that this market can go much higher. What I will be watching for is to see when the majority of the crowd have all switched to the bull side and if this happens it would be wise to keep your sell orders ready because it may not go much beyond that.
Trade well my friends