Stock Market Technical Analysis Blog
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In the markets today we saw the NASDAQ slip through its floor shown by the red horizontal line in the bottom chart set. As it did this the S&P 500 officially dipped into bear market territory as it reached the 20% down level from this year's highs. This quickly produced an overextension in the bond market which allowed the market to recover some in the midday retesting that floor level on the NASDAQ but failing as we got back up to it and it was turned down tilting into a nosedive from 130-215pm CST. At 215pm Bernanke & Geithner's P.P.T. team came riding in guns ablaze forcing the early afternoon shorts on the SPY into a panic scramble as they rocketed the SPY up $3 in the last 45 minutes of trading. After seemingly being MIA recently the boys did what they had to do as we were starting to peer down into the abyss as the final 45 minutes of trading approached. Bernanke's team has had a pattern of starting these jamb fests in the last 30 minutes of trading. Today the pattern was broken when it started at 215pm and it moved up so quickly that it transformed today's third 120 minute candle into a reversal candle in the last 15 minutes of the bar. This gave us a spread pair of hammer reversal candles with the opening 120 minute candle and the 1230-230pm candle, a very powerful bullish setup. Today's action also produced a bullish long tail reversal Doji on the Week candle. On top of that, we have a quite substantial on balance volume divergence markered from the 9/22 gap down open and today's intraday low, a quite powerful bullish driver.
This has been their classic mode of operation of rescuing the stock market at the eleventh hour. They let the market slip through a very prominent floor line, come back up and test the floor line from the underside intraday, then let it fail again in the afternoon for the ultimate big short signal for the bears. They let the new shorts pile on for an hour and then jam the SPY so hard in the last hour that the shorts feel like they had their teeth knocked out. The normal pattern from this scenario (realize the current economic backdrop is far from normal) is for the markets to gap up big tomorrow at the open causing more short covering in the midday then trade sideways until the last 30 minutes then start slowly ramping up into the bell and producing a second runaway gap setup. This is at least what they want to happen and don't get me wrong they are picking their battles carefully and hitting this spot on where it needs to happen. If you back off and look at the quarterly bars chart you will see that they are working a 5 / 20 EMA line bounce setup and on the monthly chart they are working a 5 / 50 EMA bounce setup which if they pull it off would send the market upwards for 3-6 months.
In a normal market / economic environment this is everything the bulls look for as you've got your Day chart on balance volume divergence, you've got your week long tail Doji reversal candle while being moderately oversold on the weekly chart, you have your double prong hammer reversal candles on the 120 minute charts and you have the market absolutely on the verge of slipping into the abyss within another hour of trading. This where they come in and make it happen.
Now back to factoring in the far from normal market / economic environment. Professional traders can see what is being crafted right now but there will no doubt be mixed opinion across the spectrum as far as whether to jump in if they gap the market up high at the open tomorrow which in normal markets you have to do or the market will run too far away from you with just another day of trading versus should we step back and see if everyone will buy into what is being presented to us. The quality of the technical analysis is good but if we get any bad news on the Greece situation before this rally can get its footing, most traders will be looking for the market to be smacked down as if it has no bullish setup to move up from at all.
My personal feeling is that a lot of traders will have to see some follow through before jumping in and if we don't get follow through this will all be just one more small blip in the ongoing slide into the depths.
Alan
P.S. Although I wanted to mark in the minor bonds to stocks switch signal in the last 30 minutes today, I decided to hold off until tomorrow morning to be sure that this setup doesn't collapse before it takes it's first step.
P.S. Although I wanted to mark in the minor bonds to stocks switch signal in the last 30 minutes today, I decided to hold off until tomorrow morning to be sure that this setup doesn't collapse before it takes it's first step.
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