More Detail on the S&P 500

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This chart is basically an updated version of one I've shown a few times recently. I've added a little time price comparison analysis looking at what I have labeled as waves "a" and "g" up since July. As of now, from high to low "g" is exactly 50% of "a" and they are exactly the same time from low to high. So that's not too exciting I guess, but the more you see harmonic relationships in markets the more it seems akin to our species spider's web.

On a shorter term time frame, the wave "g" also looks to be at or almost at maximum complexity and may be finished. A close below the low of the recent range (say 1084) would be a good sign that a larger correction is unfolding. And a retracement of wave g in less time than it took to form, likely means that a very large degree correction has begun.

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Now this chart is the Euro/US Dollar again. The reason I'm showing it here is because this is the type of move that you see at major trend changes (it looks kind of like the upside down version of the advance off the March lows in the Euro). I have said several times that when this upward phase in stocks ends, I expect the last several months of price gains to be lost in a just a few weeks. Notice that the Euro lost all the gains since August in the last 2 weeks. This is why I have been so persistent in trying to catch a potential top in stocks and why I have been trying it with the 3x leveraged fund. I expect stocks to follow suit at some point and drop a quick 10% or so (back to August highs or lower), which would be 30+% in SPXU assuming entering around current levels. And that initial 10% may be only the first part of a significantly larger decline over the next few months.

On a very short-term time frame the market is nearly oversold. Watching how it responds to any oversold conditions is one clue in determining whether the decline will continue on or not. Typically at intermediate time frame tops, the market persists in declining a bit despite short-term oversold readings. This has been the case in gold and the Euro of late. I'll be watching for it in stocks as well. In a recent post I said

"The Euro is coming down off a strongly technical divergent new high and is at moving average support now. Continuation of the move down, especially with an acceleration, likely means a larger trend change (up US dollar, down Euro) for a period of months or more."

I have said that before about stocks as well. The difference is that stocks never showed an acceleration down after becoming oversold. But looking at the Euro above, you see it has and should be a sign of a very significant top.

For those that got stopped out on the recent SPXU trade, you may want to get back in now with a stop at 36.00. Also, you could look at buying SH which is an unleveraged 1x inverse to the S&P or also to shorting SPY if you can get the shares. Either way, I will get us back in to take advantage of the move, but I'm just saying this because if you imagine yourself in the position of not getting in near the highs, then look at the Euro chart above or a chart of gold, you can see that there often is not an ideal bounce to get short/inverse on, just minor pushes up which get hammered. So I prefer to keep firing away near the highs with relatively small risk of account value per trade when using stops. For those that are still in SPXU, I'd keep the stop at 36.00 GTC. I will update as appropriate for those still holding.

The market does not make it easy to get in good at major reversals. The initial break of a new trend is very large and explosive. The initial explosive move often is just ending as most people realize that a new trend is beginning. After that initial move, markets then meander more slowly in opposition to the new trend. So the unfortunate situation that often happens if you don't get in near the top in this case, is by the time you are convinced a new trend has begun and you get short, the market will likely be bottoming out for several weeks and move against you for some time, and maybe force you out, only to then resume the new trend. We don't want to be those guys, so I'll stick with my guns here and view this as a trend change point and be willing to go short/inverse on a new trade even if the market is short-term oversold at that time but everything looks set on the longer time frame. I'm looking for a close below the lower bollinger band on the S&P with the bands expanding on that close. If another good opportunity comes before then I'll take it, but otherwise the next blog trade will probably be on such a break and will feel different than most other trades.