Market Update and FXY Stop Movement

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The S&P 500 both made a new corrective intraday low and a new closing low, which confirms a downtrend is in force. Also, one of the concepts that I always talk about is looking for moves which completely retrace prior moves in less time than they took to form. The direction of the larger faster moves is basically the logical definition of a trend. Basically the market has more explosive power in the direction of the larger faster moves. The recent rally has now been completely retraced in less time than it took to form.

Based on this I feel that the best way to view this from a pattern logic standpoint is that we have completed a downward move (A) and an upward move (B). If the next downward pattern is the same % decline as (A) then that would put the S&P around 960.

The next chart support areas are 1030, 1020, 990, and 980, 950, and 870.

The Dow and Russell 2000 did not make new corrective intraday lows. So there is a divergence there. Honestly I don't read much into this, but once they all make new lows, then we may see a quick buying burst. However, I wouldn't expect it to last.

Also, the FXY trade has taken off nicely so far. So let's move the stop up above breakeven.


New Trade Action:

Move the GTC sell stop on FXY to 108.50.

S&P Update

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This is a chart I made this past weekend and does not include yesterday or today. Today the market gapped down and almost touched a new low but is 2-3 S&P points shy of making a new low. If it does make a new low, I think it could free fall down a good bit.

Updates

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The S&P has been weak and shrugged of the consistent tendency (so far anyway) to make gains on the Fed announcement day. There are some sectors like housing that are at new corrective lows also. So that either could be a bullish divergence in that the broad market is not at new lows, or a bearish leading indicator that the major debt sectors like housing and financials are pointing to the market's future.

There is an unfilled gap up at 1060 on the S&P (106ish SPY) that I am looking to see filled before any significant upside reversal.

The FXY trade is off to a good start and I expect to move the stop up on it relatively soon. Also, the US dollar index corrected to its lower daily bollinger band and looks set to move higher. If this is the case and the US dollar and the Yen move higher, I would anticipate further substantial lossed in stocks on a flight to the largest safest currencies and fear of further debt problems.

Also, on a side not that is not relative to any of our open trades.......If you look at the technical indicators on gold, there are multi time frame bearish divergences right now. So take the RSI for example: there is strong bearish divergence on the monthly, weekly and daily time frames. The MACD is not divergent on the monthly but is very strong on the weekly and daily. From a purely technical perspective it seems to me that gold will make a strong correction pretty soon.

Market Update

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The blue labels are the ones I have been posting primarily. The pink labels are an alternate I see as a possibility depending on whether the markets continue to advance or to fall from here.

While the S&P 500 has filled and closed the May 20th gap down, the IWM (Russell 2000 ETF) and DIA (Dow 30 ETF) have not managed to close above the gap. The DIA formed a doji on Friday that filled that gap but closed below it. That is possibly a bearish reversal candlestick.

If the market does not top out right here, then I expect a move up to the green rectangle resistance area before a possible intermediate term top.

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Based on the hourly chart, there is now bearish divergence suggestive of a pullback for at least a few days. Also, Friday was options expiration and since the March 2009 lows, pullbacks have tended to occur in the 2 weeks following options expiration. And the post June options expiration is one of the seasonally weaker periods looking back at past years.

I don't have much more to say than that. This could be just like the other intermediate bottoms over the last 15 months or so. Or we could be in the early stages of a larger decline and this will be an unexpected failure.

New Intermediate Term Trade

Buy TWM with a market order today (~20.00) with a sell stop at 19.25 after entry.

This is a 2x inverse Russell 2000 ETF. It seems to be the weakest index of the majors. Also with the short-term overbought readings, a fresh bearish cross on the hourly MACD, gap fill and early reversal now, pattern implications, I think this is a very high reward/low risk trade here.

Follow Through But Short-Term Overbought

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The markets made a follow-through type day today and closed above the recent range highs at 1105. The gaps at 1103 and 1115 are now filled. From a charting perspective the market will back and fill gaps before continuing a trend. So this may be expected even in a down trend. However, if the market closes above the gap level we should probably expect a move up to the next resistance level. In this case, the upper bollinger band would be the first target. But the next unfilled gap would be up at 1160 and a swing high at 1147.

The 5 day RSI is overbought now, which is often the most stretched a short-term move will get in a counter trend direction. So if this downtrend continues, I expect it to end here at the 1115 gap fill and overbought RSI.

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There is still no bearish divergence on the hourly chart, but the 30 min chart above does show bearish divergence on today's high. So even if the intermediate trend has shifted to up, I would bet we pretty quickly see a pullback, but maybe not until after Options Expiration this weekend.

Again if an upward flat pattern was forming, today would have been the ideal end point from a time perspective, so maybe this is just the last sucker bait before a major decline. But from an indicator perspective this rally looks just the same to me as the other intermediate lows during this bull market.

Market Update

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The market did indeed fail to breakout above the recent range highs today as it filled the gap at 110.70ish on SPY and touched the recent range high then reversed lower. That may complete this rally attempt right there. The 200 day MA of the S&P 500 is at 1108 just above prices. The Dow did hit that average and then reverse today which now makes a sideways consolidation and 2 failed rallies to the 200 day MA on the Dow since it closed below it. There is further overhead resistance at 1115 on the S&P from a prior unfilled gap down.

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The hourly MACD chart on SPY is the most overbought it has been since prior to the April highs. However, there is no bearish divergence on this move up, so we may need to see another attempt higher with some divergence before the market breaks down. Of course the market could power higher and breakout, but right now, I don't think that will be the case.

Just to step aside, I want to make clear that there are quite a few reasons why I believe that the market is on the brink of a very large fast decline. In short stay bearish as long as the S&P continues to close below 1115. What I expect is that whatever rally attempt the market has left, if any, will occur this week, and then it will come down hard for a couple weeks after that. Based on correlations and price formations I would expect this to occur with US dollar strength, Japanese Yen strength, US Treasury strength, oil price weakness, and I'm not sure about gold.

Watch for a failed breakout of 1105 on SPX

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Following up with the recent pattern related post, It seems most likely to me that an upward flat pattern is forming. Typically the wave c will take about half the time as a+b if they are considerably different in time consumption. That would make Monday or Tuesday the ideal ending time frame. Also I would expect the price to move up more near the 1105 area on this one.

There is a subtlety of this pattern that I don't like, but in some other indexes it looks real nice (Russell 2000 and XOI oil index for example. For an analog pattern look at the post 2008 Oct 10 crash low pattern and at the MACD and RSI (5) and price formation to see the similarity. As support for this idea, the daily MACD does not yet have a nice bullish divergence, but would with another sharp leg down to new lows.

New SPXU Trade

New Blog Trade:

Buy SPXU today with a market order. Current price is 34.32 which will be blog entry price.

Heads Up

I am planning to post a new trade today as the market looks to be nearing short-term overbought under resistance and is following the general expectation of what I have outlined in the recent charts with the S&P currently near 1090.

So plan on entering an inverse trade today.

Nat Gas Update

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I have held the UNG trade for some time, and the reason for this is that I truly feel this is a great contrarian buying opportunity, probably for even longer term investment positions.

As of the last couple months the smart money commercial hedgers are coming off of the largest long positioning in years (at least 6). And the large speculators are coming off an equally long term low. This looks great, but patience is in order for this to unwind.

The weekly chart looks set to make a bullish cross on the MACD at a higher low, meaning a likely long term trend change from a technical perspective. A simple projection up of the first leg of the bull market would put the chart above higher than $8.0.

This is in the context following a major bear market. The continuous futures chart above shows about 80% decline in just over a year. So the bigger the bear, typically the bigger the bull. That is a historically proven axiom of markets.

The US dollar looked similar last fall. And also the grains look similar now, but maybe not as bullish. The wheat market definitely looks very bullish based on contrary data and severity of the bear market in wheat.

S&P Update

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It looks from here like the market will rise for a couple days or as long as a week. If the market becomes short-term overbought below the recent highs, then I think it will be a good time to get aggressive from the short-side and also a good put option buy time. But any close above last week's high would not fit with what I'm thinking is going on. I will recommend an inverse trade if the market becomes overbought in the next couple days.

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If the basic pattern forming is what I have suggested, then based off the size of the first pattern down, and the chart areas below, I think the next logical support point would be around last June's high.

A Couple Pattern Notes

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Here is an idea of what may been occurring from a pattern standpoint. The short-term trend was up for the last week or two, but Friday's decline wipes out a 2 day gain and shifts the short-term trend back down in my book based on the simple logic of the trend being the direction of the larger, faster moves. With the move Friday, it looks like stops could be placed above 1105 S&P highs for short trades from here. What I would like to see is a gap up or early nice move up for 15-20 points on Monday, and then get short/inverse from there. I don't know that we will get that, but I kind of hope so.

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This is a 60 min chart of SPY. On this you can see the bearish divergence on the MACD on the last two price peaks, and now a cross down. Again this confirms the idea that stops could go in at that 1105 level and should be safe if the downtrend remains in force. Also, this chart highlights a wedge type formation that may indicate that the consolidation is already complete and Friday was a breakdown confirming the start of a new leg down.

In both of these cases my estimation of where the pattern logic suggests the market will go would be to around 950 or 870 as the next basing point. I know that seems absurd, but I truly think that is probably the most likely scenario over the next few weeks from here.

What??

To whoever is listening.......the equity only put/call ratio was only 0.60 today when the market was down 3.4%. I don't have a crystal ball guys (or gals) but something seems just "wrong" about that. I think this market is VERY dangerous. I have been tempted to go long from all the oversold indications, and maybe that will turn out to be the thing to do after all, but I am just sending this out as a caution that this could be some sort of ultra complacency where bearish speculators are wiped out, and now this market will implode.

Short-term the market is now near oversold though, and with a news (payroll) associated large gap down, I could see a brief rebound as sensible since those are most often contrary set-ups. I would like to see the market up Monday, and then probably post an inverse trade of sorts at that point.

FXY Trade Modification

I am going to go ahead and post a market entry on FXY right now at 107.89. The stop will go at 104.50.

There is conflicting data about further short-term expectations. So with such a big news related gap down, I don't want to rush into SPXU right now. But I'm considering buying SH instead ahead of the weekend.

New Trade Orders - FXY and SPXU

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The S&P 500 is short-term overbought right now. There is also gap resistance overhead. I have placed the tentative pattern interpretation I have been working with the last couple weeks. That would make tomorrow as the ideal pattern completion point for what may be a very weak wave "c" of an upward flat pattern. This pattern would also imply very strong downside after the pattern completes. In this case I want to be short/inverse going into the weekend. So the trade is to buy SPXU with a limit of 33.22 for Friday.

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As a follow up to the recent post highlighting the bullish sentiment backdrop on the Yen, I am posting a trade on the FXY (Yen) ETF. I believe this would likely occur with stock market weakness, but the sentiment data stands on its own. So the order is to buy at a limit of 107.00 and there is a clear stop level at 104.50. As a side note there is a 2x bullish Yen ETF, YCL for those interested, but volume is very thin still, so I would stay away unless you are trading a small amount of shares.

Gold Update

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There is a strong bearish divergence on the weekly RSI and MACD of gold prices. There is no bearish cross on the current weekly MACD of gold though. From a charting perspective this looks bearish for gold prices.

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From a different angle.....put/call open interest ratios on GLD are rising with prices. This may mean that large investors are long and are hedging their investment, or also possibly that bearish speculators are not yet exhausted, which from a contrarian point of view should allow more upside.

Of the other sentiment related data I follow, it looks pretty mixed. There is not much notable as far as extremes in COT data or surveys, etc. There definitely was this past winter, so maybe this is a divergence at a major high, but I definitely don't have any strong opinion on that.