Non-Confirmation in Major Stock Indexes - What to Expect Next

Stock Market Update 12-12-13  Non-Confirmation in Major Stock Indexes - What to Expect Next This stock market update video covers the DIA etf abd shows a bollinger band set-up that indicates that the market is likely to experience at least another day or so to the downside before reaching its nearby fibonacci support level. However, there is a significant non-confirmation between the market indexes in that only the Nasdaq reached a higher high for the rally into Dec 9th. The Dow, S&P 500, Russell 2000, and NYSE all topped lower than there Nov 29th highs. This may be an indication that the stock market is topping on the current leg up, and that stock may experience a correction from these levels. A typical correction is ~10-11% and 6 weeks duration based on historical corrections in the S&P 500.

How to Move Stop Losses to Stay With the Major Trend - Stock Market Update 11-25-13

  Stock Market Update 11-25-13 How to Move Stop Losses to Stay With the Major Trend

 This stock market update video covers multiple time frame analysis of the S&P 500 tacking ETF, SPY.  The MACD indicator is analyzed at the 15 min, 1 hr, 2 hr, 4 hr, 1 day, 1 week, and 1 month time frame.  Bearish divergence is present on the MACD on the lower time frames, warning that the stock market could potentially be ending an uptrend of varying degrees.

However, price is the final say, and divergence patterns can fail to lead to meaningful reversals.  Given that we are currently in the seasonally strong time for stocks and the market is at all time highs with no overhead resistance, this is a distinct possibility.

I also show you a simple, yet very effective way to trail stops using the MACD indicator  relative to price action.  This method will allow you to stay in most large trends and failed divergence patterns until the trend is done or nearly done.

Multiple Time Frame MACD Divergence in S&P 500

Multiple Time Frame MACD Divergence in S&P 500 
This stock market video looks at the S&P 500 across multiple time frames and notes a bearish divergence in the MACD at weekly, daily, and 30 min time frames.  This type of multiple time frame MACD bearish divergence can signal significant turning points as happened in bonds in July 2012.
We review a low-low-high time cycle that suggests a possible time symmetry for Nov 19th as a high point.  Also, we look at bollinger bands and the current action relative to the upper bollinger band.
Stock indexes formed bearish reversal candlesticks (bearish engulfing patterns) today with both technical and sentiment divergences present.  I discuss trading tactics to take aggressive short entries in the market and discuss how to quickly reduce risk, while still maintaining the potential for a large gain.

A New Video Is Available

Yesterday I recorded a new video for members of StockMarketAlchemy.com.  The video covers analysis of the S&P 500, and looks at how to trade individual stocks using the analysis criteria taught in the Trader's Crystal Ball eCourse.

A detailed example analysis is done on UPL in relation to stocks and oil prices in the overall context.

If you have not created your free membership at my site, then you can do so and access the members videos by creating a password and login here.

I hope the video content is beneficial to your trading and ongoing market education.

Pete

How to Trade Bearish Engulfing Patterns - DIA Bearish Engulfing Pattern 11-7-13

How to Trade Bearish Engulfing Patterns
This stock market video update looks at the DIA etf of the Dow Jones Industrial Average.  Today formed a bearish engulfing pattern in the stock indexes which is a top reversal candlestick pattern in Japanese candlestick analysis.  Given that the market are in a short term overbought condition on technical indicators and there is a relatively large potential bearish divergence in the weekly MACD indicator on the stock indexes, this reversal could be significant.  Additionally, DIA only just poked above its September high on the charts and now has immediately reversed.  Failed breakouts are a general rule at major market highs, so we should be wary of that here.
In order to give you a more comprehensive picture of the markets I also discuss bearish divergences and non confirmations in the VIX and total put/call ratio which further suggest that stocks are at risk of some continued pullback here.  The October low is key support in my view.  A break of that low may mark a significant high in stocks.

Long Term US Bond Market Technical Analysis - TLT ETF

Long Term Bond Technical Analysis
This bond market analysis video covers the US long term treasury bond fund TLT.  Technical analysis of the bond market suggests that bond prices have made a measured correction off the August 2013 low and that the rally is mature and may be near a peak.  Ideas for short selling TLT are given based on trend lines and technical indicators.  The momentum indicator is reviewed and the weekly chart head and shoulders pattern target is also reviewed.
Additionally, if this is a bear market in bonds, which I do believe it to be on many counts, I would expect a weekly time frame bullish divergence pattern to develop in the technical analysis before a possible bottom in bonds.  That has not occurred to this point, and so with a measured correction against the downward trend, this appears to be a time to be looking at possible short set-ups.

Stock Market Update 10-29-13 and Energy Stock Commentary

Click on Chart to Enlarge

This chart is a 2 hour chart of SPY with a MACD underneath.  Prices are making new highs here but with the MACD developing a divergence pattern which is suggestive that we may soon be in store for a minor sell off.  The initial big thrust off the October low may be about over, so it may be more sensible to wait for a sell off of a couple days prior to looking at establishing new long positions.

In the larger context here I want to note that the stock market could be in a very bullish position at this point.  The weekly time frame bearish divergence pattern on the technical indicators that we saw at the September highs has now been invalidated with a breakout to yet higher highs.  And markets at new all time highs tend to perform very well for the most part.  There is no overhead resistance and so momentum can continue upwards for a considerable time on low or declining volatility.

Additionally keep in mind that the annual cycle for stocks historically is most bullish from November through April.  So we are just entering the time of year that typically provides a tailwind for stocks.  Certainly at this point a break of the October low would be a negative technical factor and not at all in line with what I think would be a typical longer term bullish scenario.

What my suggestion is here is that we remain intermediate to long term bullish here on stocks until there is a NEW weekly time frame bearish divergence pattern that develops on the technical analysis of the stock indexes.  Also, clearly the Nasdaq has been the leader on the rally and I don't see any great reason why we shouldn't expect that it will remain so as long as stocks are advancing.

Click on Chart to Enlarge

I would also suggest that energy and commodity stocks may be ready to get going to the upside here as well.  Crude oil has corrected in line with historically normal corrections in a bull market and from a charting standpoint has made a very interesting flush below multiple highs from the past year.  This has the looks of a major stop running point on the chart and I would not be surprised if the correction has bottomed already or maybe has one more slight lower low before marking a major low that will hold for months and probably kick off a big rally.  The chart above shows a green line at the lowest of about 5 breakout points around the $100 level over the last year.  Price has now come back below that in essence stopping out standing sell orders at or above all those minor breakout points, and in doing so has formed a very nice dual time frame stochastics buying set-up which has already triggered on the daily chart.  I have talked about this stop clearing tendency several times over the years and it doesn't get much more apparent than this on the charts.

If you want specific stock recommendations for potential energy/commodity plays, I would suggest subscribing to my Harmonic Trading Stock Selection service.  Already we have some nice paper profits in FSLR, EXK, and BAS which are currently active trades.

Additionally you are welcome to review the video I posted on YouTube on 8-23-13 detailing FTI, X, FSLR, PWE, SPN, APA, BAS, and CENX as buying set-ups and you can look at where they are now overall.  And I believe that some of these are just getting warmed up seeing as oil has been correcting for nearly 2 months.  If/when oil turns up, I'll bet you a dollar and ten cents that we see these types of stocks move up very nicely on average.

If you are more interested in learning the multi layered analysis behind these types of trades so that you can make selections on your own, then I would suggest taking my stock trading and mentoring course which is the best way I can personally help you become a better trader at this time.

All the best

Pete Birchler

New Market Video Available For Trader's Crystal Ball List

On Wednesday I recorded a market update video detailing price logic, technical analysis, volatility analysis, and put/call ratios.  That video is for members of the Trader's Crystal Ball mailing list.  It can be viewed by registering a login email and password at StockMarketAlchemy.com.

Enjoy the video.

Pete

SPY Is Testing the 50 Day Moving Average Again

Click on Chart of S&P 500 to Enlarge

In a recent post in July called Testing 50 Day Moving Average, I briefly discussed a not uncommon instance of price action where the S&P 500 had consolidated at the 50 day moving average and had touched it several times in a row or in a cluster without much directional price movement.  Since that post we saw a similar thing happen in August and we are seeing it happen again now.

Refer back to that post to get the idea of what to expect.  Basically they often resolve with a sizable gap.  And we are indicated to gap down this morning to near the bottom of the recent short term range.  I would expect a move to new corrective lows based on this type of price action.  But as occurred in August, it could be an exhaustion type of move for the correction if the uptrend is to persist.

Also just to rehash the price logic situation a bit here, unless SPY is below 162.95 by Thursday of this week, then the price logic would still suggest an upwards trend.  That doesn't mean a high can't have been made and support won't be broken, but it does give us an indication that the market psychology did not tip the scales to downward coming off the recent high.  And it could very well be an indication that the uptrend will continue as we reach the seasonally strong portion of the annual stock cycle from November to April.

So if prices move to new highs, I would suggest having a breakout buy strategy in the works with stops already thought out.

Stock Market Analysis Video 10-2-13

Stock Market Analysis Video 10-2-13
This stock market analysis video covers weekly, daily, and hourly time frame analysis of the MACD indicator.  We also look at weekly stochastics at a bearish divergence pattern that is developing.  Hourly time frame indicators have not created the bullish divergence typical at bottoming formations, so we may be set for a move to lower lows for this corrections before it is possibly complete.
Also I review the price logic and important dates to watch for a potential trend change confirmation.  We look at the S&P 500 relative to its 50 day moving average for the typical program trading reversal and continuation pattern that often develops around the key moving averages.

9-13-13 Stock Market Update Video

 Stock Market Update Video
This stock market video update covers multiple time frame technical analysis of the MACD indicator.  I highlight divegences developing on various time frames and note a set-up for a potential short trade based on the weekly and daily MACD formation at the current time frame.
Equity put/call ratios are reviewed and I highlight a recent signal of complacency in the options market this past week, which may be a caution against expecting sustained upward momentum from this point.

Mixed Currents In Stocks 9-4-13

Click on Chart to Enlarge

This chart shows a striking bullish divergence on the MACD in SPY.  So from this time frame it would be sensible to go long here with a stop below the 8/28/13 low and a target of the August high.

Click on Chart to Enlarge

The 15 min time frame is not showing any bearish divergence yet which suggests that price will move at least slightly higher before possibly continuing a larger time frame down trend.

The CBOE total put/call ratio today came in at 0.77 which is rather low.  The ISE call/put ratio came in very high, and the equity put/call came in at 0.54 2 days in a row which is on the low side.  All these reading could be interpreted as persistent complacency in the options market despite just a 2 day rally in stocks.  Also volume came in lower today compared to yesterday which means that the add on to yesterday's strength was on waning activity.  All these could be signs of a probable corrective rally which could be a shorting opportunity.  But price action holds the final answer.

In a case like these if looking to short then I would look for a bearish divergence pattern to develop on the 15 min technicals at a bear minimum before taking any sell signals to short.  Given the indicator set-up I think a 30 min chart may even need to develop some divergence before this attempt stalls out.

Situations like this can be tricky because there is no clear market trend and different time frames are mixed on the signals and set-ups they are giving us.  So there is no necessity to trade if it is not obvious what to do given one's method.

Bonds, Interest Rates, and Commodities Technical Analysis

Bonds, Interest Rates, and Commodities Technical Analysis
This bond market update video covers multiple time frame technical analysis of the TLT etf as well as the 10 year and 30 year US treasury yields.  I give opinion on chart patterns and indicators of what to look for for trade and investment opportunities.


Also I discuss the correlation between interest rates and commodities and take a detailed look at a harmonic pattern on the DBC etf which is displaying a trade opportunity.
Some of the techniques such as price logic, divergence patterns , and reversal patterns are taught in my free stock analysis course.

OEX Put/Call Ratio Still High and US Dollar Moving Higher - Possible Recipe For Further Declines in Stocks

Click on Chart to Enlarge

The last 2 days have seen mild price gains on successively declining volume.  This is not the typical bottoming  reversal pattern in a correction.  For short term traders I view this as a new shorting set-up

On the option front the OEX put/call ratio remains high which is typical more bearish for the market than bullish.  These index traders have a "smart money" pattern of option trading which is to increase put activity as the market rises.

On the other hand, both the equity and total put/call volume ratios remain low and have had very muted rises on this 3.5 week correction so far.  For more confidence that a corrective bottom is near, I would want to see this ratio higher as measured by strategies I have shown many times before on the blog and in my free course.

Price action is the final say of analysis and so for a corrective bottom to occur and have some indication of a new uptrend we would need to see a higher high than the recent swing high on 8-26-13.  But understand from the recent videos I've made that the weekly currents on the technicals are only just turning down.  MACD is still above 0 and just confirmed a divergence pattern sell signal.  Stochastics has another 2-3 weeks still before possibly being oversold.  The parabolic SAR has not even triggered a weekly sell at this point.  So while on a short term basis the currents are modestly oversold and could sustain a multi day rebound, the larger currents are down and I think will likely continue to pressure stocks for at least a couple more weeks.

Click on Chart to Enlarge

I have not updated much on the US Dollar since it broke out of a triangle chart pattern in February.  And since that time frame it has had a markedly different correlation with the stock indexes than the consistent negative correlation for the last 4-5 years.  The chart above shows the ratio of US Dollar/S&P 500 which lets us at least monitor the statistical relationship between them and we can see from the green lines that when the dollar has spiked outside the bollinger bands have been when the significant corrections have taken place.  And notice that the ratio currently would need to see more dollar strength and stock weakness to bring the ratio outside the bands.

Click on Chart to Enlarge

This chart is the US Dollar index itself.  Of note is that the recent correction took more than twice as long as the prior advance and has not retraced all the advance.  Also notice the divergence pattern in stochastics at the recent bottom.  These facts couple together suggest to me that the price logic is still favoring a bullish trend in the US Dollar.  Today triggered a daily SAR buy signal and so we may see some follow through to this rally attempt in the dollar.  What is less clear from the correlation at this point is what impact that will have on stocks.

Stock Market Technical Analysis 8-27-13

Stock Market Technical Analysis 8-27-13

This stock market update covers the QQQ and S&P 500 both daily and weekly time frames.  I review the price logic of the market and several indicators including stochastics, MACD, and parabolic SAR.  I expect that this market correction will continue further down from these levels before a sustained rally occurs.
For more FREE information on how to use "price logic" to understand market trend and trend reversals, you can check out my free eCourse which will help you become a better trader and analyst.
Click HERE for more info
Enjoy the video.
Pete

Non Confirmation in Stock Market Indexes

8-26-13 Stock Market Update
Check out a brief video I made today covering the probable meaning of today's non-confirmation in a move to new highs in the QQQ but not in the other indexes (DIA, SPY, etc.).
The video also covers total put/call ratio and the VIX and the clues they are potentially giving us.
Also this is a reminder that tonight at midnight the FREE TRIAL OFFER for my website services and education will close.
Click HERE to find out more.
All the best to your trading.
Pete

Bullish Harmonic Pattern Set-Ups in Energy Stocks

Earlier today I recorded a follow up video covering some bullish pattern set-ups in some energy and materials stocks.  This update looks in particular at undervalued stocks as measured by the price/book ratio.

Watch the Video Here

I hope you enjoy the video.

Pete

New Trades Triggered Today

Just a heads up and reminder that there is currently a FREE trial offer on the Harmonic Trading Stock Selection service and the Integrative Harmonic Trading course that extends through August 26th.

Today 2 new trade orders were placed and one filled so far in the HTSS service.  The tickers are SNDK and FTI.  Currently you have an opportunity to see inside the service and follow the trades for 1-4 weeks depending on the service option you choose.  You can find more info by using the link below.

The current market environment is interesting in that commodities and stocks are running relatively independently right now and there are some very nice buying opportunities with many great patterns showing up in the energy related markets, and also there are a large number of short selling patterns that are ripe with several already triggering sell signals last week.

If you did not get a chance to watch the recent market update video and details of the services then click on the link below.

Watch The Market Update Video From  8-21-13

I hope you enjoy the video.  

All the best to your trading,

Pete

Stock Market Update and FREE Trial Offer

I recorded a new video today covering technical analysis of the stock market as well as several stocks that are perfect candidates for trading opportunities using the Integrative Harmonic Trading methodology.  

In this video I also give you an opportunity to try out my services for FREE for up to 1 month! 

CLICK HERE to Watch the video

The video specifically covers CAVM, TXT, PLCE, FSLR, BBRY, and the S&P 500.

• What is the MACD indicator telling us?
• What are the VIX and put/call ratios telling us about the current market correction?
• If stocks continue to decline, how far can we expect them to go?

Find out answers to these questions in the video and get ready to learn some useful techniques for your trading.

Enjoy the video.

CLICK HERE to Watch the video

All the best to your trading,

Pete Birchler

Put/Call Ratios Still Tame

One of the reasons that I feel confident that this correction has more room to fall from here is that the put/call ratios have barely budged from optimistic level despite a couple down weeks.

Click on Chart to Enlarge

This chart of the total put/call ratio shows that the 5 day average of the put/call ratio is still a good ways from the 1.05-1.10 range that has been reached on the minor corrections since Nov 2012.  Despite a couple down weeks in the markets, the equity put/call ratio has peak at 0.65 in the last 2 weeks.  Even in the strong uptrend since Nov 2012, minor corrective bottoms have seen ratios in the 0.74-0.80 range or higher.

Given the seasonal weakness typical in Sept., the obvious technical sell configuration, and the lack of fear evident in either the VIX or put/call ratios, I believe we have a minimum of a couple more weeks of downside here until a multi week rally attempt occurs.

I would warn of the possibility of a swift move back toward or below the June lows from here.  I think we may see volatility jump over the next week or two.

Watching This Volatile Set-Up In Stocks

I have been vacationing for the past week or so and will provide an update soon.

In brief this correction that has begun in stocks looks to be legit and not be done yet.  Short term it is arguably oversold, but any brief rally should be looked at as a shorting opportunity on a trading basis.

There have been 3 consecutive closes outside the lower daily bollinger band on SPY with band expansion which is a volatile set up that will typically lead to one of two outcomes...

1) A bottom will form quickly creating a multi day rebound (or longer) attempt
2) The price losses become increasingly larger with corresponding volatility expansion.

The longest streaks of closes outside the daily bands in recent years is 7.  So we could see a rebound soon, but if we don't understand the possibility of a waterfall type decline from these levels down to the 155 level or lower on SPY.

Bearish Divergence Continuing to Build Here in SPY 8-5-13

Click on Chart to Enlarge

This is a 4 hour chart of the SPY etf which shows the very sharp bearish divergence that is currently present on the MACD indicator.  Despite the typical breakout buy pattern that has developed here, I think the market could certainly still be topping here.  For those long on the breakout, I would suggest a stop below the July 26th low.  Based on the possible pattern structure at play, time is nearing its maximum likely extent for a completion point as indicated in a prior projection for a top in stocks.

The multi time frame bearish divergence on the MACD also continues to persist and has now added a daily time frame mild bearish divergence to the mix.  For multi week trading positions, I would suggest a break of the July 26th low as a possible short entry.  For investment purposes, the move down from May-June was an outright correction and should be viewed as key support for the uptrend in stocks.  A failure of this current breakout to hold followed by a move below the June low (red line and arrows on chart above) could signal the completion of a bull market top.

Commitment of Traders Stock Index Update July 2013

Commitment of Traders Stock Index Update

This video covers the recent commitment of traders report data relevant to the attempted breakout of the May 2013 highs.  I give you an interpretation of what to look for and a brief discussion of possible short entry strategy and initial profit target.  If prices move to new highs basis the S&P 500, then it may be a continuation and force further short covering as the short positions have built substantially between 1653-1697 on the S&P 500.  Further price increases will pressure those newly established shorts to cover which will provide buying fuel for the rally.  This really is a key level for stocks.

A New Market Analysis Video Is Available With Specific Trade Set-Ups

New Market Analysis Video Available

Today I recorded a new video for members of my Trader's Crystal Ball eCourse mailing list.  In this video I update you on the very important message the total put/call ratio is telling us and give you multiple time frame analysis of the MACD indicator for the S&P 500.  The video above gives you a brief overview of the content of that video.

Based on this information I offer you several individual stocks set-up for short selling opportunities and highlight a couple ETFs that have recently completed bullish chart patterns and are beginning to move higher.

At the end of the video I review my Integrative Harmonic Trading course which is a stock market trading course that I developed in order to help individual traders and investors learn to objectively identify and objectively trade the most powerful stock chart pattern in the markets.

The video runs nearly an hour with 40+ minutes of timely actionable analysis.  I hope this information is valuable to you and look forward to helping many of you learn this method of analysis.

All the best to your trading,

Pete

Gold and Silver Rally to Continue? Projections If So

Click on Chart to Enlarge

This is a chart of silver prices going back a few years.  I had recently mentioned in video updates that the smart money commercial traders were buying heavily into this market compared to historical buying/selling patterns.  They have not turned net long yet, but these producer dominated markets rarely get even close to net long.  So the current near net long exposure we are seeing is very extreme in its own right.

Based on seasonal patterns, the common time for gold and silver to form a bottom is the June/July time frame which coincident with the recent swing low in prices.  The leg down since last fall has been tremendous in both % decline and time duration compared to historical precedents.  This favors at least a relief rally in the metals if not a bear market bottom.

The chart above shows some historical comparison projections of the expected price and time of this rally if it is to continue to unfold into a typical bear market rally or even a first leg up in a new bull market.  In either case, we can expect some significant more buying to come in to even reach a minimum expectation.  So this would favor being on the lookout for short term buying patterns or signals to continue to follow this rebound up for several weeks.

Click on Chart to Enlarge

This is a weekly chart of gold showing an extremely oversold MACD.  Obviously with such an oversold environment a multi-month rally should probably be expected.  However, notice that there is no divergence pattern indicating the typical bottoming signal at this time.  At most major market bottoms, we see price make a lower low after a rebound from extreme oversold conditions.  But the technical indicator (MACD, RSI, momentum, etc.) will not make a lower low.  That is our usual tip-off that a bottoming set-up is present.

So given the overall context here, I would be looking for higher prices over the coming weeks, but with the tentative expectation that the rally may lead to another shorting opportunity and move to at least slight lower lows before a possible completed bear market.

Commitment of Traders Stock Index Update

Click on Chart to Enlarge

This week's CoT report includes trader positions through Tuesday as prices approached the May highs on the S&P 500 and the Dow 30, but did not break the old high yet.

There was a pretty large increase in the commercial/smart money short position on the week.  Next week's report will be key for analysis because it will include the push to new highs in the cash indexes on the Dow and S&P 500.  If we see another large jump in the selling and a move back to near record short position, then we could have more evidence of a failed breakout attempt.

As price made new highs in May of this year, the smart money was positioned heavily short, but then covered shorts on the run up in May after the breakout.  So that could certainly happen again.  But what we are looking for here is the sentiment of the smart money.

The CoT rate of change gave a typical minor buy signal in mid June.  That will typically occur in conjunction with the end of a correction in the markets.  Interestingly, the market pushed a bit lower after the signal came, but then has reached new highs.  In sustained trends that signal should maintain price above the corrective low.

So in our case a move below the June lows would be indication of failure to maintain the price trend both on a technical analysis level, and also in terms of the CoT data.  A failed breakout of the May high followed by a close below the June low, would be probable indication of a much larger correction or even possibly a bear market in effect in the stock indexes.

So my suggestion is that the June low be perfectly clear as the make or break line for stock market longs here.  Now it would certainly be possible for a false break of the June low and the formation of a large trading range, but for now, keep it simple and understand the risk if prices are to break that low, especially if it occurs more rapidly than the rally since June took to form.

Stock Market Topping?

Stock Market Topping?

Multiple time frame analysis indicates stocks could be making an intermediate to long term high here.

This video covers a multiple time frame technical analysis of the MACD indicator on SPY.  What is apparent is that there is a condition of extreme overbought with divergence on multiple time frame which indicates that we may be approaching a longer term peak in stocks here.

I also give some ideas on what specific indicator signals to use to actually go about entering a possible short position if we see the market correct from these levels.

The Breakout Buy Pattern

Click on Chart to Enlarge

This chart is a daily chart of the Dow 30.  As I indicated in the last post, I am posting what I believe to be the typical higher reward and lower risk breakout buy pattern if one is looking to go long a market on a breakout.  As I stated in the last post, I think the technical indicator set-up is fairly obvious to be alert for a probable failed breakout here, but I also respect the fact that markets trading at all time highs can experience persistent trends on successful breakouts.

I discussed this breakout buy pattern last August and September, and probably other times as well, but here is the basic pattern.

1) Don't buy on the initial move to new highs.

2) Wait for the breakout to a new high to occur, and then for price to move back below the old high and create a swing high on the chart.

3) Buy on a stop order on the NEXT move to new highs, with a stop below the lowest point between the 2 breakouts

The rationale here is that the markets have an uncanny way of putting breakout buyers at a paper loss at some time before continuing the trend.  And also if you study final highs preceding corrections you often see brief breakouts that last a few days and then fail and never push to new highs on a second breakout.  I touched on that in a post last year about what final highs have looked like.  And anybody who has studied technical analysis at all should understand divergence patterns.  So when an indicator divergence pattern is set up and the market looks to make a break to new highs, that is often the final dumb money surge and where the smart money will be unloading shares.

So to avoid some of these obvious pitfalls and market pressure, if we simply let the market breakout and then expect to see some smart money selling come in and push prices back below the old high, we can then gauge whether that is strong selling or weak selling.  The CoT data (though delayed) is often very helpful in gauging this as well.  And by only buying when the market has enough buying capacity to push again to new highs, we have eliminated many of the most obvious bull traps from our trade selection.

I believe that this strategy will often offer a better reward to risk profile as well.  If you think about it in the current market scenario, let's say that prices push to new highs tomorrow.....well where does your stop go?  From an objective charting basis of support and resistance, I would have to say no higher than the 7/3/13 low which is pretty wide.  The typical second breakout may offer a stop that is 1/4 to 1/2 that wide with still roughly the same reward potential.

I will monitor this potential buy set pattern if the Dow and S&P 500 push to new highs.  It doesn't work 100% of the time, but is a much better buying plan here than just getting in on an initial push to new highs.

Nearing Another Possible Large Scale Pattern Completion

This post will be somewhat of a follow up to my early 2013 stock market forecast and its follow up as stocks broke out to the upside on the first trading day of January 2013.  At that time based on the market pattern I thought that a pattern could be completing and laid out in the forecast post the price action criteria that would need to be met to provide some early confirmation that the outlook was correct.  That type of price action never came and instead we saw a forceful upward move.

There is much folly I think in creating market forecasts, yet many traders and market analysts continue to do so.  I think a good market analyst is actually behaving in a scientific manner by making a forecast.  Essentially they have a theory or hypothesis of market movement and so they create an expectation based on that hypothesis.  I think that is excellent for building confidence in market analysis and trading decisions.  But the idea of objective confirming price action is a critical component as well, and if you follow any consistently good market timers or traders who make forecasts, they basically all have criteria that help to confirm the unfolding of a forecast or that quickly call a forecast into question.  This is precisely why I use price and time criteria for confirmation in conjunction with patterns.  It helps to keep somewhat patient in waiting for price to actually do what is expected, but also can still get you in early enough to make good profits.  At times I also feel that patterns can be clear enough that they give the opportunity to take calculated risk even before confirmation occurs.

Obviously since that early 2013 time we saw the bull market continue without any major corrections along the way, affirming that indeed the move up in early 2013 was a "breakout" in that it started a new price pattern and phase of market psychology to the upside.

Now at this point it appears from technical analysis and sentiment that we may be on the other side of that equation, and are nearing a possible large scale pattern completion, at least of the pattern up since Nov 2012, and possibly also of either the move up since Oct 2011 or the entire bull market since 2009.  Based on the logical concepts I use to track pattern formation, I think that it is possible we are entering the peak price area for this bull market, but it appears that the entire bull market price pattern could either end at a lower high next year or even experience a major correction, followed by another sustained bullish advance to new bull market highs into the more typical 6th or 7th year of the decade which are the most common historical topping years for bull markets.

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I do feel that I have some legs to stand on in tracking market patterns in that I highlighted in advance both the price high pattern completions at the April 2010 and May-July 2011 market highs.  See the posts below for the posts I created at those times.  In both cases I remember as I wrote them that it felt a little absurd to suggest major corrections at those times.  And in the current market environment I feel the same because the broad markets are at new all time highs yet again.

http://stockmarketalchemy.blogspot.com/2010/05/possible-major-pattern-completion-in.html

http://stockmarketalchemy.blogspot.com/2011/07/possible-completion-of-flat-pattern.html
http://stockmarketalchemy.blogspot.com/2011/07/possible-confirmation-of-new-downward.html
http://stockmarketalchemy.blogspot.com/2011/08/end-of-initial-plunge.html

-Now in order to provide confirmation that a pattern is completing what will need to see for the move up since June to now to be completely retraced in less time than it took to form.  

The red box on the chart above is the expected topping area for this rally based on pattern trend lines and time relations.  The specific date range is July 16th to August 14th.  At this time it appears likely that we could see a mild pullback followed by a push to new high or to test the highs but create a lower swing high.

As an initial stage of confirmation that a top may be in place, we would like to see the trend line of the move up since June broken.  At this point the structure looks somewhat incomplete on the short term charts, and it would be nice to see a pullback and lower high to give us a different trend line and set of swing highs and lows to work with to more specifically track the price logic here.  Basically the confirmation of a pattern completion comes when the subsequent price action completely retraces the most recent trending move in LESS TIME than it took to form.

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This is a weekly chart of the S&P 500 showing the MACD underneath.  What is very obvious from the chart is that the MACD is in the "overbought" region compared to past highs.  In fact, its recent high is the highest level it has reached going back through both this bull market AND the 2002-2007 bull market.  So we certainly are justified in being cautious here.  Now also noted on the chart on some red lines on the MACD showing divergence patterns, which are where prices makes a higher high but the MACD makes a lower high.  Weekly time frame divergences have consistently led to corrections in the last 2 bull markets. Currently as price is pushing back to new bull market highs, we have a divergence pattern setting up with the MACD at extreme overbought levels.  So we are potentially set up for a failed breakout of the May highs based on this indicator pattern.

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This is a monthly time frame chart showing labeling of a potential continually unfolding expanding triangle pattern since the 2000 highs.  That would imply that there is a coming bear market of historic proportions that would likely take price below the 2009 lows in the S&P 500.

Just for the sake of analysis, let's say we are coming to a bull market high here this summer.  Then based on the time of the last 2 bear markets we may expect the coming bear market to last about 2 years, which is about half the total time of the last 2 bear markets combined.

The red rectangle on this chart represents what I would anticipate to be the time of greatest risk of a major decline based on multiple cycle analysis that I covered in October of last year.  That time frame will be the conjunction of three potentially important cycle lows:

1) The 4 year/Presidential cycle due in Oct 2014
2) The annual cycle weakness into the Sept/Oct time frame
3) The projected low for a 7 year HIGH-HIGH-LOW sequence starting from the 2000 bull market high.

If the bull market is completing here, the chart above has some projections of what we may expect to follow.  We may see an immediate decline that is larger and faster than any in the bull market to date.  Or we may see a larger and more time consuming correction that does not retrace the most recent leg up in less time than it took to form and is not FASTER than the prior declines like the major correction in 2011.  In the second case we would be more likely to experience a rebound/retest of the old highs, which would give the classic low risk shorting opportunity and the first bear market rebound is completing.

Given the typical annual cycle weakness into the fall and strength into the spring, we may expect weakness into this fall followed by a rebound into next spring before the major downside portion of these cycles really kicks in.  Again this is all IF we are completing a bull market high in the current near term.

So let's watch as the action unfolds here.  I will also update with the typical breakout buy pattern to look for if the bull is to continue.

Stock Market Pattern Update

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The move down off the May 22nd high unfolded with 3 relatively distinct moves down, each larger than the previous one.  This creates a possible expanding triangle pattern formation.  There are a couple typical future modes of price action of an expanding triangle.

1) If the pattern is a completed correction, often price will completely retrace the E portion of the expanding triangle, but often much more slowly than it took to form.  Given the current price action this is a possibility, but the E portion has not been retraced completely yet.  If it is, I think that it more likely logically indicates that the correction is complete and prices will make new bull market highs soon.

2) An expanding type of pattern may often be the first phase of a complex corrective pattern.  So we see something like: (expanding triangle) -x wave- (contracting triangle).  In this case the rally in the x wave position, often won't completely retrace the E wave before leading to a move to new lows.

If this second scenario is to unfold, then I think it is more likely that the current rally stalls very soon without taking out the June 18th highs.

Looking at the momentum indicator on the hourly time frame of this chart, we see a bearish divergence set-up making the technical possibility of a rally ending here a realistic one.  Also the large gap down from June 20th has filled, which is a point to watch.

Based on the time consumption of the prior two waves D+E, projecting that time forward from the wave E low, gives us a date of July 12th.  That would be the next important turning date in my mind based on the common time relations within these patterns.

At ~5% the current rally off the June low is larger than almost any corrective rallies in the bull market since 2009 other than in the large corrections of 2010 and 2011.  So if we do see a move to new lows it may imply that we are in a large scale correction similar to those.  However, the flip side is that this large of a move probably implies that the correction is already complete.


What's the trading takeaway message?  It is sensible to take long positions, but a stop below the June low would be mandatory because of the possibility of a much larger correction occurring.  The current correction was only about 7%, whereas the 2010 and 2011 corrections were ~17% and 22% respectively.

It is also sensible to take short positions based on hourly time frame signals if they occur below the June 18th highs.  In this case the stop should go above the June 18th high because a move above there would be further logical implication that the correction is already complete and any move down will be short-lived.

Testing the 50 Day Moving Average

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Three out of the last four sessions have seen the S&P 500 move up to the 50 day moving average and then pullback to close near the middle of the range.  I believe this is typical evidence of program trading kicking in around the 50 day moving average.

In my experience I believe 1 of 2 scenarios is likely to result.

1) The rally attempt fails here near the 50 day average.  Thus far we have been seeing a basically declining volume rally off the June lows, and there is evidence that there is some initial selling as price pushes into this average.

2) Very soon we see a gap up and a big up day probably with a pick up in the volume.  If the rally is to continue, then once the weak program trading selling pressure is exhausted after several tests of the average, price will often blast through the average and often occurs with a gap.

In these situations I would either switch to a shorter time frame to take trading signals, or await a breakout to the upside of the 6/18/13 high in order to go long.

If prices do manage to make new all time highs, then I think it is possible that the market experiences a further sustained rally.  Markets at new all time highs can often moved in sustained trends as there is no overhead resistance attracting sellers.  The NYSE short interest ratio is at about 4.0 and has risen as prices have risen the last couple years.  From comparison to the 2000 and 2007 bull market highs, that is NOT the pattern we would expect at a bull market high.  The last major highs have been preceded by periods of falling short interest.  In any case, the prior highs topped with a ratio around 4.0, but after coming off of higher levels.  As stocks make new highs, significant short interest can create some forced buying to help sustain the rally.

On a short term basis I personally am looking for an hourly time frame sell signal to develop on this test of the 50 day MA in order to possibly establish short positions for a move to new corrective lows.

Multiple Market Update - Gold and Silver Smart Money is Nearing Net Long

Multiple Market Update Video 6-24-13

The video update of the markets covers stocks, bonds, gold, silver, and cotton.  The stock indexes are currently in a volatile formation which could see further sharp selling for if today's lows are broken.  Bonds appear to be in a long term downtrend and have broken the strong negative correlation with stocks since the May 22nd high.  This may be indication that the long term uptrend in bonds is over.

I also give a technical indicator breakdown on what to look for on some different time frames in these markets.  I discuss the Commitment of Traders data on gold and silver, and I cover a few sentiment gauges for stocks.

Stock Market Update Video - The Importance of Last Week's Low

This stock market update video covers the total put/call ratio, Commitment of Traders report data, and technical analysis of the stock market.  Based on these data, I suggest that last week's low is a significant price point in the market.  This may be an important low in a continuing uptrend, but a move below last week's low would be probable indication that the market is currently in a correction that may have significant further downside.

Wednesday Is a Key Reversal Day - Top Warning

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This chart is the Nasdaq 100, QQQ, and is a daily chart of prices.  Wednesday the stock indexes formed wide ranging bearish engulfing patterns which is a top reversal candlestick pattern where the price gaps up and then closes back below the opening price of the prior day.

In this case there was considerable range expansion with a higher high and a lower low in addition to a substantially lower close.  So this also forms a traditional "key reversal" day in bar chart terms.  Given the technically extended nature of this rally, the length of the rally being longer than median historical legs up, extreme "smart money" commercial futures short position, and multiple signs of historically surging "dumb money" into stocks of late, I think we need to pay special attention to this reversal and any possible subsequent failed breakout above it.

The gap up from 5/3/13 would be a first target on a continued decline from these levels.  A move down to fill that gap would make the current decline larger than any decline in this uptrend since November, so that would warn of a larger correction being in force.

Sentimentrader.com reports that over the last few sessions the ratio of bullish to bearish funds in Rydex funds has risen to historical extremes and that total leveraged bullish funds are greater than 6 times the amount of bearish funds.  The Nasdaq and Russell 2000 bullish funds are 14 times greater than bearish funds.  This is significant in that from 2007 to 2010 the ratio had run around 1-2, with occasional spikes to the 6-10 level at  significant market peaks in the 2011 to 2013 time frame.  But now we see a big surge higher which is clearly a dumb money surge into stocks now that the indexes are basically at new highs.

At highs it will feel like the market is likely to continue to rise and the lay person and average investor who has been on the sidelines will now be overpowered emotionally and finally act on putting money into the markets if they had been unsure before.  If you think about someone considering whether or not to put funds in the market, and not really following a systematic strategy, what is it that separates the moment of action from the long period of consideration and inaction before it??  It is an emotionally driven trigger that reaches a threshold and spurs one into action.  But unfortunately it is very untimely for the typical investor.

So time will tell what significance this current level holds in the markets, but one of my main goals in this blog has always been to highlight times when it is wise to take protective action or sell stocks.  In my experience both with my own development as a trader and working with other traders, it is not that difficult to find decent to good entry/buy points in stocks.  And most investors really only think deeply on the buy side.  But understanding when to sell, take profits, or rotate portfolio funds into a protective asset, are much more difficult for investors.

Much of this has to do with the different nature of market tops and bottoms.  The emotional nature of tops is often a drawn out complacency that leads to churning  action and lengthy periods of low volatility.  But at bottoms, brief periods of high volatility, spike lows, or spike followed by sharp retests are the norm, which may make them more recognizable and precisely timed.

So to be clear, I view this as one time where risk is high for a decline in stocks.  For some that may mean to look for short trading set-ups.  For others it may mean to take action, or partial action, NOW on stock investments rather than waiting for the eventual price movement lower to convince you.

The price move up since the mid April 2013 low has been dramatic, especially if you compare it to the average volatility during the period, or even the peak volatility on April 18th.  It has obviously brought the dumb money in, and in the face of persistently historic short positions by commercial stock index futures traders.  When the dumb money public is pouring it into the markets, and the most informed hedgers in the world are shorting the heck out of it, is NOT the time when you want to be buying stocks in for sure.  You either want to be getting out (possibly "early") or have a concrete exit or rotation strategy in place.

This chart shows the VIX (implied volatility index).  It typically falls as the market rises but at major turns it will tend to not confirm the price movement in stocks.  Currently we are seeing such a non-confirmation, and on a large scale.  Volatility has not moved below its March trough despite broad strength in stocks and extreme vertical price movement to new all time highs over the last 5 weeks.  The divergence is both sharp and of long duration compared to other such patterns at the highs of recent legs up in stocks.  Basically all tops of legs up going back to 2010 have displayed at least a minor non-confirmation pattern between the VIX and stocks.  So the current VIX pattern is typical of a topping market, and the size and angle of the divergence suggests to me that we could see a sharp rise in volatility as this high in stocks completes.

This is just an added evidence to help understand the underlying market sentiment.

What the Current Pullback Means

The decline off Wednesday's high to the early Thursday low, is the fastest rate of decline for many months in stocks. This will typically mean one of two things in my opinion.  Either it will form a low very quickly and result in a consolidation and likely higher highs, or it is the kickoff to a more significant correction than has been seen in several months.

 If the correction now becomes larger in % than the pullbacks since Nov, then we would have good logical confirmation that a correction is in force.

Given the sharp bearish divergence pattern on the hourly technical indicators at the recent high and the hourly MACD signal line only now crossing below 0, it seems likely that we will see further downside - even if at a minimum we see a small consolidation or rally followed by a move to slightly lower lows like we saw in February.

If we do see prices continue significantly lower today or tomorrow, that would also be a hint that this may be a more serious break than what we've seen the last several months.

I'll update as appropriate.

Low Equity Put/Call Ratio

The equity put/call ratio has been running low the last 1-2 weeks.  The 5 day average stands at 0.52 and is extremely low relative to its recent range.

While the ratio often reaches its low prior to an ultimate price high of a leg up in stocks, this is an alert that price now may be nearing the point of a correction.  For trade management purposes I think the simplest technique to use for long trades is to have an active trailing stop in place that will allow the market to rise and even to experience volatility in line with the established trend but not greater than the largest pullbacks in the uptrend since November.

Further topping signals to be alert for are daily reversal candlesticks, weekly reversal bars/candlesticks, and weekly SAR reversal.

Stock Market Update 5-7-13

Stock Market Update 5-7-13

This stock market update video covers the US stock indexes.  Analysis of Commitment of Traders data, put/call ratios, and technical analysis is discussed.  Key support levels are shown for placement of protective or trailing stops on long stock positions.

There is an increasing build up of speculative long positions in the market which should be monitored over coming weeks and months.  The technical situation is clearly uptrending, so any shorting or top picking should be based on objective indicator methods with clearly defined risk and stop points.

Stock Market Update 4-29-13 - Bearish Divergence

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This chart is of the SPY etf and is an hourly chart with a MACD and an ADX study underneath the chart.  What we have seen since the April 5th low in SPY resembles an upward "flat" pattern in both price and time relations and indicator behavior.

In the ideal flat wave B should take longer than wave A, and also wave C should take longer than A.  The price legs are often nearly equal creating horizontal or "flat" trendlines - hence the name "flat."

Looking at the indicators we can see that currently the MACD chart is displaying a pretty classic bearish divergence pattern as prices have made higher highs the last two sessions, but the MACD peaked on 4-25-13.  So that is the type of indicator set-up that is typical at a high point in the markets.  Not all divergences lead to pullbacks, but they are the hallmark of the end of price trends.

Also, the ADX can be used in conjunction with the MACD in order to better gauge whether the price movement is likely trending or corrective.  The ADX is a measure of trending activity, and when it is rising, that indicates trending price behavior.  So if the ADX and MACD rise together, that indicates a stable uptrend.  That is what we saw from April 5th through 11th.  Then as the MACD fell and prices corrected back to the April 5th low, the ADX remained above 20 but not rising.  This indicates a relatively strong correction against the prior trend.  Now, since the April 19th low, we have seen the MACD rise, but the ADX trend down.  This indicates a probable counter trend or terminal type of move.

If an upward flat pattern is forming and is completing the current leg up in stocks, then we should require that prices move back below the April 19th low in less time than the C portion of the pattern took to form.  That would shift the price logic to the downside, and suggest that we would see further price declines.  But until that April 19th low is breached, then the price trend is clearly up.

Stock Market Update 4-24-13

4-24-13 Stock Market Update
This video covers multiple time frame technical analysis of the stock market, with focus on how to gauge whether the uptrend is still in force, and what point likely solidifies that a correction will occur.  Additionally I show you a few different real money gauges of how various smart and "dumb" traders are positioned in the current market.
Comments related to the rebound rally in gold are made as well.

SPY Update 4-23-13

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The 15 min chart of SPY shows that the MACD got as extended to the upside as it has been in the last month.  Now with the consolidation and pullback this afternoon, it is setting the stage for a divergence if price makes a higher high than Tuesday, but the MACD stays below today's peak.

Price has been advancing at pace to completely retrace the recent decline in less time than it took to form, but would need to be back at a new all time high before Friday morning to confirm the upward price dominance.

AAPL reported earnings after the bell on Tuesday, but did not move significantly in the after hours trading.  The structural sentiment back drop is not favorable for a major upside reversal or move on this announcement in my opinion.  Call open interest dominates compared to put, and there is very little short interest to create forced buying on a gap up.  Additionally, the weekly momentum is still strongly down with no divergence or basing present to create an ideal chart formation for a bottoming pattern.

At this point, the market is stretched to the upside in the short-term, but there is no clear confirmation that a downtrend has begun.  However, a break of last week's low without making a new all time high would be probable confirmation of a downtrend.

SPY Technical Analysis

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This is an hourly chart of SPY which is the S&P 500 ETF.  The daily chart is not shown but has triggered a parabolic SAR sell signal, so price is below the SAR point.  Also not shown is the weekly chart which also triggered the SAR sell signal last week, so price could be considered to now be in a downtrend on those larger time frames.  Of note on this chart though, we can see that price is above the SAR point on the hourly chart and has some room below it before triggering.

So here is my take away from the multiple time frame set up.  When you see a stock or market trending in one direction on the larger time frames, you can then use your indicator set-ups and triggers on smaller time frames to trade in the direction of the larger trend.  So in this case, for a short sell swing trade on SPY, I would suggest waiting for the hourly SAR to trigger, and if it does so AT A LOWER HIGH than the recent all time high, then that could be a nice short entry.  Also, possible is that the first SAR sell signal fails and leads to a higher price high and possibly some technical divergence.  In that case, then we could again take the next SAR sell signal to trigger.

Similar comments could apply for the MACD indicator set up.  The daily is down and coming off a sharp bearish divergence.   The weekly is flat.  The hourly is up, and if the hourly MACD turns into a sell at a lower high than the recent all time high, then it could offer an opportunity to short.

We will want to pay attention to whether this move up is able to retrace the recent decline in less time than it took to form or not.  That will help us objectively gauge the direction of trend strength in the market.

Currently the 153.60 level on SPY has been tested 3 times and held.  If prices move below that level, it could offer a continuation entry for additional downside, and be probable confirmation that we are in a correction.  The daily bollinger band is currently at that level as well, and prices rebounded after touching the lower band.  That is to be expected in an uptrend.  And in the initial move down off of a high, it often will occur as well.  But if prices break below that low again, then it indicates weakness and will probably lead to downside follow through in my opinion.

Stock Market Update - Gold and Silver Bear Market

4-15-13 Stock Market Update

This video is accidentally split into 2 parts.  It covers stocks, bonds, gold, silver, oil, and the US dollar index.