Thursday, July 2, 2015

Kiss of Death? or Buy Set Up.....

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This chart shows the total put/call average ratio has spiked above the standard deviation band suggesting that there is relative extreme fear in the market sentiment right now.  This condition typically precedes a significant market rally.  However, in major declines, the initial spike may be a good bit before the low is in.  So, I view this as a set-up on the long side, but really we need to see at least an hourly time frame MACD bullish divergence signal in order to consider the long side from a technical standpoint in my opinion.

Click on Chart to Enlarge

The is the SP 500 cash chart on a daily time frame.  Currently price is trapped below a couple rising support trend lines, but above the long term bull market trend lines coming up from the 2009 low and the Oct 2011 low.  Both the trend lines are running close together just below price.  So from a charting standpoint the market price currently seems destined to make a major move.  Either it will find some support soon and then move to new highs, or the long term trend line gets broken with some significant downside follow through. 

From a qualitative standpoint, price broke below the blue trend line of the rising wedge on Monday.  Now today price rose back to the level of the break of the trend line which is a point where I often see back tests complete before a continuation of the new trend (in this case down).  Also price broke the red trend line of a smaller wedge, and price now has back tested the line and closed below it.  This has occurred on successively lower NYSE volume as well, suggesting a probable weak counter trend rally.

In my opinion the market seems very likely to move back below this week's low before any possible low can occur to this decline.  Along this same line of thought, my bottom spotting algorithm has not registered a low signal yet after the new lows on Monday, and it is pretty sensitive at catching bottoms on declines of this magnitude.

So the conclusion from my opinion is that stocks may be close to an intermediate term buy point, but lower lows are likely still ahead on this decline.  But given the long term trend lines just below, and the non-confirmations and rising wedge chart pattern, the possibility of a major decline (at least a legit 1 month correction and roughly ~10% decline) is very real.


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