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.