Possible Confirmation of New Downward Pattern

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With the continuation down on Friday, the decline off the recent swing high completely retraced the prior upward swing. However, it took slightly (a day) longer on the chart. Even so, I take this as possible confirmation that the pattern noted recently has completed. If so, then we are likely to see downward fireworks this coming week. Obviously there is the potential for a shake-up with the political/debt ceiling vote happening. Additionally, there is the possibility of a head and shoulders top forming on the daily chart here. The breakdown below the neckline should occur on heavy volume, and again the chart and "climate" are ripe for a possibly high volume breakdown.

The market found support at the 200 day SMA again Friday and rebounded a bit off of it. See the chart above for notes. This reaction to the 200 day SMA was weaker than the prior 2 successful rebounds.

I don't think there are any high probability low-risk index trade entries right now. Better to wait for a reaction one-way or the other first I think.

CRB Index Update

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The CRB commodity index, I believe, is most likely consolidating at a resistance level before starting another leg down. Oil has a very similar look to this chart, and I believe the next downward phase is likely to exceed the June lows. The dashed red line on the chart above is the projection in the future of the first high to low downward phase (the solid red line). If you look at the daily stochastics on the CRB you will see that it has made a full cycle back to overbought and has had some consolidation at the high. So we could see a sharp break down any day now.

The US Dollar index is at a minor support level and so may bounce soon which should correlate inversely with commodity prices. The hourly chart on silver has made nice bearish divergence on this little push to new rally highs the last couple days. It may have completed its counter trend advance before a large move down. There was a bearish engulfing candlestick pattern a couple days ago which adds some daily chart confirmation to this idea.

I don't have much new to mention regarding stocks. I will say that there are several charts that I have seen on individual stocks that looked set for a bottom to be in place, which failed the last couple days. Often times a break through a harmonic support or resistance zone is a signal that there will be a continued large price movement in the same direction. So I am still leaning toward the market weakening here, with likely acceleration downward in the not distant future.

That being said, the move down the last couple days has not given the confirmation I would want to see to validate the pattern I suggested in recent posts. So the pattern may not be complete. I would not be surprised to see a relief rally very soon here.

The next nice trade opportunity may be a fade (trade against) of any sharp initial move after resolution (or non-resolution) of the debt ceiling news.

SLV Short Trade

Sell SLV (silver ETF) short today with a GTC buy stop at 40.40 (above the recent high). The blog entry is 38.68. The target is 26.00 so the reward to risk is very good.

Markets at Resistance in a Range

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The Dow 30 is at a major horizontal support and resistance line going back a few years. Also last month price broke the uptrending channel from 2010-2011, and has now come back underneath it to touch from the bottom. There may be resistance here to further upside.

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The S&P 500 is at a resistance line as of Friday's close. So the market is either likely to pull back here or to break out of the range to the upside.

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Bearish divergence is present on daily stochastics and shorter term RSI and MACD. Looks like there will be some consolidation at least before a larger move one way or the other.

Possible Completion of Flat Pattern

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The expected time and price movement for what may be wave C of an upward flat pattern may be completing today or any day now. If this is the case, and if the wave "v" of this last move up fails to exceed the high of wave "iii" then that indicated extreme weakness ahead.

-The first requirement after wave "v" completes will be for the red dashed trendline to be broken in less time than wave "v" took to form.

-Then the entire i-v move must be retraced in less time than it took to form.

-Then for further confirmation the trendline (not shown) from the beginning of the pattern to the low of wave B should be broken in less time than i-v took to form.

So while I don't know whether this is occurring, the pattern is reasonable and the expected move will be extremely large and fast. I would strongly suggest any long trading positions have a moderate to tight stop in place GTC at this point.

Also JO was exited at 63.75 this morning. I am watching silver/SLV for a short re-entry any day now. Also copper/JJC looks like it is set up for a new leg down.

Exit JO

Exit the JO Trade tomorrow at the open. There is a strong bullish divergence on this little foray into new corrective lows. It is possible that if this low breaks there will be an acceleration of the decline, but it just doesn't have the right look, and the technical analysis is definitely suggesting waning downside momentum.

Brief Update

If the upward "flat" ABC pattern laid out in recent posts is complete, then this market will continue to aggressively decline for several weeks. If not, then I expect this pullback to be very near completion with some short-term strength to follow.