I have referred to this chart several times in the past. It provides a very nice representation of this last rally leg which started on Oct 02 - down around 1020. The key feature of the rally is a pretty steep price channel that started as soon as we broke out of the wide down channel last month. This up channel is bounded by the parallel yellow trend lines rising through todays action. I have also added a red trend line that ran from the 1020 low through the lows set up until the 13th. This line combined with the top trend line of the channel formed a rising wedge.
The wedge tells me that we have a rally that is going to exhaust and probably give back everything - meaning down to 1020. The channel gives me a second measure to confirm when we have reached the top.
I was encouraged when we saw a break of the wedge line on Friday. At the same time, I was pretty sure that this rally had one last wave to it. We saw that final wave on Monday - which enabled me to increase my short position with a high percentage chance of a gain today. The final exhaustion wave was the weakest of the series and it failed to break 1100 - falling short of the upper trend line. This also was encouraging. The icing on the cake was the break and close below the bottom trend line of the channel today. These can be seen on the chart.
So, we are definately rolling. How far and how fast are unclear. Fact of the matter is that this is an earning parade with companies hitting home runs each and every day. Thankfully, the rally is tired and can not react any more than it has. It needs a breather.
So let's say the market wants to take the balance of the week to regroup. This is not unreasonable. The weekly cycle usually gets set with a turn-around Tuesday. We should expect down days tomorrow and Thursday. (I know futures are up right now, but technicals and cycles tell me it should be down tomorrow and Thursday). If we head south, the next logical target is the gap/support at around 1080. I would not be surprised if this combination causes us to cross down to 1076 with a bounce and settling around 1080ish.
If this happens - things will get stirred up a bit and most program trading will expect a retrace to at least 1070 - which is the 38% level of the last rally leg. If we get that, I would not be surprised to see a run at the 50% level at 1060 - which just so happens to sit above another gap.
The obstacles that we face on the downside are:
50p MA at 1086ish
Lower BB at 1082ish
Gap and Support at 1080ish
38% retracement and Support at 1070ish
Gap, Support and 50% retracement at 1060ish
I would watch for a pullback (as high as 1096) in the morning, and short with a stop at 1100. This provides opportunities for 10pt, 14pt, 16pt, and 26 pt moves.
Good luck out there!
PS> Check the prior post regarding the daily chart - we are head-banging along the top trend line as I suggested. This is also a good sign - we are very overbought on the daily.
12 comments:
appreciate your analysis...thanks, David. I wonder if $US has bottomed near term? and if $ dips again, will it prop up equity one more time...maybe $ will decouple the equity soon
ww
Hey ww,
I think the dollar is nearing a bottom. The obvious low is 72 on the index - but I think it will find a floor before then - even if through a correction in the S&P.
David:
Great charting!
The COMP could not even attempt a modest approach to the 2200 level at this time. And this with the great news of aapl, txn, pfe, dd, cat, et al. Seems like when the earnings are finished this market may be vulnerable to "bad news" is "bad news" and "good news" is "bad news". I hope so!
Added to my DXD and FXP near the open to 40% of portfolio (with protection). Hope I can scale in the rest of the way at a good price.
Again, great charts and thanks for your help.
Futures are down 2 as I call it the night. Dollar index up at 75.760 - hmmm.
Hi David , Hope all is about to be great . $ getting pounded on sence you turned it.
Spx on the daily is a little double top , not a big one but its there .
My Best
look at the $. I'm waiting for some upside and then will add to my short positions.
David, very impressive looking at the SP move down as you said.
Added to short positions in individual stocks, but covered at the close.
Will we get follow through? I'd bet we do. I probably should have kept my individual stock short positions, but I did not. A bear raid right about now would be interesting, but I'd bet we get another squeeze after tomorrow.
David, been following your site little over a month now - great stuff - learning a boat load. And a great call on the short SnP.
Hey Robert and Anon,
Thanks for noticing the call. I am now looking for confirmation tomorrow and the balance of the week.
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