I really wanted to see us close down under 090, but I knew it was not happending today. I called the LOD at around 089 and sadly I was correct. Having not closed below 090 is not a big deal. It just would have sealed the deal for this reaction high. Reason being that we would be sitting below a substantial layer of congestion - which is essentially supply. Now we sit on top of the congestion and it serves as support. Hopefully we will get follow through tomorrow. We are one sell wave away from a very nice breakdown.
I have two charts today. First the hourly chart, as I think it provides a good summary of why the price acted as it did today.
This chart was originally posted many days ago. In fact, the red support/resistance lines remain un-modified. I have added only one technical study, which is the fib grid traced from the low to the high. It is funny how well these things work. Note that the key retrace levels align nicely with specific support and resistance levels. The 38% level sits right around 085 and the 50% sits right around 072. Does anyone remember the significance of 072? That was the level that we saw some real selling. Funny how it becomes the 50% retrace point of the last rally leg.
Anyway, I have three color zones on the chart. The first is the "Overhang" in red. Based on today's closing price, this represents the supply that will keep further rallies in check. Now you know why I wish we fell below 090. That would add to the supply side of the equation. The next area I wish to highlight is the "Support Base" in green. This is the next area where we see consolidation (at least in the last 20 days). That is the 029 to 072 area. That is going to be an interesting 40 points if we reach it. The final area is called "Butter" and is appropriately represented in yellow. Note the lack of recent consolidation in this area. In theory, if we break 085, we should cut like a warm knife down to 072. Bread anyone?
So, can it happen? Sure. I like the fact that RSI is not oversold here. I also like the Bear Flag formation we have today. Further, the short covering at the end of the day failed to make a decent dent into the overhang. These factors, combined with a miss be Dell, falling financials, and a tech sector give-up are all pretty encouraging. How does OPEX fit? I don't know. All I know is that a technical case was built, price action seems to be following, and the surrounding "stuff" seems to align - except for the dollar index performance today.
Now let's step back and examine the daily chart.
This chart is also from the archives, with no modifications. The red channel was the main up channel that was violated a couple of weeks ago at the prior reaction low. That was a good sign, though it would have been much better if we got lower than the low set in early October. That said, we did break the lower main trend line and a new channel started. This channel, in yellow, was created by connecting the reaction lows of October and November, duplicating the line and placing the copy on top starting with the last reaction high. This gave us an idea of where the most recent reaction high would end. Sure enough, it did - though it burned a few of us as it formed.
So, we now "seem" to be heading south into the target zone that I have identified. And looking at this zone, it really is butter - provided we get below that white dashed line! Look back to every time we have approached the 20p MA (red line) - we have always crossed. This is to be expected on a daily chart. Now, look at the last four (4) reaction lows. See how each time we cross a bit further. Also note how the distance between the 20p MA and the 50p MA (blue line) has thinned over time. The last reaction low saw a break of the 50p MA - NICE! Now, the 20pMA is just above the 50p MA, price action is bearing down, and it looks like we'll easily break both. Low and behold - if we break both, doesn't that also break the red channel line? Sure does. If we break the red channel line - look out! The selling begins.
Let's take it a step further. If the selling begins, what will happen with the 20p MA? It will break down below the 50p MA. When that happens - wow. This is very, very bearish! Finally, if price decline accelerates, say hello and goodbye to the bottom yellow trend line and we may even get that break of 1029.
Wow, this may really happen folks!
Good luck out there - sorry I do not have a bull case for you tonight.
20 comments:
David , I recall the " seller at 72 " seems like we hit that over and over . And we have that Big Old Gap from at week at 69-72
The trend line from the 16th and the 17th seems to catch the big wave down.
Great call on today , great call on the bottom during the day , I was happy not to get back in after a stop out at 90.
Thank you for making a great presentation in your post last night, I was expecting a new high
until I read it and re evaluated.
May we all see that follow threw .
Thanks again for all your help
Payline,
Thanks, and I am glad you did well today.
Cheers!
great work.. so 85 is the number to break.. closed my shorts today and will be looking for that break at around 85 to reenter.. i know you don't like to post during the day - the reason i'm not at hms as much as i like teddy etal. making me second guess my moves but if you ever decided to drop a line or two when you see something i for one would certainly benefit from it especially as i try to get on the same page each night to get ready for the morning.. great day today though.. thanks again.. all the best..
I did well today also. I hate to say it, but I think it is very possible that we head up before we come back down. Dunno how high. Maybe only 1105. wish I could predict the future and wish I felt more comfortable about what is going to happen. I also wish I had played today a bit better. could have easily been up another 0.5%...
payline, I remember that GD seller at 72. Amazing we are higher than that now.
KPH , a + is win , you can do well always selling to early , you cant do well selling to late.
Hi all had to look up a Bear Flag, Here is the text , seems to fit .....to near perfection
Bear Flag is a sharp, strong volume decline, several days of sideways to higher price action on much weaker volume followed by a second, sharp decline to new lows on strong volume.
The technical target for a bear flag pattern is derived by subtracting the height of the flag pole from the eventual breakout level at point
David, Thanks for a great week of posts. My Monday was like yours, only it took me longer to recover. Your post was a comfort. And the rest of the week - you were spot on. So before I hit the Sam Adams, did Friday's action constitute 'follow through'?
Have a great weekend, and hope the recovery from surgery is still going smoothly.
Bob O'N... (w/ two l's :)
Hey Bob (of the ll clan),
Enjoy the Sam Adams. I'll be corking a bottle of wine shortly.
In terms of follow through - not quite. But with OPEX I can not conclude much. I would have prefered a close below the consolidation.
Next week should be interesting. Light trade with the holidays. I would not be surprised to see some up time early. Though that is not based on TA. I'll get to that later this weekend.
Cheers!
David:
I have a tuff nut to crack and my TA skills are not sufficient. Can you help?
What I see is the DJIA in a picture perfect wedge, with lower support at march, july, november. SPX, COMP, and SML/RUT have broken the wedge to the down side but were held in check by the DJIA lower support at november 2nd. SPX and COMP made an effort to reenter the wedge but bumped against the bottom side and moved lower.
BUT something possible on SML/RUT. Seems like SML/RUT could be in a very wide down channel, with lower support at october 2 and november 2, and upper resistance at october 15 and november 15.
Here is tuff part for me, first a pull back appears to be in progress. If so and the DJIA touches the wedge lower support at about 10000, what happens next? IF (big IF) SML/RUT are in a down channel, can it be possible for DJIA break the wedge at ~10000 rather than move higher. The only thing I can think of to support this idea (besides good TA work) is that the oct '07 trend line may force djia out of the wedge.
I say Tuff nut to crack because I am short spx right now. And my intial thought was to go cash at the DJIA lower support, and reshort spx at about DJIA 10350, the oct '07 trend line. Now based on the possible SML/RUT down channel I am thinking that DJIA will need to break the lower support at about DJIA 10000 for SML/RUT to reach there own channel lower support in an orderly fashion.
Any help you can provide will be greatly appreciated.
PS
If the market moves higher next week then I will put everything in the circular file :)
Bob G , I had to call my broker to find out what the deal on tmv was ,
They paid a $7.35 per share special distribution. ( cap gain ) So when TMV gapped down 6.85 at open it was really up. The reason I chose tmv over tbt this time is tbt is 20and30
tmv is 30 only.
Fresbee does point to a sign , when the short bond went negative on Thursday , few seem to notice. I have been fortunate to buy at the low and sell at the high, on both side of bonds this year ,unlike my timing an spx :)
I also been keeping a tight stop at 64 which now becomes 56.65
take care
Payline:
Ahhh yes.
IF the market had a good pull back, then maybe TMV or UCO would be good bets.
By the way do you have any thoughts as to SML possibly being in a down channel (see post above) and if so the implication to the market in general and the DJIA lower support in particular? Thanks
hey david.. hope your weekend is going well.. as a ta master i thought you may want to look at this.. i was doing a fib retracement of s&p from 2000 high to 2002 low and noticed the rally hit the 50% retracement, dropped back to 38.2% before resuming uptrend.. we're pretty close to our s&p 50% retrace - do you think there is a case for pushing the market to 1120 to hit the 50% before the much awaited healthy correction which would bring us back to ~1000.. also notice the sharp uptrend in 2000 similar to the one now which ends up being a shallower uptrend out of the hole.. your thoughts?? i had closed my shorts on thursday expecting an upward push which if it materializes i'll renter again around 1110+ or if not around 1085.. thanks again for all your work.. take care..
*also notice the sharp uptrend in 2003*
am not sure if you can see the spy chart - but it's here
http://docs.google.com/Doc?docid=0AQF0DgQE3AV5ZGR2bWhkbmpfMTBncW53dnBnMw&hl=en
sorry for multiple posts.. url got cut off..
http://docs.google.com/Doc?docid=0AQF0DgQE3AV5ZGR2bWhkbmpfMTBncW53dnBnMw&hl=en
url keeps getting cut off - end is not W53 but W53dnBnMw&hl=en ..
Hye Devon,
I'm vrey familiar with the comparisons to the 02 decline and 03 rally. I always like to look at the 20 year monthly chart to get a sense of what can happen. I expect something similiar - meaning the 50% level is very important and we are pretty close now. At a minimum, we'll see some pullback and consolidation. In terms of the post consolidation, I can not answer that right now. There are a number of TAs who look at the chart and say we have a massive double top and expect S&P levels in the 400's. I don't have a strong opinion. I do know that the climb from 1100 is going to be much more difficult this time around. If you look back at 2003 - what resistance was there? Just the prior descent. This time we have twice the price action to deal with and when you look at the rise rise of 04 and 05, it is incremental in nature rather than explosive. I suspect we are not going to "pop" out of where we are now for some time. It is becoming much safer to short.
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