The primary reason is that price action has been painfully obvious. Perhaps everyone in the world expects a test of the 1150 highs on the SPX - as they should based on the price patterns and support levels. Open the daily chart for the SPX:
If we focus on the price action in November and December, we see that a trading range from roughly 085 to 1120 was in force. It was certainly volatile as well. We see large swings from bar to bar. This trading range represents the indecision of the market participants.
For the bears, the quick breach of support at 1120 and then 1085 - ON HIGH VOLUME - really suggested a trend reversal. That reversal had just about confirmed itself on February 5th when it touched as low as 1044 before the impressive intraday turn around. You can see that candle clearly on the chart.Since touching 1044, we have been on a steady climb.
Starting on Feb 16th, we climbed back into the 085-1120 channel. Volume increased and price action rose for 5 days. There was sufficient enough support to test resistance at 1115ish. The first attempt was met by the expected overhang supply and was rejected. The rejection is seen as the two consecutive down bars on Feb 22, 23. Price action found support at 092 and then at 1088ish a couple of days later. This support was right on the 20pMA. In fact, you can see the remarkable intra-day turn around candle touch the 20pMA and rocket directly afterwards.
The cup and handle pattern is pretty bullish and as soon as we broke 1115, it was clear that a full retrace of this throwback is likely. And that is where we stand today - on the verge of completing the retrace.
The real question now is will this be a double top? We shall see. Some things to look at in the coming week are volume, RSI and price action relative to the MAs. I will note that the 20pMA remains below the 50pMA. This is a bearish indicator. Also, Price action broke out above the 50pMA several days ago and is getting a bit ahead of itself. Seems to me that we will certainly see some form of throw-back near the 1150 highs with price action tending back towards the 50pMA.
I have provided all the levels that I think are relevant and tried to illustrate the setup. I hope this is helpful.
Good luck next week!
8 comments:
Hi David , Good to have you Back ,
The only other Bearish indicator is no one is Bearish , but it was that way most of last week , Pretty overbought , a touch of pullback would seem to be in order b4 we take that run at 1150,
EWT wise , the bullish view would be we have or nearly have finished 3 waves up off 1044, after a wave 4 to the lower part of the channel a run to new highs .
At currant wave3 is shorter than wave1 , if it stays that way wave 5 would need to be shorter then 3
The drop from 1150 to 1044 counts best as a 3 wave set . 5-3-5.
Rut and several other sub indexes have already made new highs , Rut high yesterday was 666.1 the old top being 648.
On the other side :)
Oil , Siver , Corn , Wheat , all appear ready for a move down or already started , as was the case in Mid January , Wheat sports a shs
corn made 5 down on rally friday.
30 year bond sports a IHS , The $ may be resuming to up trend.
Lets see what happens next :)
Hey Payline,
I tend to agree with your EWT comment. I can see a wave 4 throwback to the risng trend line. We may see a bit more upside early Monday before that throwback. I see that we are overbought on the hourly and there is a divergence of the RSI on the hourly chart.
If we fail to form a double top, the nest logical stop is near the 1250 area.
I am not convinced that silver is on the way down. I think there is a real possibility that it tests the high 19s again.
I must spend some time looking at the $ again to determine if the strength in the last month or so is lasting. My last glance at the USD basket suggested that we are completing bull flag after bull flag.
Will do some analysis on that tomorrow.
Cheers!
Regroup, look for pivots or confirmation and be nimble. It was a tough week.
However from 1020 to 1038 was not as clear cut to me as it looks now.
The rejection of 1020 for 2 days and the rise of gold, $, Greece trouble and mixed overal numbers looked like a bigger chance for a correction than a big push up.
But the unemployment numbers rush up this big was unexpected to me as it would have been priced in and being not overly positive.
But I was wrong.
Payline, I will be looking to short oil commodities, China and € next week.
I still hold a substantial short line & 35% hedges if bullish.
Good luck!
Hi Paulus,
Let's see what happens as we approach the 1150 area. The selling at that level was very strong. In fact, the volumes during that 4 week period were quite substantial and I expect to see similar selling when we approach that point again.
Tim Knight of SlopeofHope seems to be ready to throw in the towel on his long term bearish outlook. That in and of itself may be the biggest contrarian signal of the year!
Having said that, I did cover out of my QQQQ shorts with a pitiful profit - hardly worth the risk I took. I also trimmed the SPY and DIA short position by 20% near the lows. I did profit from many of my butterfly spreads and my brief SLV gamble.
Cheers!
Hi again , EWT wave4 seems to work as you said to the trend line , its right in the 38% range from the july low to the high just like a 4 should be. that would make the 1028 low 2 of C and 1150 , 3 of C, I dont like like it but if we make new highs that would be my count. 3 of C could not the shortest ala EWT , that my lid on the upside.
Silver could have more room , I have it in C of 5 , and 4 was a triangle , 5 is pretty short in relation to 1 . I would guess it will move with the market .
The $ is interesting to say the least , seems it has been in an EWT running correction which is bullish , the correction could count as 2 of 3 or wave 5 , depending if 3 subdivides .
A hard drop on Monday would be the biggest bull killer sence madcow :)
I dont really expect that , Im just saying .
7 gaps on the up from 1044 , they will all close at somepoint .
Paulus , may you have great fourtune this week
Good trading eveyone
Hey Payline,
Good observation on the gaps. I too think they will fill.
On a philosofical level:
If like TK you are an ultrabear and throw the towel but also being are a contrarian, you recognise this as being an indication of the final surrender fase!
What the hell do you do ;-)
Good luck next week. Thanks payline I indeed need a little confirmation of my trading strategy.
Paulus , wait for the trend to start , if it starts dont worry bout catching all of it ,
I guess I am saying be careful out there . :)
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