Which way will we go George? Which way will we go?

Daily:

                Indecision is the word of the day.  We closed just below the 10 day moving average yet again.  We started out the day moving up before slamming into a former support level at 1215.  Immediately afterwards we started moving down and bounced off of the 1180 area for a rough trading range of 35 points on the S&P 500.  We eventually closed almost dead even indicating a degree of indecision in the markets. 

                The ADX is still doing the same thing it has been for the past week.  The Di- is still moving down, the Di+ is still moving up, and the ADX is trending sideways.  MACD is still moving to a cross with the histogram putting in another uptick.  However, the stochastic could end up rolling over at the 50 line and trend back down.

                We could still move higher but I think it will be short lived due to resistance at the 1230 level and the 20 day moving average which would form major resistance.  If we move up it may end here.  Watch the 1230 level closely for signs of reversal.  If we don’t move past 1215, we may move back down and challenge the 1180 period yet again.  If we break through the 1180 period I think that would be a good sign that the recent rally has failed.  If it moves through this level sit on your hands.  We won’t have a clear image of what to expect until we get through either the 1215 level or the 1120 level (I know, a 100 point swing).

60 min:

                I’m not very good at interpreting wedging/pennant patterns.  They are very difficult to get a clear signal out of because it depends on where you draw your trend lines as to what signal it gives you and the direction you get out of the trend depends on whether you break out or break down.  Simply put, we either have a bearish rising wedge which has the potential to break down and hurl us down to or through the 1180 level.  Or, we could have a bull pennant which would move us up.  If we move up we could see that 1230 or 1260 level (a vagueness rating of 30 points, I know and I’m sorry.  There just isn’t much that is clear out there right now).  I feel that I have fallen a little short today and would strongly suggest you check out Ron Walker’s site http://www.thechartpatterntrader.com/

Is it "Hammer Time"?

                Today’s movement was further evidence that the world markets have intermingled to a point where everything moves in lockstep.  We opened moving down and hit that 1180 area before making an attempt to advance back to the until the Merkozy press conference yielded information that the market didn’t like.  We were expecting some kind of euro bond but were left disappointed.  After that disappointment we headed straight back to the 1180 area and then started moving back up towards even.  At about 3:15 we set up a bull channel on the 15 min chart and have been following that so far.

                We had yet another hammer set up today on the daily chart indicating a potential reversal (all reversal patterns require confirmation).  Confirmation would occur if we close tomorrow below that 1180 low we put in today.  I don’t think this is very likely.  Although the Di + turned sideways, the MACD and stochastic remain bullish for the short term.  I expect that we will move back up after people have shrugged off the Murkozy info and head to about 1210-1220 tomorrow before moving closer to the 20 day moving average or the neckline.

                Today we also have the S&P 500 bullish percent chart for you.  This is a very good indicator of reversals and “contra” trends (contra trends are short term reversals).  It called the reversal from our head and shoulder pattern and is showing a short term contra trend today.  This remains in bullish direction for the moment.  I expect that we will advance on this before reversing back to the long term trend at around the 25-30 area.

Important Pre-Market Update

                I need to revise what I said yesterday about what to expect from the market today.  The best way to do that is to refer you to Ron Walkers public chart list and his video for yesterday’s market.  You can find this chart and others at   http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1926808&cmd=show[s237471733]&disp=O  and his video for Monday August 15 at http://www.thechartpatterntrader.com/. 

                Basically we are going to see an extremely short term pullback from yesterdays close to the 1180 area before heading higher.  I believe that we are going to form what is called a head fake.  A head fake is where price pushes above a level of resistance, pulls back below it, and then pushes through it.  This is very common around moving averages.  I did not think this was going to happen but futures are implying that this is going to happen over the next couple of days.

                If you look at Mr. Walkers 60 min chart for yesterday he breaks down trend lines and other levels of resistance.  There is further explanation of these trends lines as well as other analysis that points to the 1180 area before we move higher.  The green marks on this chart are mine but the rest are  Ron’s.  I fully suggest that you visit his site http://www.thechartpatterntrader.com/ and help support his site as it is an excellent learning tool that I use daily in case I miss something like I did last night.

Du, Du, Du

                Finally got our confirmation today.  We rose from the start and after a short move down from the opening high we moved all the way up clearing multiple levels of resistance.  We cleared the previous highs of the candle pattern confirming a reversal as well as closing above the 10 moving average and the 1200 psychological level (psychological levels of resistance occur at zeros, 10, 20, 30, etc.). 

                The positive and negative di lines continue to converge with the advance decline line remains above the negative.  This indicates that there is likely still more upside to come and continues to be bullish for the moment.  The two di lines will probably touch and reverse when we reach the neck line.

                We had another uptick on the MACD histogram with the fast and slow lines moving closer to a cross.  When the histogram moves above the center line and the fast and slow lines cross, it is widely considered a short term bullish signal.  MACD is widely followed by many technical analysts as it is in “instep” indicator and tells you what is going on not necessarily what is going to happen but it can indicate shifts in momentum.

                The stochastic is moving more toward an uptrend than a cross and advancing towards the 50 line.  This indicates that momentum for the moment is positive.  This may be a little speculative with the volume drying up but the stochastic is usually a pretty good indicator of momentum.  Everything except the moving averages point to short term bullish at the moment.

                From here we can expect volume to pick up in the coming days with an advance to either the 20 day moving average or the neckline of our head and shoulders topping pattern (see my post for more information on head and shoulder patterns http://policonifi.blogspot.com/2011/08/where-it-was-where-it-is-where-its-gona.html ).  We may move past the 20 day and go all the way to the neckline as it is a stronger level of resistance (it has been tested 4 times already with no ability to get through it) but I would advise caution at the 20 day.  Often things will “bounce” off of or around their 10 and 20 day moving averages.  We saw this yesterday when we advanced out of the gate before smashing into overhead resistance at 1190 which was right below the 10 day.  I should note that the moving averages are still in a bearish alignment so this current uptrend will be short lived and the reversal will be harsh.  Watch the 20 day moving average and the 1250 level very closely as we advance and you will be ready for the reversal.

hmmm

                Not quite there yet.  We started the day with a continuation of yesterday’s trend on even lighter volume.  We are getting sign after sign that things are getting ready to turn around.  Keep a close eye on what happens on Monday.  With things setting up the way they are, when we finally do get a rally it is going to be a big one. 

                We opened at the same level we closed at yesterday and immediately swung for the fences and slammed into the 10 day moving average before coming back down to close just above yesterdays close.  The positive DI line on the ADX indicator is beginning to turn out of oversold territory.  We also had another uptick on the MACD histogram.  These are all signs that things are about to turn around.  Not to mention the narrow range in which we traded today indicating that the buyers where not taken over by the sellers. 

                Pay special attention to the market on Monday.  Even with the positive signals we have gotten over the past two days we still ended up with a potential reversal candle (this time with downward potential) called an inverted hammer (this works the same as a regular hammer, see my post http://policonifi.blogspot.com/2011/08/when-fear-takes-over.html).  I still think that we are going to get a rally back up to the neckline or at very least up to the 20 day moving average.  Be very careful over the next few trading days people, we are walking on egg shells here.

Go Baby, GO!

                Well well well, we had a relatively stable day of trade.  Right out of the gate the S&P 500 began advancing ending up 4.63% falling with in pennies of our confirmation level.  There are several things that leave me to believe that even though falling $0.50 below our confirmation level, we are now in a position for an advance. 

                Volume dried up significantly today.  This is usually a signal of a reversal.  It doesn’t always happen right at the turning point but is typically a good indication of a coming change in direction.  The ADX line crossed above the negative DI line.  This is an indication that the market has over taken declining issues.  The uptick on the MACD histogram is an indicator that momentum is beginning to shift towards bullish pattern.  And the stochastic is rolled over today as well.  I am less inclined to believe the stochastic because it has had a bad track record with me recently but when multiple indicators are in agreement, you can be relatively certain that there will be a change in direction.

                So where do we go from here?  I suspect that tomorrow we will make it above the 10 day EMA (exponential moving average) and mark the beginning of our move up.  Over the next week or so we will probably go to 1220 or 1250.  Keep in mind that 1250 is a stronger level of resistance (as our neckline that was tested several times as support) and will most likely see a reversal there.  1220 is also a relatively strong level of resistance (the level at which we got QE2), but not as strong as 1250.

Keep Your Shirt on or You'll Lose it (for 08-10-11)

                Yet another crazy day of trade in the markets today.  Yesterday I said that I didn’t believe that we needed to wait for confirmation, apparently we did.  We are still showing a potential reversal with the pattern that emerged today. 

The really cool thing about candlestick charts is that they have an additive property.  Basically, if you can’t see a clear pattern in a single day candle you can take the previous two, or three, and combine them to form a clearer signal. 

Don’t forget to mind your indicators.  All three indicators that I use are still saying bear.  What we need to see in order to begin a short term reversal is to get a closing price above the high of the combined pattern (called a doji) which is still at the highs from the past two days (1170ish).  We may see this tomorrow, or we may see another hammer or slight uptick to close the huge distance between wherever we open and the highs of the past two days.  Or, we may continue down.  I’m sorry that I can’t tell you more specifically.  I will update you as soon as I know for sure.

WTF!

                All I can really say is “WHAT THE F@CK”.  What I think happened is that the initial sell-off we saw when the FED made its statement came about because nobody expected the FED to react that way.  Over the last few days people were buying bonds and treasuries like they were going out of style.  With the FED’s non-reaction, people rushed back into stocks because the FED's announcement basically made the bonds and treasuries people were buying the equivalent of holding cash.  This drove the market up in the last few minuets of the trading day.

                So, what next?  Today we saw the formation of a hammer candlestick pattern (refer to my blog post “when fear takes over”).  Honestly it looked more like a baseball bat but it fits the criteria.  Now, as previously stated, hammer patterns are usually a sign of a potential reversal.  Hammers usually require confirmation, but with the size of this hammer and the volume on which it occurred, I do not think this is the case this time.  I expect the upward rally will continue up to retest the neck line of our head and shoulder pattern (see blog post “where it is, where it was, where its gona be”).

                That being said, our momentum indicators are still bearish.  The ADX is still in major bear territory, the moving averages are still in a bear alignment, and the stochastic is still pointing down.  My long term outlook is still  negative but I expect that over the short term we will see a move upward towards 1250.

The Fool, or the Fool Who Follows Him

Everywhere you turn you will hear "this is a great buying opportunity".  DON'T BE FOOLED!  The best buying opportunities occur at market bottoms and we are no where near a bottom.  How do you find a bottom you ask?  When a chart carves out a bottom, you will usually see a period of what is called accumulation.  Accumulation is a period of time where you see a period of time that price moves horizontally before a breakout and run up.

In case you were wondering, the following is a real chart example of accumulation and distribution.

Wesa people gona die?

Very very frightening times right now folks.  Check out this video by Peter Schiff which explains what is going on with currencies and credit ratings.

Where it was, Where it is, Where it's gona be

Where it was:  over the past year we have seen what is called a “head and shoulders” topping pattern develop.  This pattern usually occurs at the top of a trend hence the name topping pattern.  This pattern is one of the most telling of all market patterns.  I say that because off of this pattern you can usually expect a measured move.   A measured move is where price moves from one point to another (in this pattern this point is called the neck line) and then moves again in the same direction an equal point or percentage.  On August 4  we broke below the neckline of the larger pattern.

Where it is:  what a day, all major indices we saw dropped significantly.  The NASDAQ fell the most falling 6.9% .  If you’ll notice, we have gone well past the point where our measured move told us we were going.

Where it’s going:  What is left is speculation.  I can’t say with absolute certainty, but there are clues.  Here I will outline what I am looking at.  From here I am looking at several different price levels and sociopolitical factors.  1.) I am looking at support and resistance levels.  We broke through several and ended just above one.  We started the day by hitting a top off of the 1200 level and pushed through 1175 and 1150 respectively.  We eventually found some support at 1120 which was resistance a year ago today, and was coincidentally the point at which we saw QE2.

If it looks like a bear, sounds like a bear, and mauls you like a bear, it will rip your face off.  That’s right, we have entered a bear market.  Typically, and most bear markets aren’t typical, bear markets consist of three legs down.  Having begun the first leg, we haven’t seen any rally attempts yet.  Since we haven’t seen any rally attempts, I think one is coming soon.  the sooner the better.  The first rally attempt will likely come after our one trick pony Ben Bernanke announces QE3, which I expect he will do tomorrow.  Off of the first rally attempt we will probably go back up to one of the previous levels of support, that are now resistance.  I expect this to occur around 1200, or wherever the 200 day moveing average is when this rally occurs, before we head back down.  After that I am a little foggy.  For more in-depth analysis please visit Ron Walker and his video blog at http://www.thechartpatterntrader.com

Rates, time will tell

     this mourning I posted what you can expect from a downgrade of a country's credit rating.  durring the trading day we saw prices rise on tresuries while yields fell.  This is the opposite of what I said was going to happen.  Over all, was I wrong?  Time will tell.
     What I think happend and is going to happen is that prices rose while yields fell because of an overall rise in volume.  Once volume dries up, I expect yeilds to rise.  I cant say how high they will go, but I deffinately think that yields will rise.

Why I Agree with S&P

     One of the reasons that you will not find a single middle eastern country with a high credit rating is because of the overwhelming potential for political volatility.  Not to say that the U.S. is on the verge of major regime change, but things are so partisan that no progress can be assured.  Congress came within hours of not being willing to pay its debt just a week ago.  Its not that there was a question of whether or not the U.S. could pay its debt.  The point is that there was, and still is a question of whether or not they will be able to agree over what needs to be done and pass legislation in a timely manner. 
     Not only does it appear that some people in congress are willing to allow a default, but they promptly went on vacation after "accomplishing" an agreement to raise the debt ceiling while cutting spending in amounts that appear to only be a drop in the bucket.  That's right folks, congress gave themselves a pat on the back after coming to a deal that does nothing to solve the problem.  The deal that they agreed to merely slows the debt curve instead of making a meaningful change in direction.  That is why I agree with S&P's decision.