Yesterday bounced hard, then retraced all of that bounce to make a marginal new low, and closed slightly up. The bounce has established the 200 DMA as resistance and was the fifth day out of the last six that SPX has closed well under the daily lower band. The lower band closed at 1883 yesterday and could close as low as 1965-70 today. SPX daily chart:
I was asked yesterday morning why the tone of yesterday’s post was so bearish, and the reason was of course that I thought the odds favored a significant move down. We saw that move and both the SPX 200 DMA and main double top support broke down with a lot of conviction. The double-top target is the 1789 area and I’m expecting SPX should hit that target within a few days. The trend on the market has changed for the moment and while we will get some rallies, I won’t start looking seriously for a low here until we reach that 1789 target area. I’m not expecting to be waiting long for that.
I’ve been looking at my RSI 5 / NYMO daily buy signal that triggered at the 1970 high with some concern here, as it might have delivered a stronger rally than I’m expecting, but it failed at the close yesterday, so it is no longer a concern. That was the first outright fail from the signal trigger since the start of 2007, but there’s a first time for everything. It’s not unprecedented. Looking back further I found another fail in a strong downtrend in 2002. The timing of this signal was particularly annoying, but hey, that’s the market we trade in. SPX daily chart: (more…)
The 10-Year Weekly chart below of the USD/CAD Forex pair shows a bearish “hanging man” formation on this week’s candle…signalling a potential weakening of the U.S. dollar against the Canadian dollar. Price hit the confluence of a major triple-top resistance level, 50% Fibonacci retracement level, upper Bollinger Band, and upper Channel last week.
The very strong decline yesterday caught me by surprise, as we had a very nice setup to retest the highs and a strong daily buy signal to back that up. I was expecting SPX to hold the 1940-50 area in line with fib retracement targets and that didn’t happen. So where does that leave us this morning?
Well in terms of the buy signal these are most immediately bullish in the context of a supportive pattern setup. We had one yesterday morning and we don’t have it now. The very nice double bottom setup is badly, and most likely fatally, damaged. I’m not a big believer in triple bottoms, which are rare, and tend to be raised as a possibility mainly when a possible double bottom is in the process of coming apart. The falling megaphone target back at the highs was only really interesting in the context of that double bottom. My megaphone targets as counter-trend patterns are the standard range of fibonacci retracements, and this one has already retraced slightly over 50% of the megaphone move. (more…)
With the Fed minutes out, the US dollar is in a free-fall, and the Euro is soaring. I’m glad I lightened up on all those energy positions! I’m down to “only” 140 positions, plus I scaled back on my options account too. Take a look at APA and ERX, which I wrote about earlier today, and you’ll agree that the time was right to take profits!
At the end of a band ride the targets for any move away from that band are firstly the middle band, but also any important MAs that lie between the two. The middle band is at 1983, in my ideal target zone for this rally, but between the bands are the 100 DMA at 1960, and the 50 DMA at 1974. The high so far is a fail at the 50 DMA and it’s possible that was the rally high. If so we will most likely find out today. SPX daily chart:
It has been a great run long and short over the last few weeks, and within reasonable tolerances, I’ve called every turn on SPX since I went on holiday in mid-June. Does this mean that what I am expecting to happen here must happen? No, it doesn’t work like that. As I was saying on Friday, the downside scenario is the higher probability path here, and I’m giving 75% odds of a bearish resolution here. That means that I am giving the bulls 25% odds of breaking up to new highs on SPX, and of collapsing the bear scenario that I have been following as it has formed over the last few months. 25% is not a small percentage and it could very much happen. No-one should mortgage the family farm to go short here.
I call the market very well, but no-one can know the future. Anyone who says they do is either deluding themselves, or trying to delude others, or both. Always consider the possibility that any trade can go the other way, and have a plan for that too: