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Friend-of-Slope Gary Savage has been touting precious metals a long time, and he's certainly been doing well lately. As an experiment, I punched in (GLD/SPY) in ProphetCharts to see what the ratio chart would look like, and here it is:
GLD is very close to pushing past its all-time high of June 28th. If it does, it'll be interesting to see just how high it goes. Gary writes that gold and the Dow will reach a 1:1 ratio ultimately (example: 6000 on the Dow and $6,000/ounce for gold, or whatever the prices may be). We shall see!
One short I had good luck with a while ago was Hutchinson Technology (HTCH), but it has gotten so battered, I stopped trading it. I still looked at it each day, wistful that it was too low to short responsibly.
Well, yesterday it shot up huge, and I saw a second chance to get in. I've covered the position today for about a 13% gain, but I just wanted to point this out as an example of taking advantage of a battered stock which, for whatever reason, has a massive one-day pop.
Here's a daily chart, so you can see this pop in context of longer-term price action.
There was a time that my hatred of the number "1040" was simply directed at tax forms, but it has morphed into a loathing for the price level of the Standard and Poors Five Hundred. There was another time I remember a market that refused to drop below the levels that the P.T.B. would permit:
But, as the line goes in No Country for Old Men – – "This country's hard on people; you can't stop what's coming; it ain't all waiting on you. That's vanity."
Now, just to be clear, by no means am I suggesting anything like late 2008/early 2009 is going to happen. I think that plunge is a once-every-couple-of-generations kind of thing. Regrettably, I think the maddening market we've lived with the past year is the shape of the next few years……no real direction, a lot of frustrated traders, and an increasing lack of participation by a public that (wisely) doesn't trust the market anymore.
Anyway, the more we bounce off 1040, the harder it's going to be to crack, but if and when it does finally crack, it'll be just as hard to cross to the upside. For the moment, the bulls still have the baton.
I knew there was a holiday weekend coming up, and I'd picked up the impression that it was last weekend which was a holiday weekend in the UK. I took the whole long weekend off and was a bit surprised to see when I logged on yesterday night that it had been a trading day in the US. If I'd realised I would have done a post on Monday morning. Oops.
I was talking to a friend on Sunday about the market and told him that at the moment it is a bit like trench warfare in WWI. The market hasn't gone anywhere in a year or so now, with the main support being very close to the intraday high reached on Friday 28th August 2009 at 1039.47 SPX. I said that the bears would win a few yards and celebrate a big move towards victory, and then the bulls would win a few yards and celebrate a big move towards victory, but that it had been quite a while since a really significant level had been crossed, and SPX has been trading in the 1040 – 1130 range for almost eight weeks now.
At the time I was talking to him the bulls were celebrating a big victory on Friday, and there was serious talk of a move back towards new highs, fuelled by Bernanke's comments that if necessary there would be a major new round of quantitative easing. I remarked that if so then the market was being a very cheap date, and that a high that had required a huge stimulus and massive money printing to achieve in April, would now apparently be recaptured on no more than vague talk that Bernanke might show us some green if the economy took a real turn for the worse.
It seemed a somewhat unlikely scenario and having suggested in my Thursday post that ES would turn back down in the 1070 area, I see that it reversed at 1073. No technical damage has been done to the bear case as far as I can see, so we're back to business as usual unless declining overhead resistance can be broken.
On the SPX daily chart we can see that the wave down from the August high is forming a falling wedge, which is narrowing slowly so it could go a lot further before breaking. I've also marked up the main declining channel on SPX from the April high:
On the SPX 60min chart I've had a closer look at that falling wedge and we can see that the trendlines on the wedge are falling at about five SPX points per day. Overhead resistance today is at 1060, and the target lower wedge trendline would be in the 1020 area if hit today. I'm expecting the next significant reversal on a hit of that lower trendline:
We might not go straight there though. Two hits on the 1037 ES support level looked like it might be a double bottom. At three hits it is looking as though it could be the left shoulder and head of a continuation H&S pattern, and if so we could see a bounce today to form a right shoulder peaking in the 1060 area before dropping again. The positive divergence on both RSI and MACD on the SPX 60min chart suggest that we could see another bounce up before breaking that support level. Interestingly, though the lower trendlines on ES and SPX are the same, the top trendline on ES looks more like that of a declining channel:
The steep declining channel on EURUSD broke up last week and it looks as though EURUSD has formed another flatter declining channel. I'm not seeing anything to suggest a major break up on EURUSD either:
I was looking at some of my indicator charts over the weekend and we saw the bounce last week at the level I would have expected to see it on my SPX:Vix daily chart. It looks as though the broadening ascending wedge on this from the May low may be breaking down now, and for the bear case it does need to break, as it is a strong bullish signal that a major low may have been made until it does.
I read a year ago an analyst talking about the technical low in 2008/9 being made in November 2008 well before the SPX low in March 2009, and he was talking of course about the fact that a number of markets made their lows at the earlier low and then positively diverged from SPX. This wedge is a positive divergence similar to that, and needs to break down to eliminate that positive divergence. Once support at 1037 ES can be broken it seems clear that this wedge will break down too, and encouragingly support has already broken down on RSI on that chart, which is signalling that a break is likely very shortly:
My GOLD:SILVER chart was also interesting. Having shown a lot of bullish divergence last week it has turned back up at a level which suggests that a major high has been made on SPX. If my channel holds this should indicate that we will see a serious move down over the next two or three weeks, which would be very good to see, as we need a break of the July lows just over 1000 to clear the way to the main targets at 935 and 870 SPX which should ideally be reached before the end of October:
I have another day of big offline commitments today so I won't be around much. This should be my last such day this year apart from next Monday, which will be a relief as I've been finding my offline commitments very distracting over the summer.
I happened to be off the radar on Friday, with no account access. That’s probably for the best, as I most likely would’ve broken my own rules, threw my spine out the window, and covered my XRT position. But, as luck would have it, I was unable to wuss-out, and was around to ride the drop today.
So I think I recall seeing a couple posts today talking about the light volume… backed by IBD’s article header: U.S. Stocks Fall Hard In Soft Volume. So where was the volume today? Looks like (some of) it was in XRT- an 86% volume increase above the 15 day average, on a -2.5% down-day:
Note that this presently looks like nothing more than the aforementioned short term hop- to kiss the underside of the cloud- only to drop away.
Both the MACD and RSI continue to look anemic:
I think the pattern remains lame, so unless I become pithed for some reason, I’m sticking with it. As I said before, I'm not in deep, but hope to be on a break below $34.50.
…and no sooner do I post this than I see this Barron's post: Retail Stocks Headed for a Markdown
Today's sharp 2.5% upmove in the Shanghai Composite from Friday's close shows that the price structure held above — and lifted off of — its prior (Aug 13) pullback low at 2564, as well as near-term MA support in and around 2610. Today's up-move and close near the high of the day positions the China equity index for another test of key 4-month resistance at 2700, which if hurdled and sustained should trigger upside continuation towards an optimal measured target zone of 29.25/50, and possibly as high as 3000 to 3100. At this juncture, only a decline that breaks Friday's low at 2589 will compromise the current constructive technical set-up.
The DIVERGENCE between the patterns exhibited by the Shanghai Composite on one hand (bullish) and the cash SPX on the other (bearish) is widening. My thesis is that China peaked first last year in August 2009 and led the rotation of global equity market peaks into 2010. The China equity market appears to be leading the recovery in equity markets out of corrective periods, which eventually should benefit the SPX. The SPX must preserve Friday's low at 1039.74 and climb above 1072 to get traction on the upside.
Originally published on MPTrader.com.