Tuesday, August 30, 2011

Conflicting trends

Intermediate time frame has turned slightly bullish. I have now the confirmation from the two hour chart, EMAs crossing but still bellow SMA 120. Even better the daily DMI is close to neutral.

However, the long term is still slightly bearish, with SPX unable to climb above SMA 75 on weekly chart.

So, on one hand a new rally is just starting (intermediate time frame) on the other hand the relief rally is over (long time frame) and the market is supposed to go down from here. I would go with the bearish scenario but I may be biased here

Monday, August 29, 2011

Second bullish day in a row

SPX advanced a lot today but closed bellow a level I keep mentioning, SMA 75 on weekly chart, that is now around 1,215, so on long term market remains bearish. On short and intermediate time frames market turned bullish. Actually I am not too sure about the intermediate time frame. I am tempted to consider mostly the pair of EMAs that worked very well in the last few years (those on hourly chart) but I can't forget that in the last 3-4 months I've got whip-sawed a few times, the reason I switched to 2 hour chart.

On two hour chart EMA 25 is very close to EMA 50 but I don't see any crossing yet. Until I see one I prefer to stay cautiously bullish on the intermediate time frame. If the rally is for real we are going to see this confirmation plus, daily and weekly DMI turning positive.

On longer time frames things looks less bullish. Daily chart shows that market made a higher high but not by much so I don't consider this extremely significant. Even more, as I mentioned above, daily DMI continues to be negative.

Weekly chart shows EMA 20 touching EMA 40 for the first time since March 2009. This looks pretty scary to me and this is the reason why I am not so bullish overall.

Once again, have a look at what happened in 2007-2008. There were two major failed attempts to climb above SMA 75, one rally lasted almost 3 months and all this time DMI was negative.

Bulls seem to be extremely enthusiastic about another quantitative easing but this is just a possibility, not a fact. Until that moment we are going to see (most likely) a trading in a range that remains to be established (if you ask me I would say between 1120 and 1215).

Morning update

Bulls hoping another QE next month are pushing the indexes up this morning. The buy signal generated on Friday (hourly chart) getting confirmed this morning. However, no confirmation from two hours chart, the time frame I trusted lately.

Looking at the bigger picture market remains vulnerable to another plunge. On weekly chart EMA 20 is touching EMA 40 for the first time since the March 2009 bottom. It it very important to see if SMA 75 is going to act as resistance or not. Right now SMA 75 is around 1,215 and I won't be surprised if the present mini-rally is going to end around this level.

More details later

Friday, August 26, 2011

Ben saves the market

With Ben hinting to a new QE market rallied today, after plunging in the morning. such reversal days should always alert traders about a possible trend change. Market is still extremelly vulnerable on long term but the intermediate time frame is slightly bullish now. As you see SPX managed to climb above SMA 120 today and EMAs gave a bullish crossing on hourly chart.

However, keep in mind that this time frame gave a few whip-saws in the last 4-5 months. Saying that, on two hourly chart that I am also watching things don't look so bullish, EMAs are not even touching.

If a rally is starting here how far could it go? I would assume something in the 1,200-1,220 area where SMA 75 on weekly chart resides. However, if SPX manage to climb above SMA 75 and EMA 20 does not cross EMA 40 on weekly chart the long term bearish momentum is going to cease.

Thursday, August 25, 2011

Resistance around SMA 120

Intermediate time frame remains slightly bearish with EMas almost touching but no crossing and market unable to climb above resistance around SMA 120.

Otherwise, on longer time frames, market remains bearish with or without today's move. One indicator I didn't show you for a while is MACD. I did't show it because the "buy"/"sell" signals by MACD (on daily chart!!!) are similar with those generated by EMAs crossing on hourly chart. As a rule, MACD is a little bit more sensitive than EMAs crossing meaning that it sometimes it gives better buy or sell signals but it also generates at least twice as many whip-saws. MACD on daily chart shows a weak "buy" signal at the moment. However on weekly chart MACD looks extremely bearish so I don't advise you to get too bullish right now. One thing I noticed is that you can trust a buy signal generated by MACD if the MAs are crossing bellow the "zero line" (especially on weekly charts) or a sell signal if the MAs are crossing somewhere above the "zero line".

The dollar gives signs of bottoming. It's now close to its lowest level ever but it didn't make any lower low since May. Of course if Feds decide that a new QE is necessary, dollar will plunge and gold and silver will rocket again. However, from gold moves I think traders are not heavily betting on a QE3. This remains to be seen.

All the best!


Wednesday, August 24, 2011

Waiting for tomorrow

Very important day tomorrow for the intermediate time frame but not so much for bull vs. bear market. SPX stopped exactly at SMa 120 on hourly chart. A push above this level and a confirmation from EMA 25 crossing EMA 50 could signal a continuation of the current rally started yesterday.

Also notice that DMI has turned positive on two hours chart fotr the first time since the beginning of the plunge, a month ago. DMI on two hours chart is a good compromise between DMI on hourly chart that is pretty much meaningless and the one on daily chart that is quite slow and is not that useful in terms of generating good buy/sell signals. DMI on two hours chart gives many more whip-saws than EMA 25 crossing EMA 50 on hourly chart but is good to have a look at it from time to time.

Overall the momentum remains bearish with market bellow SMA 75 and EMA 20 almost touching EMA 40 on weekly chart. Most likely the current rally is going to be another fake rally.

Gold suffered a big plunge today, again not really surprising keeping in mind the panic buying that push the price of gold above the price of platinum. However, overall gold is very well positioned and I expect higher highs (over $2,000/oz.). The weakness may continue for a while on a short time frame since there is little support from here, the next support level being around 1,520, then we have the uptrend line and SMA 200 around 144-146.


Monday, August 22, 2011

Flat day but bearish momentum continues

As you already know a bear market becomes official when the GDP switches to negative for two quarters in a row.  Most of the time "technicals" give an early warning and that's exactly what is going on right now. SPX slipped bellow it's long time support moving average, SMA 75 on weekly chart (or SMA 375 on daily) but EMA 20 did not cross EMA 40 yet (again, on weekly chart). If history repeats we are probably going to see another failed attempts to climb above SMA 75 before seeing the market plunging for good.

I don't want to sound more bearish than necessary but bulls seem to be very weak at the moment and they need miracles (QE3 anybody?) to turn this market on their favor.

As you probably noticed SMA 50 crossed SMA 200 last week, giving birth to the so called "death cross". Personally, I do prefer EMAs crossing not SMAs since they are giving far less whip-saws. Last year, on May we had another "death cross" but the market did not turn into a bear market. At the time EMA 20 came very close to EMA 40 on weekly chart but they did not cross. Also SMA 75 was almost touched but offered a very good support.

What bulls may hope here is a small rally where they can exit at a pretty decent level. And I have reasons to believe that such a short lived rally may happen soon. Looking at the weekly DMI it's easy to notice that it has reached a very high value indicating that market is "oversold". VIX is also pretty high, higher than on May 2010 and very close to March 2009 level.

On shorter time frames things look bearish as hell as well (wow, it rhymes!). Remember that a few months ago I switched to two hours time frame since the 60 minutes charts gave me too many whipsaws. However, since the end of July when market started collapsing big time I noticed that data are once again best fitted by the EMA25-EMA50 on 60 minutes chart. The most significant is the fact that EMAs did not gave a false buy signal during the 100 points fake rally towards 1,200 on 60 minutes chart. Aslo SMA 120 offered a good resistance level.

Take care!


Tuesday, August 9, 2011

Insane swing day...

...but I am not very impressed by this bullish action since it was expected after a huge sell off. I gave up looking at shorter time frames since they are not important anymore with these crazy swing days. We need to look at the big picture and the big picture is bearish despite today's action. The most disturbing, from a technical point of view, is SPX slipping bellow its support moving average, SMA 75. In the last 20 years only once crossing of SMA 75 gave a false sell signal so I still put my bet on EMA 20 crossing EMA 40 as THE signal that a new bear market has started since at that time they touched but did not cross. 

Please note that the "death cross" did happen today, SMA 10 did cross SMA 40 on weekly chart. However, the cross is not confirmed on the daily chart, that's why the press didn't make a big deal about today.

EMA 20 did not cross EMA 40 yet but they are "slow" and they may need a few weeks for this to happen. 

Meanwhile, the rally started today may continue but we could see, once again, SPX inability to cross above SMA 75. Look at early 2008, first we had a triple top, then market slipped bellow SMA 75, we had a small rally, EMA 20 finally crossed EMA 40, followed by a 100 points drop, nice 180 points rally making a higher high but rally stopped bellow SMA 75 that by now started pointing down. Things do not need to happen in exactly the same order but overall they may go the same way. 

Pay attention to weekly DMI, as this is going to provide extremely valuable information regarding small or big rallies. In 2008, after market slipped bellow SMA 75 on weekly chart DMI turned red for good and didn't turn green until mid 2009 despite many fake rallies in between. 

In the near future I expect more volatile days but with little change on weekly basis. The things we need to watch are the resistance around SMA 75 and EMA 20 eventually crossing EMA 40 on weekly charts.

Keep in touch!


P.S. Feel free to leave a comment. I am always open to alternative interpretations of the current market action.

Sunday, August 7, 2011

Bear market?

One my indicators, SMA 75 on weekly chart was crossed for the first time since March 2009? This is very serious! EMa 20 did not cross EMa 40 yet (again on weekly chart) so I am not 100% convinced that SPX slipped into the bear market but it's very close to that point.

No "death" cross yet but is getting very close, at least on weekly chart.

If bear market is here we are going to see further plunge on all indexes probably followed by a relief rally that is going to stop bellow SMA 75. By that time EMA 20 is going to cross EMA 40 on weekly chart giving a clear "sell" signal for any bull left in the market.

On short term anything is possible with market most likely going down on Monday due to S&P downgrade. After that, remains to be seen. Looking at weekly DMI (very high negative half) I would be tempted to believe that we may see a bounce by the end of this week but it's just a speculation. 

All the best!


Tuesday, August 2, 2011

Nasty reversal day

After jumping almost 20 points up SPX experienced a nasty reversal plunging no less than 32 points before recovering a little bit at the end of the day. Reversal days of this magnitude are bad omens especially at the tops. One may argue that we are already 80 points bellow the top but I warn you to be very careful if you are still long.

Market is now very close to the "death cross", SMA 50 crossing SMA 200 from above.

If market goes bellow the previous low, 1250, we are going to have a triple top. The last time we had a triple top after a huge bull market rally was ... in October 2007.

As I mentioned two days ago, according to my timing indicators a new bear market is going to be official when EMA 20 is going to cross EMA 40 on weekly chart and price is going to slip bellow SMA 75.

While waiting for the debt ceiling debate to be over market received two bad news: the GDP was revised lower and bad ISM data, the reason market suffered a reversal yesterday.