Correction finally here?

This is one of the strangest rally we had since the March 2009 bottom. No other rally fooled me more than the present one. Is this the end of this long rally? Probably, but after being wrong twice in a row my level of confidence is not so high at the moment. What happens now and din't happen during the previous fake sell signals? First of all, SPX slipped bellow SMA 50 on daily chart, a level that offered a very good support since November last year. Even more important, SPX went bellow a very well established uptrend line. 

Another event that happened for the first time since the beginning of the rally is SPX slipping bellow SMA 120 on 4 hours chart. EMAs are not giving a bearish crossing yet but they are touching, something that didn't happen in the last 7 months. No matter the final outcome, this is the most bearish momentum in 7 months.

Weekly chart doesn't provide too much information, except a way to figure out the first posible support level that is around 1,555. Weekly DMI remains positive for now. 

Gold and silver are hammered again, no surprise here since both of them are already in a bear market.

What I found interesting is the market reaction to Ben's comment that he is going to end up the quantitative easing. This is in fact a positive thing, it means that he thinks the market is robust enough to continue growing without the QE. Apparently the market participants are not convinced that this is the case, a.k.a. the market needs more money to survive. Or it may be just an escuse to take some profit after such a long rally. On the way down, from 2007 to 2009 I remember Feds lowering the interest rate, an event that was always followed by a rally in the market. I couldn't understand the market's reaction since a decrease in the interest rate was a clear sign that the economy was in a big trouble. Rest assured a few weeks after a temporary rally the market was establishing fresh lower lows. 

What happens now is the reverse of lowering the interest rates, a sign that the economy is on right path. If Ben is right expect another powerful rally after this correction is done. 

All the best!

babaro

Second straight week on the downside

It was a quiet, boring trading week until today, or more exactly until the last hour of trading when SPX lost 24 points. The week ends with a 22 points loss but on monthly basis SPX gained over 30 points making this month the 7th straight month on the upside, a pretty solid rally.

The bullish momentum is still intact on all time frames. The 4 hours chart still shows a bullish EMAs crossing but the price crossed today both EMAs. SMA 120 is at pretty safe distance, 40 points bellow but remember that not too long ago the difference between price and SMA 120 was no less than 100 points, one of the biggest difference since the March 2009 bottom. So the market remains bullish but not as crazily bullish as it was a couple of weeks ago.  Notice that the 7 months rally uptrend line is also around 1,590 so this is the best support this rally has.

Just above SMA 120 and rally's uptrend line is SMA 50 on daily chart, a level that behaved as a very good support in the last 7 months, so somewhere in the 1,590-1,600 area we should see a fierce battle between bulls and bears.

Weekly chart shows a very bullish picture, with weekly DMI still at a high level.

In conclusion, SPX remains bullish on all time frames. To change the trend bears need to push SPX bellow the 7 months uptrend line that is now around 1,590. Sounds easily done since SPX lost no less than 57 points since its all time high around 1,687 but it may not be so easy. Bulls have bought every single dip in the last 7 months and I will not be surprised if they are going to defend the 7 months uptrend line once again. 

Have a nice week end!

babaro

Slightly down

After touching a fresh intra-day high of 1,687, SPX pulled back no less than 30 points the same day. Two attempts (yesterday and today) to push market further down were unsuccessful. After going down to 1,637 in the morning SPX rallied to 1,650 bringing the total loss this week to 15-17 points. this drop was not sufficient to bring any major changes at the technical level. Market remains overbought on short term in my opinion and further lateral consolidation is the most likely scenario.

Despite the 15 points drop the weekly DMI did not move down.

However, daily DMI moved down considerably, now being only slightly positive. 

The four hours chart shows little change. SPX is just barely bellow EMA 25 but SMA 120 is far away, around 1,580. Around the same level you can see the 6 months rally uptrend line.

Gold and silver moved up a little bit this week but they remain vulnerable on long run. Notice the weekly DMI deeply in red.

Overall, market will probably cool down again next week. SPX remains overbought in all time frames and it will be easy for bears to chop another 10-15 points. But, again, this will not change the big picture. To make a big dent in the rally bears need to push SPX bellow the 6 months uptrend line. That would mean a loss of 70 points on SPX. Not an easy job.

Another day, another record high

Forth week in the row on the upside and market, once again, claims record highs. This is one of the longest rally since the March 2009 bottom, 6 months old and no less than 300 points on SPX.

However, looking at the charts on all time frames it looks like market is getting overbought. Look on daily and weekly chart at DMI, they are all positive, of course, but notice their value, quite high I must say.

Also notice that SPX is almost 100 points above rising SMA 120 on 4 hours chart. I don't remember when was the last time I saw such a big difference between price and SMA 120.

So, I have reason to believe market may cool down a little bit. It doesn't mean we are going to see a drop, it means that the market may suffer a lateral consolidation rather than going straight up. This is my guess based on how charts are looking at the moment.

The rally we are seeing don't look like short squeezes to me, it looks more like new money is entering the market.

Gold got crashed this week and we should not be surprised since technically it's in a bear market, meaning rallies are short lived and fresh lows are expected. Metals and mining stocks (X, CLF, WLT) are also down this week but not as much as gold or silver. If you want to short gold you can try GDX instead of GLD.

All the best!

babaro

Here we come again

Somebody please help me take the foot out of my mouth! Another bad call from my part, here is the second whip-saw in the row (third actually but I didn't fell for the first one) during this crazy rally. It never happen before, I mean yes, I've got whip-saws but not three of them during the same rally. This is the most volatile rally I've seen in years. OK, bulls, I understand you are very confident, very powerful these days but why are you letting SPX slipping 60 points in a matter of days? Just to annoy me? 

I guess I have no other choice but rely on 4 hour chart which, once again, did not get whip-saw. Or even better I should forget about making money on the downside and focus on the next rally whenever is going to happen. 

The most interesting chart at the moment is the weekly chart. There is there a very nice support line that was actually crossed during the fake plunge but only for one day. Some people may argue that market is developing a "head and shoulder" with the support line I mentioned above as the "neckline". Well, this pattern is possible with one condition, that the "neckline" to be crossed before SPX making another all time high. 

It doesn't look like a textbook "head and shoulder since the right shoulder it is supposed to be shorter than the left one (not the case here) like it was in the case of AAPL which predicted a drop to 360 (AAPL actually dropped to 380, but this was a good enough prediction).

All the best!

babaro