MARKET WRAP UP 05/25
I would like to focus this post on two main issues:
1) Whether today marked some sort of intermediate term bottom, and
2) Whether we will see confirmation of today’s impressive intraday reversal by the bulls.
Both of those inter-connected issues revolve around the type of candle that we printed on many (but not all) of the daily charts of the leading indices and sectors.
In Japanese candlestick terminology, a bullish hammer often signals a trend reversal. Above all else, the hammer (on a daily chart) shows that the price drops significantly from where it was at the opening bell, yet rallies back towards the end of the session up near the opening price level. Some key elements are: a prior bearish trend, little or no upper wick to the candle, and a small body at the top end of the hammer.
The updated and annotated daily chart of the S&P 500, seen below, should illustrate to you what a hammer looks like, based on today’s price action.
Note that in early February, that particular correction ended with a bullish hammer as well. However, in order for us to find some enticing swing setups on the long side, we still need to see some follow through by the bulls in the coming days. What we are looking for is stabilization in many charts of the indices and individual issues. The most bullish scenario would be to see accumulation by the big institutions, which you should be able to see via strong buying volume, combined with charts building sound bases looking to catapult them higher up through tough resistance levels. Before we jump the gun, however, it is crucial to remember that we are still in a steep downtrend. We should not be making bold bets for anything other than a scalp, until we see more than one impressive day by the bulls.
It is also worth nothing that the market found support today right at the lows of February, in the 1040-1050 range. Although we made a marginally lower low, the bulls still presented themselves in a forceful manner. Thus, the issue of whether today marked any kind of intermediate capitulation remains to be seen in the coming days, but is indeed promising.
As I noted this weekend, the small caps and trannies have been showing us bullish divergences, as neither of them have closed below their respective 200 day moving averages. Their updated charts, seen below, reveal continued relative strength. This is particularly promising to the bulls, as both the trannies and small caps are historically market leading/confirming areas.
I suspect that all of these bullish divergences and hammers are causing those of you who have been waiting patiently in cash to lick your chops. As I noted today, I sold off my remaining “swing scalps,” and I am back to siting in 100% cash, so I, too, am chomping at the bit to get involved for longer term swing trades. However, we still need to hold off for now. That could change very quickly in the coming days, so the best idea I have right now is to assemble a watch list of charts that have held up well throughout this correction. If we see confirmation, I am eager to start posting extensive lists of individual setups for you again, as I did when we had a healthier market in late February, March, and early April.
Finally, note that the correction we have seen thus far has been more ferocious and technically damaging than any other selloff since the beginning of the March, 2009, bull run. Therefore, healing the wounds on the charts and forming a healthier market for swing trading is going to take time, and require some tough work by the bulls. Instead of exuberantly flying in off of the sidelines at a possible reversal, the better risk/reward strategy is to closely monitor the action, looking for signs of stabilization and accumulation.
If the follow through never comes to the upside, however, then we will still be in an ideal, heavy cash position waiting for a true bottom.
OEW suggests confirmation of a positive CIT will occur when we break above 1090 (the downtrend swing pivot) … what are you looking for in the way of confirmation, a follow through on volume to a certain level or would you like to see the Dow recapture the 200?
BTW, nice hammer on LLY if someone’s looking for a pharmaceutical with yield.
Well, the 200 day is huge to be sure. However, I am looking for a change in character. Looking for stronger buy volume. Less daytrading buys. More conviction. Less volatility. Basically, a healthier market more so than specific levels at this point.
I don’t think we’ll lose the volatility until the summer doldrums set in …
Possibly.
http://www.youtube.com/watch?v=2c4L4CPfQY8
Today was encouraging, but I’d still to see follow through tomorrow before committing any cash.
Your posts have just been getting better and better!
Awesome job.
Thanks Lolo–spread the word about iBC.
Nice summary.
I would feel bullish with three to five sideways days
or light pullback then a nice charge forward.
I have not yet traded according to the PPT.
It seems to pick tops and bottoms pretty well,
it is tempting.
Holding a small amount of LIWA ,the rest cash ,building a watch list.
I will be watching for your ideas.
Thanks for being a loyal reader, hooper. The PPT is phenomenal.
I think a week and half ago everyone was looking for that bullish reversal hammer too — look how that worked out.
Guilty until proven innocent, as Brian Shannon would say.
Agreed-confirmation is key.
Nice work here on IBC. You bring the fire power day in and day out. Check out that hammer on COCO btw — worth watching.
Nice–good eye. You’ve been a hardcore loyal reader of mine, and I really appreciate it.
Great analysis as always. Mahalo, chessNwine.
you’re welcome–thanks for always reading!
I was fixing to do a similar post, but you saved me the time. Nicely done.
$RUT 4TW!
Thnx RC. I knew you had to attend to the important matter of the A/C.
indeud
Chess,
your insight is very helpful. Keep up the exceptional work. Your ideas have gotten to be my “must read blog”.
Trying to figure this market is futile; nevertheless:
A. Arguments that markets will go up: We now show a SPY support with the February bottom. Seasonality would dictate a brief spike up before the kick in the teeth for late July. Traders make money with high volatility- so a bit of an upturn maybe?
B. Arguments for markets going down: North Korea, Iran,oil spill, Housing, Piigs,Commodities, Bank failures, Commercial Commitment of Traders slightly short. HI-Lo , AD, and Bullish percent pointing down
So. its a coin toss. Going with the tried and true- the 10DMA and 20DMA are pointing down so intermediate we are down until proven otherwise. But ya gotta think we get a bounce to shake everybody up and increase the volatility so GS robots can make money. I’ll stay all in cash for now.
Right. The bulls have the burden of proof at this point. However, the hammer printed today commands respect, and the next few days will be key.
Regarding the PPT….
Is it basically a genius oversold/overbought algorithm?
I.e. if it scores under 2.20 approx its time to get long?….and vice versa?
and do you use it with your method of trading?
I am thinking of joining the PPT club
I am enjoying your contributions to ibc…thanks much….good stuff
That is one of the many features. It’s quite complex.
Chess can tell you. He was a PPT sub, before an IBC blogger.
JamesPrince–
The PPT is far more than an oscillator. It ranks every single stock and sector in the market in terms of fundaments, technicals and a hybrid of both scores. It is organized in such a way that will satisfy whatever your approach to trading/investing happens to be. You can search for just about anything. The latest features automatically indicate when stocks/sectors/the broad mkt enters overbought/oversold territory, as well as seasonality performance. Basically, if you are a stock junkie, you will get your fix.
I hate to sound like I am pumping here, but you really ought to at least try it out.
I use The PPT to compliment my trading style. There is a “user notes” section which is like a focused and rigorous discussion area amongst PPT members.
If you like what you see on iBankCoin, The PPT is for you. Why go “pennystocking” instead?
Would you say we also had a double-bottom which often leads to more up-side?
You could argue a double bottom for sure. The support from February is likely one reason why buyers bought the huge gap down this morning. As with the hammer, however, follow through is key.
The market made a big statement today in rebounding. Maybe not that the correction is over and that volatility is done, but that there is support for this market.
Indeed. We shall see in the coming days.
Sir;
Your analysis of today’s action reveals both your experience and your wisdom. Thanks!
Hammers are always a welcome sight in downtrends, but as you note, require further bullish confirmation. Hammers can often disappoint when they turn out to be no more than confirmations of existing support levels, and this could well be the case today. The extreme length of the shadow indicates that there are still large numbers of sellers out there!
This morning’s huge gap down was really begging to be filled.
Additionally, the advance/decline picture on both the NYSE and the NASDAQ left a lot to be desired. A big volume up day tomorrow would be welcome.
We’ll soon see if this is a valid full reversal, or simply a weakening test of support. Good luck!
Thank you sir. Indeed, we shall see.
Oh I love my hammers. Hell fucking yes.
Hammer Time
It’s a Mario!
LoL–good to see you over in these parts, shroomz.
Good wrap! Yeah, depending on how the remainder of the week goes, today’s hammer print could be the pivot that starts an oversold rally.
I’m also watching for a rising euro/yen cross to confirm a market rally that is staging for launch.
The P’s will see some resistance at 1085 , but 1103 is a major sticky point. A rally will provide the opportunity to jettison longs, and reposition for volatility and shorts before the next big dip.
The bottom to this euro trash/crisis could come in Q3/Q4 highlighted by a trading halt /circuit breaker (or two) kicking in. Then plan to step in and buy with both hands when you see the exhaustion.
Keep up the great work!
Thanks alphadawgg. Yeah, I was just looking at a chart of the FXE. It has basically filled the gap dating back to 2006, so for now I would think the Euro is done going down. However, I suspect the shorts will reload after any type of relief rally in the near future.
The bears are on edge because there’s always that possibility of a massive intervention on the euro. I don’t think it’s been done but only once in the last 10 years.
^^^^^^
…actually, it doesn’t even need to be “massive”….just enough to start the mother of all short covering rallies on the euro, which is still wildly crowded with shorts.
Yes, definitely a crowded trade. I think the real issue is whether this is 1998 or 2008 in terms of the impact on equities.
Intervention via swaps?
Turbo Tax Tim to the rescue. It’s his decision to intervene, but he’ll to it through the helicopter guy.
Meanwhile, the CFTC data last week indicated that the net spec short positions on the EUR have NEVER been as massively short as now. Many hedgies are committed to seeing this whole thing through to parity, especially after Q1 returns that were rather crappy
This could get very interesting.
not bad, your posts are coming along very nicely. You really should continue to work diligently on your chart pattern and candlestick readings and recognition though…voodoo magic does not come easily 😉
Great post as usual Chess!
My argument for a bounce would be the completion of a right shoulder to take us to new lows (for the year), however I remember not too long ago every short and their granny watching such a similar pattern got their faces ripped off to the upside.
Keep up the great work.