After a lovely day of fun and sun, I’ve undertaken a review of some technical basics primarily reviewing Bollinger Bands as they are an excellent intermediate-term cycle indicator that can tell you–in no uncertain terms–whether we are in a bullish or bearish mode. Here are some broad observations:
Market breadth “thrusted” lower today with net breadth indicators making lower highs before turning over and trending lower even before today’s thrust down. It will take a breadth miracle to turn in around successfully.
Both the SPX daily and weekly charts show a break of the middle Bollinger Band. That means a test of the lower band is coming and that level is 1260 for the weekly chart. The monthly chart has been above the middle band since breaking above it in early August, 2009. That middle band resides at the key SPX 1200 area that my work suggests we test by late summer.
The Nasdaq COMP is now sitting right on the weekly middle band. The lower band resides just above 2600. After an up 60 point day last week and today’s down 75, you had better pack your vomit bag if you want to play here.
Interestingly, the weekly middle band for both the SPX and COMP were broken from above in the May-June sell-off and the lower bands were tested. Then cam the “Magical Mystery Rally” (MMR) whose move appears to have achieved double tops for many of the major indices.
The MMR was undertaken on the lightest average daily volume yet seen in this “manufactured” rally that began in early 2009. It was narrowly focused until last week when the broad market seemed to quickly catch up to the momentum favorites. But it was a flawed signal created in conjunction with a plethora of negative divergences.
In 2008 the market collapsed and the government came to the rescue. Many have found it amazing that the markets have been able to stay so resilient in the face of a collapsing government. Now the government is collapsing but the markets won’t be so kind.
It looks like regardless of any “deal” to keep the business of government afloat will be met with a turbulent sell the news reaction that most everyone is waiting to buy. So expect the unexpected, like a failed rally followed by a trip to the bottom of the trading range with a failed bounce and then a breakdown. My work still shows that we will give back at least half of the gains from QEII, or a test of the low SPX 1200 area.
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With all due respect…..Bollinger Bands are of little help with regards to predicting market direction.
Probably don’t work for the “DUDE-TRADER” but they work wonders for the intermediate-term trend. They also highlight important levels of support and resistance.
Bollinger Bands???? Perhaps..Try this.. Add 1296.00 (interesting number) cal days to the 10.11.2007 all time top near 14,196. Why 14,196? 168^2+168/2= ?. Then subtract 1296 from the 10.11.2007 high.
If one digs just a bit deeper you will note that the 3.2009 low yields an interesting result and confirms the aforementioned. Indeed basic timing. Thanks for your post- sincerely appreciated!
There is the deal and then the downgrade because the deal will be lame. Rally on the deal and then fail when the real shoe of the downgrade drops is a possibility. Good post Scott.
Makes sense of course.
Any opinions on how the precious metals and the dollar will trade during this eventual retreat to 1200 by late summer? A stronger dollar typically indicates lower commodities, no?
You know what…Somebody really needs to put a bullet in this BS market already.