The latest in the series of posts applying simple technical analysis and some gut-level guesswork to the developing SPY bear flag.
In my last post on the developing SPY bear flag, I wrote, “For now, this bounce could carry us to $120.00. That would be a conservative place to look to lighten up.”
The market proceeded to run to $120.94, but then reversed to close at $119.04. That was a very bearish reversal, and indeud, it set us up for Friday’s trade, where SPY lost more than -2.5%.
I have consistently posited that this bear flag will break to the down side, and I see even more evidence of this happening, soon. I suggested $120.00 as a place to take profits or lighten because it marked approximately the halfway point of the flag, and because I believed the market would be unable to rally much higher.
While SPY certainly could bounce here and rally to the 50 day average, volume (look at the arrows) is coming in on the down side and lightening up on the bounces. It appears that there are still many sellers out there who want to lighten up, and buyers seem to be running out of steam.
I would not be at all surprised by another little bounce here, but I believe we will be re-visiting the August lows, sometimes this coming week.
The S&P 500 emini futures are down -0.75% as I write this. Should they stay depressed, we will be setup for an open beneath the lower line of the bear flag.
Good job, nice analysis keep it up!
Thanks! It is quite a departure for me to do this kind of analysis without backtesting to bolster my convictions. I do enjoy it though. Just one many and the markets!
I understand where the idea that higher volume on down days means the downtrend is still in effect. But one thing that I have never seen discussed is cumulative volume over a period of time.
For example if a stock has 5 up days at a volume of 2 MM shares per day and then one down day at 4 MM shares, which one takes precedent? Bears would say the down day volume was 2x higher so they are in control. But if you look at the entire timeframe, up volume is 2.5x higher. Who is in control then?
Po Pimp, I believe what you are looking for is On Balance Volume, or OBV. This is an indicator invented by Granville. Here is a link to an explanation of it:
http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:on_balance_volume
And here is a link to a SPY chart with OBV applied to it.
http://stockcharts.com/h-sc/ui?s=SPY&p=D&b=4&g=0&id=p80023248933
elevator shaft murder hole coming soon…
Yep. When the levee breaks…
Cryin’ won’t help you, prayin’ won’t do you no good,
Now, cryin’ won’t help you, prayin’ won’t do you no good,
When the levee breaks, mama, you got to move.
Thanks, Wood.
Futures down around 11 pts, and Asia down from 2-3%. How do you put out a Greece fire, nasty. Thanks for your dedicated work woodshedder, all of you here at iBC do great work.
Futures down 20 now on /ES. It’s gonna be ugly.
Wood, how’s your ROC indicator looking?
It has not yet crossed. The 252 day needs to fall farther, and then the 5 day needs to surge above it. I would say it will happen after we fall farther, and then get a bounce.
A discussion of flags in Technical Analysis of Stock Trends, Chapter 17 (Measuring Implicatons in Chart Patterns) points out that if the flag continues for more than three weeks, the flag interpretation is probably not correct.
Now five weeks but still bearish regardless.