Yesterday was definitely a corrective day as evidence by the rounding cup in the morning. And then, after failing the near 920 level, the SPX dropped like 12 points and is now in a holding pattern. Technically, that’s an intraday breakdown, however, if you look at a multi-day chart, it’s a blip. We’re back in the neutral range that formed since last Monday. Take a look at the 10-day chart.
We formed an “almost” inside day. I say “almost” because the entire day’s range is not within Tuesday’s range, but it’s close enough. You can also call it a “spinning top”, a candle with no bias toward either direction. Following large up moves, it’s not uncommon to see a few spinning tops/doji before another move up. They are typically continuation patterns unless there’s a major breakdown. This smaller-ranged days form the “measured move up” pattern.
What do I not want to see? A -2.5% day or more. In addition, if the SPX closes below 890, there is cause for concern. We must break out of 920 on SPX quickly (1-3 days) to keep the uptrend intact. On the 2-month chart, we can see that 920 has provided significant overhead resistance. Today was a test of see if the 50-day MA would hold up as support, and it did. As a result, the market is bound by both 920 and the 50-day MA (@900), creating a tight 20-point range. A major move is imminent.
As for the longer-term chart, the collective pattern can be summarized as either a 1) wedge, or 2) an ascending triangle. In my opinion, we’re in an ascending triangle. If we break out and move past 940 on the SPX, then we would continue a wedge pattern. My initial target is 920 to break the triangle. 940 won’t be as difficult to achieve.
As for the bears, the only chance they have is if the entire move on Tuesday is nearly cancelled out. Being up 360+ points and then correcting -100 points is not a reason to celebrate. A correction like that is normal, it’s just a correction. If the market gave away half (or more) of Tuesday’s gains, then bulls should get a little nervous because that would mark a total breakdown. If we correct subsequent days from there, the volume should decrease each passing day not to exceed the volume of the previous day.
I am anticipating additional upside movement. If we break out, volume should be equal to or greater than yesterday’s volume. If we close below 900 on the SPX, then I’ll have to hedge my long position equally. Enjoy the rally while it lasts, but like I mentioned before, be ready to bail out if things turn ugly. Flexibility is the name of this game. I know that many things just simply do not make any sense, but you really have to trade off of the market’s reaction to these news events.
We have the usual weekly Jobless Claims at 8:30AM, but also the Leading Indicators and the Philly Fed, both at 10:00AM. We also have DFS, FDX, LEN earnings pre-market. PALM, PIR, RAD report during the day and COMS, ORCL, ZQK, and RIMM report after-hours. The consensus for the Jobless Claims is 560K with a range of 530K-600K. I’m pretty damn sure the whisper number is higher than the consensus. Last week’s number was 573K. Aren’t states running out of money to pay for this stuff?
UPDATE: I’m watching CNBC’s “The Money Chase” on Harvard Business School. Given the number of failures all over the place in 2008 and the people running them, it seems like it doesn’t really matter where the fuck you came from. What good is going to Harvard when you’ve helped create the worst global financial crisis in history? lol good fucking job. (Street smarts > book smarts). P.S. no offense to HBS grads.
I think it’s time for the DOW to shit the bed IMHO…FTW!
I hope I’m wrong so I can short the shit out of this market.
Can not be more proud than seeing John’s chart under Fly’s TAB! Great job explaining the market and yes I sure hope we break tomorrow I’ll be holding the falling knife with my shorts on!
Range of death sounds about right.
There’s that wedge in the Vix! yee ha. Except, I was using a smaller time period.
The Chart Addict is definitely tab worthy.
nice post. you’re right, it does not matter where one comes from.
HBS should also include a logics class and step up business ethics…lol
In your opinion do the charts influence program trading or is it the recipricol ?
Charts do influence program trading AND so many people use technical analysis that sometimes it becomes a self-fulfilling prophesy. Big money is responsible for the pops at support/resistance areas.