Posts Tagged ‘S&P 500’
It’s difficult to call tops and bottoms but the price action on AAPL combined with that of other indicators points to the fact that the current correction is in all likelihood over. There is blood in the streets and panic everywhere in the news, a good indication of a botton. While the VIX hasn’t surged as many have expected, this is not the first time this has happened when the markets have bottomed. As a matter of fact, VIX derivatives such as VXX and TVIX have been trending down all through this sell off.
First lets look at the monthly chart of APPL. APPL has pulled back exactly to the uptrend line that has been in effect since February 2010. It has touched this line 5 times. A trend that has been in effect for almost 3 years is extrenely strong and is unlikely to be broken especially considering that APPL is still raking in the dough hand over fist. While there has been some trash talk about AAPL in the news lately, I suspect it is just an attempt to talk the stock down so the big boys can hop in at a better price. The perfect entry point for the stock was reached on Friday at $500 per share but in all likelihood AAPL is going to head back up to re-test the $700. level. AAPL looks like a strong buy at these levels.
If we look at the daily chart of APPL, we can see that it is grossly oversold and has been so for awhile but on Friday it had a hugely bullish candlestick accompanied by gigantic volume. This indicates that while shorts covered new buyers stepped in. Since AAPl constitutes a large segment of the market indices, a stop in the decline of its stock can only be positive for the rest of market.
The USD dollar has been trending upward since September and that has undoubtedly put pressure on the markets. It is now near overbought levels and is also re-testing the neckline of the head and shoulders pattern that broke down in September. There is strong resistance at this level and I suspect the re-test will fail causing the dollar to resume it’s downtrend. This should be positive for both stocks and commodities.
The Dow industrials have pulled back right to the 411 day moving average, the same level where the index reversed direction in June. It is unclear what is special about the 411 day moving average but it does appear to be providing support to the index.
The S&P 500 has pulled back to the primary uptrend line that has been in effect since Jun, 2010. While the index has dropped below this line for short periods of time it has spent most of the time above the trend line. The RSI on this pull back is at the same level as it was on the pullbacks in last May and November.
The monthly VIX has reached the downtrend line that has been in effect since October, 2011 and it should hit resistance at this level.
Conclusion: The technical indicators are pointing to the fact that this correction may very well be over. It could be a choppy ride up as it was in June but APPL looks like a strong buy at these levels. Now is probably a good time to scale into some long positions in anticipation of a holiday rebound.
Note: Another beaten up stock you may wish to take a look at is AMD. It was as high as $8.50 in March but is now trading at $1.83. With any type of market recovery it could probably move to $4.50 which is the first major area of resistance.
The short covering rally this week basically defined the upper levels of the downtrend channels that the major averages are locked into. Aside from a technical bounce off the SPY 200 day ma at 1278 that coincides with the bottom of the channel, there was the hope that either the Fed or the ECB would come to the rescue of the markets with more quantitative easing. Since neither event happened we are now back to the possibility of a financial meltdown in Europe, a severe slowdown in China and a recession in the U.S. Bear market rallies are based on the slope of hope whereas bull markets climb a wall of worry.
The S&P hit the upper descending trend line of it’s downtrend channel yesterday and then again today. This area coincides with the neckline of the head and shoulders top and is an area of both strong horizontal and downtrend resistance. The stochastic is almost in overbought territory and the RSI is right at the midline where it would be expected to turn down in a continued downtrend.
and DIA are exhibiting almost the exact same chart formations.
Another technical indicator that we should look at is the ATR or average true range, a measure of volatility. If we look at the weekly chart of the S&P 500 we can see that the ATR declines on uptrends and forms rounded bottoms at market tops. It then moves up significantly on market declines as happened in 2010 and 2011. Right now the ATR is forming a rounded bottom and starting to curve up.
This is even more pronounced on the daily chart as the ATR is still rising even though the market is rallying. While past performance is no guarantee of future performance, the implication of this chart is that the current rally is merely a counter trend bounce and the market has not seen the final panic dump that signifies a true bottom.
If the ATR starts to decline while the market continues to rise past the head & shoulders neckline and on strong volume then that would be confirmation of a bullish trend reversal. Right now that prospect does not appear to be in the cards.
The market also rallied between May 21 and May 29 but the ATR dipped slightly and then kept rising. The rally ultimately culminated in a sell off. We appear to be in the same situation but the potential decline from this point on could be much greater.
Technical indicators are for the most part bearish. While the S&P has moved back above it’s 200 day moving average, the 50 day ma is curving downward and would act as major resistance assuming the index can even get that far. The MACD is underwater and while it has given a buy signal positive momentum appears weak and volatility is increasing. Volume on down days is for the most part greater than volume on up days.
Conclusion: Fast, sharp rallies such as we have seen this week are typical of bear market rallies. While it is unclear if we are in a bear market we are at least in a sustained downtrend. China is going to announce economic numbers on Saturday and Spain is going to ask the eurozone for help over the weekend. The Spanish banks have been rallying this week as evidenced by the etf EWP. This implies that a bailout of their banks has in all likelihood already been priced into the market. China’s economic numbers are allegedly going to come in weak. Therefore we may very well be in a ‘sell on the news’ environment regardless of what that news is.
While the market has been trending up for the past week, the pattern that is forming on the major indices appears to be that of a bear flag. To be exact these look more like bear pennants as they are triangulated. Triangles sometimes can be reversal patterns however, so until there is a breakout in either direction caution is the word.
As can be seen by the monthly chart of the SPY, the market has been finding support and resistance at it’s 20 and 50 day EMA’s. Any rally on the S&P will probably not make it past 1341 as that is also the neckline of the head and shoulders pattern. If the market breaks down further, there is a good chance that it will not bottom until it hits it’s 200 day EMA at 1181. In the declines that occured in 2010 and 2011, the market actually dropped slightly below it’s 200 day EMA before recovering.
Gold miners as evidenced by GDX look like they have finally bottomed and there are indications that they have reversed trend and are now heading up. The downtrend from the March top has been solidly broken and buy volume has been extremely strong off the May bottom.
Gold itself does not look too good however. While the double bottom from the December low has been tested twice, GLD is now hitting short term downtrend resistance from it’s May top. If it can manage to get past that line there are 2 more downtrend resistance lines that it must also get through before real progress can be made in the index. If the double bottom does not hold, with the dollar rising and banks dumping hard assets to raise cash, gold can head a lot lower.
The Euro has just broken through the neckline of a head and shoulders pattern that has been forming since September, 2010. With the neckline at 126 and the head at 148 the projected price target is 1.04. With capital fleeing the Eurozone, it appears that the only thing that will at least temporarily reverse a Euro decline is a short covering rally.
Conclusion: With chunks of Europe in a recession and captial fleeing the Eurozone, there’s an excellent chance the U.S. stock market will be dragged down until there are some signs of stability coming out of Europe. Of course another dose of QE will give the markets a lift and take the funk out of gold. Since we are in an election year, in all probability we will see more QE if the market drops too low.
The stock market has been dropping in a slow, agonizing fashion for the last 2 weeks although today it picked up a little speed. The SPY stopped it’s slide today right at it’s 200 day EMA of 1307. If the market doesn’t find some support at this level, the next level of support is 1260 which would fulfill the head and shoulders break down.
With the Facebook IPO coming up tomorrow, if some real bad news doesn’t hit the wire we will probably get a bounce off current levels. With on-going problems in Europe still unresolved and the doo at JP Morgan still hitting the fan, any bounce should be sold into as it will in all likehood be a dead cat bounce.
Yesterday GLD came within .33 of the December, 2011 low of 148.27 and today it rallied off a double bottom. The question is whether this is the start of a new leg up or if GLD will continue it’s march downward. There’s a good chance GLD will make a run to the top of it’s downtrend channel which right now sits at 158. We won’t know what the prognosis will be until it gets there as the downtrend must be broken before we can assume another leg up has started.
Conclusion: The S&P 500 looks like it may have hit a temporary level of support. The initial target of this correction is 1260 so even if we get a bounce from here the market will probably be headed lower.
The U.S. stock market is breaking down below critical support levels at the same time the VIX is starting to surge. As I mentioned in my entry of May 13, there was an inverse head and shoulders pattern on the VIX with the neckline at 21.64. The VIX has now closed above the neckline for 2 days in a row and the S&P 500 has closed below 1340 for 2 days in row. This is a strong indication that the market is heading lower. So far panic selling has not set in but the surge in the VIX indicates that it is probably just around the corner.
The S&P has a quasi head and shoulders pattern on it with a projected downside target of 1260.
In the late afternoon word came down that a run on Greek banks is underway. While the ECB claims there is a firewall around Greek banks, viruses have a nasty way of penetrating firewalls. At this point in time it is unclear as to which banks are exposed to European debt and how far things could spread. We know that MF Global made some bad bets on Europe and now JP Morgan is being investigated for trading losses. While we don’t know exactly what led to JPM’s trading losses, there’s a good chance it involved European debt.
It also looks like the really bad news may just be starting. Greece could not form a government and will require a new election in June. A run on Spanish and Italian banks could start at anytime if the citizens of those countries start to panic because of what is happening in Greece.
The U.S. Dollar has been on a rip and has broken through both short and longer term downtrend resistance. While there are horizontal resistance points at 82, 83 and 86, the multi-year downtrend resistance stands at just under 88. If the dollar were to surge that high the S&P would probably drop to about 1000. The question is will Ben Bernanke allow that to happen.
Since this is an election year the incumbents will probably do everything in their power to prop up the markets. It’s unclear at what point the Fed will step in with further easing but I doubt they will allow the markets to drop that far before the election.
Gold as evidenced by the chart of GLD may be approaching a double bottom. GLD is almost at the December, 2011 low and I would think that traders are waiting for it to get there before hopping in. While there will probably be some sort of bounce off that level, it is unclear if it will just be a blip in a larger downtrend of if a new rally will start.
Oil as evidenced by the chart of WTIC may also be approaching a double bottom. Oil broke down from a rising head and shoulders pattern and the pattern looks like it is near completion. An interesting scenario would be if the Fed announces a new round of QE just as the S&P, Gold and Oil hit their projected downside targets.
Conclusion: It looks like the stock market is heading lower. At some point the Fed and ECB will probably step in with further QE.
The VIX has formed an inverse head and shoulders pattern. The pattern does not come into play however unless the neckline is penetrated. If the neckline is penetrated the target of the VIX is 27-28. This would correspond to the S&P 500 dropping to about the 1250-1275 area. The question is does it look like the neckline is going to be penetrated.
We can see that the VIX hit resistance at it’s 200 day EMA of 21.64. This also corresponds to the neckline of the pattern. There are negative divergences forming which indicate that the VIX should drop. The VIX hit a higher high between April and May but the MACD and stochastics hit a lower high. The MACD momentum bars were much stronger in the initial run up that started in April but the bars in the current cycle are much weaker. The RSI is also decreasing.
This would indicate that the VIX is going to pull back. It could pull back to it’s uptrend line and then create another right shoulder or it could drop through the uptrend line and negate the pattern. In any event the market should move up from here. If the VIX were to negate the pattern the S&P 500 and other market indices would in all likelihood resume their uptrends.
The SPY daily chart confirms the VIX chart as there are positive divergences indicating the SPY should head higher. The SPY hit a lower low between April and May but the MACD negative momentum bars are weaker in the current cycle indicating that negative momentum is waning. The RSI is at the same level that it was in April when the market rallied and the stochastics are oversold.
The SPY weekly chart still looks bullish. The SPY has pulled back to it’s 20 day EMA where it has found support. This level orresponds to the 2011 market top which is also acting as support. The RSI and stochastics are still above 50. The MACD has given a sell signal but if the rally continues that should quickly reverse. As long as the RSI and stochastics turn around above 50 the rally should continue.
There are numerous wildcards in play that could influence the market direction.
1) Good or bad news out of Europe and China.
2) The announcement of QE3 by the Fed or ECB.
3) Natural or man made disasters.
Conclusion: The technical indicators are pointing to higher market prices at least in the near term. It remains to be seen if the market can break out of the trading range it is in namely S&P 1340-1400. A VIX surge past 21.64 however would be an indication to at least hedge any long positions or go outright short.
GLD has just broken through the neckline of an inverse head and shoulders pattern that has been forming since November. The breakout above the neckline at $170. occurred on increasing volume and with a strong bullish candlestick. If the $170. level holds as support then the projected price target for GLD is $192. which equates to about $2000. per ounce of the metal. The move in GLD will undoubtedly carry SLV along with it. This looks like a good time to back up the truck and load up on gold and silver.
As far as the broader market is concerned the charts are indicating that we are in a powerful bull market.
The QQQ has been leading the market higher. Towards the end of 2010 the QQQ broke through the neckline of an inverse head and shoulders pattern with the neckline at $50. and a price target of $75. For all of 2011 the index swung between $50. and $60. In 2012 the index broke through the $60. level indicating that the market is poised to move higher.
The S&P 500 broke through it’s bear market downtrend from the 2007 market top and it is now trading in the upper half of it’s uptrend channel. A breakthrough of the midline generally leads to a run to the top of the channel. In the current time frame the upper trend line crosses at about 1500.
20 year treasury bonds as evidenced by TLT are in the process of breaking down. The breakdown has been taking awhile due to the lingering effects of the Eurozone crisis but it is now almost complete. TLT has formed a head and shoulders pattern with 4 right shoulders that are descending. The RSI is below 50 and the MACD has been steadily dropping and is below 0. Critical support is at $115.
The index is currently just below it’s 10 day EMA where it will in all likelihood find strong resistance. A drop below $115. should quickly bring TLT to it’s 200 day EMA at $110. This drop should coincide with another leg up in the stock market as the S&P is testing overhead resistance at about 1370. Since interest rates move inversely to the underlying security, it makes sense that interest rates should rise along with the improving economy.
Conclusion: We are in a powerful bull market phase for both stocks and precious metals. There’s an excellent chance both the stock market and precious metals will hit new all time highs in this bull run.
The markets sold off heavily today on news that Greek Prime Minister Papandreous wants to hold a public referendum on his country’s Euro bailout package. This announcement coincided with continued selling from yesterday as the markets etched out a bearish chart pattern known as 3 peaks and a domed roof that was first described by George Lindsay. The actual pattern has a lot of technical points to it but a quick glance at the daily charts of the Dow or S&P 500 shows this pattern has been developing since August.
We see 3 well defined peaks, a lower fourth one and then a quick rush up. These are the classic elements of this chart pattern. This pattern can occur in short, intermediate and long term time frames. It does not mean the market has topped out however as I have seen quick sell offs from this pattern followed by fast recoveries that take the market to new highs.
The Dow and S&P stopped their slide today at critical support levels. The Dow hit a low of 11630 and then closed right at it’s 20 day ema on the daily chart at 11,657. The S&P 500 hit a low of 1215 which is right above it’s 10 day ema on the weekly chart and then closed at 1218. If these levels hold the market can move higher.
While it appeared that headline risk was put to rest last week with the announcement of the Euro bailout package that no longer seems to be the case thanks to the Greek Prime Minister. Apparently he did not consult with the other Euro zone countries before opening his mouth. Loose lips sink ships along with the stock market.
Conclusion: Technically the market looks like it has landed at major support levels but there are still a lot of wild cards in the deck. It is now unclear what is going to happen in Greece and the Fed could possibly announce some action.
Todays’ price action on the S&P is highly encouraging as the massive reversal off the lows closed above the 1120 level on strong volume. If 1120 can hold as support the market can head higher.
There are some technical indicators lining up that may be indicating a rally is in the cards.
1) The S&P hit a lower low from the August low but the MACD and stochastics are higher. They haven’t quite crossed over upwards yet but if the market can consolidate at this level for a few days they should give a buy signal. If that happens then it would confirm a divergence between price and the 2 indicators which is bulllish.
2) The RSI is also indicating a divergence as it was well below 30 at the August low but it just turned up from above 30.
Conclusion: While we are not quite there yet, if the market can mark time for a few days we should be able to sustain a rally that lasts until at least the end of the year. For the past few months all news has been interpreted as negative. We may be entering a cycle where news will now be interpreted as positive as the market is heading into positive seasonality. It also appears that the U.S. economy and those of China and other emerging markets may not be in as bad shape as the media portends.
Above we have the 5 year chart of TLT, the Ishares 20 year treasury bond fund. The first thing we notice is that TLT may be double topping as it hit a slightly higher high than it did at the end of 2008 and it has now pulled back. Let us now compare it to where the S&P 500 was during these top formations. At the end of 2008 the S&P was in the 800-900 range. The S&P is now in the 1100-1200 range. This would seem to indicate that most of the money that has been piling into treasuries has been coming out of foreign markets. If TLT has double topped it could indicate that money is ready to flow into the U.S. stock market.
I have also drawn trendlines from the market top of 2007 to the current top of 2011 and fan lines from the market low of 2009 to points where the uptrend broke. So far we have had a break of 2 fan lines. It is generally considered that a break of the 3rd fan line is fatal but so far that one is holding up. The current trend along this line also looks similar to the one that occured in mid 2010 as the market bounced off that fan line and then started to move up.
The VIX also looks like it may have double topped at 48 but it has been staying persistently high since August, hence the huge swings in the market.
Conclusion: The stock market is at a major crossroads. There are a lot of negative technical indicators overhanging the market and the shorts are piling on to positions. We are heading into October which is generally feared but the fact of the matter is that statistically September is the worst month for stocks and not October. The market also has a tendency to frustrate the multitude.
There has been some recent positive economic data coming out of the U.S. in regards to employment and the Chicago PMI which seem to indicate that the U.S. economy is not falling off a cliff. The fact that bonds have rallied to their 2008 highs while the U.S. stock market is still way above it’s 2008 lows is another positive indicator.
China’s growth rate has been reduced from 9.6% to 9.5%, hardly the indications of a meaningful economic slowdown. The Fed has already revealed it’s hand with persistently low interest rates, Twist and the statement that it might do further monetary easing if necessary. Therefore the focus is on Europe.
If Europe can get it’s act together quickly and construct a meaningful financial back stop for the sovereign debt crisis that is emanating out of Europe then there is the possibility of an upside market surprise. If the S&P can manage to break through 1230 the shorts will be forced to cover sending the market even higher. A break below 1100 however would be bearish and confirmation that we are in a bear market phase.
If you’re a trader one possible way to play this market would be to buy out-of-the-money calls above 1230 and out-of-the money-puts below 1100 dated at least through November. That way whichever way the market moves the overall position should be profitable.