Posts Tagged ‘$spx’
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.
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.
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 S&P 500 has a shot at hitting 1455 this year. As can be seen in the above chart the S&P 500 has been trending in a wide 400 point bull channel since March, 2009 and it is sitting right at the midline of the uptrend channel. The nature of this chart pattern is that if the price decisively breaks through the midline it almost always runs to the opposite end of the channel. The 1455 target was computed by subtracting the October low (1075) from the inverse head and shoulders neckline (1265) described in my last entry and adding it to 1265. The initial target for the head and shoulders breakout is 1360-1370. If the market can get past those price levels 1455 is only another 6% away.
There are other positive technical developments on the charts. The S&P 500 50-day EMA has crossed over the 200-day EMA indicating the major market trend is now up. The index has also been hugging it’s rising 10-day EMA since the middle of December.
This is reinforced by the fact that the 50-day EMA of the VIX has crossed under its 200-day EMA indicating that the major trend for the VIX is now down. The VIX has been hitting stiff resistance at it’s falling 10-day EMA.
Conclusion: If the market does make a run for 1455 there is a good chance it will get there by the end of April. By then we should have a better grasp of the global economy and whether problems in Europe and potential problems in China will affect the U.S. economy in a negative way.
The U.S. stock market is ready to move considerably higher. The S&P 500 has closed above the neckline of an inverse head and shoulders pattern with a projected move to the 1360-1370 area. The S&P is exhibiting bullish characteristics as the RSI and MACD are both rising and above the 50 level. Neither one is in overbought territory.
The S&P has also broken to the upside of an equilateral triangle where it has re-tested the breakout and is now flagging.
The dollar has broken through to the upside of a rising wedge. This is a bit unusual as a rising wedge is normally a bearish pattern. Based upon other technical parameters I believe this is a false breakout as the dollar has formed a bearish MACD divergence with the MACD hitting a lower high while the index itself hit a higher high. The dollar looks like it is on the verge of a correction.
Silver has formed a bullish MACD divergence as it has hit a lower price while the MACD has made a higher low. The downtrend in the RSI has been broken and there are 2 unfilled gaps, one between 29 and 30 and the other between 36 and 38.
Silver is flagging just below the downtrend from the September high. A breakthrough of this downtrend should bring us to the next downtrend which roughly corresponds to the top of the second gap at 38.
Gold has also formed a bullish MACD divergence although not as pronounced as that of silver and the downtrend in the RSI has also been broken.
Gold has an unfilled gap between 163 and 166 which corresponds to the downtrend from the September top.
Conclusion: It looks like another phase of the bull cycle has started and a rally that should last at least a few months is underway. With European and emerging markets acting skittish and U.S. economic numbers improving the U.S. stock market is starting to look like a pretty good place to invest.
Low risk long trades in the S&P, gold and silver could be placed here. A stop on the S&P should be placed just below the neckline at 1265. If the S&P fails to move higher and instead breaks below 1265 short positions should be established as a reversal off this pattern would be extremely bearish. The overall technical picture however points to higher prices.
The technical indicators of the U.S. stock market are improving and indicate that a nice 4th quarter rally is in the making.
The S&P 500 MACD has given a buy signal and there is a bullish divergence between the MACD and price action. The downtrend in the stochastics has been broken and the RSI has moved above 50. The S&P has ripped through it’s 20 day ema and closed above it’s 50 day ema for the first time since the end of July. There is large volume coming off the 1075 October low and the candlesticks look hugely bullish. The market has moved up really fast off a springboard bottom and it would be nice to see a flag consolidation just above the 1188 area (50 day ema) in preparation for the next leg up.
Another way of looking at the market is to check the fundamentals of inverse etf’s. SH is an inverse etf for the S&P 500. We can see that SH double topped just above 48, there is a bearish MACD divergence, sell volume spiked up at the October low and SH closed below it’s 200 day ema. While the S&P made a lower low, SH did not make a higher high. The candlesticks on this chart also look extremely bearish as one would expect since it is the inverse of the S&P 500.
The VIX has double topped, there is a bearish divergence on the MACD, the RSI is below 50 and the VIX closed below it’s 50 day ema for the first time since the end of July. A VIX drop below 30 would be extremely bullish and a huge relief for the markets.
Conclusion: While we still have bearish moving average crossovers, the technicals of the market are improving. After being beaten down for the last couple of months fund managers will in all likelihood be chasing performance in the 4th quarter driving the market higher.
Today’s action in the stock market confirms my opinion that the current rally has legs. The debt of Italy and Spain were downgraded by Fitch and the market basically yawned. Had this happened prior to last week there would have been a massive sell off.
As I mentioned in my post of October 1, TLT appeared to be hitting a multi-year double top and that this would indicate a move out of bonds and into stocks. The technical parameters for TLT are deteriorating as momentum has been decreasing as TLT moved higher. Momentum has now turned negative while the macd and stochastics have given a sell signal. TLT is sticking it’s nose below the bottom of it’s uptrend channel and in all likelihood will break down below it.
The dollar rally as exemplified by UUP hit a brick wall at 22.60, right around the level I mentioned in my entry of September 27 where it would hit downtrend resistance. The uptrend in UUP since the September low is still intact but appears to be heading towards a breakdown, the macd and stochastics have given a sell signal and momentum has been decreasing as UUP has been rising.
Silver appears to have bottomed and looks like it has reversed off a triangle. It has back tested the break out twice, negative momentum is waning, the macd appears to be heading up but hasn’t yet given a buy signal and the stochastics are slowly moving up. There are also 2 gaps to be filled as outlined on the chart. Silver and commodities should rally with the rest of the market especially if the dollar continues to break down. Great Britain announced their own version of QE and the ECB will undoubtedly announce something similar. This bodes well for precious metals. The initial upside target of SLV is 38.
Gold looks like it is in a similar pattern to silver but it hasn’t quite fully broken out yet. Since the top in silver preceded that of gold, I expect silver to lead gold higher. GLD also has 2 gaps to be filled with an initial upside target of 172.50.
Conclusion: The tone of the market has changed where good news is good news and bad news is already factored in. There are indications that Europe is now taking it’s sovereign debt problem seriously and will come up with some sort of interim solution. Barring a complete breakdown of European cooperation in resolving their debt crisis, a rally through the end of the year could bring the S&P to the 1257 area. This is the neckline of the head and shoulders top and a 61.8% fibonacci retracement from the October low of 1075 to the April high of 1370.
If this outcome were to occur it would be similar to that which happened in 2008 and so far the charts look almost identical. After an initial breakdown through the 2007 head and shoulders pattern, the market then rallied back up slightly past the neckline only to tumble much further.
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.
Based upon the manner and rapidity in which the U.S. stock market has sold off it appears that investors are expecting a global depression. The markets also appear to believe that without quantitative easing by the Fed the U.S. economy cannot actually recover.
What we have is an economic version of the domino theory. The domino theory was first proposed by Dwight D. Eisenhower. He stated that if Vietnam falls to the communists then all of Southeast Asia would also fall to the communists. That turned out to be false.
The economic version runs as follows: Since Europe is a major trading partner with China, if Europe slows down or goes into recession then it will affect China’s economy. Since China is a major trading partner and funder of U.S. debt, the U.S. will then slow down or be unable to raise capital and will also subsequently fall into recession.
It appears that much of the selling is forced selling by hedge funds in order to meet margin calls. Since that is what happened in the 2008 market meltdown then perhaps we should consider getting rid of hedge funds. Interestingly enough hedge funds are supposed to hedge so they do not have to sell on a dime but apparently they don’t bother to do so. Perhaps ‘dredge funds’ might be a better name for them.
While serious mistakes were made by the Obama administration in regards to the economy, it is now in the best political interests of the Republicans to let the economy tank.
1) When Obama first took office there was talk of a pick and shovel stimulus plan to improve the country’s infrastructure. This would have kick started the construction industry that basically died after the real estate market imploded. This plan was not implemented. Obama is now talking again about such a plan but it is probably no longer politically feasible as the Republicans have no intention of allowing any further stimulus spending even if it is justifiably warranted.
2) S&P had stated that a downgrade could be avoided if 4 trillion was cut from the budget over 10 years. It appears that Boehner had agreed to such a plan but pulled out at the last minute and instead agreed to a lesser plan that cut 2.4 trillion. There is little doubt in my mind that Boehner dragged negotiations out to the very end and then pulled the rug out in order to force the downgrade and then blame it on Obama.
3) Huge deficits have been incurred under every Republican administration since Reagan while tax rates for the upper classes were cut. Now all of a sudden the Republicans have become fiscal conservatives demanding budget cuts at a time when appropriate spending and tax increases for certain segments of society might be in order. They sure weren’t complaining when Bush and Cheney spent the country into oblivion via the war in Iraq.
4) While Obama is a good campaigner, he is proving to be not too savvy when it comes to leadership and politics. He has been way too conciliatory with the Republicans who have publicly stated that their goal is to remove him from office. Just like his predecessor Bush, Obama has been distracted by overseas misadventures. Obama had better wake up fast or the Republicans will achieve their goal.
The chart of the S&P looks horrible as the markets have been in a free fall. As I mentioned in my entry of June 21, the downside target of the head and shoulders pattern should it become activated was 1135. Today we hit that target and sunk below it to close at 1119. The major uptrend from the March, 2009 low (line A) has been violated as has the intermediate uptrend from the July, 2009 low (line B). The horizontal line C is at a level of support and resistance that has been in effect since November, 2010.
The MACD has hit a cyclical low approximately every 12 months starting in July, 2009. We are now at one of those cyclical turning points. The question is will the market recover to some degree or will the MACD continue lower under the 0 line indicating further downside is to come.
The RSI at the top of the chart is about where it was at the March, 2009 low and is oversold. The MACD is negative and momentum appears to be increasing.
Here is a 10 year chart of the S&P with a multi-year support line drawn. This line should provide the ultimate support of this decline phase which in the current time frame is slightly over 1000. You will also notice that we may be in the process of forming an even larger head and shoulders pattern. If this pattern plays out, we should expect a rally off the neckline that brings us to the 1200 area, followed by a decline that has an ultimate downside target of 625. This pattern would take a number of months to complete and probably would not bottom out until some time in 2012. Of course a lot can change before all this happens but if we are in a bear market phase then this pattern predicts a re-test of the March, 2009 bear market lows.
Conclusion: Markets don’t go straight up or down but this one seems to have gone straight down and rather quickly. It appears that irrational fear and paranoia are driving the markets as Asia is still booming and there are some indications that the U.S. economy may pickup in the second half of this year and that Europe may at least temporarily stabilize. Barring any more negative news I would think that we are near an intermediate bottom where a tradeable rally might begin. It would be better to wait until there is price confirmation that an uptrend has started before jumping in however.