NDX Test

The NASDAQ-100 looks poised to test its October 2nd intra-day low of 1656.57 on Monday. Here is a daily NDX chart (click to enlarge):


Notice that the red uptrend line is converging with the blue support line.

The NDX is closer to testing its October 2nd low than the SPX is, and the signal it gives will also likely apply to the SPX since the NDX usually leads the SPX.

This test may occur Sunday night in the futures, so the equivalent low for the NDX futures (NQ) is 1652.75; only 13 points away, which is a small daily move for the NDX. The equivelent level for the SPX futures (ES) is 1012.00.

SPX Bear Flag

This is a daily SPX chart of closing prices. Thursday’s rally is starting to look like a bear flag (red lines on chart). If that proves to be the correct interpretation, a 100% completion of the pattern (blue line) implies a test of the October 2 intra-day low at 1020 at some point within the next few days.


Friday’s Trading – 10/30/09

The market plunged on both September 1st and October 1st. Perhaps that was because the big funds finished their month-end window-dressing. Are we seeing the same thing now? Monday will be the first trading day of November.

SPY rallied on light volume Thursday, so bulls must be cognizant of the possibility that the market is constructing a bear-flag retracement of the plunge. However, volume in the futures (ES) was not light, so this may be a bullish indication if traders were reaching for something leveraged rather than boring old SPY.

But even it does turn out to be a bear-flag, bears must be careful not to short it too early. Flags are similar to wedges in that they are sharp and pointy. They keep pushing up to a pinnacle, blowing out all your stops in the process.

Breadth ramped up to a very high level on Thursday. If the market can stay roughly flat as the internals unwind a bit on Friday, that will be a bullish development. All the bulls need to do is keep it flat and they win.

SPY didn’t leave any gaps behind on the way down, so when looking for upside targets for the market, the next one would be the QQQQ gap on October 28th at 42.35. The XME was halted at its 10/28 gap on Thursday, so maybe the Q’s will be stopped at their corresponding gap today. The XLF has two gaps above also.

All the major ETF’s left un-filled gaps on Thursday. That’s a very bullish sign, in the short term. As I write, the overnight futures are in a bull-flag formation, so that is bullish if it lasts until the open. It is ironic, but short-term bull-flags can construct a bear-flag on a higher time-frame.

Keep an eye on the BKX banking index – its 20-day moving average is poised to cross below the 50-day if the banks don’t rally strongly today. That could be a bad omen for the market. It just doesn’t seem like the sort of thing a fabulous bull market should be doing. The banks appear to be worrying about the FOMC meeting next week.

Thursday’s Trading – 10/29/09

I have three scenarios in mind for today:

1) It will be a re-run of Tuesday where the market eroded the support at the October 8th gap (105.79 for SPY) by going mostly sideways with choppy action. Today, it would be eroding the support at the October 6th gap (104.05 for SPY), the top of which stopped the decline on Wednesday afternoon.

2) SPY will “echo gap” under the October 6th gap, and the SPX will proceed directly to test the October 2nd low at 1019.95. It could bounce and print a bullish hammer candle there.

3) A sharp short-covering rally, possibly triggered by an upside surprise in the GDP report that would retrace some of the plunge.

As I write this, the futures have held the 1037 level, making a low at 1037.25 just before 7pm, Wednesday night. So, that’s some solace for the bulls so far.

Let’s see what the GDP report is and how the market reacts to it. GS has likely lowered the expectations to very low levels with their downgraded estimate Wednesday morning.

Wednesday’s Trading – 10/28/09

I was surprised to learn that the Taliban only has 25,000 fighters. Story here.

Mutual funds are still bleeding from the eyeballs. In the latest week, outflows increased again for funds that invest in US stocks (“Domestic” in that table). I have been tracking this data since they began the weekly reports several months ago, and this is the worst outflow since the March bottom, though it is nowhere near the outflows at that time so far. Heavy outflows often signify a bottom as the public panics, but it’s hard to say what “heavy” is. Was the March plunge a once-in-a-lifetime event? Or is that the standard now?

Tuesday’s Trading – 10/27/09

The market made its first lunge downward last week on Wednesday afternoon. The talking heads on CNBC said it was a “mistake” – as if some trader at an i-bank pushed the red button on his trade-bot by accident. When the market bounced back on Wednesday, they claimed vindication. Not once did I hear the word “triangle” on CNBC.

Now these same traders have declared that they all got short on Monday. Imagine getting bearish after the McClellan Oscillator plunges below -200, and the VIX spring has already sprung. Ridiculous! The market may continue to fall, of course, but the odds are with the bulls for an oversold bounce.

The market pushed the lower line of George’s triangle downward so that it is now parallel with the top line. However, the market needs to rally very soon to hold onto this potential pattern. It still hasn’t hit the triangle target, and since this was such a large, powerful pattern, I would be shocked if the target wasn’t hit by the end of this week. The bulls would be lucky to get off with just a downtrend channel.

George’s triangle was a dramatic pattern. We probably won’t see another triangle of that magnitude for a while, but they are worth watching out for, right?

The IWM bounced at its October 6th gap on Monday. The bottom of that gap is at 59.09, and that is an important level for the market. Small caps and banks have been getting a beating, so if they can find support, the overall market has a better chance.

George’s Triangle

When George first spotted this triangle on Friday, it was a neutral symmetrical triangle. But by the end of the day, it degraded, and is now looking more like a bearish descending triangle (click chart to enlarge):

SPX Triangle

The height of the triangle, the dotted linen between “A” and “B”, gives us the projection if the triangle breaks to the downside from this point. The blue line below the triangle is the same length as the dotted line, so “Target” is calculated as somewhere down in the 1050’s.

Ironically, that level is where another triangle formed on October 6th-7th.

Another wave up to the top line of the triangle might be a dream scenario for bears.

ES Megaphone Pattern

As you may have noticed, the market has gotten somewhat, shall we say, wild. This broadening pattern (or megaphone) on the daily chart of the futures is the cause (click chart to enlarge):

ES Broadening Pattern

This is considered a topping pattern, however these things can also turn out to behave like bull-flags.

In other words, be careful out there. The market appears to be winding up for a big move. One of those red lines will be tagged soon.

Note: the SPX has a similar pattern, but the one on the ES is better defined. The SPX isn’t open overnight, so it can only have a delayed reaction to events that occur when it is not open. So, I like using the ES chart better.

Box of Beer Update

The SPX has made a double-top (red arrows) right at the first level in the Box of Beer, and then fell back down into the Box of Bulls (click chart to enlarge):

Box of Beer Update

Back in August, the market made a top just below the second level of the Box of Bulls (blue arrow). It then proceeded to fall to the last level of the Box of Miracles (purple arrow) where it oscillated for a couple of days before rampaging 80-some points to the top of the Box of Bulls (green arrow).

If the SPX continues to fall on Thursday, there should be some sort of support around the last level of the Box of Bulls at 1068.11. That’s also the area to which a double-top breakdown would project.

Wednesday’s Trading – 10/21/09

The futures re-opened at 4:15pm on Tuesday down on a quarter-point gap: from 1089.25 to 1089.00. Eight hours of trading later, the gap was still un-filled. It might be nothing, or it might be the proverbial butterfly flapping its wings.

So, keep an eye on 1089.25; the bulls really need to rally the futures back up there. Otherwise, traders might be having bearish thoughts.

Greenspan! To the Rescue!

A few weeks ago when President Obama announced the tariffs on Chinese tires, Larry “Favela” Kudlow said that it was a bad policy because a trade war with China would jeopardize thousands of dock-worker jobs at the Port of Los Angeles.

But Kudlow has it backwards. Imagine what would happen if, instead of worrying about the dock-workers, you put a barbed-wire fence around the port and turned it into a maximum security prison. No ships could be unloaded, and no products could be imported from across the ocean.

How long would it be before Walmart’s shelves were bare? Eventually, they would have to break down and actually order products from American companies. And those companies would have to build more factories and hire more Americans to meet the increased demand. The American economy might actually start to work again for the average Joe instead of just the fat cats like Larry Kudlow’s clientele.

And make no mistake, Kudlow and his ilk no not want to see the factories brought back home. They do not want to see Detroiters building cars again. They most certainly do not want to see GM laying off 2-dollar-an-hour Mexicans and replacing them with 20-dollar-an-hour Americans.

That would cut profits by $18 per head, right? That would mean that the fat cats would have to cut back to only one private jet.

Brazil is the “B” in “BRIC”, and they have achieved that lofty status while riddled with favelas. The fact is that Corporate Amerika can thrive with mass unemployment in the USA. And that is the plan; it is official federal economic policy supported by both Republicans and Democrats.

But we won’t have Brazilian-style favelas here. Ironically, the moronic housing bubble that Alan Greenspan kicked off with his foolish low-interest policy during the last recession has given us a massive housing glut. So, there are plenty of vacant houses for the unemployed to squat in, and we don’t need to construct any new shanty towns.

But don’t think that favelas wouldn’t be welcomed, and approved of, here by the Kudlows of this nation.

Thank God for Alan Greenspan.

Note: one of the primary differences between a favela and a regular slum is that the favala has only footpaths and you can’t drive a car inside of them.

Tuesday’s Trading – 10/20/09

SPY was not able to close above its October 6, 2008 gap on Monday because of the lagging banks. However, it surged above in the post-market, so it has a good chance of closing the deal on Tuesday. But, the banks are still a potential damper, so I will be watching them closely Tuesday morning. The XLF still has resistance overhead from the two gaps-down left from Thursday and Friday mornings.

The day after Intel reported last week, you could have bought the little dips of the SPX all day long and had 100% winning trades. The next day too. That is a model I am keeping in mind, though like George says, you don’t want to trade under the influence.

Monday’s Trading – 10/19/09

Did the market successfully test Thursday morning’s “Intel Gap” on Friday? SPY dropped to the top of its gap and held. QQQQ, IWM, and XME dove below their gaps, but bounced back and closed above.

The XLF was the weakest of the major ETF’s, closing on Friday exactly where it closed just before Intel reported.

Of course, new down-gaps above were created on Thursday and Friday morning.

The market’s next move will likely be in the direction of whichever gap is filled first. So, if SPY closes below 107.51, it will probably continue falling. If it closes above 109.64, it will likely continue upward.

Perhaps the market will range between these gaps today as it waits for Apple’s earnings report after the bell.

BKX Charts

Recently, I’ve mentioned the 48.75 level of the BKX banking index. I believe this is one of the primary reasons why the market hit resistance at the end of last week. Here is a daily chart of closing prices for the BKX (click chart to enlarge):


The two red arrows at the left show that 48.75 was support until it cracked in November. The four arrows on the right show that it is now resistance. The BKX was able to close above on Wednesday and Thursday, but fell back below on Friday.

Additional resistance in the area comes from the 50% Fibonacci retracement of the plunge down from the September 2008 peak:


So, instead of Blitzkrieg, there is more likely to hand-to-hand combat in the trenches – if the market can continue to rally here.

On the weekly chart, the BKX has managed to recapture the first Fibonacci retracement level (red line) of the bear market:


If the last few weeks of the pattern turn out to be a bull flag, then the 38.20% level (purple line) would be a target.

Everybody was expecting the earnings season to break the market higher, but that assumption has been called into question by the action at the end of the last week. So, now we have drama with the BKX at center stage.

Friday’s Trading – 10/16/09

Why is unemployment still rising? Besides the evil, traitorous, grand plan to export as many jobs as possible to Asia, and crush the American worker’s standard of living down to Third-World levels, there is Lynn Tilton.

Tilton is the CEO of a company that owns 73 small- and mid-sized companies. She says, that none of them can get business loans, and this lack of lending is forcing companies to liquidate every day.