Tuesday’s Trading – 12/1/09

SPX Moving Average Convergence
The 20, 50, and 100-period moving averages on the SPX’s 60-minute chart are all converging at about 1099. That will be strong resistance. If the SPX is indeed able to punch through it, it will need to at least run up and tag 1112. If it turns down before doing so, that will be a hint that it is might eventually fall out of its rectangular trading range.

The Dubai Gap
The XLF is the only major ETF that has closed its Dubai Gap (from Friday morning) so far.

Monday’s Trading – 11/30/09

The Fractal Dimension Index
I have posted a page on the Fractal Dimension Index. It has more examples, explanation, and links. Make sure to look at the Apple chart, as AAPL looks poised to make a move. And my FDI indicator is ready if you use TradeStation.

Fabulous Recovery
ShopperTrak reports a rather lame 0.5% increase in Black Friday sales over last year. Does that strike you as fabulous?

Re: Thanksgiving Panic
If you are thinking that the Thanksgiving Panic in the futures was a fluke, you might be mistaken. Here is a Benoit Mandelbrot quote:

“Price swings are highly erratic. The large ones are numerous and cluster together.”

And Mandelbrot’s second rule of markets: “Trouble runs in streaks.”

SPX Rectangle

George posted a couple of chart’s recently showing the market’s sideways trading range. And I think a rectangle pattern is the correct interpretation of the trading over the last three weeks. Here is an hourly SPX chart (click to enlarge):

SPX Rectangle - 11-29-09

The blue box gives the height of the rectangle. A breakout or breakdown should move the same number of points. So, the green line shows the bullish resolution up in the 1140 area, and the red line shows the bearish resolution down around 1057.

The purple box shows the November 9th gap. In the event of a move down, that gap would likely provide support, even if only temporary.

Since the futures have already probed down to 1067, I’m expecting a bearish resolution. Further support for that expectation is that the IWM is now well below its November 9th gap.

Bulls can pin their hopes upon the fact that the QQQQ bounced off the top of its November 9th gap on Friday morning.

Dubai Doubts

Did Dubai really crash world markets?

Here’s David Faber reporting the Dubai story on Wednesday morning:

The market yawned and rallied into the close. The futures didn’t roll over until four hours after the bell. Yes, Faber’s delivery style does indeed induce yawns, but bulls should be concerned that it wasn’t just Dubai that caused the panic.

Also, the market’s seemingly miracle recovery after the futures had plunged on Thanksgiving may only be a retracement. That’s what happened last year. On October 23, 2008 the futures market was shut down at 843 after the SPX futures dropped 60 points. (So, if you went to sleep long only one ES contract, you woke up $3,000 poorer.) But the stock market seemed to shrug it off the next morning and closed at 876.77. The bulls were greatly relieved over the weekend, but on Monday, the SPX went down and tested the lows that the futures had established.

The lows held, and the market rallied for a week or so before rolling over and plunging much lower in November 2008.

We’ve seen this movie before, and bulls should not take it for granted that the panic is over. The 1067 low set by the futures should be considered a price probe until proven otherwise.

Friday’s Trading – 11/27/09

Take That!
On Monday night, I wrote: “Perhaps the market wants to range between 1085 and 1111 for a while.” And since then, the futures have ranged between 1082.75 and 1111.25. How about that? (Note: I had to type this fast because the futes are threatening to blow out the bottom of my range.) Also, while everybody was waiting for the SPX to hit the 50% retracement of the bear market at 1121, it was the 1111.82 level of the Box of Beer that capped this leg of the rally. And back here, I lectured the “Fast Money” Traders who proclaimed that they “didn’t get” why T-Bill yields went negative. Maybe they get it now that Dubai has blown up, and Vietnam has a currency crisis (thanks for the link, Larry). And did you hear anybody on Fast Money calling SKF a keeper like George did here? Hah! Take that Fast Money!

No Escape from the Red Orbit

For a minute there, I thought that the market would just sail right through 3.14 Fibonacci arc. See the red line on this chart (click to enlarge):

Red Orbit

I drew this arc by connecting the swing low from October to the swing high (green line on chart). Notice how the market reacted at the 161.8% arc (blue line and arrow on chart). I was looking for a reaction at the red line on Friday, but it did not arrive, though it appears that it will at the open Friday morning.

Note: Pi is not a Fibonacci number, but I like to include it when doing a Fibonacci analysis.

Turkey Trading – 11/25/09

Selling Marshmallows While Rome Burns
Caterpillar CEO Jim Owens was on CNBC Tuesday morning preaching against the evils of protectionism. I’m sure Cat has done very well in our fabulous new global economy. Just imagine how many tractors Mexico had to buy in order to build all the infrastructure necessary to relocate the US auto industry down there.

Not-So-Docile Holiday Trading
The day before Thanksgiving last year, the market gapped down and then rallied the entire day. At 9:31am, SPY was at 84.14 and it closed at 89.04 – almost $5 higher. So, don’t think that this day can’t be eventful. Though last year the country was in the thrall of Obama Mania. This year it’s Gold Mania.

America’s Selfish Past

Here is a chart of the S&P 500 for the final 15-years (1980-1994) of America’s sordid, protectionist past. NAFTA went into effect on January 1, 1995. Click chart to enlarge:

1980s

The S&P 500 went up four-fold during that dark era. I shudder to think of how we selfish Americans hogged all of that economic growth to ourselves. Isn’t it time that we made a formal apology to the world? You know, like apologizing for slavery, or dropping H-bombs.

On this Thanksgiving Day, make sure to say a little prayer for all the great Republican, Democratic, and Libertarian advocates of “free trade” who are valiantly protecting us from suffering a relapse into the horrors of protectionism.

Here is the “Free Trade Era” chart of the S&P 500:

Post NAFTA

Isn’t that better? A nice egalitarian, sideways chart that proudly proclaims America’s economic sacrifice on behalf of the global economy. It’s a beautiful thing, is it not?

(Note: The second chart does run up nicely for the first five years. But the task of exporting millions of jobs doesn’t just happen overnight, right? A lot of infrastructure had to be built up in Mexico and Asia before our manufacturing base could be relocated. But we got it done in record time. The USA is can-do nation.)

Tuesday’s Trading – 11/24/09

People have been talking about the “confusing” price action, but all the market did was execute a rounding turn pattern. Or as I like to call it, a “slow rounding turn” which emphasizes how sneaky it is. The market shot right back up to where it began its fall: Thursday morning’s gap, and that completed the pattern. I believe it is significant that none of the major ETF’s were able to close above their Thursday gaps. DIA came the closest, but missed by a few cents. So, the gap is still resistance, although it has been weakened.

Today was also a good example of gap trading. If you had put a limit order to short up at the QQQQ’s Wednesday close, which is the top of the Thursday down-gap, you would have gotten filled at 44.35, and had an instant winner. The Q’s did blast right through Friday morning’s down-gap, however that one was within “echo gaping” distance. It was too close to fade reliably. The key is to find a fresh gap that is one monster day away, up or down. SPY and DIA punched through the tops of their gaps before falling back, and XLF could only reach the bottom of its gap, so there is, of course, variation.

The SPX could be in a bull-flag pattern now since it bounced just above a 50% retracement of the morning blast. However, breadth deteriorated more than it has during recent rallies, and the futures have been weak since the close. So, it just doesn’t feel like a bull flag. Perhaps the market wants to range between 1085 and 1111 for a while.

Parabolic Gold Update #1

Gold has been shooting straight up since I brought up the subject last week. But will it keep going? I reckon it’s time to dust off the old Fractal Dimension Index (FDI); don’t you agree? Here is a weekly GLD chart (click to enlarge):

Parabolic Gold Update 1

The FDI is in the red line in the lower panel. When it drops down to the purple line, that means that prices have been moving in a straight line, which our allegedly fractal markets are not supposed to do. And sure enough, low FDI readings have corresponded to peaks on the GLD chart. (Points 1, 2, 3, 5, 6). And, as you can see at point X, the FDI is very low right now.

However, that does not mean that gold will take a plunge. It might, or it might just pull back a bit and gun higher as it did at points 1, 2, and 5. A low FDI reading only tells you that the trend is long in the tooth. It doesn’t tell you what will happen next.

Now look at points 4 and 7. A high FDI reading means that prices have been consolidating and that a breakout may be imminent. Not bad, huh?

Note: I will write more about the FDI as soon as I’m done coding it. I just have to add the alarms now.