Market Outlook and Today's Action

Stopped out of SIGM today w/ a 3 percent trailing stop, and held onto OPXS for a little bit of a loss. The market went lower, and possibly broke down through its most recent up-trend. Once it breaks down through a key level at 885, we'll have confirmation of a better chance of a downturn:

SIGM stopped out, and then jumped back up. It's down 2.5% in after hours:

OXPS is about to get killed. It has not confirmed itself as a good breakout. I'm up, and don't have much more tolerance for downside (especially in this market right now):

In summary, the Market looks like its about to fall over. These stocks probably won't do well if that happens. I'm just holding one small, profitable position, and will probably be getting out of it soon. No need to trade until the market shows its true colors.

Daily Stock Checkup

The S&P 500 is still in an upward channel. It's important to note, that there has not been a secondary down-trend for some time. I predict the S&P re-touches the recent previous high around 935, and then has a correction. 200 DMA is close overhead as well. We don't have much, if any, time:

OXPS - Hit strong supply after a strong move up today, and gave up most of the gains. This is OK, but unacceptable if it goes below the lower range of its flag:

SIGM has met supply as well, but isn't acting out of the ordinary for a triangle breakout:

Rounding Bottom/Top

I recently came across "Rounding Tops" (and bottoms) in Technical Analysis of Stock Trends By Edwards and Magee.

The "Rounding Top" is a gradual, progressive, fairly symmetrical change in the trend direction. They are more commonly found in more exclusive equities, shielded from the daily excitement of the masses. (Note: An index like the SPX may exhibit a similar quality.)

Top formations are completed in a relatively short amount of time. As you can see in the chart above, a whole semicircle has been drawn using a fibonacci ark, and we're currently at its peak.

Other characteristics of a Rounding Top: Volume should ebb to an extreme low at the top of the pattern if its implications are to be trusted. Check out the low volume at the recent highest days.

Disclosure : I'm long SH (short SPX) and long FEED

New downtrend in the SPY? We're close

It always helps to keep multiple time frames in perspective.

Here's a look at the long term (multi month) downward market we've had:

That last leg up is the March rally. Notice how it just hit the top of the trend line. It's following the same pattern as all the previous rallies (nov to january, october to november).

Zooming in a bit, here's a view of our recent March rally:

Take a look at that, then take a look at the chart above it to gain some perspective on where the March rally lies in the overall market.

Now, here's a zoom-out with tracing of recent action:

I'm betting with the longest term trend. If the SPY was hitting the lower trend-line of this channel, I'd take a smaller long position. It'd be small since I'd be betting against the longer-term trend, but with good reason and evidence that it's going to oscillate once more. However, we're about to experience a down-trend within a down-trend.

My assumptions are:

1. The long term down-trend is going to continue.



2. The downtrend will continue to move within a channel, created by oscillations of lower highs and lower lows.

My assumptions will be shown to be wrong if:

1. We experience high lows and higher highs in the context of multi-week rallies and corrections. For this, we would have to break out of the current long-term channel drawn.

I haven't been paying much attention to the daily action during the past week, because I'm thinking in a 3-5 week timeframe. Also, so long as my assumptions about this downward market aren't shown to be wrong, my plan (based on those assumptions) is valid.

Follow the trends. If you are patient enough to confirm reversals, you'll only be wrong once, and the one-time loss of a reversal will be surpassed by your wins.

The new possible downtrend in the SPY will be confirmed if we get another small rally that doesn't surpass the last one. Once that turns over, it's time to get short!

SPY double bottom

I am still bearish, but this makes me a bit less so. Trends have to change somewhere, and usually show their change with a recognizable pattern. One such pattern is the double bottom base. As described in "How to Make Money in Stocks" by Bill O'Neil, a double bottom requires:

1. A 'W' shaped pattern.



2. Usually a matched or lower trough in the second part of the W.

The buy point is located on the top right side of the "W" where the stock is coming up after the second leg down, and should be equal in price to the top of the middle peak of the "W"

What do you think out there? Does a double-bottom base need to take place over a longer time period in order to be valid?

S&P facing resistance

845 is the apex of these three lines. I predict a decent move down in the short term (1-3 days) and in the mid term (3 weeks).

I'll revisit this post within those timeframes and evaluate my trend-line-drawing skills.

If I'm wrong, a 1-2 percent move above 845 will persuade me to get long. Note, as time goes on, the sloping, longer term downtrend gets lower, and the mid-term uptrend gets higher. The S&P is going to have to make a decision. Where does the real strength lie? I put my money with the bears.

disclosure: long SH (short S&P)

Trade System

Trade System by "cuervoslaugh" here.

1. If the SPY Adjusted Close is more than the 200 Day moving average and you do not have a share, then buy one share and hold it for the next 50 days.

Results:

• Average Trade: $1.47



• Win Percentage: 73%



• Average Win: $3.77



• Average Loss: -$4.54



• Expectancy: $1.55

spy resistance

we're breaking out of trends today. Here's another one to test. Breaking this one will be aid in confirmation of a new longer-term uptrend.

SPY outlook

Bear Flag

do you think it is a bit of a stretch to call this a bear flag?

perspective

This may be my shorts talking. I'm not getting squeezed until we break out of the big channel:

disclosure: long SH

Nasdaq Head and Shoulders: Revisited

Here's a new picture of the nasdaq price action:

The head and shoulders pattern was thwarted and left incomplete. The neckline stood as support--that level has been taking a beating, though.

Yes, the pattern didn't complete, but this is still a bearish signal. I quote the textbook:

"There is one thing that can be said and is worth noting about Head-and- Shoulders Formations that fail completion or produce false confirmations. Such developments almost never occur in the early stages of a Primary Advance. A Head-and-Shoulders that does not “work” is a warning that, even though there is still some life in the situation, a genuine turn is near. The next time something in the nature of a Reversal Pattern begins to appearon the charts it is apt to be final." Page 62.

This will be especially true if today's action rolls over. A nice, sloping downtrend is starting to form on the most recent peaks in the 'daq and in the S&P:

Head and Shoulders?

Rules on head n shoulders pattern:

A. A strong rally, climaxing a more or less extensive advance, on which trading volume becomes very heavy, followed by a Minor Recession on which volume runs considerably less than it did during the days of rise and at the Top. This is the “left shoulder.”

B. Another high-volume advance which reaches a higher level than the top of the left shoulder, and then another reaction on less volume which takes prices down to somewhere near the bottom level of the preceding recession, somewhat lower perhaps or somewhat higher, but, in any case, below the top of the left shoulder. This is the “Head.”

C. A third rally, but this time on decidedly less volume than accompanied the formation of either the left shoulder or the head, which fails to reach the height of the head before another decline sets in. This is the “right shoulder.”

D. Finally, decline of prices in this third recession down through a line (the “neckline”) drawn across the Bottoms of the reactions between the left shoulder and head, and the head and right shoulder, respectively, and a close below that line by an amount approximately equivalent to 3% of the stock’s market price. This is the “confirmation” or “breakout.

The only thing I'm not really sure about is the volume. Anyone out there have any thoughts on the possibility of this being a head and shoulders? Perhaps it's a bit of a stretch.

UPDATE: Check out Nasdaq's head and shoulders here.

Do You Really Thnk We're At a Reversal?

First off, know that I am writing from a short bias since I own SH.

Recently the S&P has shown several amazingly regular, straight trends:

A trend is an overall direction over a given time. Notice also that within those trends, there have been reactions which oscillate up and down mostly within the channel. The series of highs and lows move incrementally and uniformly over time.

From a classic text, Technical Analysis of Stock Trends, I present support for this premise:

“Stock prices move in trends. Some of those trends are straight, some are curved; some are brief and some are long-continued; some are irregular or poorly defined and others are amazingly regular or “normal,” produced in a series of action and reaction waves of great uniformity.” pg 56.

The text goes on to present an important point to consider now:

“Sooner or later, these trends change direction… when a price trend is in the process of Reversal, either from up to down or from down to up, a characteristic area or “pattern” takesshape on the chart, becomes recognizable as a Reversal Formation.” pg 56

(I would also add that breaking through key resistance (a ceiling which keeps a stock down) or support (keeps the stock above a certain price) is another tool in spotting and confirming reversals.)

Something which has helped me start becoming a more confident, disciplined investor is learning to spot reversal patterns and support/resistance levels. They will never be perfect indicators, but will shed light on what the market is doing, and where it is going.

Take a look at this chart again, and tell me : Do you think we’re reversing upward, or are we due for another leg lower in the current downward channel? If you do see a reversal pattern, let us know!

———————————————————————————————————————–

Shifting to a consideration about institutional buyers with respect to these market trends:

Sometimes I suspect that “smart money”, (aka Institutional buyer/seller, like mutual funds and hedgefunds) knows what to expect in this upcoming earnings season. If “they” do actually really “control the market”, here’s what I suspect has been going on:

Take all that as HIGHLY speculative, and probably ignorant.

Note: “Smart Money” keeps it’s focus on the longer-term trend, as it holds huge amounts of stock and cannot nimbly get in and out of the daily or even weekly action. They take advantage of reactions in the larger trends, making money all along as the stock market goes down:

Huge gaps up and down in the market could be a sign of manipulation by institutional buyers/sellers. If “they” do expect an up-side reversal here, they’re hiding that fact pretty darn well in market price action.

Please rate this post and leave some feedback! Thanks for reading.

The Light Volume Pullback Myth

A widespread belief is that a light-volume pull back after a recent run-up is bullish, or at least, isn't something to worry about. I got this belief by reading IBD, and a major premise of Technical Analysis of Stock Trends is that "volume goes with the trends".

Thanks to Danny for pointing out this study: "Myth Busted: Light Volume on Pullback a Good Thing"

If you're not interested in reading, the basic idea was to backtest S&P performance after light volume pullbacks. Things actually, on average, got worse over the next few days.

Now that I reconsider my belief on volume, I looked at our current situation and realized Friday 3/27 was a light volume pullback:

• First, Know that aside from Friday and today, volume in the S&P has been averaging around 8 trillion shares since March 18th.



• Friday (3/27) volume was 5.6 trillion shares, with a 2% loss. This was a "low volume pullback", and I took that as a bullish sign. (Here's a short term chart showing what I'm talking about). This action then led to today:



• Today's (3/30) volume was 5.9 trillion shares traded with a 3.48% loss.

I'm tempted to say, "Well, today was a low volume pullback. The market's probably catching it's breath to rebound."

Well, it very well may be. However, it appears the "light volume pullback" is not as telling or reliable an indicator as I once believed.

What do you think?

Thanks for reading! Please rate the post and leave me some feedback

On a side note, here's my take on the market from this post:

Volume taken from yahoo finance.

Disclosure : Long SH

SPY Resistance at 784

I'm short from 791. Look to crack 784 as support, but you might want to wait until 780 (as indicated by matt trivisonno, is the level of support whose break led to the 666 plunge. )

S&P outlook: Futures

I'm not really sure how the futures market works or if it's anything to give particularly heavy weight to, but here's where we stand as of 2:15 am on monday morning:

Short term view of recent rally:

Longer term view of bear trend:

I have formation at 8:30 tomorrow morning and won't be able to get rid of my SSO position. I think it wise to get shot as soon as possible, until the overall trend tells you otherwise.

S&P: the bear market so far

The indicators above are described in the first few chapters of the textbook. We're still in a bear market, folks. The volume at the recent bottom (at 667) indicates we are still in the 2nd phase of heavy selling. A key sign of a bottom will be:

• Low volume on new lows. Everyone who is going to sell, has sold. By this time, it's only the discouraged people who braved the whole storm, and are finally deciding to sell the smoldering remains of their RIA, to salvage a future of ramen noodles and deli ends.
• Higher lows after each successive intermediate trend. We've seen no such lows. Yes, it's possible the next low will be higher, but right now it's certainly too early to state that as fact.
• Breaking out of set trends. As you can see in the chart, we're still in an overall downward channel. If we break out of that, it will be a glimmer of hope that we are entering a new phase. Note, this "channeling" can be done on multiple time frames. On a weekly timeframe, we can see how the S&P broke out of a month long downtrend, and formed a new uptrend: https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3ZrqWBZyc4YmD0Osn0vmchqWDoi5RGBhXpSFEEawH0xg3vOWiMHnA2mooqQZmucTRU31nB-hmiMXyFU6HEHUJfla_S67w71sP7Gm5Ekc_x3zhr47kRztOs7v9cRJDoXpwvZjYeHrUUIc/s1600-h/2009-03-28_1624.png But on a daily chart (thumbnail at top), our current rally is merely another oscillation in the larger, broader downtrend. Go long the short-term rally if you have the daily time and attention. But just remember to look at the big picture.

Game Plan 3/30 - On Second Thought...

Check out the longer term S&P trend here:

I made a bullish call when looking at the short trend term trend in consideration of this chart, from this post.

Look at the bigger picture. Longer term, we are still in a downtrend. My trading system (which I'm still developing) would state:

• On a short term to stay bullish since we're hitting resistance on the bottom of a recent channel, and we've had no evidence of losing that trend. There was some selling on friday, but on very light volume. Bet with the trend, get long.
• On a longer term, get short pretty soon. We're at the top of a long term channel, as well as sitting at some strong resistance. There's going to be a good amount of congestion to any upside, anyways.
• The Textbook even states that there is no "mechanical” index or combination of indexes which will always, automatically, without ever failing or going wrong, give warning of a change in trend; "such, in our experience, are often confusing and sometimes downright deceptive at a most critical juncture."" pg 9

I expect the market to break down from this top channel, as the stronger, over-riding trend. Fundamentals haven't changed (or at least, haven't changed for the better). Yet, we've just seen one hell of a rally.

I'm changing my outlook to monday to NEUTRAL. I will get rid of my long position and see what happens. If we bounce down again, I'll reconsider each time frame and make my decision from there.

Hammy Trade - SPY

bought 48 SPY at 82.96.

Why I think this will be profitable: Check the following graph. This was a break through some strong resistance that was tested several times. The next stop up is in the mid to upper thirties. 



Point where my assumptions about the trade are wrong: This was not a break through resistance if the S&P goes back down below 824. I will sell around there, and have placed my stop accordingly.

Update:  The stop sold out in a bounce down to 822. The market jumped up to about 832 three times, and bounced down each time. It bounced down through support (?). Check out the graph:



lost $34.84 on the trade. 

Review: On a second look at the current trends, I had the wrong support level. Check out this graph and let me know if you change your mind, too:



I'm not sure whether I should have seen this coming. Yes, 827 was some serious resistance, but the bottom of the trend was there too. Granted. However, things looked fishy. It tested 834 3 times, and continually had the lower lows and lower highs. Nevertheless, in the future I will take into account volume support lines (827) AND trend support (around 822, right where it bounced today).