Bearish ST pattern on SPX

Yes , we believe this market is due for a correction. We know it has been said a zillion times during this incredible rally threfore we thought is better support our views with more varied and different findings. This is a ST pattern that I like particulary. Now is setting up again. If volume ever comes back to market then there is a high probability for it to work out soon.

Good boys

Well I cant complain, these puppies are behaving so well.... :)

SPX (previous analysis here)




RUT (previous analysis here)


INTC (previous analysis here)

Let's hear to the PIGS

As you may know PIGS is an acronym of Portugal, Italy, Greece and Spain. Some economist cluster this mediterranean countries since their economies are quite similar and all less developed when compared with top EU countries.
From that point of view we can analyse them as the "emerging economies" within the EU and therefore expect them to be leaders when it comes to trend changes ( they will be the first to rally once a downtrend is over and the first to drop when an uptrend is over).
In that sense I gathered these graphs to show their behavior compared to SPX.

See how they led at 2003.





and now in 2009... might it be the way.....?

Snapshots - all that glitters is not gold

Here are some thoughts about current market status.
While many big players will be on holiday , an interesting topping pattern may be on the final resolution phase. It started on Monday and while price has been ranging, some other indicators have been sliding which may well be the clue we are looking for to anticipate the upcoming resolution for this pattern.

Recap II - Major indices

We were pointing out some interesting levels for OEX and DJT last week. We can now check how did they do at the weekly close

DJT



OEX



SPX
Regarding SPX this was our view a couple weeks ago, main levels were succesfully tested this week. See chart below for an updated view.




About Nasdaq we were seeing a LT picture back in October which suggested a ST pop just to drop after. Main levels were tested and respected this week
NASDAQ

Resistance levels

Finally ST target was hit on DJI

Now we are expecting some pullback down




This scenario lines up well with the resistance levels SPX is facing. Overall we think main indices will experiment some pullback down before another possible attemt to highs.

SPX big pic


SPX close up

Interest rates and stocks I

See how short term interest rates have been anticipating intermediate tops and bottoms on SPX.
Since it is one of the most powerful instruments Governments have to intervene at the economy you can track its rises and falls and expect a delayed response at the economy and at stocks markets. This is particularly clear when divergences appears between interest rates and stocks indices. See following post for more details.

Short term interest rates are also a good instrument to gauge how much "aid" does the Economy need at a given time. Since 2007 highs we dropped 96% , it means much more aid is needed and it is not diminishing (IRX price is not rising on the chart). Just keep this in mind particularly when politicians and media come across with their intelligence-insulting-BS.





So the recession is over??Economy is ok now??. Let me ask: Where are the jobs?
Moreover, how can you expect us to believe that Economy is recovering if it needs immense ammounts of "aid" from short interest rates?.... please....



http://www.wikinvest.com/concept/Interest_Rates

Sunday guess work - Currencies telling the tale

Here is an interesting chart which may help to explain why I am always pounding at the currencies stuff despite of trading mostly stocks and futs:

What is the pattern here?



Also here:





and here...

Changing risk profiles

I will address later the wealth allocation issue. We will see how it is changing its appearance. Meanwhile, I will leave you this chart. Though is annotated, try to identify what moves are behind and what does it implies in the short and midterm.

Exhaustion

As commented recently, it is very important to track market internals data to assess overall market strength/weakness at any given moment. However this data becomes even more important after sustained moves (up or down) since normally will anticipate the trend exhaustion before price confirms it.
Although traditional market internals still show the undeniable strength this bulls move have, some other indicators are already showing exhaustion. Last week, news helped to boost mini-rallies but they were unable to consolidate highs. I wouldn't be surprised if price finds a hard roof this week.

Hi- lo logic index



Zweig Breadth Thrust :



Absolute breath:
Both indicator and its RSI diverges from main indices (QQQQ shown here)

Trapped??? Don't be

Were you one of the traders that got trapped by last fake bearish moves from SPX? Not only the infamous HS pattern from late June but many other times the indices give us fake signals just to trap everyone and run in the opposite direction. What to do? As usual: look for confimations at other relevant sources. In this case we can see how the EURUSD action did NOT coupled with the bearish move at SPX thus alerting us about the trap.

Enjoy:

Market Outlook

As promised, I put some pieces together and now wanted to share with you one integrated picture of my market views:
1st of all, many thanks to UiDezine for his unique insight about markets. Much af my current view has changed due to his arguments which together with market action have made me reevaluate my stance.
After researching a lot charts of them last week, I found these ones can sumup what my LT and IT views are.

As I needed more than only mad-bulls-price action to support any bullish view I pulled some internals related stuff (I thank mfc68 for recalling me of its importance) since is much more reliable in my opinion:

• Here we can see a picture of IT and ST

Ideally, if divergences provide a retracement to the green arrow, we can have a clean IT long entry.

ST close up view : Divergences at oscillators

• Fundamentals view:

Pata: what do you think about news saying economy is really getting better?
Pata: BS!!!

It doesnt mean much from the practical point of view since I dont trade LT but I won't buy BS either!I will be happy to trade from the long side (ST and IT) and assume this bullish move can last many months but I refuse to believe in miracles. Period

There is a ton of charts showing it but I like this one comparing SPX with Baltic Dry Index and Shangai Comp. These last two led previous fall and recovering. Just posting a close up view here.




"Buy high sell low".... wasn't that the saying....no??? Well that is what the guys buying this must be thinking :)





Inflation??? what inflation??



Finally, reposting here some words from a really seasoned trader: Art Cashin We Could See 'Historic Trading' Soon

Seeking the unobvious (updated)

Turning point time guys. This last week has been really shocking but at least set something clear: Bulls are still in total control of this market.
I will post later my vision about different time frames and try to put all the pieces together in one picture. Meanwhile I brought this short term charts. The only objective is to balance the astonishing impresion that SP500 and some other indices gave us on Friday's close. I think some other indices and instruments showed less strength, at the close or in previous 2 days. This makes me think that on Monday/Tuesday we can have some correction (finally). After that correction I expect more buying pressure.
So this is bear's short term tiny hope as far as I can see :)


SPX- OIL/GOLD spread


SPX- DAX/SHATZ spread


SPX vs. USD comparison



6E . Euro future closing on Friday.



Nasdaq 100 future . See previous chart

"Real economy roots" for our financial trading

Baltic Dry Index
As the sharp Spanish investor SimpleNoRisk pointed out timely, there are many reasons to keep an eye on BDI.
In general I try to keep my mind clear of economic data on analysis while trading in order to approach markets with no preconceived notions but in any case we always need a "framework" or general idea of what is the most probable scenario for the midterm (IMO long term view is for institutional investors and "gurus" so not my business). That is why I came up with the Bonds study currencies, and now with BDI. I want to build some scenarios for the months to come and more important, avoid the influence of all type of financial media to direct my trading. I believe charts are the only trustworthy source.

In this particular case I wanted to point out how BDI has lead stock indices in the past and how now is signaling a potential reversal since is making lower highs. Note also how Shanghai's SSEC is following it much closer than SP500 which presents a bigger divergence. If stocks indices are to follow BDI (which I believe) then SP500 is due for a stronger correction in the midterm

BDI, SPX, SSEC comparison.


Close up view of divergence

X-rays for Nasdaq

You might recall a previous post on the importance of market internals condition to assess overall indices strength.
Now I wanted to show you some stuff I have been observing during last days: the divergences among various market internals indicators and price have been increasing telling us this rally is going out of steam.
Divergences can last long but traders should never go against them as risk/reward ratio would be poor.
If we were doctors, our prognosis for NASDAQ (and for the rest of indices) will be reserved. I mean, there is no evident symptoms yet but the disease is well underway.

Our therapy: Mr. NASDAQ and Mr. SPX must have some rest (retracement), they need an important breather if their expectations of going higher still exist.

Quick note: Techs sneaking away

Before posting a weekly wrap up I wanted to share with you some observations during today's rally. First of all: main trend continues to be bullish and I am not going to fight it (Plan A for day trading stands) but as I am seeing quite a few signs of weakness, will point them out to prevent unpleasant surprises :).
This line up pretty well with our previous findings about techs relative weakness. We are seeing clear divergences between most major indices strength and techs behavior.

See the following Semiconductors chart: