Rejected At The 50…

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Slammed down in the morning, rallied back at noon, but rejected at the 50, and pushed back to even in the last quarter...

That's the story for the market today.  The gap down in the morning was more fear about the Greece issue, but the market shook it off and pushed on up higher... only to hit overhead resistance at the 50 day moving average, and get sold back off into the close.

This is not a good sign for the bulls.  It shows me that they don't have enough strength to rally higher yet.  Once again, they need to pull back and regroup before making another attempt to rally higher.  This overhead resistance at the 50 dma is soon to be double resistance, as the 20 dma moves down into it, forming a "necktie".

A necktie is simply two points (trendlines converging, or moving averages) of resistance or support that meet together at a certain point in time.  They will provide great support, or huge resistance.  In this case, they are overhead now, and will serve as huge resistance.

Whenever the market can't get through resistance or support, it either gaps over it, (by gapping up or down before the open), or it must pullback and rest before another attempt is made.  This leads me to believe that tomorrow,or the next day, the market will pullback and then make another attempt to go through it at a later date.

That doesn't mean tomorrow will be the be sell off day, only that a sell off is coming very soon... if the market can't break through the resistance overhead.  It might try to rally again tomorrow, and be rejected again.  Every time the market makes an attempt to pierce the overhead resistance, and fails... it gets weaker and weaker.

At some point, it will run out of energy and collapse back down.  Whether or not that's tomorrow or not, is anyone's guess?  I know it's coming, and I expect it to arrive this week, but I can't tell you exact date.  Since there isn't any major news or earnings this week, it could be any day this week.

Since Thursday has been bearish lately, and Friday is the last day going into an "unknown weekend", I'd give those two days the most likely days for a fall to happen.  Other then the charts telling me that we will sell off within a few days, there are other clues too.

Gold rallied hard today, even though the dollar stayed flat, and didn't sell off, as the market rose.  Usually, the dollar is selling off, while the market, gold, and oil all go up.  Oil went down today, but the market rallied up.  What is that saying to you?

It says too me that the dollar won't sell off hard because of the Greece fears... which is based on the Euro.  The Euro is still weak, and is likely to stay that way until the Greece fears go away.  That's not likely to happen overnight, regardless of the market's 400 point Dow rally on Monday.  That was just the reason behind it, but the market was very oversold, and was ready for a bounce any way.

As you can see by today's action, the euphoria of the Trillion Dollar Bailout wore off quickly by the close today.  So, the dollar isn't ready to sell off yet, and is staying strong.  OK, what about gold?  Why did it rally when the dollar didn't sell off?  Simple... FEAR!  That's why I don't trade the GLD, as it's supposed to trade opposite of the dollar, but it didn't this time because people will run too gold whenever fear is in the marketplace, regardless of what the dollar does.

How about Oil?  Usually oil is rallying with the market, and while the dollar sells off.  But, the dollar was flat today, and didn't sell off.  What happens to oil when the dollar takes another move higher?  If oil trades the opposite of the dollar, the it will fall hard if the dollar takes another leg up.

Putting all these pieces together, and you have lots of reasons for the market to fall down again hard.  I would love to see another touch of the 50 dma before the sell off, as that makes for a larger drop.  The market wants to hit the 50 dma at least a couple of times, before giving up and retreating lower.  If it falls tomorrow, it won't go downs as far, as it will want one more attempt at touching the 50 dma line.

Think of it like a football player hitting a blocker that he can't get through.  He will likely try several times to push past the blocker, before he falls back and thinks of another strategy.  The market is no different.  Many attempts will be made while "at the line of defense", and finally a retreat back or a push through will occur.

If we start to fall tomorrow, I do expect the gap at 111 spy to be filled before another attempt at the 50 dma is made again.  It might happen in one day or several days?  Regardless, I do still see another leg down, to retest the 105.00 low at least.

After that, then I could see another rally to a possibly higher high in the market.  I don't know if it will happen on June the 25th, as I forecasted in weekend video.  I'd be shocked if the forecast is accurate, but for now it's still possible to follow that path of a new high by late June.

So, for tomorrow... I'm bearish, but not sure if the fall comes on Wednesday, or waits until Thursday and Friday?  Either day, I'm comfortable be short right now.

Red

P.S. I'll be gone all day on Wednesday gang, and won't be able to reply to any posts (no computer access).  So, I leave you in good hands with the lovely Monica, and wise Sundancer.  (Try not to kill all the bulls while I'm gone Monica).

509 COMMENTS

    • Thanks Rat…

      Let's see if it comes true tomorrow? I really would like to see one more try at breaking the 50 dma, and a failure of course. The more times it try's, the harder it will fall.

  1. How much credibility do you place on futures. i am to the point that i believe they are almost a useless tool. Not necessarily contrarian but close.

    • Well, you have to watch them all night to see where they trade at. What was the overnight low, and the overnight high, etc… They will many times retest the low or high in the regular hours.

      Now that assumes little movement in the overnight session. If you have a 10-15 point spx move, either up or down, I'd say a gap open it that direction is highly likely, and also that the day will most likely be a trend day.

      Just like Monday's futures where up 20 points or more before the open. There was no way that was going back down. It's called a “gap and go”, where the market gaps above or below a key resistance level, or support level, and keeps going in that direction all day.

      So, looking at tonight's futures, there is key support around 115.00, and the market has hit that area and rested. I see 115.00 being a like target hit tomorrow at some point.

      Hopefully, that makes some sense too you?

        • Me neither Jim… go to bed, and look at the charts in the morning. You can still see what information you are looking for. You don't need to stay up all night… I don't. LOL

  2. Great Post Red. I agree… we need to at least retest 1100 or 1050
    will LOVE to trade it 🙂

  3. Great read Red. 🙂

    For me, I would just as well see us tank and do away with the backtests!

  4. Here's a chart I played with last night, Red. Zig Zag and I refer to these as our John Nash charts. 😉 The bottom to bottom 66 cycles look pretty good, and if this pattern holds, that would take us from May 06 bottom to August 09, should the pattern hold again. This is also the beginning of the Cardinal Climax, fwiw, and obviously earlier than Laundry's August 26th projected cycle target.

    http://bit.ly/crN4aK

    • Keirsten

      Does this guy have something organized that he puts out. I went to his blog of what ever it was and i was lost.
      you have to study the the site for about a month before you can use it.

      any suggestions?

      ben

  5. One of my greatest fears at this point is a gap opening for this morning. Lo and behold, that is what appears to be shaping up. European markets are exulting as of the time of this post (7:30) and FTSE appears to be forming a coffee cup (5 day Yahoo chart), an extremely bullish signal. So, it looks like a fight this morning. Rather, I hope there's a fight and that the 117 resistance is not bypassed.

  6. Carl’s morning call:

    June S&P E-mini Futures: I think that last week's low at 1056 ended the correction from 1216. Today's range estimate is 1150-75.

    1141-1160 range last night (19 points)
    1150-1175 estimate for today (25 points – ~1.5 times the usual range)

    1158 currently, so estimate is -8 to +17 from here (bullish)

    • Hey Rip – sorry I have a newborn so sometimes I get tied up. Red is working, Sundancer usually comes in after the close. Most of us are probably just stuck in our short positions and trying not to look!

  7. Anbother gap down on the vix today?

    There WILL be more downside to fill those gaps the big ?????? is when

  8. Take a look at SPY from May 4th to today's high – I see a HUGE inv H&S with neckline at 117 and tgt of 124 ……wooooahhhh

    • Don't know if that's valid, though, because it was an intermediate downtrend that went into it.

      Wouldn't it be nice to be long today? Who knew they'd go all the way.

      • Oh, head & shoulders. I was thinking cup & saucer, my bad!

        Hopefully bait for the bulls and not a bad omen for us!

    • I'd wait until tomorrow in any case, see what tonight's charts look like. There WILL be resistance there, don't worry. We'll probably close on the high.

    • backed off of on 3 attempts at 117.23+-

      i wonder if we have another after lunch adjust like yesteday??

  9. Sundancer, if you are out there will you answer me this? Did we hit the teal trendline yet? I know it was at 117.80 yesterday but it should be lower today, no?

        • In a quandry …. am long = but underwater as vix is getting sucked out of my options …. thinking of some protection – with 200 bucks in my account ..

          • Well now that the VIX is down, you don't want to sell options. I would buy some puts as a hedge. Not a bad position to be in. I am losing on the time, the volatility and the position!

          • more importantly here is that we have the resistance of the 20 day MA (already blew through the 50) after a sharp move up in a short amount of time. I would be afraid to be long here.

          • You know – you are right. I apologize. But, that means we haven't blown through the 50. The 50 is at 117.42 – our high of the day!

        • Be very careful of the inv H&S playing out …. neckline at 117 – 117.15 – conservative tgt is 124 … nothing is sure yet …

    • Looks like they are going to make another run at it. After three trys I would have thought they would give it up.

  10. I'm back gang, but not happy about it. I had car problems, and instead of making some money working, I paid someone else to tow me home. Real bummer…

    On top of that, the market just won't die. Let's review…

    On the Bullish side:

    It's forming a bull flag now, and could shoot up another 10-15 points at anytime. Light volume is back in the market, and that is usually bullish.

    The MACD is rising from oversold conditions and could continue to rise on up, and go into positive territory?

    On the Bearish side:

    We are at a double top from yesterday, and we now have a necktie of resistance overhead, with the 20 dma, and 50 dma coming even closer today. They could touch each other by tomorrow.

    Gold is still rallying, and the dollar isn't selling off. It's kind of forming a bull flag on the daily chart, which is negative for the market.

    Oil is still falling and forming a bear flag (kind of?) on the daily chart, which is bad for the market.

    Conclusion:

    It could go either way at this point? Since the necktie of resistance will be formed tomorrow, the market needs to gap up over the resistance and fulfill the bull flag, which seems like the best way to kill the last bear.

    Or, the bull flag fails, and a large sell off happens (unlikely, as I'm always on the wrong side, and I'm short now).

    Since the market always seems to do the opposite of I expect it to do… I expect it to gap up tomorrow. Go Bulls.. you low down dirty piece of sh*t mot**r f**k*rer's. $#$&%^^$&**^^*%$@@$%&*%!

  11. I just pray Sundancer comes in at 4:02 to tell us that we hit the teal line 🙂 The baby won't stop fussing and I need a break!

    • Statistically, based on data going back 15 years, the May 6 plunge pattern + the May 10 blast off, we are looking at >95% chance of retest of the April highs with no prior retest of the May 6 low. Very bad odds for the bears.

      I bought back some stocks on May 7. Lucky break. Sold them on May 3. I would claim to be a genius had I not close out my shorts on May 4….. *bang head on desk*

  12. The bulls sure can run the market on what i think is pretty low volume.

    Are we headed up the old grind up? I was hoping not? but going into Opex with a start like this could be a shorts frustration.

  13. I posted this yesterday
    We're going to back test max contain (teal line) on the 60 in the not too distant future
    We can either go sideways for another day & test it or dump 30 pts. & back test it in the 1150 area

    Why is everyone panicking?
    http://www.flickr.com/photos/47091634@N04/46022

    People are puking up their positions, throwing their charts away, calling for things to go to the moon without knowing the dance.

    I've had a wonderful day out in the Sun, it looks like everybody else is literally about ready to puke.

    • Added to my puts but it was hard to do without knowing exactly where that teal line was today. I am fully loaded now.

      • all the MA's are mult. of 8

        Start with 3 different sequences & plot them on every time frame

        Mine will be a little different than standard brokerage tools, but will at least give you a starting pt.

    • I sold some SDS this morning, and I figure that it ought to hit a low tomorrow. If I buy more or not, I'm plenty short right now. In fact, I have more money committed to this project than at any time since early April. I've pretty much been trading options in order to protect the egg.

      Glad you had a nice day! I took this afternoon off, and about flipped when I saw my computer screen after 4, all cartwheels under the 40dma. One thing I noticed was that at the upper price levels on the SP500, the difference between highs and lows was very compressed, evidence of short selling.

    • I don't ever play gold either, as it's too hard to predict. Like if the market crashes down in the 2nd half of this year, you could assume that gold will rocket higher on fear… or that hedge funds, big institutions, banks, etc… will dump large quantities of gold into the market place to cover their margin calls, which would cause the price to fall.

      How do you know how much gold they are holding, and how much margin they have on their holdings… as well as how much affect it will make on the “supply and demand” side if dumped into market?

      Very hard to predict gold short term, in my opinion… but in the long term, we are certainly going higher.

      • Should things deteriorate severely, have buy limit orders @ -14.84% & every tier below it.

        1172.87 Local Min Value
        -2.12% 1148.01
        -4.24% 1123.14
        -6.36% 1098.28
        -8.48% 1073.41
        -10.60% 1048.55
        -12.72% 1023.68
        -14.84% 998.82
        -16.96% 973.95
        -19.08% 949.09
        -21.20% 924.22
        -23.32% 899.36
        -25.44% 874.49

  14. Carl at day’s end:

    1150-1175 estimate for today (25 points – ~1.5 times the usual range)
    1156–1171.25 actual range today (15.25 points )
    Market was within Carl’s range.

    Trades: No trades
    Grade: C (lost no money)

    • I'm sure I probably just missed it, but does Carl ever get an “A” for his grade? Maybe I just overlooked one, but I've just noticed lately that he seems to get a lot of “C's”…

      (Of course my skills aren't any better… I barely pass with a D minus. LOL)

  15. Hey everyone, I am long Gold, short SPY this is when it's gets to who's got some backbone and who doesn't :=)
    Hang in there Bears, I am

  16. TNA opened up 3.6%, and the opening gap was not filled. TNA was up 9.5% at it’s high, and closed up 9.1%.

    The gap from today $56.70 to $57.39 went unfilled.

    We are now in a Full Moon Trade, which tends to favor TNA.
    AmericanBulls had TNA with a Hold today from a buy yesterday at $55.66. TNA closed at $61.89, up 11.19%.
    AmericanBulls had TZA with a Wait, and TZA was down today, so will be a Wait for tomorrow.

    Volume for TNA today was about normal.

    $RVX (VIX for $RUT) closed down 8.8% with TNA up 9.1%. No divergence, Good for TNA.

    TNA had been down 4 days in a row, but now up 3 days. Good for TNA.

    The low for TNA was from four days ago at $42.29. Today’s low was $57.39, 35.7% higher. Good for TNA.

    Today, Ultimate Oscillator for TNA rose from 54 to 55 while TNA rose 9.1%. No divergence.

    MACD fastline is below zero but rising. MACD slowline is above zero and falling. Good for TNA.

    Bollinger Bands for $RVX (VIX for $RUT): Yesterday, $RVX completed a $RUT Buy Signal, and $RUT Was up sharply today. Today, $RVX fell again. MACD fast line was falling today. Good for TNA.

    Bollinger Bands for $RUT: Today’s long white candle crossed above the 20day moving average. MACD appears to be rising. Good for TNA.

    Bollinger Bands for $RUT:$RVX ($RUT vs VIX for $RUT): The white candle today was up from yesterday, consistent with TNA rising. Good for TNA.

    NYSE up volume was 6.4 times the down volume today – good for TNA.
    TNA had a higher high, higher low and higher close – Good for TNA.

    Money flow for the Total Stock Market:
    $ 2,881 million flowing into the market 2 days ago.
    $ 693 million flowing out the market yesterday.
    $ 858 million flowing into the market today.
    Good for TNA.

    I will post the AmericanBulls candlestick interpretation a bit later.

    Overall, good for TNA for tomorrow.

  17. The Daily view from Americanbulls

    TNA had been a Confirmed Buy, was up today, and now is a Hold. The buy price was $55.69 & the close today was $61.92, up 11.1% since the buy.

    TZA had been a Confirmed Sell, was down today, and now is a Wait.

    Of the stocks & ETFs I follow, these are to hold on to:
    IWM (1x $RUT)
    UWM (2x $RUT)
    TNA (3x $RUT)
    IYR(1x RE)
    URE(2x RE)
    DRN(3x RE)
    UUP(US Dollar)
    GLD (gold)
    UGL (2x Gold)
    ERX(3x energy)
    AMZN
    DRI
    DIA
    SPY
    QQQQ
    QLD (2x QQQQ)
    SCO (-2x Oil)
    DTO (-3x oil)
    EPV (-2x Europe)
    DZZ (-2x Gold)

    The list to avoid:
    UCO(2x Oil)
    GOOG
    EWG(Germany)
    EWQ(France)
    EWU(England)
    EWX(emerging mkts)
    RWM (-1x $RUT)
    TWM (-2x $RUT)
    TZA (-3x $RUT)
    SRS (-2x RE)
    DRV (-3x RE)
    ERY (-3x energy)
    SKF (-2x Financials)
    FAZ (-3x Financials)
    SPXU (-3x $SPX)
    QID (-2x QQQQ)
    DXD (-2x DOW30)

    The following are possible buys tomorrow:
    USO(oil)
    GS

    The following are possible sells tomorrow :
    AAPL

    Action for TNA or TZA for tomorrow: none

  18. Hi Red, great comments, usually though we run up into OPEX, also the G8 G20 and with the World Cup I just think the market will pose a happy go lucky attitude and wont spook the markets…. Not sure if you agree but to think spy hits 110 and or 105 is a bold call. I hope your right, I think you will be IF most folks are long. If most folks still have their major holdings in cash, money market etc… them will run up because the big money will trade among themselves and the media will promote how the market is going up. Im trying to find a report that talks to how much cash is on the sidelines… Sym Xii looks bulish as well to atleast the 50DMA … Plus earnings are all pretty good from all market sectors.

    Just my spin on things. Im 40% long approx, bought in Japan/HongKong at its lows and kept my OILs…. breaking even……

    Anyhow, hope all is well
    Joe

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