No Turnaround Tuesday…

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Wasn't we supposed too rally today?

Too bad... it's time for the bears to celebrate a little bit anyway.  The move down today confirms that the short term trend has changed, but how low will she go?  The 1080 area, which is the lower trendline in the rising channel, is key support and needs to hold, if the bulls want to go back up to finish the right shoulder.

It's too early to tell at this point what will happen, but I do believe the week will still end down.  Since the market sold off pretty hard today, a "pause" day is to be expected tomorrow.  And also since the FOMC meeting is tomorrow, which are generally bullish days, that leads me to believe tomorrow will close positive.

Flat to up would be forecast for tomorrow, but not a huge up move.  I expect that to happen in the morning session before the FOMC meeting at 2:15pm EST.  If good ol' Benny boy simply states the usually babble, and doesn't do anything to spook the markets (like raise the rates), then there could be some more light buying, or small selling into the close.

The big question is... when will the Fed's raise rates?  Bernanke has hinted at it the past meetings, that at some point they will raise the rates.  OK, I got it.  Now are you going to just surprise us with it on one particular meeting, or will you continue to pre-warn us, and set a date in the future for the likely time to raise them?  My guess is that they will simply have a meeting one day and say... "we're raising the rates today"!

And YES! The market will panic!  Will that day be tomorrow?  I don't know, but if it is, then you can say goodbye to a wave C back up to finish the right shoulder... as I think the current high on Monday would be the "right shoulder high" for this large "head and shoulder" pattern.

Next up... err, I should say down, would be 1080 in a big hurry, and then on through to re-test the 1040 low again... only this time I'd expect it to break.  But again, it would all depend on how much they raise the rates... and I'm not saying they will.

So, let's just assume that everything stays the same at the FOMC meeting tomorrow.  Then I would continue to believe we are going to go down to the 1080 area for the completion of wave B, and then back up to 1150 area for wave C.

After that, then we would have to study the charts more to see if the weekly charts and daily charts were matching up in overbought territory, and ready to roll over or not.  Again, we could continue on up past the right shoulder area and make a new high.

Remember, summer has light volume usually, and it's easy to control the market during those periods.  So what will they want to do with the market?  Did they buy a whole lot of shares around 1040 area, and need the market up a lot higher to unload them?  Or, did they already unload on Monday of this week?

I don't know the answer to that question, but should the market rally into the FOMC meeting, the high made just prior to it would be another chance to get short for a move down to at least the 1080 level... probably by this Friday.  So again, if nothing changes in the meeting, then one should look to exit all shorts by this Friday.

Of course that all changes if some "event" happens or the Fed's raise rates... then I'd say "hold on to your shorts, as this is going to be one helluva ride"...

Red

904 COMMENTS

  1. I think the markets are almost immune to the FOMC meetings. No one expects any move in interest rates until after the election or 2011.

    maybe a short bump and then who knows. today was a surprise. 1080 is on the way. then what?

    • We should bounce back up around 1080 Jim, and go back up and finish the “C” wave up, in an ABC to 1150 or so, for the right shoulder. But that seems too obvious to happen.

      I think the right shoulder is already in (Monday's high), or we will go make a new high over the next few months, fooling everyone.

      But first we have to get past this week, so let's just take it one day at a time.

      • There certainly is no reason the 1031 high from monday cannot be the RS. The selling distribution in every rise seems more apparant.
        My only hesitation has been the lack of conviction as indicated by the vixes. As I have said before I feel more confident about sentiment when i see daily vix changes above the 6% range.

        • Yes Jim, I agree with you. The 1131 high on Monday could be the RS, which tells me we are likely to continue down in a wave 5 from the April high, and not simply go down in a B wave of an ABC up to 1150 or so.

          If this is wave 5 down (or whatever count?), then wave 1 of the wave 5 was likely completed at yesterday's low, from Monday's high. Meaning today should go up in wave 2 of the wave 5 down, leaving Thursday and Friday to print a nice wave 3 of wave 5 down.

          Not many people are considering that count, as everyone is looking at the ABC up. They all assume we are in wave B down right now. Well if wave B down breaks support around 1080, then it's not a B wave down, and there won't be a C wave up for the completion of the right shoulder.

  2. No earthly reason for the Fed to raise rates except to throw the markets into chaos, so I think FOMC will be safe and cause for a reversal day.

    I am looking for tomorrow to be bearish in the morning with a test of 1075-1080, and rally in the afternoon for a long green doji. After that, we will be under all important MAs and I expect us to stay there (welcome to bear country).

    If tomorrow is green all day and reverses what was done today, then I would exit shorts and look for a major rally.

    This whole right shoulder thing does not make sense to me. We have a RS already. If we go higher in a major way, I think we could even wind up testing 1220 again. I mean, the market would be wide open.

    • Yes Rip, the right shoulder is too obvious for me to believe that it will magically go there and reverse, allowing everyone to get short and make a bunch of money.

      We have either already made the right shoulder, or we will likely go past it, and make a new high.

  3. There are a few things I am looking at tomorrow. Daneric had a quote on his site that really stuck out to me “if everyone has that count (particularly EWI), it likely won't pan out” and I have found that to be correct from my experience as well. Everyone is looking for this to be the B wave of the correction and the C back up to complete the right shoulder. I have seen it in many peoples counts

    FOMC days are usually bullish, especially in the morning leading up to 2:15. No one has entioned the smaller head and shoulders that was broken on the SPX and even more clearly formed on the XLF over the last 5 days or so.

    First the SPX. We broke back under the 200 day MA after 4 days of barely satying above. This is bearish. We also broke below a H&S neckline. I expect the market to push back up to 1110-1113 where the backtest of the neckline and 200 day MA meet and then reverse.
    http://screencast.com/t/NGQzYWY2
    Also notice how many times the 200 day MA has recently been resistence or support.
    http://screencast.com/t/MTk5MTVkZjgt

    Lastly the XLF. This chart doesnt need much description. Its slightly more zoomed out http://screencast.com/t/ZmY5ZDFlMj

    In all, I think the correction ended at 1131 and the next big wave down is coming. Also notice that the Nasdaq completed the bigger right shoulder almost perfectly. Good luck all!

    • FTSE is forming the right shoulder on a H&S today (5 day intraday chart). If it does not break down, I may close out some shorts and wait until we are under all MAs.

  4. TZA breaking out to the upside in pre-market trading. Looks like Britain's bull is crippled (have a 15 min delay there).

    Things are looking very good for a bearish morning. I'll breathe much easier once we get under all the MAs.

    • I added a little to my TZA and TYP SPXU on Monday.

      i may add a bit more on a bounce before FOMC meeting.

  5. Weiss alert from yesterday FYI:

    Dear Subscriber,

    I’m not liking the looks of this market and I am waiting to see which move to make next, but for now I want you to exit all positions.

    If you acted on my recommendations immediately after my email, you should be able to book gains in all three.

    But to avoid these trades turning into losses, I want you to execute the following recommendations ….

    • Nenner must not play short term instruments, like options or 3x eft's, as I still believe it's worth taking a short position for a move down to 1080 area. Of course you would need a bounce today to get in short, but most people are already short from Monday.

  6. Nenner June 23:

    S&P/Nasdaq
    “And again the market came down”
    In Feb 2009, when we got ready to go long, we did not mind being a bit early, since we were convinced of much higher prices to follow
    Now, however, we feel that it will be difficult to see a test of the highs
    We expect to see a more important high by mid Aug
    Therefore, we do not want to take a lot of risk
    Nevertheless, here is the situation:
    Weekly cycles have bottomed
    However, short term cycles – as shown in our last update – are close to a high again
    On top of this, we still have to deal with the possible head and shoulders formation
    Therefore, all of this results in us still NOT buying back the position we sold from longs around S&P 1200
    Short term, the S&P and Nasdaq are on a sell signal
    That does NOT mean that we are interested in going short, since, as we said above, weekly cycles have bottomed

  7. 'Soros says Germany could cause euro collapse'

    Their industry, curbing of government spending, and more solid currency is undermining the EU's plan to screw everyone simultaneously. Just goes to show how frigging deranged these Fabian socialists are. I am personally betting that Germany and Russia will be among the first to go to gold.

    Don't be fooled, however; all parties are in on the scam, I'm sure. Still, I wish we'd follow Germany and Russia in fiscal/monetary management.

    http://finance.yahoo.com/news/Soros-says-German

  8. If we hit 1080 today we bounce. If it breaks 1080 it collapses.

    Question will be do we cover or hold???

    As I type bounce seems to be in play.

  9. The BS begins. Rut already back to even for the day and DJI postive. What a bunch of horsesh*t

  10. I was beginning to wonder if the market was ever going to rally up, but it looks like it's starting now. How high up is unknown though? Will they rally on the FOMC minute's or sell back off?

  11. Been a great ramp job so far on literally no volume. Lowest mid-morning to afternoon in volume in days.

    • During the low volume periods, they have full control of the market. It's during these periods that most rallies occur. The fact that we haven't moved up very far today is very bearish for the market.

      Anna thinks we might get a pop on the FOMC meeting at 2:15pm est, and then sell off. I also think we will do some more selling, although I don't know about the “pop” or not.

      Either way, the selling is not over. The market is very weak now. It should have rallied a lot higher over the last few hours, especially with the very low volume.

      • I don't know. We bounced right off the daily 20 SMA on most of the indices and to me that is bullish. I would have liked to see us hang around under them for a while, but we literally bounced right off.

        • We are moving sideways to up… forming a beautiful bear flag. After the “pop” at the FOMC meeting, the bear flag should play out, and we should see a sell off into the close. Have patience.

  12. Look at all the bids coming in. They are not letting it go down today. We will finish the day with a Doji most likely.

  13. Anyone want to explain what happen? Horrible housing data today and the FED said absolutely nothing good about the economy and we shoot up? WTF?

  14. Pumpers are def. jumping bids on futures to try to run this up and tank. It is so obvious it's not even funny and it seems to be working.

  15. SPX 1089 is key for today's close now. it was 1100 yesterday and 1089 today. We close below that and I fee pretty good being a bear. A close above, will give the bulls some hope to push it up.

    • perhaps, but that's just to get the shorts out of their positions so they can tank it tomorrow.

  16. Bears completely blew it in the last 30 minutes. Given everythign that came on today, today should not be an even or slight up/down day. That shows me that the conviction to the downside isn't as strong as we think. The tape and price action have shown us as such. I'm keeping my shorts, but have a very uneasy feeling.

      • Hi there!

        I am a swing trader but for what its worth here is my work. I have solicited the help of RecnaduS and worked this by combining his cycle work (Ehlers) with what I can on my feed. We are also looking at the Summation Index and MO on stockcharts which seems to be flawed. http://www.screencast.com/users/has001u/folders

          • If you adjust the MA for cycle length and make it into an oscillator then watch for the zero cross. Very few whipsaws! Also, the McOsc is calculated incorrectly on Stockcharts. It is slightly off. I will publish periodic updates for you to see. This has implications for those that use the Summation index with a 20day MA cross. There was no cross!

            Anyway, have a good night!

  17. Like I thought, they did a great ramp job the last hour to ensure SPX closed above 1089, which also happens to be the Daily 20 SMA. Go back and look at the Rally off the Feb 2010 low. We rallied from 1044.5 to 1112.42 and then sold off to the 20 SMA, which at the time was at 1087.4. Same thing, we didn't close under it and rallied from their to the April Highs. While the news and general sentiment is worse this time, the 20 SMA backtest could serve as the launching pad again.

    • It's certainly in a tough spot right now Rosa… as it really needs to fall a little more 9about 1075-1080) to hit the lower trendline support on the rising channel, and then bounce back up into a “C” wave up.

      Or, does it fall on through the trendline and go on down and retest the 1040 level again? It doesn't look ready to bounce back up from the current level it's at now, so that leads me to believe we will go lower before any multi-day rally starts back up.

      How low is anyone's guess, but if that trendline support breaks (around 1075-1080), then I do believe we are going to 1040 again.

      • Very possible. Action of late has been quite weak, and the red volume bars on SPX have been rising ever so slightly three days in a row. Yesterday's selloff in $TRAN was quite something, $NYSI has stalled, and other bearish indicators and developments quite numerous and familiar.

        There are factors advising bears to be cautious (as always, same goes for bulls), as you note.

        A few of those items possibly worth bearing in mind as long as support holds: Both the $USD and the $TED spread appear to have at least short-term tops in place, and should be watched for any further moves lower (in the $USD, particularly below the 6/21 swing low).

        Also, did you happen to catch the action in XHB on the heels of an ostensibly dreadful new-homes report? Quick selloff followed by a rally on double volume that heavily outperformed the $SPX. Still very much in tight downtrending channel, it should be added, but just something else to keep an eye on.

        • Very interesting about the XHB… I didn't catch it. Just wondering if it's the PPT trying to save it from collapsing, or if it was some big boys buying, anticipating a big move higher? Hard to say which…

          • As you might have gathered, I take a dim view of the PPT doctrine of market action (which isn't to say the big boys don't have built-in advantages and capital power us small-timers can never hope to match and should always keep in mind), so I don't think XHB was made some sort of window-dressing project. It's an interesting sector, but not one central to market strength like the banks or energy.

            Looking at the dailies for the past three years, green-volume spikes sometimes come at bottoms, sometimes not. There's long-term support in the 15 area, so when the bad housing report failed to keep XHB below that level, it would seem to be an obvious place for shorts to cover.

            As I see it, XHB doesn't signal a reversal until it can close above the descending trendline, now a hair below 16, also the neighborhood of several SMAs and EMAs. There's a double bottom in place for now, something it didn't make with broader market earlier this month.

            For now, it's seems a one-day outlier. It was the volume and the positive divergence that seemed to make it notable, if not definitive of anything as yet.

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