Last Friday we had a really nice sell off, which extremely rare these days. But what does it mean? For an answer to that we have to look at all the charts. So in this weekend update, I'm going to go over the monthly, weekly, daily, hourly, and the 15 minute charts.
The question that always comes to my mind, is whether or not technical analysis actually works? I've done my best to learn it, and to adapt to fit in the news, as well as the "manipulation factor". But, it's still not perfect. The reason probably lies in the fact that I might interpret the charts different then the next person.
This "difference of opinion", between myself and other people, is the exact reason I have this blog. There isn't anyway that I can cover everything, and put all the pieces together. That is why I need YOU, the reader and commenter.
By everyone posting their thoughts and comments, we all are then better informed. Hopefully, we can adapt and still make a profit from the market, even if it goes against us. Believe me... I know, as it's went against me too many times.
So let's dive into the charts, and try to figure out what's next. Below we have the monthly chart of the SPX, which now is clearly showing a "Topping Tail". That's a very bearish signal, which means that the "Top" may very well be in. If so, then it's probably down hill for the next several years. But I'm not convinced that this is the final top, as the MACD's and STO's haven't rolled over yet. That leads me to believe we will have 1-2 down months, and then back up to the fake print area of DOW11,816 by the end of this summer.
Moving on to the weekly chart, we see that we just put in a very bearish reversal candle, closing at the low end of the candle. You can also see that the MACD Histogram put in a lower candle, and that we have a bearish cross on the Full STO's. The RSI is also pointing down now, and hasn't done so since January. Notice how steep the downturn is on it. This is very bearish.
Now let's look at the daily charts. The first daily chart shows the SPX, with another very bearish red candle on Friday. Notice that the 10 EMA (blue line) is just about to cross over the 20 EMA (red line), which hasn't done so since the January sell off. Look at the RSI, as it's fell from the "above 70" area, and is now at the 50 line, and pointing down. I expect it to break soon, which will give the bears more power. The red and green ADX lines are criss-crossing, but I expect the -DI (red line) to rise back up soon, causing more selling.
Now let's look at the daily chart of the SPY, with some different indicators. The one thing that stands out is the clear break of the rising support line. The first break was on Tuesday, and then the market back tested the line on the next two days, and finally failed to get back above it on Friday, as it sold off hard. Looking at the Full STO's you notice that the black line is pointing back up and touching the red line. This indicates that the market could go up on Monday, or even Tuesday too. I expect it to fail and roll back down, not crossing the 50 level.
Let's look at the 60 minute charts now. Now this chart is from Ron Walker's site (he's "the chart pattern trader"), and he has it marked as a "head and shoulder's" pattern, but I disagree with that labeling. From what I've learned, a H&S pattern must have a rising trendline, with the right shoulder having the higher part of the trendline. Meaning that it can't be a level trendline (support line). It must slope up on H&S patterns, and slope down on Inverse H&S pattern.
Regardless, it still looks like the market still pointing down. The MACD's have rolled over and are pointing down, and are also below the zero line. The Full STO's are still going down, and then the ADX line is gaining strength with the -DI (red line) on top and rising higher. All are bearish signs, indicating that the market is likely to open down, or flat, and start selling off. The only question is whether or not it will bounce at the triple bottom or just gap down below it on Monday.
Looking at the 15 minute chart, we see it is also pointing down, with the Full STO's still going down lower, while it's already below the 20 level. This is very bearish. That triple bottom support is about the only bullish thing I can find right now. Look at the MACD, as it's still going down too, and the RSI is at the 30 level, giving strength to the bears. Plus the ADX line is rising, giving power to the DI line on top... which is the negative line.
I think that we are either going to see a gap down on Monday, and continued selling until we hit 117.50 spy for the first level of support, (which should give at least an intraday bounce), and then 115.00 spy, which should be a multi-day bounce. Or, we open flat, trade sideways for the day while the MACD's and Full STO's roll back up. If so, then I'd expect them to peak on Tuesday, and start back down by Wednesday.
The moves up should put in a nice bear flag pattern, as I don't expect the market to get back above Friday's high. Maybe a 50% retrace, but probably less. This assumes that we hold the triple bottom and don't gap down past it on Monday morning. But either way, I'm looking for the week to be down again.