Weekend Update…

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Are all the bears dead now?

What a short squeeze that was on Thursday and Friday!  If that didn't clean out most of the bears, I don't know what will!  In fact, the guys over a Mr. TopStep stated... "Today is the largest gap up on any rollover in history."

So what does that mean for next week?  I see about an 69% chance of a gap down on Monday, and another down day on Tuesday to follow.  If Monday gaps up, it should provide the remaining bears the best spot to go short at.  That 1100 area has been hit 4 times in the last couple of weeks, and should still hold the market back on another hit.

The only way I see the market going through that level and holding it, is to consolidate there for several days, and then gap up above on the next day that has some great news to support it.  Trying to go up in a rising wedge pattern, and break the resistance, (like what we have now), is extremely difficult.

The odds are very low of sustaining a gap up, while in a rising wedge pattern.  There won't be any shorts left to squeeze on a gap up, and the market will likely reverse back down hard.  Falling wedges breakout to the upside, and rising wedges breakout to the downside about 69% of the time, according to Thomas Bulkowski's pattern site.

Besides the rising wedge pattern, we also have a perfect looking "MA Pattern", which is a very bearish pattern, with high odds of playing out to the downside.

Let's not forget that we still haven't put in a positive divergence on this chart found on Cobra's blog.  Cobra also posts the Institutional buying and selling chart, and the Fed's Liquidity chart too.  Also the Mutual Fund money flow chart.  Cobra is a very good chartists... much better then I am, and he's still bearish too.

As you can see from those chart, the big boys aren't buying into this rally... they are selling.  The Fed's aren't putting money into the market... they are withdrawing it.  The mutual funds aren't getting a huge inflow of new cash either, as you can clearly see by the chart, it's as the lowest level in many years.

Did Friday look to you like a lot of buying was going on by the big boys?  It didn't too me.  How about Thursdays' ramp job?  Did that look like the big boys buying, or just short covering?

How about this article showing that JP Morgan just sold the largest conduit deal in the CMBS market in nearly two years, for $716.3 Million.  It's a package that's backed by 36 fixed-rate commercial mortgage loans secured by 96 properties.   Hmmm, sounds a lot like selling Real Estate Investment Trusts (REIT's) in 2007... just before they crashed down.  I wonder if they took out insurance on them too, just like Goldman Sachs did with AIG?  They probably are short commercial real estate right too.

Look at this chart, that shows what the next ticking bomb is... and when it's likely to explode.  (Commercial real estate isn't shown in the chart, but it's due to hit about mid-2010 to 2011... I couldn't find that chart, sorry).

Then on Friday, Rip Van Trader caught a large trade of 3.5 Million shares being bought on TZA, the ultra short bear etf for the Russell Index.  Either someone is very rich, and doesn't mind losing a bunch of money, or they have some inside information that the market is going down over the next few weeks, not up.

Now, as for fake prints, I'll direct you to this print, showing 2 prints at 1055 ES... which will also fill the gap up on Thursday.  Notice how all the previous fake prints were hit within 1-2 days.  Will this one be different?  I think not. In fact, I think we will fill that gap on Monday or early Tuesday.

Here's another strange print showing 100.72 on the SPY (about 1000 SPX), and it has not been hit in a long time... meaning that it will likely be tagged very soon.  I think by Tuesday, but that's just based on my thoughts that it's going to take 2 days (Monday and Tuesday) to get the 60 minute charts extremely oversold.

Then a rally the rest of the week, to close out this triple witching option expiration week at a level that benefits the market makers the most.  Where... I don't know?

Red

P.S.  If you want to see a bullish case too... go read all the other blogs on the Internet, as many are turning bullish now.  I don't disagree with them, as they all have valid reasons for supporting their stance.  There are many charts that are turning back up now, especially the daily and weekly.  But, I'll let you decide which case makes the most sense too you.

Good luck to all the bulls and bears this week.

P.S.S.  Really interest read about Astrology during the next two weeks (click here to read it).

123 COMMENTS

  1. Nice assessment Red.

    Hopefully my July Faz call will bank coin.
    I wish everyone good luck.

    Eric

    • Thanks Rati…

      I have another one showing 20.16 spy. That one is even lower. Wow! If the spy ever gets that low, we really will be in the great depression two.

  2. Very good post red. I have my fingers crossed but am afraid of a very big gap up to scare us out first. Anyway, I am sticking with my conviction.

  3. One more thing – that VIX print of 24 continues to lurk in my mind. Hopefully it doesn't get there before the sh*t really hits the fan.

    • That late Friday drop in VIX really bugged me, but I think it's OK, third hit on the lower TL of a falling wedge if you look at a ten day chart.

  4. Red, that buying in TZA was about 11am when things were looking very bleak for the bear cause, which cheered me up at the time, but it was later canceled out by selling. Still, TZA held up fairly well for the day despite the bullish outcome.

    My gut about this week is that we may see a breakout on Monday, but that it will reverse on Tuesday and head south for a couple of days, or Monday could be a down day all the way. I don't think the low this week will be very low, i.e., something like 1060-1065 so that bears will be unlikely to cover, and I think we'll rally into OEX, but it will be to 1075-1080 where nobody will make any money except the operators.

    • Rip,

      They really have done a good job of confusing both the bulls and the bears this time. I see lots of technical charts that look bullish, as well as bearish. It just depends on how you read them I guess?

      There is certain no doubt in my mind that they will close out this coming Friday at a level that benefits them the most. Inbetween now and then, I expect a lot of whipsaw action.

      I don't know if we will break below 1040 this week or next, but I don't get the feeling that there are very many bears in the market right now. That leads me to believe they will go down again, to lure them in.

      Most bears won't jump onboard unless 1040 is taken out, which also leads me to believe they will pierce it this week, and run it back up into Friday… but to what level, I don't know?

      Monday could gap up, but it should be quickly sold, as every bull will likely take profits at 1100, and every bear will go short there. I don't see any gap up holding without a lot more bears in the market. And since they squeezed most of them out on Thursday and Friday, that tells me they must take her down to get more back in the market.

      As for the TZA purchase, who knows what goes on behind closed doors? Was it really canceled out? Maybe, or maybe not?

      Either way, I still see the trend as down. I think some bad news will be released next week, to blame the sell off on. But, we are all just guessing, as no one really knows… (except TPTB of course)

  5. From stockcharts there are many blogs of technical analysis, an ocean of study and ?confusion. It can get super complex out there. Choose your site there are many. I have a lot of homework to do. The site is the following: http://stockcharts.com/def/servlet/Favorites.CS

    For the bears there is a guy named Anthony Allyn who reveals a bearish “diamond” pattern and says the S&P will be down 57 pts by the close Monday!! Atilla style. I hope so. I want to get my 5min Renko charts going. Here's where to find his analysis

    http://stockcharts.com/def/servlet/Favorites.CS

    Anthony Allyn's blog for the bearish case
    http://stockcharts.com/def/servlet/Favorites.CS

    http://stockcharts.com/def/servlet/Favorites.CS

  6. Red, I'm looking at SCCO with interest, FXA stock, used to be PCU. Peru copper..Its right at its 200 day =30.7. A test, above 30.7 and these other stocks should head higher, otherwise, retest of last recent lows.
    Other FXA stocks, BVN,CLF,FCX, their direction are usually the same as SCCO..
    NEM ,GG, etc, are not FXA , they are GLD

      • futures up 51 midnight…Nikkei up 2%. That figures. Nikkei is rather low.
        Red, VIX could test 27.5 Monday, 25.5 is the VIX 50 day…The VIX 50 day is where a person could wake up the next day, and see all the stocks red..
        Tuesday, looks bad for GLD…PPI report, show energy costs down ( deflation) .

  7. Eh, FTSE is testing resistance at 5200, and it could be going better for the bulls. Maybe we'll catch a break today.

  8. Wow, even though I was mentally prepared for this, living through it bites the big one.

    Low volume follies as far as I can tell.

  9. Friday i moved into TNA , TYH and SSO.

    Dow is going to 10840 and S&P 1120-1140.

    i will sell all long above 1120. probably happen this week.

    • The market looks like to move higher. on short term time frame, it wiped out all the negative Div by today's move up

      I would think it will consolidate here and move higher. there will be no sell-off. i even double there is any hard pull backs, maybe 1090-ish

  10. Actually chart pattern predicted the up to 1140 to form a right shoulder.

    Does not mean iam not a bear. The market is going down but we are headed to a lower high.

  11. I'm so tired of waiting. Will someone just kick this thing in the nuts?! My concerns are that we made a higher high today than June 3 and that we are all bearish but I am still short.

    • Today is the reversal day according to the lunar calendar, which is usually accurate. Let's hope it's not a reversal from hope to despair.

      We've had a false breakout, though going above 200dma would bring in more yokels, I imagine. I don't think there are enough buyers to pull it off.

      • Yes, it is supposed to be but I find it odd that they took the S&P just slightly higher than the 6/3 high which makes me think the bear case might be dead. If we don't have a reversal today, I am out.

  12. Does anyone find it weird that oil remains stable/up even though all the oil companies have been hit hard?

  13. The volume is so low today that I don't think anyone is doing any trading. They should have just closed today for a holiday or something… with this kind of volume.

    A big move is likely coming… which direction is unknown?

  14. Nenner Update This am:

    S&P/Nasdaq
    We are close to the projected cycle low
    The weekly cycle that topped around mid May is supposed to bottom in a week
    It is possible that we already saw the low
    A close for the S&P above 1121 will be an indication of this
    We sold from longs our S&P position around 1200 and the Nasdaq around 2000
    Therefore, we can be patient and still wait – especially since the bounce can still be only part of a small Wave 4 up
    In any case, we expect the next up move to run into trouble in Aug
    What we do know is the following: in case of one more correction, it is time to buy on weakness

  15. oh my goodness – just turned my head and we had a big drop. G-d please let this be it. PLEASE!!

      • From Yahoo news:

        “2:00 pm : A sudden flurry of selling pressure has sent stocks to session lows. There isn't any immediate news item or trading catalyst to account for the sudden change of tone, though.”

        LOL

  16. Take a look at TZA and SPX on an Hourly Chart. TZA looks like it's going to form an H&S, while SPY looks like it's going to chart out an inverse H&S. So we could just pullback tomorrow to like 1070-1075, before moving higher and breaking through the neckline and all the resistance around 1105-1106.

  17. Consider the $USD chart, particularly the recent action around the 10dema and 20dema, and the correlation (sometimes stronger than others) between dollar weakness and strength in equities.

    • The dollar fell hard today, that's for sure. It needs to find support and bounce if the market is going to fall hard tomorrow. It might not, and instead only backtest the 1080 broken trendline, from the falling channel.

      The dollar, and of course it's opposite… the euro, are the key to whether tomorrow is a small down day, or large one?

      • Perhaps … the dollar/euro could fall/rise quite a bit without jeopardizing their primary trends, but divining clues of tomorrow's action based on today's currency moves requires more art than I possess.

        The bulls didn't exactly throw in the towel today … a test of major resistance on light volume sold off, not exactly a game changer. Going forward, will the market build on recent support or sell off? I dunno, though I don't think the current action calls for aggressive shorting. $NYSI/$NASI, by design lagging indicators, have started ticking up and also seem to suggest caution to the bears.

  18. Zew is out tomorrow. that is a sentiment survey and concidering the turmoil in euroland I would have to guess that it will be weak. meaning weak euro. and maybe Dax and ftse goes down some.

    I've had it with this crash scenerio. I still have to evaluate but I think maybe jawizz is right tomorrow. down steeply then rally

    • LOL…

      It sure looks that way Ben. Dip then rally, exactly what I expect to happen, and so does everyone else. But will it? I really don't know at this point, but I do believe everyone has given up on the crash for now.

      Everyone is now expecting that right shoulder to carve out first, and then another sell off. I just have to wonder now, since everyone was expecting a crash that didn't happen, and now everyone is expecting a right shoulder… will the market be so nice to allow everyone to go short at the shoulder?

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