I am sitting hear in my mancave watching the S&P 500 move from 1099 to 1100. From 1100 to 1099. How exciting! Yesterday I was totally confident that we were heading down after the "dead cat bounce," but here we are up 85 pts on the DOW and 11 on the S&P 500. Mayby the cat is not dead yet. I went into my charts and happened to notice an interesting picture. Back on October 19 2010, to S&P 500 topped out at 1100. The following day the high was 1098 and the day after that the market made one last charge to 1101 and then reversed course to the downside eight days before bottoming on November 2, 2010.
More recently the 1100 number has come into play as well - Like today! January 27th, the S&P ran up to 1099 and then retraced back to close positive for the day but off the highs. On January 28th, the S&P ran up to 1100 and backed off to close negative for the day. The market dove pretty hard for a couple of days down to 1071. Currently, the market is, as I mentioned earlier, at 1100.
If we were to put the pieces together we would notice the once we decisivley broke above 1100 December 22nd, that level became new support. When we broke through that support on January 22nd (30 days later) it has become new resistance. Here is my thought on the cat. If the S&P 500 does not close above 1100 today, the kitty may not come when you call it.
We started February off with a kick with the market up over 118 points going into the close. BRK.A has been a big mover since the stock split a couple of weeks ago. Yesterday we got a pull back for a possible entry long today; we just have to let the charts set up for that potential entry. The market is flipping back and forth from positive to negative this morning at the open looking for some sort of direction. I have been keeping my eye on Sirius Satellite Radio (SIRI) as it has been making some moves over the last couple of days fueled by upgrades and other news. Sirius made a new 52 week high this morning. There is a look at some stocks that have been making moves over the last couple of days, remember to do you own homework before you buy any stock and make sure its right for your investment goals.
Monday’s market bounce was a nice relief to the recent onslaught of selling that began on January 20th. Friday’s low of 1071.59 managed to punch through the 61.8% retracement level of the November to January rally at 1075.62, but as of the close on 02/01/2010 the SPX moved back above this level and spent most of the day trading in the lower end of the consolidation range from November and early December.
As annotated in the chart below the SPX managed to break above its minor downtrend line beginning at the high on January 19th. Note that the momentum as noted by the two trend lines has slowed, and this is confirmed by the “breaking” of the two trend lines. However, the minor down trend has not reversed just yet. A needed higher high and higher low would need to be made. If the SPX were to trade out above the high from Friday’s session at 1096.45 it would signal the potential beginning of this process. Evidence on the daily chart and the weekly charts support this event allowing the bulls to step back in once more.
As mentioned in a prior blog the intermediate trend as illustrated by the weekly chart shows a “breaking” of the intermediate trend on both the weekly and daily charts. But just like the “minor” downtrend has not been reversed, nor has the intermediate uptrend. The “peak-trough” progression has not demonstrated a reversal of the intermediate trend, which lends credence to the bullish case; at least in the short term. In addition to the SPX bouncing of the 61.8% retracement level of the November 2009 to January 2010 rally, the SPX is looking relatively oversold on the Daily and Weekly charts according to the 14 and 5 period Slow Stochastic respectively. Another “participation” or “breadth” gauge I watch to identify “intermediate” troughs in the market is the “NYSE Percent of Stocks Above 50 Day Average.” On Friday this gauge closed near, but not below, a level that would be considered oversold, a level similar to those seen during the last two “intermediate” troughs in July and November of 2009. A key trait to this gauge is that it tends to trough every four months, at least for the last two years. So, if this low in late January and early February represents an “intermediate” low the SPX may move higher, and rally for another 2-3 months.
For now, the indicators are indicating that the SPX may be at a “low” in the over cyclical bull market that has been in place for nearly a year. Levels that should be watched in the short term would be Friday’s low of 1071, with the next target below that at 1055. From an intermediate perspective, if the market moved below 1030 a reversal of the intermediate trend may be beginning. On the upside, if the SPX manages to break above the 1096 level, then it would not be inconceivable that the market would retest the highs of 1150. Finally, if the SPX moves higher through 1150 then 1220 is the next target, and beyond that 1350-1375.
MARKET MATTERS, SPX UPDATE AS OF 01/28/2010 CLOSE
by SCOTT McCORMICK, CMT
On Monday I wrote that the long term picture of the SPX seems to have changed due to the breaking of the major trend lines that had been in place since March and July last year. As of today’s close the SPX continues to drift lower, however at a slightly slower pace than it declined Thursday and Friday of last week. The SPX managed to test the lows of November and early December ultimately triggering stops, and pushing the SPX to 1078 before bouncing back above the 1080 level only to close at the November/December support levels at 1084.
Due to the confluence of support levels (1075 a .618% retracement of November low to January high, the low from the gap day on November 9th at 1080, and of course the four swing lows between 1084 and 1086) between 1075 and 1086 the negative momentum may subside, allowing the market to move sideways, and potentially higher in the coming weeks. As SPX is still trading below the trend lines coming down from the high in January 19th, a movement above the trend lines, and the last intraday swing high at 1099.51 would be required before considering a long position in the SPX, or a SPX equivalent.
Should the hourly trend continue to the downside, the next targets beyond 1075 would be 1055, 1043, and 1029 which represent the 78.6%, 88.6% and 100% retracement of the November through January rally.
Those are the Breaks
by Scott McCormick, CMT
As of last Friday’s close the SPX definitively broke below the trend lines that have been in place since March of 2009, and July of 2009. Keep in mind that even though the trend lines have been broken, it doesn’t mean that the trend since March 2009 has been reversed. In order to call it reversed a close below 1029 would be necessary. However, a breaking of the trend lines does imply a slowing of the momentum of the bull market advance. It is my opinion that the odds of a reversal have increased now since the SPX has respected an important retracement level at SPX 1144.00 and there are signs of weakness.
Friday’s low, near 1089, represented a 50% retracement of the rally from the November 2009 low to the January 2010 high. Couple this with an oversold 14 day stochastic, and the market may move higher in the short term, but as I indicated in the last paragraph there is a key resistance level now that has held at 1144, and with a slowing of longer term momentum, any bounce may be short lived.
In the short term, over the next week, a move below 1089 would most likely place the SPX at 1075. A move above 1102 may indicate a reversal of last weeks decline, and may move as high as 1113 to 1150. Any movement above 1150 would indicate that the longer term momentum has resumed, and a target of 1220 SPX would be in my crosshairs.
I have been having some fun using our new LightWave application. Having the ability to use the Wizetrade charts together with price charts is very powerful. It allows us to see things we might have missed using one alone. You notice in this screen shot that CAL is moving up in an ascending channel on the daily chart. By drawing the upper and lower lines of the channel, you can see that CAL is currently trading near the top of the channel. You will also notice that the 2 prior reversals were both greater than $6.00 each. Although CAL has a fairly strong green up trend, I think the reward far outweighs the risk in this trade. Obviously you need to determine is a trade like this fits into your plan and your risk tolerance. It would definitely be worth keeping this one on your radar, waiting for the reversal!!
Kipp
Some big movers and shakers today out there today. Right now CREE a stock that has been on our radar list for sometime is up $9.00, AAPL down $4.30 after a big rally yesterday. For you penny stock players take a look at DEAR, this thing is blowing up today. It closed at .61 cents yesterday and traded as high as $2.13 today on heavy volume. The company late Tuesday reported fourth-quarter earnings of 55 cents a share, swinging from a year-ago loss of $3.77 a share. Watch for BRK.B to split tomorrow, this could be opportunity for a lot of people to jump into this stock since it’s a $3,466.00 as of right now. Effective Thursday morning, the split will cut the price of these shares to around $66 a share. Ford (F) is making a nice pull back after its recent run up. I have been watching Ford for a correction since I missed the last run up. Now it’s all about patience. I would like to see the market pull back for a couple of more days. I see a lot of trends that are over extended and need a correction before moving higher. We just jumped into the earnings season and that could cause a lot of volatility over the next several weeks. So keep your stops tight and do your homework on the stocks you are trading. Its important that you know when they announce their earnings, that should be an important part of everyone’s trading plan.
The market is showing a little weakness this morning after AA reported earnings after the bell last night. The Diamonds (DIA) have recovered some of its losses this morning trading down 25 points. Also the Spiders (SPY) is also trading lower after making new highs yesterday down about .65 cents this morning. Alcoa Inc. (AA) is still sitting on its morning lows down $1.43. It has made a nice base around this $16.00 level which could make for a nice active trade long if we get the market to rally back into the green. I have also been watching for a pullback on Ford (F), the stock has been rocking for the last 7 trading days closing yesterday above $12.00. I would like to see it pullback another day or two and time my entry off of the next buy signal on the daily chart. Right now it looks as though Ford is trying to fill in the gap down for a nice active trade off of the morning lows. Be patient and don’t forget to stick to your plan.
The year is off to a strong start, albeit one day and on relatively lighter trading volume. As indices go the biggest gainer today was the Russell 2000 followed by the Nasdaq and the SPX. Breaking it down further the biggest sector movers were Materials, Energy, and Materials. With the apparent follow through of the major indices today, continued positive economic announcements, and a looming earnings season beginning on January 11th with Alcoa, the question remains "Where is the market going?"
For now, it seems that in the short to intermediate term (1 to 3 months) the major indices will continue to follow the same track that they have been on for the last 9 months. As of January 4th the price levels for the SPX that I am watching to indicate a slowing of momentum are the most recent swing low on the daily chart dated December 08th and 9th 2009 at 1085.89, and prior to reaching that level it has to pass through 1121 which is the 50% retracement level of the entire bear market decline (to date). The SPX did manage to break through this level going into the close on Friday, but clearly this was most likely motivated by year end tax selling, and the desire to not hold positions over a holiday weekend. Another set of data I follow to filter trends is a set of moving averages which are the combination of the 12 and 26 period exponential moving averages (or EMA for short). On the daily chart these two moving averages continue to demonstrate a positive relationship to one another, meaning that the 12 Day EMA is above the 26 Day EMA indicating that the short to intermediate term trend is still up. Should price fall back below 1121, or the 12 and 26 Day EMA create a negative cross (12 Day EMA crosses below 26 Day EMA) then momentum would signal a negative turn, and attention would have to be paid to the lower boundaries that the market has tested over the last 3 months most notably 1085, and 1030.00.
As for technical areas above the current market that could act as headwinds, I have noted that there are many. The first level to note is the swing low of 1136.15 from the week of April 18th 2005. The second level is 1145 which is a 61.8% retracement of the May 2008 to March 2009 decline (a smaller, yet more forceful portion of the overall bear market). Beyond these two levels two more swing lows at 1168 from October 2005, and 1221-1223 from June and July 2006. An important factor to consider about the 1221-1223 level on the SPX is that it also coincides with several other Fibonacci levels; also know as a Fibonacci or Fib Cluster.
Ultimately the general consensus is that the SPX is in a cyclical bull market, and historically they tend to last an average of 15 months, which means that we could see the SPX continue its advance for another 6 months. As the market continues to march higher institutions will continue to weigh the potential reward versus risk in the market, and "fundamentally speaking" as long as the interest rates remain low, there is no clear and present danger in holding equities, nor does a "better" opportunity present itself institutions will most likely continue to pump up the market.
The Dow Jones Industrial Average has seen a nice move up for the past 6 days in a row with a breakout above the 52 week high the past 2 days! Although the trends have remained fairly strong through this "V bottom" recovery, we have seen the Dow and the S&P 500 stuck within a tight range for the past month. Investors have been looking for a big breakout or break down from this channel! Typically when you get a breakout, it occurs on heavy volume. At this point I am not seeing much conviction to this move. Plus, you have many big Wall Street traders on vacation this week. I know it’s easy to get excited when you see the markets moving, but I would remain cautious until we are through the first week of the New Year. At this point, even though we have technically “broken out” of the channel, I am not calling this a “breakout” just yet.
