SP500

Quarterly Chart Review of QQQ and sp500

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One of the longest most slowly moving price charts is the quarterly price chart.  It is always a good idea to review this chart after every quarter or two to be sure one is correct on the markets longer term intentions.

The quarterly chart is akin to a large oil tanker.  Once it has started cruising in a given direction it is very unlikely going to change that direction unless acted upon by a very significant force.  The current ‘action’ that appears to be driving the market is the easy monetary policy and this does not seem ready to dramatically change any time soon.

The current factual state of the markets are that we have a bullish quarterly MACD Crossover.  This crossover is in an early state of crossover which basically means that the bullish trend implied by this crossover is just beginning.  In addition the quarterly MACD signal line is just now in the process of crossing above the zero line, another longer term bullish sign.

The last time the quarterly MACD had a bullish crossover was in late 2004.  That led to generally rising prices for almost 3 full years in the sp500.  It could very well be that the most recent quarterly bullish crossover will also lead to rising stock market prices for 1 to 3 years or maybe more.  The current ‘news’ does not seem to support this idea, but relying on news for market direction was never a good idea anyway.

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Russell 2000 Closes at New 52 Week High Today

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The Russell 2000 is falling into its traditional role of early market leader and today closed at a new 52 week high and above the swing high that started the ‘mini earthquake bear’.

I suspect that the other major indices will soon follow suit to the upside.  The Dow Jones Industrial average almost tagged the 2/18/11 swing high today but then sold off a bit near the close.  It is possible that we could see a day or two of downside consolidation since we are at the previous highs on a number of indices.  However, after that I would expect the markets to trend higher again.

The sp500 managed to completely evade the large quarterly shooting star candlestick by trading higher in almost straight up during the last 9 trading days.  This was an astonishing feat because there was real potential for the quarterly candlestick to turn into a very bearish longer term signal.  But instead it now just looks like another typical bullish candlestick that we have become so used to seeing lately on the indices.

The monthly candle in the sp500 now looks like a very long bottoming tail doji hammer reversal candlestick which has the potential to lead to a big up month in April 2011.  The problem with this candle is that it can also be interpreted as bearish hanging man candlestick since it is at the top of a huge price advance.  So it will need confirmation of the bearish setup or a rejection.  A rejection would mean we simply trade higher up into April 2011 which appears likely.

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All Systems Go on the Sp500

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The sp500 continues to show near term trend strength and continues to trade within the ‘neutral zone’ I have referred to in previous charts.  Today was an important test of the mini bear trend line and a sound rejection of it if we look at the candlestick structure.  A closing on the highs and a small bottoming tail which reflects the test of the mini bear trend line.

The NYSE summation index is now in a more bullish stance and is close to trend strength which should support the upside over the next several days as we get into the end of the quarter (only 2 days away now).  End of quarter and end of month window dressing appears to be playing an important role this week.

I would not be surprised to see this market attempt a shot at new 52 week highs in a week or two.

The daily MACD is about to cross above the zero line, another bullish sign.  Of course volume was typically light on the advance which has always been a problem with this market.  I have learned the hard way to give price the benefit of the doubt over volume during up trends. 

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Several Indices do Small Bearish Engulfing Today

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Today several indices did a small bearish engulfing candlestick formation today.  The nasdaq composite and the SPY did, but other indices including the sp500 did not. 

This small bearish engulfing needs to be confirmed tomorrow with a close under today’s low for example on the SPY to show it is a real signal.  It does not look very convincing and we may simply be at a pause in the current mini up trend.

The most potent bearish engulfing formations I have seen in the past are the ones where the bearish engulfing candle easily closes lower than the previous day by a good margin.  This does not appear to be the case today.  It may be a head fake.

So at the end of the day the sp500 is still trading within this described ‘neutral zone’ waiting to make its next move.  It is also still trading above the mini bear down trend resistance line.

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sp500 Could Surprise to the Upside Again Next Week

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The sp500 might surprise to the upside again next week and one very big part of the reason may be end of quarter and end of month window dressing.  There are four trading days left in the month next week and four trading days left in the quarter next week.  If the past is any guide, these last four days could have an upward bias to finish the week.

The sp500 on 3/25/2011 managed to bust back above the mini bear down trend line and was also able to trade a full price bar (both high and low) above this down trend line.  It was not a big sign of strength to end the week but it still managed to break above the near term down trend.

Right now I would describe the price action as being in a ‘neutral zone’ (the yellow shaded area below) that  is neither very bullish or very bearish.  It is still constrained within a zone of previous resistance.  The next most important challenge level is 1332.  There is likely to be some selling from that level assuming we can get up there next week.  If we do get to that point then I would look for selling to be contained within the yellow neutral zone to keep the most bullish chances for the market.

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Bearish Case for the sp500 almost destroyed today

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The bearish case I have been ranting about in the sp500 may be dead as of today.  Especially if we close near the highs.  If we close above 1300 it could mean a swift move up to 1330 and only THEN some type of retracement which would lead to a right shoulder forming of a head and shoulder bottom formation.

This market has been characteristic of blowing the bears away and in true form seems to want to do it again.  Whether or not it can accomplish this by the close remains to be seen.

The way that the Nasdaq 100 has been retesting its 2007 highs was definitely a concern for the bearish case.  Why?  Because it could simply have meant that the decline is over up to this point and a simply retest of the 2007 was at hand.  Today we see a strong reaction up off of this retest and it really does cause issue/concern with the more bearish case.

There is also something else going on now, namely the US Dollar index.  It has broken down badly out of a 5 year symmetrical triangle formation.  This means that equity and commodity prices are likely to be supported.  This is basically the same pattern that has been happening for a long long time now.  It will probably mean that the DJIA will be able to get to very large numbers while the real buying power of that number is maybe cut in half.

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Pressure is on the Bulls Next 9 Trading Days

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In my opinion all the pressure is on the “Bernanke Bulls” for the next 9 trading days as we go into the end of the first quarter.  They are going to have to pull off their usual and typical ‘miracle runs’ where they manage to evade resistance levels, evade bearish candlesticks, and evade technical oscillators that are going against them now.  Of course it is quite possible for this group to pull it off once again, but I do not believe they will be successful this time around.  Already I am hearing elliott wave arguments about how we have to go to 1400+ first.  I just don’t see it.

At this point I would say that 1294 is the battle line in the sand that defines who is going to win the next big move in the tape action on the sp500.  1294 represents a key support level that was broken on high volume to the downside.  Now this 1294 level has transformed into resistance and should act like a brick wall for the bulls next week (assuming the bears have the right stuff this time around).

The daily candlestick today on the sp500 was a shooting star hammer reversal candlestick, but still unconfirmed.  These reversal candlesticks on the sp500 have not proven to be very reliable.  So the market could still easily trade higher early next week and evade the short term bearish implications of today’s candlestick.

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sp500 Likely to Find First Stopping Point Either at 1220 or 1180

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Today the sp500 made it very clear that it was in no mood to get a real bounce going or a reversal of any kind.  Instead the exact opposite occurred.  We made a lower low on dramatically heavier volume.  That says to me that instead of the market moving into some type of short term high on 3/18/11 or 3/21/11 it looks more likely that it will make some type of spike low into these dates.  This could end up being the first tradeable bottom of the current decline.

It just feels like the current decline has not reached an exhaustion point yet.  This decline is still too orderly and structured.  In addition I do not see any clear or obvious candlestick reversal patterns today to work from.  Had we closed today near the opening price then it would have at least opened the door to a big hammer reversal candlestick.  But this was not the case.

Everything I am looking at seems to suggest that we should push towards some type of climax bottom, perhaps during the next 2 to 3 trading days.  It really does not make much sense that a bottom would be formed on a Thursday or a Friday given everything that is going on right now in the world, so Monday 3/21/11 seems like the obvious choice.   But then what would the market do on a Thursday?  Perhaps Thursday we get some type of meager bounce which then eventually leads to a roll over on Friday and then capitulation on Monday.

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