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.
The chart above shows how (1) we broke down through the key 1294 support level on very heavy volume and then (2) during the most recent two trading days traded almost right back up to this new resistance level. This is pretty classic type price action where a market breaks a support on high volume and then comes back up to retest it on lighter volume.
Given the very heavy downside volume earlier in the week and the very meager upside volume the last two days, one would expect as a minimum some type of retracement down again to test the high volume low of 3/16/2011. If this test turns out to be a reluctant and slow test with signs of reversal then maybe the 3/16/2011 low was the max low. But that is not my take right now. I still think we will trade quite a bit lower than that perhaps to 1220 or 1180 range before it can be said this decline phase is over.
The inset chart above also shows the quarterly price candlesticks and shows that a huge topping tail is being formed on the current quarter which will be finalized in 9 trading days.
The 1257 level on the sp500 should be watched carefully as we get into end of March because the closer we close to 1257 by the end of March 2011 then the more potentially bearish the QUARTERLY closing candlestick will look. In fact if we close right at 1257 then it will have almost created a gravestone doji or a doji reversal hammer.
What the bears need is for more price action to continue UNDER 1294 during the next 9 trading days and that is also constrained within the pink channel lines above.
Blasting above 1294 however could be a game changer and cause me to tip my hat in favor of the bulls…
Tech stocks were notably very weak today in large part due to AAPL. In fact the price chart of AAPL looks very bearish based on the way it closed today. But I should say that almost every time I have seen AAPL close so bearishly like this as it has in the past and close near a support level like this, it has turned out to be a false signal and AAPL just managed to pop up and trade back to the top of the range again. But this time I feel as though AAPL will break down, I don’t think it can pull a rabbit out of the hat this time around.
With regard to the super moon this Saturday 3/19/2011 I think it would have been much more bullish if we had done a straight line decline down into today as then it would have seemed to suggest a turn up early next week. But instead the opposite happened. We traded up the last two days into the Super Moon this Saturday. This would seem to suggest some type of reversal down again starting either early or late Monday 3/21/2011.
The volatility index seems to be sitting on an arc of support that would seem to support a higher VIX for the balance of next week which in turn should mean lower stock prices.
The RSI of the NYSE summation index is still under the 30 level which puts the market still in a ‘bearish corrective zone’. This zone offers plenty of opportunity for the market to trade lower, but we will have to see if the market simply chops sideways and tries to form a base here or whether it can build some more downside speed and ease of movement.
The weekly MACD is still in a bearish stance and is a problem for immediate market upside. Instead it says the balance of price action should either be down or sideways at best.
If we just look at the tape action of the sp500 of the last 15 trading days and ignore everything else, one could say that it does appear to have a slight resemblance to at least a potential ‘waterfall’ type decline. But this is the big question for me right now, exactly how bearish can the market evolve from here. Corrections come in many varieties. Some are very fast moving, and others are much more moderate and sideways moving.
The next 9 trading days ought to offer some better clues. But for now I am focused on the 1294 level as a must hold level for the bears and the 1257 level as a potential very bearish target level for the last trading day of March 2011…
Tom I concur with you analysis, too many outliers (Black Swans) for Big Ben to hold this one.
I think he is going hold back his munition until he see the white of their eyes. Which will be at least 100 points lower on the $SPX!
I don’t know about other interpretations of EW, but so far according to my count the market is behaving as to be expected. With a 5 wave pattern developing. A new low which is below 1249 and a panic low past the 200DMA 1185 level on the $SPX.
Interestingly, EW would indicate the Bulls have shot their wad in the first few minutes of the last two days. Like the 60-1 upside volume today. That is the Big Ben strategy. Move it fast and heavy in the first few minutes, scatter the bears and let the market settle from there, with a minimum holding strategy. That is where they have been focusing their strength. Which shows they do not have a lot left. This is a futile Battle of the Bulge push!
As to my strategy, I have a light short in a few DOWs like GE and a very heavy 60% of my present in the market funds shorting LVS. So far my DOWs have been just so so but the LVS short has been spectacular. As you can see at this point I am not running from the battle front and I am very aggressively short.
Tom
your analysis seems plausible and my view / work indicates that probabilities favor bears. thxs you work
Yes guys it will be a very interesting week ahead… I am nervous about expecting a decline given how bouncy this market has been, but it just seems to have the slight edge at this point. And a lot of the (bearish) potential for the market seems to be riding on AAPL
The broadening wedge that you plotted on the SPX has met it’s measured move down target
I had a 60 minute triangle on the SPY that also met it’s target and bounced back 50%
Even though it looks really crappy out there with all the bad news, I went long Friday
1292.18 is the absolute maximum I would be willing to see on the upside tomorrow… anything greater than that and it could mess up some of the bearish picture..