Saturday, March 21, 2009

Special: What is going on???

Ok, in the past 2 weeks we have seen some major changes and quite an extreme trade range. Lets review what has happened in a bit more detail and try to determine what all this means for the next few months.

Before we start, as always re-read my beginning of march review to get a better understanding of my current long term views. Special: Review of Reviews

[Mar 16 - Wedge Breakout - what next?]
"Scenario 1 - fake wedge and contination
This is a very unlikly scenario meaning that we would continue on the upside without a major retracement and a final stopping point in the 795-805 range. Again this is very unlikly to occur but would be inline with major bottoming pattners. While the retracement is to be expected it should be small and cannot drop below the 751 range, if it does it must stop at 745 and reverse back above 751 in less then 2-3 hours. Time wise this should be occuring within 2 days max (preferrably less)."

Ok the breakout started just as anticipated but we knew exactly what to look for to determine if this was a fake breakout or not. We retraced towards 749.87 and rallied from there to continue on the upside. Not only did we get the exact retracement I was describing for a false breakout (751), but also managed to be perfectly inline with my time target of 2 days (preferrably less). Addtionally we managed to hit the resulting upper range price targets I described if this was a fake. We topped out at 803.25 right at my targets of 795-805. This was the first major bearish sign that the bulls took out.

[Mar 17 - Wedge Breakout - what next? (Comments)]
As I was out of town I was posting comments for the next day under the previous days post.

"also pay attention to the 3 day head and shoulder here"

After hitting the false breakout signs we were looking for on the wedge, we built another bearish pattner for a chance to break down. I had posted in the comments to carefully look for the 3 day head and shoulder reversal pattern. This was yet again a great sign as the false breakout was visible within a very narrow point range - look at right shoulder, we did not even test the neckline here and went straight for a break of the shoulder line.

3 Day Abolsute Chaos and violations
Well, let me first quote some comments and forecasts I had posted and then lets analyse what the heck is going on here. Wednesday, Thursday and Friday will probably be a 3 day time frame that we will be talking about for many months to come - it may even be one of those market turning points that will be entered into history books. Why you ask? Well, because quite frankly it is that significant ...

[Mar 18 - Double bear failures]
"If we are to continue on the upside we need to see a real test at the 7400/780 from here. [...] Bulls need to absorb sellers and remove the overbought conditions to have a chance at a clean break, if we are to break this range today it should fail due to being too heavily overbought "

[Mar 19 - Short Term Top?]
"We have had many bear rallies in the past 2 years, what makes this one different, if there is any difference at all? Looking at our past peaks we have seen very similar behavior, as we increased in price after a major downturn our volume was below average and continued dropping the higher we went. As we started dropping after the top volume started to increase slightly before it came towards a tipping point and accelerated. However we have seen quite a bit of volume yesterday, a lot more then any of our previous tops - of course we had outside intervention but volume needs to be monitored very closely the next few days and especially once we reach our retracement points."

[Mar 20 - Consolidation]
"Option expiration today - so it "should" be a sideways day. However, we are really moving in uncharted waters here so anything is possible."

"We should be giving the 771 a test here today - it is very likly to hold this range here if this is the setup for a base for new highs. If we end up breaking the 771 I am confident we will see our 50% retracement and head back to 741-751 range. However caution is required here."

The fed manipulation has really thrown quite a curveball at this topping formation. I mean this is something that has never occured in the last 2 year time frame. EVERY move of the feds had been perfectly coordinated whenever the market was either close to capitulation or in the process of capitulating. Looking back at every major bottom in the past 2 years all of those bottoms were driven by outside intervention. This is the first time we have seen siginficant outside intervention when the market was going through a "normal" and healthy process to form a major top or setting up for a major rally.

Why did they choose to step in here and disturb the market? The bulls had the upper hand and the market was in perfect harmony to continue on the upside. We failed 2 major bearish patterns and even more importantly were breaking out of an even more siginifcant LONG term bullish pattern. See below.

As you can see this has the looks of a VERY bullish lowering wedge. On wedges the normal type of breakout normally occurs in the last 20-30%. We were on the edge of a breakout here, a breakout that could lead us easily back into the 1000+ range of the S&P. Did the feds try to give the market a nudge to make sure we are guaranteed to break out? Or did they know something we did not know - and they knew that this could have been the last rally before our major breakdown towards my first real bottom targets in the 400 range?

Lets add another one? Yes bullish yet again ....

Yes you can see this correctly, a major inverse head and shoulder pattern. Even without the outside intervention we had a great chance here to create the same pattern if we would have held at the 780 range as I had originally anticipated. Bullish yet again even without the FEDs interfering.

Lets take a closer look at Friday first. I had stated that the market was setting up to create a base here to continue higher and take out the major resistance of 800. All the sign where there and we had an even better chance to create this base here with our option expiration. How many days have you see where the option expiration friday breaks down hard? Not many at all.

I had posted a picture during the trade day on Friday showing 3 distinct down trends with different accelerations. The first and second trend were both perfectly inline to support the base building, distribute, consolidate, absorb buyers and sellers and even out the game to allow the bulls to keep the upper hand. However, as we entered a 3rd acceleration it was clear the bulls had to be careful. I had hinted at a small 10 point bounce and stated that this could be the bulls last chance to create new highs on the short term. Well we rallied exactly 10 points and here had the chance to continue higher or sideways to ensure that this 3rd acceleration was a violation for the base, however we sold off and closed towards the lows of the days. Did the feds maybe thing they could have used this option expiration friday to their advantage to prevent a sell off?

It does not end here. What else occured here that is very different from any of our previous tops?

While we only dropped "marginally" off our 800 range the VIX had extreme increases towards the upside, increases we have ONLY ever seen when a major bottom has been formed not when we are topping out or in the process of formaing a strong top. Why is this occuring? Quite frankly traders and investors have no idea what to make of the past 3 days - uncharted waters - so everyone is seeking protection whether its bull or bear.

So in summary, we are in historic times I believe, and at a turning point that will define the remainder of the year for this market. As you know I have very strong beliefs that we will be seeing the first 400 range in september this year to make the low of the year. My call at the 480 still holds true and will represent a major market bottom.

[Mar 2 - Special: Review of Reviews]
If you did not read my March long term update (I had asked above heh), let me just give it a quick summary.

You can see that I was anticipating the bottom in the 620-640 range (bottomed out at 666 3 weeks ahead of target which is acceptable), then see a 8-12 week rally towards the 741 with a break to "kiss the 800 one last time", it occured in 1.5 weeks. I had further stated that after this rally we would be moving towards my primary bottom target of 400 within a 4 months time frame.

Let me quote a very specific and very important statement I made:

"If we maintain our current acceleration which I feel will not occur I need to sit back down on the drawing board to re-evaluate our price and time targets."

As you can see we hit the price targets thus far based on my forecast but time wise we had violated my first bottom and seen a major time violation on the rally to follow. Is it possible that this same time violation can be applied to my 480 range described for September? If that is the case this number could be here in less then 8 weeks .... yes less then 8 weeks for a significant October crash like drop. On the other hand it is also possible that the time target was indeed correct for the May time frame but the price was wrong - if this is to occur get ready for 1000 ranges on the S&P.

I had given some more feedback in the comments a few days ago and I normally do not make those type of statements here as they add no value and have the potential of labeling me like a "dooms sayer" - so here it goes. I strongly believe our 400 range will not be the final bottom of this market, and we will see the final bottom a lot further down. Whether this is true or not remains to be seen, and quite frankly it is not important for us at this point, not even this year. There are many more signs that have to occur before I can confirm such a statement, signs that will not be occuring for at least another 12 months.

What are the next steps?
It is quite easy from here as the decision should come in towards our retracement points at 741. Here is where the market will make a decision for the direction we will take. I will be posting more details on Monday as to what the possible scenarios are and what we need to look for. For now just take in what has occured in the past 2 weeks and apply your own due diligence. Keep in mind my goal is to provide you with the information I am using for my trade strategies, you may believe them or not, but at least you can take my analysis and include them for your own.

And feedback of course is welcome and I would love to hear what you think about what has occured here.


  1. Fascinating stuff. Thank you for your input. With all of the government intervention, technical analysis has become a nightmare. I've read more charts in the past month than I have in a lifetime -- and though many scenarios make sense, I fear that in this government manipulated market, there is a heavy "gut" element to buying and selling decisions. At any rate, I've bookmarked this blog and will be looking forward to your Monday comments.

  2. You say nothing. Blah blah blah. No actual analysis here. Move along.

  3. lol, this post was not supposed to forecast anything. It was a mere review of the past 2 weeks. Due to what has happened it was important to analyse what occured so I can prepare a new forecast for the week and weeks to come. If this is of no value to you why respond? Why not just "move along" as you describe it. =)

  4. Nice job and keep up your work. The Government wild card is something nobody can account for in their projections these days, but your right people will need to be on their toes when S&P tests that 740 area. I bet bulls try their best for 2-3 days, only to fail and the bears will take it back down within a week to test 666 again. Steve in Naples, FLA

  5. haha, Chaugner you just advertised your site on xtrends. Tons of talents on that board, but now you're also gonna attract a lots of trolls that frequent it as well. Expect to continue receiving "anonymous" criticisms. Surprised you never visited xtrend before? Also make sure to check out and if you haven't done so already. Looking forward to you new forecast...