Saturday, April 4, 2009

Special: Just some Review

Time to figure out again what is going on and what to take from last week. Again as always easier to let pictures speak so here we go.

60 min S&P 500
Here we can see a nice up channel that has been created ever since the feds have stepped in around our 780 range. Higher highs and higher lows with the bottom range providing support and of course upper range resistance. Now as you can clearly see we are moving upwards, one swing in the upper ranges, retrace down towards the bottom, another swing on the upper ranges. Time wise we have perfect harmony here. As you remember I had mentioned on Wednesday that I foresee a change of trend on the coming Monday. This would be perfectly inline with creating another wave towards the lower end of the channel. Keep in mind it is very possible to break the lower trend line here and use previous bottom tests as support to build a base. The 839-848 range is quite important and it is my feel that if we follow "proper" rules, we will need to build up enough strength to take it out. If we break this range prematurely we should fail but again, the market at the moment is acting quite crazy which leads me to the next piece of information.

SPY Daily
Now here you can observe something quite strange but also giving us a chance to take this into account for the coming week(s). There is a huge amount of indecision and whipsaw going on when looking at the daily ranges that we are trading in. Big ranges but very narrow closes. Out of the past 9 trade days we have had only ONE decisive day and even that was occurring on lower volume. All other days were marked with indecision though it is indecision in a up channel. This up channel of course can be explained due to the outside interference however you can see very clearly here that we are trading up not due to the market and fundamentals getting better but due to the feds pushing like never before. MACD divergence is dropping but still quite strong and not ready to give us signs of down turns. Volume rather flat, any previous bear market rally tops have had clear signs of dropping volume, RSI overbought for the first time in a year with a 3 test in this upper range (I am using RSI of 60 on the daily).

So lets take a look at what the market is currently deciding to do from a longer mid to long term view.

S&P Daily
As you can see I drew quite a few trend lines here to outline our channel. The Fib levels were from our major top which started wave 3 (if you assume my wave count). Now I still believe there is a chance that wave 3 completed at 666 and this is the wave 4 retracement. On the other hand it is very possible that 666 is the completion of wave 5 and we are going through a 3 wave correction that should last a bit longer.

On the circles you can see that any time we broke to the outside range we found ourselves back in the main channel quite fast. Now the big question - do we go for the yellow dot - or do we go for the light blues?

So take take this a bit further look at the colored circles and their time. First blue was only approached on intraday ranges, first green with only one day close above the major channel. Second blue we spent a total of 4 days on the edge, next green circle to follow 5 days.

You get the point right? The time ratio spent on the other side has been more on our previous 2 occasions.

The last blue we have been at the edge for 5 days. Right now, on the other side 3-4 days thus far. What conclusion can we take from this? Quite simply we have 3-4 days left to make a decision. Considering the change of trend I foresee on Monday we we know with a high probability by mid/end of next week whether or not we will continue in the major channel or break the major down channel here and move higher. How high I am not quite sure, I could restate major fib levels here and previous tops but you can all figure those numbers out yourself. If we find ourselves in any of the blue dotted areas by Friday next week we should continue staying above the major channel for at least another 4-6 weeks, possibly more depending on the momentum we get out of the break.

At this point I am still bearish with the anticipation of moving lower to continue the major channel, however, we cannot ignore the signs the market is giving us. The daily indecision on the SPY supports a move lower, however the FED interference at a top range supports a move higher. Whether or not we will move higher here in the mid term or lower - does not negate the fact that I strongly believe we will be seeing 480 this year. Also keep in mind the lower we move in the channel the higher our percentage gains and losses are even though our point range remains the same. The bulls can use this to their advantage stating that we have had the biggest percentage gain here in a long time - yes that is true but looking at the picture alone it does not look all that bullish to me - does it to you? The great thing for us is that time is on our side this time around.

1 comment:

  1. Thanks for taking the time to do this, appreciate it. Really interesting read...looking forward to next week to see what it brings.

    Btw, love the charts they help to visualise the commentary, Thank you!