When the market speaks, listen. Or, did you see the Dow futures drop 50pts in about a minute starting at about 4:14pm, right as IBM’s earnings were released.
Not trying to encourage anyone to trade futures as the risks of loss are extremely high and you can get wiped out in just a few hours, but you might want to watch this video to have a better grasp of risk.
So there is the bounce that the 5,3,3 Sto suggested we would get, though it needn’t necessarily have come on Monday. The last time the 5,3,3 Sto gave a signal that the market was short term oversold, we rallied for 7 sessions before giving it up. Because we have not yet had a climax bottoming event, my personal feeling is that we could now rally for a couple of more days before rolling over and resuming the downtrend, however; the market will determine the direction it wants to go and if it wants to go higher and higher from here then so be it because the market is always right.
Yesterdays mega rally came on some pretty good volume but after such a day one has to expect a pause in the markets today. My definition of a pause day is for the Dow to move somewhere around 50pts, +/-. Today’s action can be somewhat discounted so, IMHO, the next important market day will be Wednesday. For this oversold bounce/short squeeze to be more than just a bounce, then it will have to continue through the rest of the week and do so on good volume with AAPL rising each day without hesitation. And GOOG, too.
Daily chart of $SPX showing how it has climbed back inside the rising price channel, which is good for the bulls. But it’s earnings rodeo time so let’s just see how long $SPX can hang on.
Yesterday the $TRIN closed at 1.15 in an instance of Stealth Distribution. This is just one day and we need at least one more instance right away before this becomes a consideration.
The P/C Ratio closed at .77 yesterday indicating that most market participants are on the same side of the ship, but the market is all about disappointing the expectations of the masses.
Before you hit “Play,” be sure your speakers and/or your headphones turned up to 11.
Were you extra krispy careful today?
So the market rallies because the 1%’ers in Spain will be able to get that new carpet in their plush penthouse apartments in central Madrid while the 99%’ers grovel in the dirt for scraps of food. Makes perfect sense to me. And don’t get me started on that revised GDP number.
Bottom line, short term trend line held and potential ‘sell’ signals reversed today. Call it what you want, short squeeze, oversold bounce, great news from Spain, etc, it really doesn’t matter. The only thing that matters is price action. If what started today gets traction tomorrow, then we’ll most likely see $SPX back to the 1460 area pronto.
I’m making this too hard and wasting a lot of time studying charts and breadth indicators. Here’s my new system.
Scale in on the bad news and then scale out on the good news. You’ll get most of the upside move and then you can hold some longs but with tighter and tighter stops.
You might find this site of interest.
GL and always be careful
Watch this chart as it has a fairly good predictive record. Once the blue line, which is the 5EMA of the $VXO, tags and/or drops below 15, then something is probably going to happen in the markets and if the past is of any value in divining the future then what happens is not going to be fun for the bulls. The red vertical lines mark the previous times the 5EMA has tagged or dropped below 15 and show that some turnings lag by several days while other times market reaction was immediate.
You can easily set up a chart like this using $VIX. I have one that I use but I just prefer the $VXO for this even though it is now the volatility index for the S&P 100.
$SPX w/ $VXO (Bookmark the link)
Chart courtesy of StockCharts.com
The chart above hints that the markets are perhaps 3-10 days away from a turning. Longs may be able to squeeze a few more percentage points out of their positions but the risk of a reversal, and perhaps a significant one, will increase with each passing day. Breadth indicators are now giving neutral readings so no clues from them; however, $NYSI is struggling and while it hasn’t rolled over yet it could at any time.
Money in the market is money at risk. Be careful especially over the course of these next few days.
Well, that’s not what I expected. My TQQQ & TNA got creamed. Because these are both small positions, the dollar loss is not so bad. I will wait until I see how things go tomorrow before I decide what to do. By sometime tomorrow, the RSI’s on the 60min chart of QQQ & IWM will dip below 30 and this should bring about an upward reaction at some time during the session, or famous last words.
We had another 90% down day and the $TRIN closed at 2.94 and so these two are showing extreme oversold. $SPXA50R dropped below 25 so it is showing oversold, as well. Unfortunately everything else I track is in the neutral zone and that is no help.
Perhaps I’m putting too much importance on tomorrow’s action, but I think tomorrow is going to be the tell. We either rally tomorrow and take back a huge chunk of today’s losses or the party’s over for this dead cat bounce and it’s time to seek high ground and wait for the waters to recede.
I’m still looking at all this volatility and the action over the past few weeks as a bottoming process, but if market dynamics have truly flipped from bearish to bullish, then the bulls should have no trouble changing the course tomorrow, though maybe not at the open.