Thursday, February 11, 2010

S&P500 short-term: BINGO!

At 10:23:17 ET, based on recent action, i posted an Alternate Bullish View:

And here's what transpired shortly after:

Bingo! As proposed, we broke out of the Triangle wave B with an explosive thrust! More importantly, we broke out of the downtrendline from January and closed above it.

While, most technical analysts and e-wavers i follow were looking for a rapid decline into the spx 1000 area, i'd expressed my doubts in this blog. This week's action was crucial as i theorized in my Shanghai Connection post. And the super drop in bullish sentiment didn't help.

Ok enough celebration (every dog has its day!). Where does this leave us?


A break of the downtrendline is not to be taken lightly, and to me has weakened the bearish case considerably - unless we break back below it. Look at what happened in the Shanghai Chart. Breaking back below would require super bearish effort as the trendline is downsloping.

I could be jumping the gun here, but I propose that the entire decline to 1045 was wave i, with a wave ii rebound in progress right now. This is what i've maintained all this while as an alternate count.


Very short-term we're overbought, so expecting consolidation into the weekend. Looking ahead at next week, i'm suggesting a target of 1095, based on wave A = wave C. I wouldn't be entirely surprised if we reach 1104 - the area of the previous fourth wave. Other resistance levels: 1085 (38% retrace), and 1100 (50% retrace). Support will be moving along the trendline we broke.

Medium-term trend is still DOWN. Good to keep an open mind though, let the chart do the talking!


S&P500 short-term: Alt Bullish consideration

(Image Source)

S&P500 bounced off the neckline off a H&S. Here's an alternate bullish consideration. We completed Wave A at 1080, and now we have a Triangle B pattern unfolding. If so, we've plotted a-b-c-d, and a small wave e to come, before a big C up, to new highs.

This view will be invalidated if we break SPX 1060 convincingly.


S&P500 short-term: A complex correction?

Corrections by definition are complex creatures. They will toy with your thoughts and emotions, cause enormous whip-saws, and are generally not good for a trader's account balance! When the uptrendline from Friday broke down yesterday, i was looking for a tiny back-test and a swift drop to test the lows. Swift drop there was.. but quickly reversed off 1060 pivot for an extended back-test.

Suprising strength. In addition, Financials were holding up stronger than the broader indices - not a good sign for bears, as they tend to lead the way down in declines.

Yesterday's strength, coupled with the greens in asian markets today, opens up the possibility of a Triple Zig-Zag like structure, with a c of C upwards to come.

Head & Shoulders?

Have a look at the chart again. If we drop today to 1060, a Head & Shoulders (with a target of Friday's lows) could be setting up. Head is roughly where you see the 'A', and Neckline(not drawn on chart) around the 'B'.

Inverse Head & Shoulders?

A smaller inverse H&S could be setting up too in the very short-term. Look to the right side of the chart. This time, the head is where the 'B' is, and neckline at 'A'. Slight drop to 1065, then a break of 1071 would confirm it(with a target around 1084).

Not the neatest of patterns, but who knows. Isn't this fun?!

Trendlines for today

Watching the upper trendline resistance around 1076, and support from the new uptrendline coming in around 1065.

All of the above is very short-term. Medium-term, it's a downtrend. Good luck today!


Wednesday, February 10, 2010

Shanghai Composite: Running into channel resistance

In an earlier post, i pointed out a possible bounce in the Shanghai Composite index to 3020 or 3050. Since then the index has taken its time to regain 3000, and is currently approaching channel resistance around 3010-20. If the move is strong enough to break through the channel, we can expect a move up to 3150.

In the short-term, resistance levels are 3000, 3020 and 3050. However, if we turn down from here, expect a move lower to 2700 area, before any meaningful rebound.

S&P500 short-term: Intra-day Update


A beautiful break. Possible re-test of trendline. Otherwise, supports around 1056 & 1045. Bearish action, many hurdles to the upside now.

S&P500 short-term: Interesting day ahead!

Ok folks, yesterday was interesting. All sorts of news driven volatility, or so it seemed! As you know by now, i've been reluctant to join the 'rapid drop to spx 1000' camp for a while, and the market has proved it's got some steam left. The main reasons i hesitated:

1. Shanghai Connection
2. Too oversold daily/weekly RSIs for a wave3 to be beginning
3. Rapid drop in bullish sentiment

I guess in this game, its important to ignore the news, keep an open mind and listen to the charts.

So what's ahead? Here's a daily chart of S&P500:

Quite self explanatory. Two things i'd like to point out: RSI +ve divergence & slight drop in volume during the descent.

Here's the 5-min chart:

Amid all the volatility, we seem to have managed an A-B-C within a nice channel. In my order of preference, these are the possibilities.

1. A breakout of the smaller downtrending channel, would mean a test of the previous highs.
2. A break of the lower line of the uptrending channel from Friday, means we're headed down in w3 to new lows.
3. A break of the upper BIG channel line from Jan, would mean that we're possibly looking at a longer corrective period, similar to Shanghai. I see this upper channel line as strong overhead resistance with the 38% retrace of the whole decline at 1084

Overall, i dont see a major breakout upwards (scenario 3) happening today. Gonna be a very interesting trading day. All the best amigos!

Tuesday, February 9, 2010

S&P500 short term: Intra-day Update 2

Nice channel formed, and so far looks corrective - a W-X-Y complex correction upwards. Upside resistance around 1082. Watching that bottom channel line.

S&P500 short-term: Intra-day Update

Here's what i am watching currently on the SPX short-term. So far, its an A-B-C up. Is there a D & E? A break of the lower trendline will enable me to go short. Until then i expect range trading.

S&P500 short-term: Trendlines for today

Here are some trendlines for today:

Was yesterday the B of an A-B-C? Or is the beginning of a new impulse down?
Near-term action could go either way. This week, i intend to be sit tight & listen!

Sunday, February 7, 2010

Shanghai connection: Moment of truth!

Ok folks, this week i believe is the moment of truth! Most folks out there, including analysts i follow and respect are calling this phase of the current decline, a wave 3 - implying more rapid downside towards 1000 on the S&P. And i concede that the decline last week definitely "looks" like a wave 3! And for sure, its far safer to be short at this point than long. While i have no doubt we've started a medium term downtrend, i have a nagging feeling this decline is not gonna go all the way in the short term, and we may have just reached the end of wave 1, with sluggish w2 up to come. Thanks to the Shanghai connection, and the oversold RSIs (Beware: RSI's can remain oversold for a long time in bear markets!)

The Shanghai Connection (recap)

Last Friday's post theorised on a possible Shanghai connection. The short version: Shanghai appears to lead the S&P by 4-5 months, and Shanghai experienced a very similar drop (although of different magnitudes), as shown in the charts below.

With friday's masssive selling, the decline on the S&P has reached the same relative point as Shanghai, and there was a nice rebound in the last hour of Friday's close. So what the market does next week is crucial to determine if there indeed is a Shanghai connection!

How do i trade this

Since the primary trend is down, i'd continue holding some shorts, and some cash. We would not want to bet against a wave 3 - go with the trend. Afterall, the Shanghai connection is just a theory! But, IF there is a convincing break of that downtrendline, i will be closing my shorts. I have also drawn some possible lines of resistance(red and green) on the chart below.

Good luck!