Monday, June 14, 2010

This Week's Action

1105.67 is a key level for the bears to remain in a comfortable and advantageous position in my view. The failure of the S&P to make a new intraday low June 8th, breaks the series of lower lows it's had from the highs on the year. A break above 1105.67 would then make the first higher-high since that downturn as well. This MAY mean the downtrend has been broken, and the bulls are back in control. But 1105.67 is not do-or-die for the bears at all. It just means the bears' comfort level dropped a bit. A break above 1105.67 would have me looking at the below count:

This counts suggests that a flat correction is unfolding which means we're in a wave "C" of (ii). If correct, it will carry to just above 1105.67 before reversing sharply. From there the market will be trapped in a wave 3 at multiple degrees which means heavy heavy selling. Anything short of this behavior after a break above 1105.67 would be concerning.

One thing to note on a short term basis is that Friday we had a choppy session most of the day until going into the close where the market soared higher in an impulsive looking manner. This is either the start of a wave 3 at some degree, or a thrust from a triangle. Seeing as that I'm looking for a top any minute, and the market was trading sideways most of the session, I'm going to side with it being a thrust from a triangle. If so, the market may have topped Friday, or will do so with just slight pop upward at the open Monday morning.

So my primary count still stands from last week in that the market should be finishing up a wave ii of (iii) of 3 of [3] or C any minute now. But it needs to stay under 1105.67 in order for that count to remain intact. A break above 1105.67 would mean that a flat correction shown above is probably occurring for wave (ii), and that a reversal should occur shortly after breaking above that level. If not, then perhaps something very bullish is underway. I'll address that if it happens.

Lastly, I wanted to show the above MACD histogram momentum indicator. Although the MACD histogram is quite a basic indicator and is not good for timing at all, it does help us gauge the momentum of a trend. The histogram illustrates the divergence and momentum of the moving averages it tracks (not shown). As you can see, on the 30min chart above, the S&P is making new highs while the MACD histogram is making new lows, suggesting that the moving averages in the MACD are not impressed by the market's rally lately and that the market's momentum is quite weak. And the moving averages actually turned down late last week as you can see by the blue bars recently. This would be an odd setup for a wave 3 rally at some degree, or any rally that is just getting underway. This fits more with a thrust from a triangle Friday surging into a top. Although like I said, momentum indicators are not good for timing, and this bearishness can be erased easily with one strong surge higher on Monday. But as it stands right now the MACD histogram is telling us that the market's recent rally is weakening severely on a short term basis, and that there will probably be a sharp selloff soon, at least in the short term.



Carlos JĂșlio said...

Hi todd
Hi traders,
My thought for tuesday.
Test EMA200 and close below friday close. Wasn`t a good close but bears need to close hourly below 1077.
Key suport short-term range [1077,1082]. Close below 1077 expect 1065 possible extension to 1050.
Stochastic overbought conditions Rsi testing lower band neutral zone.
Blue Trendline tuesday (15/06) sitting 1098.05
Resistance Key area [1100,1106].
Resistance Key level 1115 reversal trend short-term
Key level dowside 1077
Chart here
Chart 2
All update here with last weekly and monthly thought
Have a nice week and good luck for tuesday.

Todd said...

Hi Carlos,

Well a rally higher to test the 200 EMA and then reversal to close below Friday's on top of today's action would be an enormously bearish setup. We'll see. Thanks for the post.