Monthly Archives: October 2014

Shifting Gears

Happy Halloween. Index futures are up. The market’s first full day post-QE turned out to be a successful one, with all the indices up more than 0.5% on the day, and the Dow over 1% thanks to Visa.

That doesn’t mean there wasn’t any jitteriness. After a weak open, the S&P 500 found its footing, rallying up to the 1999 level. Then, in the afternoon, somebody or something hit the sell button, and held it down.

S&P 500, 3 minute bars

S&P 500, 3 minute bars

The index recovered most of the afternoon retracement, and closed higher on the day. But the near retest of 2000 demonstrates the need for a real fundamental catalyst to make the break above those psychologically significant levels.

SP-50030minute2014.10.30

S&P 500, 30 minute bars

Stepping back to the 30 minute chart, we can see clearly the inflection point in the rate of advance off the Oct. 15 lows. Despite the deceleration as we crossed the neckline from the descent off of the Sept highs, we still maintain a brisk and consistent path higher. Only a break below 1980 would give cause for concern for a channel break.

S&P 500, daily bars

S&P 500, daily bars

Taking at look at the daily chart, its clear the general support line of this trend has the potential to take us back above the all time highs of 2019. Judging by the futures this morning, we may even get there today, as Japan ramps up their QE program. Above the all time highs, upper trendchannel resistance will be our primary guide for gauging overbought levels if and when we continue the rally.

See you at the open.

-Will Mogey (Twitter: @wtmogey, StockTwits: @wtmogey)

Fed Day: RIP QE3

In what might be the most telegraphed move in Federal Reserve history, as expected, the FOMC pulled the plug on the asset purchase program we’ve all come to know and love as QE3 (QE standing for Quantitative Easing) after an extended period of reductions known as the Taper. The Fed also reaffirmed its commitment to keep rates where they are and reinvest maturing securities on it balance sheet, which serve at this point as a baseline nominal level of monetary accommodation.

The Fed couched these statements in decidedly less dovish language that set the market on edge. Not quite hawkish, though some would contend otherwise, but undeniably less dovish. So naturally, there was some volatility on the announcement.

S&P 500, 1 minute bars

S&P 500, 1 minute bars

After a quick morning rally, the market gradually sold off into the afternoon. After the Fed announcement, though, volatility spiked, and the market flopped and flailed around like a fish out of water. Down as much as 15 points at its lowest, we came within two points of a retest of the 50 day moving average at 1967. Call it a retest if you want, it was followed immediately by a bounce.

S&P 500, 3 minute bars

S&P 500, 3 minute bars

Once the dust began to settle after the initial reaction, the market seemed to find its footing, breaking out of a consolidation patter in the last hour of trade. After coming close to breaking into positive territory, we closed lower by about 2 points on the day.

Moves like this one after big market moving announcements tend to spill over into the following day, so we can’t be sure how this will finally shake out. The daily picture, though, is little changed; we made a new intraday high, but a fleeting one. If the market really believes the new monetary policy reality means the end for the bull market, the first signal of such comes in around 1967, the 50 day moving average.

S&P 500, daily bars

S&P 500, daily bars

Technically, the S&P has exhibited a lot of resilience of late. The only significant overhead resistance is the 1995-2000 range. Above that, we’re within spitting distance of the all time highs. Below the 50 day, the next major support levels come in at 1950 and 1910, the 125 and 200 day moving averages, respectively.

Markets may spend the day today repricing the new monetary regime into the general macro picture. There is no shortage of event risk that could knock the markets off course. Keep your stops tight, and be ready to take profits should we break down through some critical levels.

-Will Mogey (Twitter: @wtmogey, StockTwits: @wtmogey)

Moving On Up

The markets continued their surprise to the upside today, with all the major indices closing significantly higher. After consolidating in a wedge yesterday, the S&P gapped up at the open above its 50 day moving average. So then off to the races from there, right?

S&P 500, 3 minute bars

S&P 500, 3 minute bars

Well, not quite. Initially, the market proceeded to work its way into yet another tight wedge formation. Great, more congestion. To see it around 12:45 PM EST, you could be forgiven for suspecting a false breakout.

That lasted until about 1:00 PM. Early in the afternoon, the floodgates open, and the markets took off. The end result was a very respectable 22 point gain on the day. Interestingly, the S&P seems to have resumed  rallying at a rate roughly parallel to the trend originating from the Oct. 15 low, phase shifted forward in time (to the right on the chart) by about a day, though price confirmation for this hypothesis is as yet pending.

S&P 500, daily bars

S&P 500, daily bars

Stepping back for a moment, its clear that we’ve made a sound break above the 50 day, and we’ve maintained the near term momentum from the recent bottom. From a daily perspective, we’ve also maintained the sheer slope of the short term uptrend from Oct. 15th without any breaks or resets. All of these developments are unequivocally bullish.

Moreover, there are very few major zones of resistance left to slow this market down. The only level with any real significance is 2000 with its big round number effect. Moving up beyond that, new highs are all but a forgone conclusion. However, despite all the upside momentum driving the indices right now, we need to be aware of key downside levels. A move to close back below resistance-turned-support at 1967 should be seen as a signal to take profits, but again, only on a CLOSE below that level. A retest and bounce off of the 50 day from here should not be interpreted as a reason to panic.

There are plenty of reasons to expect more upside from here, and I personally favor the long side for the remainder of the week. However, that by itself might be the strongest argument for caution moving forward.

-Will Mogey (Twitter: @wtmogey, StockTwits: @wtmogey)

All Wound Up And Nowhere To Go

Refreshingly after a very volatile past month, the S&P 500 had one of the quietest days in a long time. The market spent most of the day winding itself into a tight wedge formation, with attempted breakouts in both directions, none successful. The end result was a modest close down some 3 points on the day, but well off the lows. Notable, though, were two developments: The break from the short term trend channel (the lower bound of which runs through the middle of the 3 minute chart) originating at the October 15th low, and the pause just beneath the 50 day moving average.

S&P 500, 3 minute bars

S&P 500, 3 minute bars

The former is notable because of the strength and continuity the channel exhibited during the initial V-shaped bounce off the lows, and its subsequent continuity. Those who were quick to notice these features and position for them were rewarded with one the sharpest and most profitable S&P rallies in quite some time. The striking, almost deliberate V-shape of the last month’s move is clearest on the 2 hour chart below.

S&P 500, 2 hour bars

S&P 500, 2 hour bars

At this point, though, the near term trend, as was mentioned last Friday, is due for a reset, by which I mean a pause and adjustment of the slope of the rally, not necessarily a retracement of the move. We finally got that reset today, which came in the form of an orderly move sideways out of the bounds of the channel, as opposed to a manic breakdown, which is in many ways a healthy development. It suggests that US equities still have a bid at support near below current levels, and the winding wedge is more likely a continuation pattern than a prelude to a reversal.

S&P 500, daily bars

S&P 500, daily bars

Which brings us to the latter development, the pause beneath the 50 day at 1966-67, which we managed to test briefly this morning. We’ve seen chop and churning at these levels between the 50 and 125 day (1946-49) moving averages many times in the last few years, with resolutions to the upside outnumbering resolutions downward.

These remain our principle points of support and resistance for the time being. Price behavior will provide important clues to how the market will move next. Its still to early to tell just how we proceed from here, but the resolution of the wedge that developed during Monday’s session will be a key telling point from which to base decisions regarding open positions. The market may be all wound up, but in coming days, is certainly will have somewhere to go.

-Will Mogey (Twitter: @wtmogey, StockTwits: @wtmogey)

I Think I Can, I Think I Can…

Surprising almost everyone, considering the severity of the pullback (almost 10% peak-to-trough), the S&P has had one of the best weeks in almost two years. Woo hoo, if you were long, that is. Since the bounce off of the lows on Oct. 15th, we’ve seen a nice, orderly trend channel develop, and the market, like the little engine that could, climb gradually all the way back up very nearly to the 50 day moving average, with a few fits and starts thrown in for good measure.

S&P 500, 3 minute bars

S&P 500, 3 minute bars

Against all odds, we’ve generally maintained a course from the lower left to the upper right, broken out above critical level, and stayed within the trend channel. Whats not to like? A few things, really, the most important of which is the fact that we’re leaning on the lower edge of the channel more and more, almost like a crutch. It speaks to some near term weakness that might prompt a retest of some significant support below 1950.

This shouldn’t come as a surprise, though, and should generally be regarded as healthy. We’re due now for a reset of the near term trend, and if longer term support levels near below us hold, most importantly the 125 day moving average at 1946, it may set us up for a run at the Sept. highs and beyond.

S&P 500, daily bars

S&P 500, daily bars

Looking at the daily chart, its clear the area between the 50 day and 125 day has been a place for the market to pause and set up a base for its next move higher at regular intervals in the past few years. It would not be a stretch to expect the same this time, too. That said, if we were to see a renewed bout of volatility, the 50 day moving average at 1967, by now firmly downward sloping, would be a logical inflection point for the bears to make a stand and turn the market decisively around.

Fundamentally, there are plenty of data points to bolster either case, but as always, price action will inform how we position for the coming weeks. On a pullback, be wary of a close below 1946. A close above 1967 open up further upside. Good luck out there, and have a great weekend.

-Will Mogey (Twitter: @wtmogey, StockTwits: @wtmogey)

Tentative Breakout

Is the S&P getting ready to settle back into its old familiar, boring, upwardly mobile self? Not so fast. While we did register a breakout above the 125 day (1946-49) range today, we again saw end of day weakness, with the S&P closing well off the highs, and only a hair above resistance-turned-tentative-support.

S&P 500, 3 minute bars

S&P 500, 3 minute bars

The downward sloping level on the 3 minute chart above originates from the September highs, progressing down the lower highs preceding the big plunge two weeks ago. The break above this “neckline” (for want of a better term) is still tenuous, but for now should be taken at face value.

We may be presented with reason to doubt the conviction behind this move tomorrow morning, and one could argue we’re looking at a head and shoulders pattern that took shape over the course of the day, a bearish formation. However, without evidence to the contrary we should assume the uptrend remains intact. My technical motto is, to paraphrase the great Yogi Berra, the trend is intact until its broken.

S&P 500, daily bars

S&P 500, daily bars

The daily chart illustrates the ambiguity of the breakout well; we have an extended upper wick on today’s candle, and a close just barely above major resistance turned support, 1946-49. We may in coming days see the market hop back and forth across the level as it did earlier this month on the way down. A quick succession of moves up and down across this level should be viewed with suspicion; in this event, any benefit of the doubt you elect to afford the market should be revoked no lower than 1925. There is no shame in taking profits when the market can’t maintain critical levels.

In the event we move directly higher, the 50 day is the next hurdle to cross at 1867  where we could see a hangup. Above this level, we register a true breakout, and a retest of the highs becomes a distinctly probably scenario. In any event, the greater risk is to the upside; I maintain a long bias moving into the weekend, though a cautious one. As always, keep an eye on the major levels at work here, and be ready to take off some exposure if we close below them.

-Will Mogey (Twitter: @wtmogey, StockTwits: @wtmogey)

Taking a Breather

Markets began showing signs of fatigue yesterday after reaching a significant junction of major technical levels. Long story short, the S&P 500 ran headlong into resistance at the 125 day moving average, 1946-49, and promptly sold off into the afternoon, closing near the lows. While there is more to the story, first, the short view:

S&P500 on a 3 minute plot.

S&P500 on a 3 minute plot.

As you can see, it was shortly after peeking its head out above the 1946 level (125 DMA)  that the groundhog saw  his shadow…err, that is, the market got spooked, quickly selling off. The most notable feature of the selloff is the speed with which it developed into a well defined, orderly downward channel persisting for the remainder of the day, one that frankly bears all the hallmarks of a major inflection point with continuation potential.

That the selloff began after both the EIA US crude oil stockpiles report sent crude tumbling, and the tragic shootings in Ottawa (our deepest condolences to the families of the victims) suggest that the selloff may be temporary, and may have just been a well needed pause that refreshes after a sharp snapback rally. Supporting this case is a move higher in the E-mini S&P futures this morning.

S&P 500, 3 hour chart.

S&P 500, 3 hour chart.

Stepping back, though, its clear that yesterday saw the intersection of multiple major technical levels. Firstly, as was mentioned before, the 125 day at 1946, which has been a significant level since late 2012. Secondly, the upper resistance originating from the September highs, which may or may not prove to be of any special significance. Thirdly, the uptrend from the lows last week, which remains intact, though barely after the selloff yesterday came close to violating the channel. Whether it does or not is less important than keeping price behavior in the context of all these technical crosswinds in mind, and watching for signs of a stall out or reversal.

S&P 500, daily chart.

S&P 500, daily chart.

We remain in the pocket, so to speak, the range between the 200 day and 125 day moving averages. This is still a vulnerable level, technically, and for major upside continuation, we need to see a breakout from these level in short order. Prolonged churning in this range puts pressure on levels that often give way to selloffs, and raises the likelihood of a new leg downward in what some have proclaimed to be the beginning of a bear market.

Such proclamations are premature, but the next few day are likely to prove decisive, one way or the other.

-Will Mogey (Twitter: @wtmogey, StockTwits: @wtmogey)