Monthly Archives: February 2016

Intersecting Lines

There are a confluence of trends meeting in the current S&P range that I’ve been following for some time. To keep them straight, I’ve color coded them: Green for the trend originating March 2009, yellow for the less pronounced uptrend in place for the last two years, and blue for the emerging downtrend originating May 2015.

Any of these three could still be in effect, but its hard to say which just from the charts alone. I favor either the yellow or blue case as my operative bull and bear cases for the S&P 500 for the foreseeable future. The burden of proof is on the market, and the only answers will come in the fullness of time. For the time being, this is what I call a “Rorschach” market. What you see in the charts may say a lot about your general inclinations, but the potential is there to see both a bull and a bear market here.

S&P 500, Daily Bars

S&P 500, Daily Bars

In the near term, we see to be headed higher, though, if the 30 minute chart is any indication.

S&P 500, 30 Minute Bars

S&P 500, 30 Minute Bars

The market is still in a fragile condition, and care is as always warranted. Good luck out there this week!

Off The Mat

The market is still weak here, and prone to newsy drops and spikes, but seems to be holding support levels. The indexes are holding in their recent range well, and could go either way.

S&P 500, hourly bars

S&P 500, hourly bars

This chart to me shows a market that remains vulnerable, but is making a concerted effort to get off the mat and make a run at 1960, and possibly higher. A breakdown below 1885 would squash that thesis, and open up the possibility of new lows. Care still warranted with positioning here; we remain in limbo.

Rebound

The major US indices are firming up after a double bounce off of lower trend support. Markets for all kinds of assets are confirming the near term shift in sentiment, and the S&P 500 has already crossed above a significant near term hurdle at 1884, evident on the 30 minute chart.

S&P 500, 30 minute bars

S&P 500, 30 minute bars

This decisive break leaves the index room to run unimpeded back up to the next resistance at 1960. This will be a much needed opportunity to pause and reassess whether or not a market that has seen more than its fair share of troubles already year to date can continue higher.

S&P 500, 4 hour bars

S&P 500, 4 hour bars

Should it continue higher, which is in my view the likely scenario, we had a dauntingly large gulf to cross to approach the all time highs. The big round 2000 level, as well as a yet-to-be firmly established downtrend (gasp!) resistance line in the 2040 region both present significant resistance levels to any market resurgence.

Should we continue lower, we may see this rally fade extremely quickly, so keep any trailing stops tight. This will continue to be a challenging market in months to come.

Re-Testing Support

Well, we’re back at a critical support level on the S&P 500, very clearly evident on the 30 minute chart below. From these levels, we’re in significant danger of breaking down further and testing the last medium term lower trend line that remains intact.

S&P 500, 30 minute bars

S&P 500, 30 minute bars

On the two day chart, we can see that below 1800, there is almost nothing in the way of established support. Should the index break down below that, its hard to say where the market could find its footing. It become a matter of the market continuing to discover and define the nascent downtrend originating from the 2015 high.

S&P 500, 2 day bars

S&P 500, 2 day bars

It need not be this way, but the dangers are clear. Should the well-established uptrend support lines hold, we could be looking at an excellent entry point for a long trade. The market is significantly oversold, so the value proposition on the long side is getting more appealing the lower we go.

As always, be cognizant of the dangers, though. We’re at a precarious juncture. Keep stops tight, don’t let any drawdown get away from you. Good luck out there.

Establishing Lower Support

Since my last post, the markets have been doing some much needed soul searching. The view that stocks are still continuing on the same upward path established from the 2009 low is finally falling away as long term uptrend support levels have been conclusively broken.

That does not mean that we’re yet in a bear market, but it does mean that expectations for gains in the major indices must be dialed back considerably. Numerous fundamental factors are at play here, including dollar strength, EM weakness, and US monetary tightening.

What we can expect is a downshifting of the medium term trend in stocks, and more choppy sideways motion, at least until conditions on the ground change in favor of more rapid upside.

S&P 500, daily bars

S&P 500, daily bars

What we see here in the daily chart is that confluence of trends, the older more rapidly rising trend channel giving way to the newer, flatter one, the lower bounds of which we’ve been plumbing and testing for the bulk of 2015 to date.

Major support currently falls around 1820 and 1800 (with lots of air below that), and the first meaningful resistance coming in around 1890. Above that, the S&P is clear up until 1970.

Could we be looking at a bear market? Yes, all the nascent pieces of a baby bear are in place, but we’ve by no means confirmed a true bear market. There is still significant support in place. However, we must proceed with caution in our trades at this point, as we could be on the verge of the first true bear market since the Financial Crisis. Good luck out there.