Markets around the world in all different asset classes fell through the floor today. On the weekend I posted that key support had broken in the US equities markets and that moves up to resistance were selling opportunities.  That is still the case.  The market did pull back on Tuesday almost exactly to 1104, which was a potential turning point.  The market rejected that level on Wednesday and it is highly unlikely we will see that level again for some time.

Today’s sell off took the S&P 500 to just above the next support level (see the weekend chart) which is at 1061.  Support beyond this is at 1052, 1045 and 1030.  Movement below one of these support levels indicates that overtime the level below it is also likely to be tested.

The chart has been attached again.  A few of the trendlines have been removed up near the top to clear it up a bit, but everything else has remained as it was on the weekend (on the weekend I used an hourly chart though, this is now a daily).  The descending blue fan lines were very accurate on the mid-week retracements, and may continue to be a good indication of where pullback are likely to stall.

S&P 500, Daily Chart

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Cory Mitchell, CMT

~Know your risks when trading. Please read the Legal Disclaimer page.

The stock market was pushed lower Friday once again, finishing on it’s lows for the day, week and last 2 & 1/2 months.  We will look at the S&P and and what can be expected going into next week, Feb 1-5.

As we entered the new year the stock market was taken higher on a whimper of an effort.  It drifted higher, but seemed weak intra-day.  Key support was at 1086.  With that now broken and the market closing at 1073 the target for this downward break is 1052-1050.  This also correlates with horizontal support which comes in at 1053 and extends down to 1046.

In order to provide any optimism for a renewed push higher this market will need to get above 1104.  Until that occurs movements up to resistance are selling opportunities.  Prior to that, minor resistance is at 1078, 1084, 1090.  Above 1090 there is a resistance range which extends up to the 1104 level, but keep an eye on 1096 and 1100 which are recent intra-day highs.

Volatility has increased dramatically and therefore there are potentially many important levels which can be used for intra-day and swing trading.  The S&P chart below is somewhat cluttered looking, but can provide guidance on short-term momentum.  The sell off has been swift and resulted in downward trend that is nearly vertical on the hourly chart.   Corrections higher will occur; the Blue Fan extending out of the descending price action gives indication of where corrections are likely to pause.

Intra-day swings have been large and very “trendy” meaning there is often two strong moves, sometimes 3, in a day which can provide short-term trades with excellent opportunities.  Using a simple intra-day trend line has been extremely effective in indicating which side of the market to be on as these intra-day trends occur and reverse.

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Have a great weekend,

Cory Mitchell, CMT

S&P Hourly

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Tough week for the equities markets with the S&P 500 index losing about 4%.  Between Wednesday and Thursday we had an interesting dynamic play out which tied in with the break below 1130 – which I mentioned last week needed to be watched because a break below that would target 1110.  The market surpassed the target with a weekly range twice that of the average week.

Wednesday we saw the 1130 area tested, but it recovered and finished up near 1138.  Thursday the market started to fall.  And then took out the lows of Wednesday.  The penetration of that low was our warning signal.  Why?  This is what I call a truncated price swing….it may sound fangled, but really it is reversal on any time frame where we have a price confirmation that the current trend is in jeopardy or has been broken.   When we view a chart (15 min, hourly etc) of the market so far this year we see prices making higher (or similar) highs, and not penetrating significant support on the downside – the main support being 1130.  So when the market rallies and can not get to a former high, we have our first indication something is wrong.  When a key “low” is taken out, our trend has changed. It was the first time a former significant high was not matched and a significant low was taken out.

The definition of an uptrend, simply put is “higher highs, higher lows”.  When these criteria are no longer there or the criteria reverse, the trend is jeopardized.  In this case the sell-off was swift and hard.  It came on increasing volume and sold right into the close on Friday, none of which are good signs for bulls.

Starting around January 11 we start see to volatility increase and then sky rocket on Wednesday-Friday this week.  A volatility increase is often associated with moves to the downside.  Downside corrections since the 11th were matched with aggressive buying creating an 18 point range in the S&P, but this week the former high was not reached, significant support was taken out and volatility and volume increased…. a perfect short-term storm set-up.

Going into next week the 1084 will need to hold (if you want this market to stay up).  If it does not it indicates another wave of selling with targets of the downside of 1072, 1068, 1061, 1053 and 1046. A key swing low is beyond this with a support area of 1034-1030.

On the upside resistance comes in at 1105, 1110 and 1114-1116, 1020 and 1123.  Movement above 1123 indicates movement up into 1126-1128.  Breakouts will often move back to test the breakout point (but not all the time!), which in this case is 1130.  This is still a key level even though the level was broken.  A rally through that level in the future indicates the possibility of a further rally.  Failure to reach 1130 or the market being rejected (lower) at that level indicates selling once again and likely retest of lows set on Friday.

For a fundamental outlook at some of the world economies you can read Friday’s post…The Next Asian (And US?) Crisis?

There are some key lessons in this analysis which I hope you find helpful in your trading and investing.  If you want to further your knowledge and to create an edge in your trading you can get:

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Cory Mitchell, CMT

~Know your risks when trading. Please read the Legal Disclaimer page.

S&P 500 - Hourly

It was not a pretty day for the longs in the markets today.  Equities fell off aggressively as the day drew to a close.  The bulls did pour in after the morning selling off, taking the S&P back to test the days high, but the buying was short lived as bulls were swarmed.  The major US indexes finished down more than 2%.  Asia had already seen selling in their sessions with differing Asian/Pacific indexes down between -0.65% and -2.56%.

The following is an article by Colin Twiggs which looks at the current Asian market situation.  Keep in mind that with markets so interlinked today, the potential fallout in one country affects multiple markets around the globe.

The Next Asian Crisis

By Colin Twiggs
January 22, 2010 9:30 p.m. ET (1:30 p.m. AET)

These extracts from my trading diary are for educational purposes and should not be interpreted as investment or trading advice. Full terms and conditions can be found at Terms of Use-Incrediblecharts.com.

China: Red Star About To Implode? (Tradable via FXI <—–Instant Analysis)

China’s reaction to the global financial crisis was to stimulate domestic demand in an attempt to make up for the sharp contraction in export orders, primarily from the US. The strategy was twofold: a $586 billion stimulus plan and to stimulate private demand by quantitative easing. At a staggering 20 percent of GDP, the stimulus plan boasts a massive infrasture spending program including construction of new railways, environmental protection and investment in new technology. Aggressive quantative easing aimed to boost private borrowing by lowering finance costs and easing credit standards.

The resurgence, with GDP growth reaching 10.7 percent in the fourth quarter (WSJ) appears to vindicate the strategy, but the true cost of the plan lies ahead. Bank loans grew by $1.4 trillion in 2009, or 29 percent percent of GDP. That is madness — and likely to cause a massive speculative bubble in real estate, the stock market, and to some extent commodities. Inflation is also starting to bite, with the consumer price index up by 1.9 percent in the last month.

A sharp cut-back in bank lending, however, will cause a contraction in private demand, sending the manufacturing industry back to where they started — with a large hole in their order books. Welcome to the real world.

Japan: How To Turn A Financial Crisis Into A Total Disaster (Tradable via EWJ <—–Instant Analysis)

Japan is a lot farther down the track than China. In an attempt to avoid the collapse of its banking system after the implosion of an enormous real estate and stock market bubble in the early 1990s, Japan embarked on a similar strategy to the one now pursued by China. Massive infrastructure spending and aggressive quantative easing, with the BOJ maintaining interest rates near zero for most of the last two decades failed to restore the economy to its former growth path. The new government now finds itself painted into a corner, inheriting massive public debt as a result of the failed stimulus program. The IMF expects Japan’s gross public debt to reach 218pc of gross domestic product (GDP) this year, 227pc next year, and 246pc by 2014 (Daily Telegraph). With savings rates falling, further stimulus spending is no longer an option and the pigeons of the 1990s will finally come home to roost. Except they now closer resemble pterodactyls.

USA: The Dow Retreats

The Dow retreated by more than 5 percent after the voters of Massachusetts sent a clear message to the White House: either p… or get off the pot. The cosy relationship between Washington and Wall Street is coming to an end as elected leaders scramble to preserve their seats. Expect more legislation to curb the excesses of Wall Street, restricting remuneration and imposing taxes or levies to recover some of the cost of the financial collapse. Treasury has to raise taxes in order to restrict public debt growth and the obvious target is Wall Street.

Financial stocks are worst affected by the retreat, but sectors such as Energy and Materials also display a sharp fall — indicating that a contraction of financial stocks is likely to impact on the broader economy.

Avoiding Japan II

The voter backlash is likely to restrict the Fed’s ability to pursue further quantitative easing. Re-election of Ben Bernanke as Fed Chairman is going to be a close-fought affair with even Democrat senators, like Barbara Boxer of California, whose seat is under threat, calling for a new candidate who represents “a clean break from the failed policies of the past”. Also, expect increased reluctance from Congress to fund further deficits by increasing public debt — curtailing government spending and increasing pressure to raise taxes.

…………………………….

Hope you found that interesting and insightful.  Tomorrow I will post the technical outlook for the US markets and what we can expect going into next week.

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Cory Mitchell, CMT

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The following is a predominantly technical analysis view of what to expect to in the stock market in the upcoming wee (Dec 7-11).  We will use the S&P 500 as our reflection of the market.  This can be used by day traders, swing traders or investor to gain insight into what is unfolding, what to expect and what to look for.

Intra-day traders saw large and swift moves occur this week.  If an hourly chart of the S&P 500 is pulled up for Nov 10- Dec 4, we see a range which is peppered with aggressive buying and selling into the extremes and then pulling back off the levels and heading to the other side.

Something very interesting to note is that on 3 consecutive days (Dec 2, 3, 4, always early in the day) the market went above the previous swing high, triggering stops and buy orders, and then pulled back into the range.  The lack of conviction above 1115 indicates this market is not likely to move aggressively higher…and if and when it does it will be in the new year.

This does not mean we won’t see tradable moves above 1115, but with circumstances right now -  volume light, global risks, disconnects between intermarket relationships- this area is a danger zone until volume picks up and we successfully break above this area, move higher and then on a pullback successfully hold that level.  In other words, patience will be required.

Massive moves are expected in all the following major markets: currencies, commodities and the stock market (bonds too, but I don’t focus on them too much).  We may have started to see this on Friday.  How easily we jump from bubble to bubble.  What catalyst sets off the fireworks is yet to be determined.

But lets’ move to focusing on the actual technical levels of importance:

In the upside, 1115-1120 is a resistance area determined my multiple false breakouts.  I would use at least a two point buffer above this level.  As mentioned above, with light volume I much prefer not to trade the breakout but wait for the breakout to falter and then short the market as it falls back through the resistance area (that is not advice…that is simply what I am watching for).  If a legitimate breakout does occur, even on light volume it can scamper quite a ways.  Targets are 1123, 1128 and 1131.

On the downside 1096 is important.  A move through there takes out the Friday low and would successfully close the window (gap) opened on Dec 1.    Such a move indicates a movement to test to lows of the range.  1087 is the most likely target followed by 1085.

A drop below 1080 (using a buffer below the lows) would punch us out of the range we were in.  The target for that breakout is 1055 which is just above a hourly trending support line (going back to Sept).  There is important interim support which will provide us with other signals during the week.  There is little support, in the event of a break downwards, until 1072.  This is the top from a gap that occurred back in early November.  The low of the gap is 1070.  If that gap is closed by new price movement it is a bearish sign and prices are expected to continue to chart lower into the 1068-1064 area.  Support also comes in at 1060, therefore it will take fierce action to reach 1055 if in fact this market does break lower.  This is because the average weekly range for the S&P is just over 37 points, and the market closed on Friday right around 1106.

Trade with the trend, but don’t become attached to it.

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Cory Mitchell, CMT
Chief Market Strategist
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The following is the stock market outlook, using the S&P 500, for the week of Nov 30, 2009  – Dec 4.  This analysis can be used to help in day trading or swing trading decisions, as well as for investors to gain technical insight into the current market.

Events like which occurred on Wednesday, with Dubai World saying it would not be able to pay it’s debt, are the type of events which will be the catalyst for this market going lower.

Technically this market rally is on shaky ground at these levels.  We have divergence on multiple time frames, not to mention inter-market divergence (markets moving contrary to the general relationship).  Divergence can last for a long time and is a not a trading signal in itself, but when news such as that of Dubai World is released, hardly ever does it come alone.  There are still many systemic problems, and no matter how much money is thrown at a problem, traders and investors still get scared.

Right now the trend is still up, and should be traded as such, but be cautious.  Support is Friday’s low at 1084.  A drop below that would punch us out of the range we were in.  The target for that breakout is 1055 which is just above a hourly trending support line.  There is important interim support which will provide us with other signals during the week.  There is little support, in the event of a break downwards, until 1072.  This is the top from a gap that occurred back in early November.  The low of the gap is 1070.  If that gap is closed by new price movement it is a bearish sign and prices are expected to continue to chart lower into the 1068-1064 area.  Support also comes in at 1060, therefore it will take fierce action to reach 1055 if in fact this market does break lower.

The average weekly range for the S&P is just under 37 points, and the market closed on Friday right around 1091.

If the upcoming week brings rainbows and butterflies, here are the levels to watch on the upside:  To move higher the first resistance point is a short term level at 1100.  We also have resistance at 1105 followed by1108 and 1110.  Beyond this are recent highs in the market, right around 1114.  A break above that indicates another upswing.  Volume should be rising if this occurs, but so far this market rise has not occurred on large volume, so look for volume to at least remain steady.  A decline in volume on a breakout is likely to result in a failed signal.

Targets beyond 1114 are 1118,  1123, 1128 and 1131.

Trade with the trend, but don’t become attached to it.

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Cory Mitchell, CMT
Chief Market Strategist
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The following is a look at what can be expected in the stock market in the upcoming week, Nov 23-27.  We are looking at the S&P 500 .  Keep in mind the market is closed on Nov 26 and it closes early on Nov 27.  So we are looking at an abbreviated trading week.  Volume has already been light and has been declining since the march lows, but more recently has been declining since the end of October.  Expect volume to be quite light this week, especially Friday.

Monday set a false tone for last week.  We broke above the 1107 level mentioned in last weeks post.  The ride to 1118 should have been smooth sailing, but there was really no buying above in this region.  Selling was not that strong either, until Thursday.

On Tuesday when we couldn’t make new highs, but made new lows we had an indication that the market was likely to head lower.  Volume is also a factor in this.

This past week gave us very clear support and resistance levels. Here is what to look for:

A rise above 1098 is likely to cause a pop back to 1102-1104.  This is where former support, now resistance, comes into play.  That range that held most of the price action through early last week is now going to act as a ceiling.  If it climbs higher than that, expect more range bound trading between 1104-1113.  With the light volume we may see the market pushed around and may see a spike above the high, but unless it is accompanied by large volume the break is very highly likely to fail.  The market getting above the highs this week is not probabilistically high though.

The upside target is still 1118, but I am very leary of trading long up in that area unless it is for quick scalps.  UNLESS, once again volume makes a come back….from my keyboard to God’s ears.

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On the downside we have support at 1086-1084.  A break below indicates a move to 1076.  Below that watch how it reacts around the gap of 1072-1070.  A closing of that gap is bearish and indicates further selling.  A gap below that along with a close would be even more bearish.  Further support is at 1065 and 1060.

I will trade what the market gives.  But personally I do not believe this market is a buying opportunity.  In fact I think the wool has been pulled over the publics eyes and that this market and the economy are in serious trouble unless serious changes are made…and those changes cannot include more spending, incentives or pushing the consumer into more debt.

Trade in the direction of the trend but do not become attached to it.

Cory Mitchell, CMT
Chief Market Strategist
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Cory Mitchell, CMT
Chief Market Strategist
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Cory Mitchell, CMT
Chief Market Strategist
-Know your risks when trading. Please read the Legal Disclaimer page.

On the hourly chart the trendline is still rising.  We managed to reach former highs last week, but could not sustain the momentum to stay above that level.  We do have some solid levels in the upcoming week which will give good indication of where this market is going if those levels are moved through.

On the upside we have resistance from 1100-1105.  We have seen multiple failures in this region.  Obviously we need to get through this area if the market is going to head higher.  A break above 1107 would indicate strength and that we are heading for another swing higher.   The target for the move is 1118 followed by 1130 if the former level is exceeded.

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We have support at 1085.  A sustained break below that indicates a move to test 1072.  This is the profit target based off the last swing high-swing low, substracted from the low. This is also where the gap up on Monday occured.  If that level holds expect a move back higher, but if that gap is filled and we hit 1070 it is a bearish sign and prices overall are likely to head south.  Support is likely at 1065 and then 1060.  Breaks of those indicates a further move to 1052.

Cory Mitchell, CMT
Chief Market Strategist
-Please read the Legal Disclaimer page.