The end of the week saw Thursday and Friday strong but on very low volume.  A sign of buying weakness or just the start of summer?  Ultimately this will be revealed by where price goes and the levels that need to be watched.

The rally through the early part of the year was also on low volume, but the market continued to push, thus volume is not an immediate indicator but just a warning signal.

The downward trendline on the daily chart currently intersects just above 1100 on the S&P 500, which is in close proximity to two former daily highs.  This creates a resistance band between 1100-1106.  Respect of the band indicates continued downward pressure moving forward.  Pentration above that band indicates buying pressure and a further correction.

Since the trend is currently down beware of false breakout above that band, even though it would be a breach of the dominant trendline.  Volatility remains high, although it has subsided somewhat from the later part of last month (see VXX, an eft which tracks volatility).  The weekly average range of price price movement on the S&P has increased to almost 50 points; this can be used in estimates likely moves going forward for future weeks (it is an average so it is continually changing).

If pressure once again flips to the downside, the ultimate test will be if  the the 1040 area holds.  With the market closing at 1091 this week, that is within the weekly averages grasp.    Penetration of those lows is very bearish although there are multiple support levels below as can be seen on the chart via horizontal lines.

Resistance above 1106 comes in at 1115 and just below 1150.

Chart is below.

Cheers,

Cory Mitchell, CMT

~Know your risks.  See our legal disclaimer page.

Robert Prechter believes deflation is a primary concern at the moment …

Deflation: How To Survive It
Important warnings about deflation from Robert Prechter.
By Elliott Wave International

The M3 money supply in the U.S. is contracting fast, and deflation is suddenly in the news again. It’s a good moment to catch up on a few definitions, as well as strategies on how to beat this rare economic condition. And who better to ask than EWI’s president Robert Prechter? Here’s a free excerpt from a collection of his most important essays on deflation.Read more.

S&P 500 Daily, Free Stock Charts

Another volatile week for stocks.  Traders simply did not want to put out large orders for fear of getting run over.  But, introduce fear (from longs and shorts) in thin liquidity and price levels have a tendency to “overshoot”.  Prices are taken to extremes and then snap back like an elastic – in both directions.

I have never seen individual securities with such “sketchy” bids and offers.  No one wants to be trapped in a big move, and because no one wants to be stuck in a big move, big moves occur because there is a rush for the exits (for both longs and shorts) as traders grab what liquidity they can.  It has made for some very interesting trading days.  Volume may still be high in some securities, but traders are “order-cancel happy” at the moment.  And with good reason – this market is on very shaky footing.

I will get to a brief analysis in a moment, but this week was a major reminder that no matter what time frame we trade on, as individuals we don’t need to fight the direction of the market.  Today there were large swings, and bidding into falling prices was a stressful time to say the least (or shorting into a rally).  At times like this hopping onto momentum is the best option – because there is no solid rules for how far something can take you into the negative at this point.  Just as this is true for day traders trading daily swings there is no reason for swing traders to buy as prices fall.  Most individuals traders transactions will not affect the price in the aggregate, and thus there is no reason to predict a reversal – we can simply wait for it to start.  And with the volatility right now you could be in that trade for a nice swing.  All said, these markets are shifting on a dime, be awary and don’t get tied to a trade or a direction.

Shifting focus.  The daily chart still has a down trend.  We saw new swing lows, this week, moving below the “flash crash” levels.  We also moved below the February lows – a major swing low.

I am not bullish till 1134. Not this this would turn my attitude completely, but at the moment that is a level I am watching on the upside.

A drop below 1040 would create a new low on the S&P 500 and warn of a further correction.  The S&P closed out the week at 1089.41.  So both of these levels are a ways away, but we moved close to 15% in May, so 40 points in either direction is nothing.

A more detailed analysis will be upcoming in this weekend’s newsletter.  If you aren’t getting it – you should!  It is free and you can sign up on the right.  It is sent out on the weekend.

Also, there’s only one week left to download Robert Prechter’s free 10-page market letter. Our friends at Elliott Wave International are featuring the free download through June 7.

The free issue, titled “A Deadly Bearish Big Picture,” contains recent research and market analysis that goes beyond the news headlines to give you urgent,independent market forecasts. Prechter’s market outlook has changed dramatically since February of 2009 when he informed his Elliott Wave Theorist subscribers to turn bullish.

The markets have turned more and more volatile by the day, with huge market swings spanning hundreds of points! It’s time to prepare yourself.

Get your FREE copy of Prechter’s latest research through June 7 – Download the Theorist now.

Cheers,

Cory Mitchell, CMT

~Something is only worth as much as someone else is willing to pay for it.  Period.

Know Your Risks – this month a bear ate a bull.   Please read our Legal Disclaimer page to understand market risks.

These markets continue to have unbelievable moves each day.  The S&P 500 re-tested the “flash crash” lows on Thursday and Friday, and after breaking below rallied back higher.

Last weeks analysis is still in play.  At the moment I don’t think there is much reason to be buying this market unless someone is unleveraged and buying for the very long term.  Current trend is down and for individual traders there is no point in fighting that.    Short-term traders that remain nimble in their position size likely continue to have a field day both long and short as the intra-day trends can be large in either direction.

Friday’s action does deserve a second look though; down aggressively early in the session and then very strong into the close.  We finished just below the half way point of Thursday’s action.  While it is not quite technically a Piercing Pattern (see: CandleStick Trading For Maximum Profits), Friday did significantly “pierce” into Thursday’s big slide.  This is a bullish pattern but while it may push prices higher early in the week, ultimately we need more confirmation than this to get bullish over the longer term.

Levels to watch at the start of the week include the Friday low at 1056  - a drop below will likely see further selling.

A rise above 1092 is likely to test the Thursday high around 1108.

Beyond these levels we are into the other support/resistance levels shown on the chart; all these points can be used as trading pivots.  Chart is below.

Cheers,

Cory Mitchell, CMT

I found this frank, straightforward, and “no B.S.” video presentation —-> It leads you to a TON of “dirt cheap” stock market training that will give you the upper hand when dealing with brokers… & a big edge over all the other frustrated & clueless “newbies” out there.

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(Make sure you watch the whole thing, because I think you’ll be ”floored” by what’s revealed at the end.)

S&P 500 Daily

A crazy week for stocks.  We saw moves in single days which normally take place in a week.  I put out multiple updates this past week simply because not having solid info heading into the next session could mean significant losses or missed opportunities.

For short term traders this was a fun week, but for longer term investors it may have been a more “interesting” time.  Thursday provided a bearish signal, which I posted about.  Friday saw the confirmation level (early in the session) and a strong down day (down 1.88% on the S&P 500).  We are back below the trendline (bearish) but bounced off a support level late in the day Friday.

Support (on the S&P 500) comes in at Friday’s low 1126 but really extends down 1122.  A break below this could see 1100 within the week, and given the volatility it could happen quickly.  The trend is down on the longer and shorter terms.  With the swing high recently put in and the sell off Thursday and Friday, a downtrend line can be put in to gauge pullbacks.  As long as those swing highs at 1174 stay in place this is a downtrend.

Support beyond 1122 comes in at 1093, followed by 1066, 1057 and 1044 if needed.

A rise above 1158 would be interesting (meaning I expect further downside before a rise to that level again)… but would be an early sign that there may be a few bulls still in the mix and retest of those swings highs at 1174 could occur.

Best wishes,

Cory Mitchell, CMT

~Know your risks.  Please see our Legal Disclaimer page.

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Here is a brief look at what we are watching for Friday.

EUR/USD down about 1% on Thursday.  S&P 500 down 1.21% Thursday.

EUR/USD update: The Euro stopped its decline almost exactly at 1.2520, at least so far. If the decline continues below the lows put in (approx 1.2517) then the target is 1.2480-1.2465.  Trend remains down on almost all time frames, although on some shorter time frames it is neutral until those lows mentioned are broken.  This would put all time frames into “down” mode.  Thus, this is important level to watch for short and longer term traders.

Minor resistance comes in at 1.2540-1.2550 followed by 1.2600-1.2610.

Stock Market / S&P 500 update:  With continued volatility the signals are coming in like they normally would over several days.  Based on the daily chart, yesterday I discussed the high of Wednesday being a critical level if we could stay above it… well we opened below and only briefly moved above it before falling dramatically towards the end of the day.  This is bearish.  The candle stick pattern is called a Bearish Harami.    If you pull up a daily candle chart of the SP-500 you will see today’s main candle body is contained within yesterday’s body, but today retraced a significant portion of it.  Confirmation of this pattern is suggested, and would come from a move below 1155 (as mentioned yesterday).  So our levels to watch remain the same as yesterday, we have just thrown in another piece of information.  While I say 1155 is the level to watch, a lot of technicians are watching 1150.  Thus 1155 may be early signal, and 1150 can be used for further confirmation or as another trigger point.  For additional price points to watch please see yesterday’s analysis here.

Cheers,

Cory Mitchell, CMT

~Know your risks.  Read our legal disclaimer page.

Looking for some further reading on the market?…

Prechter Describes The “Stunning Long-Term Elliott Wave Picture”

By Robert Folsom, Elliott Wave International

This would seem to paint a bullish picture: the stock market was in double-digit rally mode during 43% of the total calendar days in question [BUT!...]… Read more.

Yesterday I posted an analysis, and said that we had a potential bear set up, but the high and low of Tuesday would provide better indication.  Well, the market pulled out another strong day closing out above Tuesday’s high.  If we can hold that level it makes a test of 1182 very likely.  At the moment that is critical resistance.  A move through that level indicates probably one of the most violent and vicious bear traps (basically a false breakout to the downside) I have ever seen in my trading life.

Thus, a rise above 1182 has a target of 1200-1205.  If that is a taken out then the highs are likely to be tested.

On the downside, a reversal below Tuesday’s open and Wednesday’s low both right around 1155 would indicates bearishness once again.  The old trendline is also right in this region.  Support levels can be seen on the chart from yesterday.

On another note, I get a lot of emails from people who want to trade, but don’t have the capital to day or swing trade stocks or futures.  The answer I usually give is that one should make sure they approach the markets understanding one of the most common problems in trading is doing so when one is undercapitalized.  That said, we all start somewhere and there are alternatives in trading which are less capital intensive.  One broker I trade with offers trading in:

Tuesday closed out very near flat, indicating some indecision after the previous 3 very volatile sessions.  Tuesdays range was also well beyond average for the S&P 500.

Based on the daily chart we have a bearish set-up, yet ideally it is a two day pattern.  Wednesday will confirm with the high and low of Tuesday’s session providing signals.  A rise above 1170.50 is bullish and a close above it is a positive sign although a rise into the former range above 1182 (resistance) is needed to provide further optimism of a resumed upside move.  A move into this former range is likely to test the most recent swing high – rounded down to 1205.

On the other hand a move below 1148 is a bearish signal, with a close below this level indicating a likely further slide.  Nearest support is at 1135 and 1122.

At minimum technically damage has been done to the uptrend, although we have rallied back inside the dominant trendline which has been addressed in previous analyses.  The trendline, which was broken, runs right through the low of Tuesday’s session.  This old trendline is still relevant (see Dec ‘09 Stock & Commodities magazine for my article on this concept).

See chart below for additional horizontal support/resistance/signal areas.

Cheers,

Cory Mitchell, CMT

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S&P Daily, FreeStockCharts

~Know your risks.  Read our Legal Disclaimer page.

If you read this past weekends newsletter, there was a level to watch on the S&P, and that level was 1182.  The trendline had already been broken, so we were looking for confirmation with a move below that level.   The broken trendline and move through horizontal support indicates a move to the dominant trendline at approximately 1145 (this level will rise over time, and is currently just above 1140).

Tuesday saw a drop below our mark, closing out the day at 1173, a -2.38% drop.

Therefore, at the moment it appears we have entered a correction in a bull-market from March, ‘09.  The target is the area mentioned above, with a further move indicating a full reversal.  This comes with a  caveat though, some penetration of the dominant trendline is fine.  The reason is this: during this entire rally the largest pullback has been 105 points.  With a recent high right near 1220 a pullback of the largest magnitude we have seen so far would take us to 1115 (approximately).  Therefore this method provides us with reference for when we can be fairly certain a full reversal is coming.  A drop beyond 120 points (small buffer added) from the highs indicates something is wrong as at this stage in a rally pullbacks are rarely larger than the initial pullbacks were unless a further downside moves are coming.  It is a number to keep in mind, and also a method which can be used to gauge market market strength (or lack of strength) in late stage trend pullbacks.

All is not doom and gloom though as the sell off Tuesday is only day.  Yet pressure does seem to be mounting.  A rally back above 1182 would be the first positive sign, but does not indicate a renewed rally.  Given the position of the market currently, the trend can only be solidly affirmed if there is a close above the swing highs.  The market is well off this point at the moment, and thus having profits off the table is not at a bad choice here.

Always trade according to your own laid out trading methodology as this does not constitute advise on how you should trade the market.  The prices above are simply technically significant levels which should be paid some attention..

Now is probably as timely time as ever to Enjoy 8 Free Chapters from Robert Prechter’s Conquer the Crash

Prechter’s New York Times and Wall Street Journal business best-seller remains a useful read.

Now in the 2nd edition, Robert Prechter’s New York Times and Wall Street Journal business best-seller Conquer the Crash remains a very useful read. To give you an idea of just how useful, we are releasing 8 chapters of the book to all 150,000+ free members of Elliott Wave International’s Club EWI. Here’s an excerpt from Chapter 23, ‘What To Do With Your Pension Plan.’ Enjoy. Read more.

Cory Mitchell, CMT

~Know your risks.  Read our Legal Disclaimer page.

From the daily chart of the S&P 500 it can be seen that during the course of the last week the “aggressive” trendline was broken.  The highest trendline was broken last week.  A new one was drawn to account for the lows that were put in, but that trend now appears to be rolling over as well.

The trend is still up, as indicated by the dominant trendline which is lower down on the chart.  Yet, given the distance between the current price and the dominant trendline which is a likely (eventual) target, shorter term swing traders should be aware of the broken trendline indicating a correction.  Longer term investors should keep their eye on the dominant trendline which currently comes in at 1140 (but will rise over time).  A break below that line indicates a full reversal in the market.

Price action through the week also gives us a target.  A move below 1182 would break the range type formation which has been created over the last week and the resulting price move has a target of 1146.  This is near where the dominant trendline will be through next week.

Holding above 1182 shows strong support, and a obviously a further fall can’t result if that level holds.  That said, trading was choppy during the week (less overall trend), thus those who are not in the market should hold off to see what develops out of this price range.  Those who are not in the market should see if the highs near 1220 can be approached again (indicating strength).  Those who are long should watch to see if 1182 is broken.  Those who are short should also be watching for a drop below 1182 for confirmation of their position.

Always trade according to your own laid out trading methodology as this does not constitute advise on how you should trade the market.  The prices above are simply technically significant levels which should be paid some attention.

S&P 500 Daily. FreeStockCharts.com

If you have not had a chance to look over the three part Goldman Sachs article, it comes highly recommended and is available here: http://vantagepointtrading.com/archives/3304 or you can simply scroll down the blog to find the three parts staring with Part 1.

Cheers,

Cory Mitchell, CMT

~Know your risks in trading.  Please read our Legal Disclaimer page.

The S&P 500 Index, Dow Jones and NASAQ COMPQX all finished at new 52 week highs this week.  Strong buying right into the close of trading ended the day, week and approximately the last 20 months on their highest notes.

While the aggressive trendline which began in February was “threatened,” the S&P at no point closed below it.  Following the Goldman Sachs news it looked like there may be some follow through selling the next day, but the market managed to move higher on that day putting in a long “wick” on the candle and managing to finish right on the trendline.

S&P500 Daily Chart

Even if the line was drawn slightly differently, taking profits or exiting trades was not a bad idea on the Goldman news or the following Monday.  The failed breakout, and move back higher provided entry back into the market on the long side this week (if you trade on this time frame).  Longer term investors should only be looking at the dominant trend, as fluctuations always occur.

The dominate trend remains up, and right now there is the aggressive trend (I have added a “redrawn” trendline to accommodate the recent price action) and the main trend.  When the aggressive trend breaks the pullback is likely going to be to the main trendline.  A break of the main trend line is what signifies a full reversal….and that is a long way away at the moment.

Last weeks analysis did not provide much in the way of profit targets, it more so looked at the global stage and how the Goldman situation may affect the downside.  The downside did not develop and upside target from two weeks ago remains in play: 1225 on the S&P 500.  The index closed the week at 1217.28.    A target beyond 1225, should the market continue to move through that level, is 1245.

The average weekly movement for the S&P 500 index is 31.78.  Keep this in mind when considering stops and profit targets for the week.

Cory Mitchell, CMT
Know Your Risks. See our Legal Disclaimer page.

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