Tuesday, June 1, 2010

Are S&P and Dow Following BP?

That's the distinct feeling I've been getting for some time when I see the charts.

Other than pattern recognition, I have no fundamental basis for my assertion. But take a look. It seems the US stock market lags BP by about 2 weeks.

This is BP, from the beginning of this year to May 14. Notice how hard it tried to hang on to $48 line, for 9 trading days. On May 14, it started the second leg down. Today BP eneded nearly 15% down, at $36.52.

Now S&P500. Right now, it is trying to hold on to 1,070 for 8 trading days, having been unable to recapture 200-SMA which is at 1,105. I put two sets of Fibonacci numbers, one from the market top to the bottom of 'flash crash', the other from the post-'flash crash' high to the May 25 low. The flash crash rebound was slightly above 61.8%. After May 25 reversal, the index only managed 50% retracement, hit the 200-SMA, and quickly turned back. Price action is decidedly negative.

On BP chart, MACD histogram (sorry not in the BP chart) was showing positive divergence on May 13, but nonetheless the stock dived the next trading day. S&P is currently showing positive divergence on MACD histogram.

Am I doing any trading based on my ridiculous notion that the market is following BP? Not in particular right now. I am basically sitting on my gold and silver shares and doing OK in this current correction. I wish I heeded my own advice on May 13 and shorted the stock. I still have TZA calls. If 1070 breaks, I may actually go short on the index. My downside target would be 1,000 as psychological support, but I don't see a good enough support until 940-950 area. (See my post from May 19 on Dow.)

As for BP, if it doesn't rebound right here, I don't see a support until it gets below $20, and that's the level in 1995.

2-week delay. If the index was to follow BP, it should do so within the next few days. Patience, patience.

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