Saturday, June 5, 2010

S&P500 on the Edge of the Wedge

Well, are the US stock indices following BP? Verdict is not in yet, but the indices continue to look pessimistic, having unable to break above 200-DMA. Nasdaq, which did break above 200-DMA, ended Friday below that line again. If the indices gaps down on Monday, then we would know that they indeed followed BP.

Here's the daily chart of S&P500 again, this time a nine-month chart. Notice the expanding wedge (dotted lines), and the index about to break down. In each significant correction since October, the turnaround happened when a candlestick formed with a tiny body and long shadow. This time, we had such a candle formed on May 25, but the market couldn't produce the bounce that held, like it used to.

Also, notice that in each correction the first bounce was sold, and the second bounce from lower point was bought, albeit on a decreasing volume. This time, the first bounce was sold again, but the second bounce hasn't materialized.

The correction pattern got bigger each time, which I'd interpret as reaching a 'critical point' as in physics. (Think of it as increasingly wild, erratic movement of the needle on the seismograph right before the earthquake hits.)

It looks AROON actually crossed over even before the 'flash crash' of May 6.

I remain bearish, and continue to hide behind gold and silver stocks. I'm keeping TZA calls as a small hedge, and I added July puts on FAS on Thursday bounce also as a hedge. They were both doing OK on Friday. Not doing much here. I'm hoping for a small low-volume bounce on Monday to buy puts on the index or puts on leveraged long index or sector ETFs. Maybe long-dated, far out of money 'disaster' puts.

Since algo bots seem to be programmed for index futures and indices. But gold and silver, they are still manipulated by humans at JP Morgan Chase and Deutsche Bank, and somehow they feel safer to me.

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