Dow 5-Day 15 Minute Chart

Not much space left to go anywhere. It's got to resolve one way or the other. The last triangle pattern broke badly to the downside just yesterday.

End of the Bull Market?

says Fibozachi.com.

Good analysis. Particularly after today's rout.

Did you know that there was only one stock in S&P 500 Index ended in green today? Zero in Dow Jones Industrial Average, and only 1 in Nasdaq 100?



Did you know that such an extreme number on S&P last happened in September 29, 2008, right before the cascading market crash in October 2008?


End of the Bull: Primary Trend Shifts as Markets Shatter
(6/29/2010 via Zero Hedge)

"While technical analysts and traders have numerous techniques for determining trends, the most basic method is the tracking of higher highs and higher lows (bullish trends), or lower highs and lower lows (bearish trends). Tuesday's relentless sell-off across US equity markets marked an undeniable end to the continuous series of higher lows that had been intact since July 2009. With Tuesday's close below 1,044.50 on the S&P 500 Cash, 'bulltards' can no longer claim that the primary trend of equities remains bullish.

"Traders are going to have their work cut out for them in the days and weeks ahead as a plethora of support levels remain scattered between the levels of 950 - 1,030. Though equities appear poised for downside acceleration into Q3, remaining short may prove difficult in days ahead for most as increased volatility, erratic HFT algos and near-record market internal readings combine to create yo-yo-like equity markets. Tuesday's Advance / Decline line for the S&P 500 clocked in at -498, with only Zimmer Holdings (ZMH) closing higher. As a company that designs, develops, manufactures and markets orthopaedic reconstructive implants, dental implants, spinal implants, trauma products and related surgical products ... could GETCO be anticipating a large order from Mr. Market for a new hip?

"Joking aside, what can we expect after such an all-encompassing technical rout? There are essentially two ways to interpret such overwhelmingly positive / negative market internal readings: temporary exhaustion and inflection or breakaway continuation. Normally, when US equity markets exhibit an opening dislocation (greater than +/- 1.5%) and an extreme trend day (greater than 90% A/D, VOLD, etc.) there tends to be an immediate reflex so as to offset lopsided internal measures of momentum. And though the majority of such dislocationary instances immediately resolve themselves in the opposite price direction, the possibility of witnessing a breakaway continuation to the downside here looms large. [Emphasis is mine.]

"The only other modern instance of a -498 Advance / Decline reading on the S&P 500 occurred on September 29, 2008."

The article continues, and it has several charts (including the one I linked above) that illustrate this was no ordinary down day.

Their recommendation for traders? Sit on your hands for a day or two, to see if any set up presents itself.

This gotta bounce tomorrow, at least some, and the stock futures are in green right now (Dow futures up 31 points, S&P futures up 3.70 points).

Since all that matters seems to be Fibonacci retracement numbers, here are numbers to watch if the market does bounce tomorrow:

Dow
38.2%: 9,935
50%: 9,973
61.8%: 10,011

S&P
38.2%: 1,048
50%: 1,053
61.8%: 1,057

Just keep in mind what Fibozachi.com says above, that it may be a "breakaway continuation" to the downside. That means without hardly any dead-cat bounce.

Batten down the hatches, I'd say.

AMZN: Make or Break (with Updates)

(2ND UPDATE 6/29/2010) The stock ended at $108.61, and it was as low as $106.01. Let's see if It tries to regain $110 tomorrow. If it tries and fails... look out below... to 200-MA on weekly at $78, which happens to be just about the target for the head and shoulders pattern...

(UPDATE 6/29/2010) And it broke! Watch if it stops around $110 and bounces. Slight positive divergence on RSI is gone now. If it does bounce but if it's a weak bounce (price, volume), filling the gap down to $80 may be coming soon....

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Amazon (AMZN) may be getting ready for a plunge, unless it manages to rebound right here right now.

Here's is AMZN's daily 1 year chart. After gapping up in late October above $110, it has managed to stay above that. But in the process, the volume has dwindled, and the pattern looks like a big head and shoulders (bearish), with the tiny right shoulder shaping like a descending triangle (bearish).


If the plunge happens, it is likely to fill the gap and settle between $80 and $90. Height of the head from the neckline (say $115) is 36. Neckline minus 36 will give you the target of $79, but I do see some support above $90. Also, technical indicators are not totally bearish, except for slow stochastics set at 89. It's already in a bearish territory of below 20. There's a positive divergence between the stochastics and MACD, but that divergence could be blown away if the tentative general market decides to go down.

AMZN will report its earnings on July 23. The stock tends to move significantly on earnings. August put option at $100, traded today for $2.69, could be worth $20 if AMZN plunges to my target... [Please do your own DD. This is not advice in any way...]

Gold Ready to Break Out

from the ascending triangle pattern which formed a 2-month "handle" to the 5-month cup.

J.P.Morgan Chase could only do so much. Gold is the true money.

Jim Cramer Hates This Market

Hey I'm in agreement with Cramer!

"This market is stupid. I continue to believe that the character of this market has changed, and changed dramatically ever since the 'flash crash', when suddenly the public collectively said 'You know what? Enough already! I've had it'."

"Integrity has been violated, and no one believes anything right now."

"The market seems rapacious, arbitrary, capricious and downright ridiculous. It is a tale told by an idiot, full of sound and fury, signifying nothing."

"Today's rally was based on NOTHING."

Here's his 10-minute rant.

NYSE Summation Index May Be Rolling Over

What is NYSE Summation Index? The explanation is here (from Decision Point), but what I know, thanks to Breakpoint Trade, is that when the cumulative chart of this rolls over it could be that the market top has been reached.



I've been watching this for the long-term trend change, and it seems it is rolling over after 14 months of uninterrupted uptrend. It could whipsaw, as it did on the way down from the 2007 market top.

Just a quick note.

Thanks to Helicopter Ben's positive comment on the US economy, the stock market futures are green, big time. Dow futures up 96 points, S&P 500 futures up 13 points, Nasdaq 100 futures up almost 20 points. It is so senseless it's comical.

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.

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.

US Market in May 2010 in Longer Perspective

The Dow Jones Industrial Average registered the biggest monthly drop since the market turned in March 2009. It's hard to assess the magnitude or the significance (if any, in this age of algo bots) by just looking at daily or weekly chart.

So here you go, the Dow 10-year monthly chart:



It was indeed a nasty big red candle that was formed in May. Not that the market bulls want to hear, but the drop of this magnitude doesn't seem to happen in an uptrending bull market.

After the dot-com bust, which Dow Jones didn't quite suffer, the market finally bottomed in 2003. If you follow the candle formation after 2003, both up-months and down-months had smallish candles, and the movement was gradual until the final run to the top, which started in the middle of 2006.

In contrast, at market tops (in 2000 and 2007), the candles get bigger - bigger bodies and/or bigger shadows. The candle that formed in May fits the pattern.

Also notice the index hit the 40-SMA in April and May, and couldn't stay above it. The index stayed above the moving average almost the entire run from October 2003 to June 2008, when it decisively broke below.

Slow stochastics set at 120 has yet to reach above 60 in the most recent run since March 2009. MACD is still in negative territory. (Thus the argument by some TA people, most notably Elliott Wave people, that this hasn't been a secular bull market but a counter-trend rally within the bear market.)

One month doesn't make a trend of course, but looking at the sheer size of the May candle, "Sell in May and go away" may prove to be the right strategy, again.

Follow GS Today (Update)

Intraday.

Today, algo bots seem to be following GS (Goldman Sachs). Yesterday was Euro.

The top is Dow Jones Industrial, 3-minute intraday. The bottom is GS.

I wonder what's for tomorrow for bots. Back to Euro again, maybe?

Algo Bots Are Latched on to Euro

That's what I suspect, just like many others.

Take a look at these charts. The top one is today's 5-minute intraday chart of S&P E-mini futures (June). The bottom one is also today's, 5-minute intraday chart of Euro futures. Almost tick for tick, S&P500 futures responded to the movement of Euro.


The movement of Euro is more subdued than the S&P future, as currencies generally do not move as much as the stock markets. But correlation is too clear, I think.

Right now, Euro seems to be forming a bearish wedge since 9:30PM EST, while S&P E-mini is still going up.

I've been sitting on my positions, almost all gold and silver stocks. MTL, I wrote calls on it, and they are providing some cushion. I'm keeping TZA as a hedge. I added a few BP calls EOD after seeing it in green for the first time in 18 trading days, but just for a trade. I think long-term prospect of BP is bleak. My outlook for the market continues to be bleak also, and therefore my holding on to gold and silver stocks.

Will Market Topping Pattern Repeat?

I'm afraid it may.

In the last post, I mentioned the expanding wedge on the Dow daily chart and technical indicators at the critical levels on the weekly chart. That was May 19. The next day Dow took a dive over 370 points blasting through 200-DMA. Friday's bounce caused by short covering algo bots failed to go anywhere near the 200-DMA.

Yes, the candle formation on Friday is a 'hammer', and may actually bounce as algo bots are getting smarter and smarter in giving us an illusion that the 'market', an exchange of price information about the health and potential of companies and business sectors, still exists.

But so what? Friday action didn't convince me a bit that the bearish trend is over. On the contrary.

Take a look at this Dow weekly chart from 2007-2008, which captures the market top.


And take a look at the current Dow weekly chart. My comments are on the charts.


In 2007-2008 market top, the whole pattern - head and shoulders pattern with a failure to capture the trendline from head to right shoulder, and a failure to capture the neckline as well as 40-MA - took roughly 12 months. The head and shoulders pattern itself took 8 months, and the failure to capture the key area took another 6.

This time, we already have a left shoulder and a head on the weekly. Right shoulder looks yet to form. From the beginning of the left shoulder, it has been 7 months.

Also note that in the 2007-2008 market topping pattern, the weekly candles had long body and long wicks, indicating increasing volatility. We are already seeing them almost every day on the current daily chart, and they've started to show up in the weekly chart.

It is possible that the index suddenly musters strength and negate this nascent head and shoulders pattern. Personally, I wouldn't put my bet on that possibility.

It is also possible that the index will keep on collapsing from here. Ease with which the 200-DMA was breached on the daily should be disconcerting for the market bulls (particularly those on a certain financial show on a certain network, giddy with euphoria that the market 'turned' on Friday).

No need to panic like a chicken with the head cut off (like European politicians) as we have seen the pattern in our recent past, but no need to be a stock trading hero either. For once in a very, very long time, I agree with Q-man (Quint Tatro) at Tickerville.com. His chart analysis cites the 1987 market crash (around Black Monday that wiped out 20%).

Is Long Bull Run Finally Ending in the US Stock Market?

Well, Shanghai does seem to be leading the way to the downside.

In the US, ever since the 'flash crash' of May 6 which was probably caused by High-Frequency bots but the SEC refuses to admit, things are not the same. Germany's panicky move yesterday to ban the naked shorting of select financial shares and euro bonds via CDS hasn't helped (what were they thinking?) calm the jitters in financial markets, to say the least.

I don't like what I see in Dow Jones Industrial, both in daily chart and weekly chart, and I suspect the long rally from March 09 may be finally over, for now.

First the 9-month daily chart.


The 'flash crash' went right through the supporting trendline from August 09, and the index has been unable to reach that trendline. It hit the line on May 12 and again on May 13, and it headed right back down.

You could argue it is the same setup as February correction, when the index went below the same trendline and failed in its first attempt to retake the line. But two things I don't like this time: 1. Down-volume is so much bigger; 2. Because of this February dip, we now seem to have an expanding wedge (dotted lines in the chart). I learned that an expanding wedge may mark a market top.

Next, the 3-year weekly chart. I like it even less.


The gigantic reverse head and shoulders pattern that marked the March 09 bottom and rapid recovery has pretty much played out, i.e. it seems to have hit the logical target, which is the head height added to the shoulder line. The index also has hit my target, which is 61.8% Fibonacci retracement line. It went slightly above it, and turned back hard on the 'flash crash'.

If the 'flash crash' was simply a technical glitch, the market should have roared back. It did, briefly, after the announcement of $1 trillion euro bailout plan, on a soft volume. Sure enough, it dipped right back. The index is now sitting on 50% retracement.

There are things called fundamentals and macroeconomics, financial policies and sovereign governments, and they have come back into the stock market big time. Even the algo bots seem skiddish.

That aside, look at the technical indicators on this weekly chart. RSI is breaking below 50 for the first time since July 2009. MACD is crossing down. Slow stochastics set at 60 for longer trend is about to break below 80 for the first time since March 2009, an indication that the current bull run may be finally over. Last time it broke below 80 was October 2008, a few weeks after the market top.

On the weekly chart, I don't see a solid support until 8,800 area. 9,400 area may offer some support (38.2% Fib retracement), as there was some consolidation around that area back in August-October 2009.

I'm particularly watching the Slow stochastics (60) on weekly chart.

Will Shanghai Lead the Way ... to the Downside?

Well. Calling S&P500 to 1300-something was such a wonderful timing, wasn't it? While it could still get there, the timing is anyone's guess at this point, with the European "nuclear" option to save euro lasted 12 hours.

In the meantime, I was reading an article at Bloomberg, which said "China is entering a bear market". WHAT?

Shanghai Composite Index lead the way to the upside; it bottomed in October 2009, nearly 6 months before the US stock market bottomed in March 2009.


To my surprise, I found out that Shanghai totally underperformed Dow. I don't regularly check Chinese indices, but all the news about China being the engine to pull the world out of the recession has given me the impression that the stock market there is booming as well. But no. Shanghai index retraced barely above 38.2% Fibonacci retracement, while Dow touched 61.8%. Shanghai was going sideways since August last year, forming a symmetrical triangle. But instead of breaking in the direction of the previous trend (which was up), it broke down. Technical indicators (Aroon, Slow stochastics, histogram) are all negative, and already flashed a sell signal.

Dow hasn't reached that stage yet, as you see. Technical indicators are still in a bullish territory, although the MACD histogram has been one big negative divergence ever since March 2009. However, with the last week's freefall thanks to algo bots and with "we will do whatever it takes" Europe, it feels like the floor has been yanked from under our feet. And what we saw that day under our feet was a void, a blackhole.

Those algo bots were busy all day Friday and all day today to prove (to the regulatory authorities) that they are worthy provider of liquidity, capable of supporting the market. I wonder if they were successful in convincing investors. The stock market doesn't feel like a pricing mechanism any more.

OT: Google's New Search Result Page

Ooooo I hate the look. What is the point of trying to look like Yahoo's search result page?? See it for yourself. The top is Google's supposedly new and improved search result page. The bottom is Yahoo's search result page, which has been this design more or less for some time.

Three columns, with the left column dedicated to navigation buttons, the center column showing the search results, the right column an ad space.



No wonder Google's shares have been on the decline, which started long before the May 6 market near-meltdown. If the company's idea of new design is to mimic the look of its far lesser rival, I would start to worry if I was an investor. They don't even offer an option for the users to switch back to the previous look.

Google may be losing the edge quite rapidly, in fact. Their online applications are increasingly buggy, features are not added but subtracted (like Google Map's "Terrain" feature). They seem to have some indigestion problem of integrating companies and technologies that they have acquired (like Blogger). As I posted a few weeks ago, GOOG's chart resembles MSFT's chart.