So awoke from a much needed sleep after LONG week at work and felt like doing some charting. This post will be a bit long as I explain my TA and MOSTLY bearish outlook for the markets ahead. Obviously I am (per my 6% rule) nearly maxxed out in short positions so I am putting my $$ where my mouth is. For those that want to see what I look at when I swing trade here is a detailed explaination of many of the things I look at. Some are explained in books on TA and others I just figured out myself so there are some things that are just from experience. Comments are welcome and encouraged.
Here is a pic of the SPY. We will take each indicator starting top to bottom.
Stoch: (Momentum oscillator). Clearly pointing down with no bullish divergence. Also notice the blue line showing recent uptrend and how the RED CIRCLE shows momentum uptrendline was just broken. On the Stoch and MACD charts I draw these trendlines to help give a bit of an early signal or confirmation of what may be happening. Think of the Stoch and ESPECIALLY the MACD like a NEEDLE and the trendline line the edge of a BALOON. When the indicator (needle) points DIRECTLY at the trendline (Baloon) there is little chance of not popping the baloon. But when the indicator needle bends and curls as it approaches the trendline baloon there is much less chance of popping the baloon as the needle bounces off. This can give a GREAT early warning indicator of things to come (in my opinion).
MACD: (Trend indicator). Clearly pointing down and has a MACD cross sell signal (bearish). However, the MACD is above the 0 line which is a bullish signal. Again the indicator NEEDLE is about to POP the trendline baloon (bearish). Notice the blue dotted line on the MACD chart showing the downtrend from 8-11 to 10-11. This was broken on 10-7-11 by the MACD line even though the downtrend line on the price chart had NOT yet been broken to the upside. 10-7-11 is designated by the green arrows on the MACD and Price charts.
MACD Histogram (Momentum Oscillator). Use with Stochastic (they should coincide) but best when combined with MACD. This tells the STRENGTH of the MACD signal. The higher the bar the more strength. Obviously, it is strengthening and showing an accelerating of the MACD Needle as it tries to pop the baloon.
Price. Purple thick line is the UPTREND support from the 3-09 low that was broken in 8-11. As many know, usually there is a retest of broken support.....notice that 1290 recent high finally tested that line....and appears to be failing. Blue dotted line show a megaphone (broadening formation). This is NOT always reliable but when it is visible I use extreme caution when going long. This shows there is extreme volatility and suggests a VERY BEARISH outcome. I have also noticed that MOST megaphones I have seen obey a 5 wave count before breaking down. ( I know I hate Elliot Wave theory too but it applies here in my experience). This one seems to be obeying a 4 wave count though...if it comes to be true. This megaphone would suggest a downside of 1040 on the S&P. Finally, the rising trendline showing the recent uptrend from 10-11 is STILL intact. This is why many are still saying "uptrend is intact" and remain bullish. I think this "uptrend" is a massive BEAR FLAG and is doomed to breakdown very soon. I think the MACD signal described above shows this is about to happen a well. If this is a bear flag the "pole" of the flag ALSO suggests a downside target of 1040...
My plan: UNLESS there is a massive rally in the next few trading days I will be selling and possibly add to short positions on any rallies....The only thing that looks bullish is a falling wedge formtion on the Euro chart and a MACD Histogram divergence on the 60 min chart of S&P. This is likely going to set up a smaller bear flag if the market goes higher. However, today may have completed that bear flag as well. We will see next few trading days.
If anyone finds this of value please comment. Thanks.
N54_Fan
Here is a pic of the SPY. We will take each indicator starting top to bottom.
Stoch: (Momentum oscillator). Clearly pointing down with no bullish divergence. Also notice the blue line showing recent uptrend and how the RED CIRCLE shows momentum uptrendline was just broken. On the Stoch and MACD charts I draw these trendlines to help give a bit of an early signal or confirmation of what may be happening. Think of the Stoch and ESPECIALLY the MACD like a NEEDLE and the trendline line the edge of a BALOON. When the indicator (needle) points DIRECTLY at the trendline (Baloon) there is little chance of not popping the baloon. But when the indicator needle bends and curls as it approaches the trendline baloon there is much less chance of popping the baloon as the needle bounces off. This can give a GREAT early warning indicator of things to come (in my opinion).
MACD: (Trend indicator). Clearly pointing down and has a MACD cross sell signal (bearish). However, the MACD is above the 0 line which is a bullish signal. Again the indicator NEEDLE is about to POP the trendline baloon (bearish). Notice the blue dotted line on the MACD chart showing the downtrend from 8-11 to 10-11. This was broken on 10-7-11 by the MACD line even though the downtrend line on the price chart had NOT yet been broken to the upside. 10-7-11 is designated by the green arrows on the MACD and Price charts.
MACD Histogram (Momentum Oscillator). Use with Stochastic (they should coincide) but best when combined with MACD. This tells the STRENGTH of the MACD signal. The higher the bar the more strength. Obviously, it is strengthening and showing an accelerating of the MACD Needle as it tries to pop the baloon.
Price. Purple thick line is the UPTREND support from the 3-09 low that was broken in 8-11. As many know, usually there is a retest of broken support.....notice that 1290 recent high finally tested that line....and appears to be failing. Blue dotted line show a megaphone (broadening formation). This is NOT always reliable but when it is visible I use extreme caution when going long. This shows there is extreme volatility and suggests a VERY BEARISH outcome. I have also noticed that MOST megaphones I have seen obey a 5 wave count before breaking down. ( I know I hate Elliot Wave theory too but it applies here in my experience). This one seems to be obeying a 4 wave count though...if it comes to be true. This megaphone would suggest a downside of 1040 on the S&P. Finally, the rising trendline showing the recent uptrend from 10-11 is STILL intact. This is why many are still saying "uptrend is intact" and remain bullish. I think this "uptrend" is a massive BEAR FLAG and is doomed to breakdown very soon. I think the MACD signal described above shows this is about to happen a well. If this is a bear flag the "pole" of the flag ALSO suggests a downside target of 1040...
My plan: UNLESS there is a massive rally in the next few trading days I will be selling and possibly add to short positions on any rallies....The only thing that looks bullish is a falling wedge formtion on the Euro chart and a MACD Histogram divergence on the 60 min chart of S&P. This is likely going to set up a smaller bear flag if the market goes higher. However, today may have completed that bear flag as well. We will see next few trading days.
If anyone finds this of value please comment. Thanks.
N54_Fan