Tag Archives: dow

Cleared to fall

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A lot of markets have had more than sufficient clearing rallies, and their charts would exhibit a nice proportionality if they were to top right around these levels. I think it’s likely that they meander or float a little higher for the next 2-5 days, but they could just as easily reverse hard at any moment.

The Australian dollar looks like a lot of these charts right now:

Prophet.net

The same wobbly pattern of rolling over can be seen here, in this Russian market ETF:

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The charts of the Canadian and New Zealand dollars, oil, copper and platinum are also remarkably similar to these above.

In the major US indexes like the Dow, seen below, the initial crack from the highs was much more violent, so the same impulses have not brought prices near to the old levels. This is similar to when the post-crash rally was broken in 1930 (2nd chart below).

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The Euro had a decent rally early in the week, but like the British pound after its June highs, its spirit is looking broken and it has fallen out of pace with the pack:

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Of course, if the current urge to speculate persists, I think a short-squeeze in the euro is still very possible.

One last chart here, the VIX (90-day view), which really shows the ebb and flow of fear and greed. Wouldn’t it be pretty if it bottomed right here?

After all that worrying, is that all the bounce we get?

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This might have been as simple as an A-B-C countertrend rise to the 50% retracement of the Wed-Fri decline:

Prophet.net

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For an across the board deflation-style sell-off that started with such powerful internals, it would be odd for the move down from January 19 to end with the 10-day average equity put:call ratio not even breaching the mean:

Indexindicators.com

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Treasuries are well-bid and commodities are looking weak. Not much in the way of animal spirits today, though Greece enjoyed a little bounce from its extreme oversold condition. I’d consider buying a Greek ETF if there were one.

More juice in this rally?

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Still have that downsloping RSI on the 10-min scale, indicating waning momentum on rallies since yesterday afternoon:

Source: prophet.net

But on a 20-day view of the S&P you can see the increasing upside strength since the 25th:

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No telling whether this is the end of the whole rise or just a set-back. I could make a case either way, but I’m leaning bullish, since 2 days of mild rally doesn’t correct 2 weeks of decline. Monday’s advance:decline ratio was 8:1 (8 stocks up for 1 down), which is a pretty good “kickoff” for a serious rally.

Dow update

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We followed through nicely on that triangle breakout from yesterday, and we’re now actually into overbought territory on a 30-min scale:

Source: Prophet.net

I closed my futures longs just now and actually reversed the position to an extent. 10-min bar is showing negative divergence during this push from 10,200 to 10,300.

What a move in platinum today! Glad I closed that one yesterday. The metal should provide shorts another nice move before long. I just want to see a bit more of the structure play out before jumping back in.

UPDATE (3:15): We got a tiny contracting triangle correction instead of a drop, followed by an upside breakout.

Chart (3:22). Just shorted on account of the overbought 2-min RSI and a pattern of successively lower peaks in 10-min RSI:

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Looking better for the bulls

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We’ve rallied and then drifted higher all day, instead of falling right back like after last week’s little rallies. In the process the Dow has formed a contracting triangle, indicating more upside in store:

Source: Prophet.net

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Also a weak day for the dollar and good day for commodities, especially platinum and palladium (I was stopped out of both positions this AM for nice profits). I’m waiting on another short entry in that space, though I remain short Ovaltine (cocoa and sugar).

UPDATE (post close): We’ve got a breakout from that triangle…

Stocks oversold, but does it matter?

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Here are the last 20 trading days of the Dow in a 60-min chart.

Source: prophet.net

Note the upward divergence in the bottom RSI, indicating that each downward movement since the 22nd has been weaker than the last. This can be an indication that the urgency to sell is waning. Perhaps it is all part of a corrective pattern within a downtrend that has set us up for another fast plunge, but it would also be expected if were about to rally strongly and correct the whole drop from 10,700.

At any rate, as of Friday’s close we were oversold and due for at least a minor rally. I had loosened my hedges earlier Friday, but I tightened them after the close and more on Sunday evening.

Here is the VIX, in a 60-day, 60-min chart. I think last week’s oscillation pattern could be somewhat troubling for the bulls, as it looks corrective:

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It reminds me that during the breakdown in spring 1930 there were no major countertrend rallies until the Dow had taken a swan dive, culminating in large gap-down day. Maybe this week brings such a move to thoroughly shatter the bulls’ complacency about this being a mere speedbump on the way to the 2007 highs.

Here’s summer ’29 to summer ’30:

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Here’s an update on copper, last trading at $3.05, off 50 cents from its highs. It has no business being anywhere near the 2007-2008 levels in this economy, as those levels were never sustainable anyway:

Source: stockcharts.com

It is still not oversold after this plunge, and I suspect that the retracement back towards the $1.50 area will be blindingly quick. I could put up a bunch more base metal charts that look just like this.

The best performing commodity of the past 12 months is probably sugar, which clocked a new 30-year high last week:

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I’m short, and I like the negative divergence in daily RSI, as well as the fairly clear wave count (5 of ‘em, with a contracting triangle 4th wave this autumn indicating that this spike should mark the end).

Cocoa also set a 25 or 30 year high recently, and it’s historical pattern is similar to sugar’s. It’s another pet short of mine, and I like that the latest attempt at a new high has failed and that the uptrend is now broken:

Source: Futures.tradingcharts.com

Day by day, the case for a top grows stronger

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A market that ignores buy signals is a weak market. We continue down where we would have rallied during the past 6 months. The swiftness, uniformity and persistence of this decline hint that it is the start of a big one.

At the moment, I’m fairly neutral on stocks, since I don’t feel I have an edge either way. I would love a rally to lever up short again, but of course the market doesn’t owe us good entries. It often makes a point of leaving the bears in the dust at major turns.

Here’s the decline so far:

Source: prophet.net

RSI is not offering the bulls much hope. This is a grinding decline – each rally just goes far enough to reset things for a new low. Bearishness is nowhere near an extreme, so there is no support there either. As I have been thinking for some time, this decline shouldn’t find a rally of more than a few days until it has shaved 10% off the Dow, which would mean another 400 points down.

Commodities are coming undone also, with precious metals, base metals, energy, oil, softs and grains all weak. The dollar of course is strong, to the surprise of the vast majority of traders, as indicated by surveys taken this fall.

Looking at indexes from other world markets, I see lots of big, rounded tops forming. Things are just slowly rolling over, setting up for another crash some months from now.

This swift drop from a smooth, low vol rally reminds me of two cases from Dow history (I’m sure there are many more): February 2007 and April 1930:

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There is no question that the current climate is closer to that of 1930 than 2007.

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Probably no posts tomorrow. I’ll be riding the rails.

Rally mode?

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We got our new low this morning, tested it at Fed time, then reversed strongly upwards. This could be the start of the much-anticipated countertrend rally.

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I’m all hedged up, maybe even a tad long stocks, but I’ll start to reload on shorts if we push a couple hundred points higher. If we break hard lower, the hedges come off.

Dow update

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This pattern played out nicely this afternoon (highlighting is the possible wave 4 as I saw it then). We’ll see if there’s any follow through tomorrow. Would be nice to see a clean final wave down on diverging RSI to set us up for a rally.

Source: prophet.net

I think a lot of bears are waiting for a push to the 10,500 – 10,600 area. To be precise, I’d keep an eye on 10,480 – 10,575, since the market sliced right through it on the way down. The market doesn’t owe us a good retracement though — in April 1930 the first two weeks of decline were left in the dust. It was just get short or get left out. Same goes for late May, 2008 as minor wave 2 of primary 1 rolled over. The nature of third waves is not to give you an opportunity to get on board.