Finishing The Week With A Bang

What a week! The SP500 broke through the trading range on Monday, then it spend the next three trading sessions pulling back to test the breakout. On Friday, the market opened with a bang and the SP500 immediately went back above the upper level of the trading range. It spent most of Friday's trading session attempting to break above Tuesday's intraday high of 1148. As the third quarter coming to an end, the window dressing activities will most likely push the SP500 to the 1170 level.

Here is a 30 minutes intraday chart highlight this week's SP500 moves:



and here is the daily SP500 chart showing the next target level:

Finally!

After being trapped in a trading range between 1040-1130 for months, the SP500 finally broke above the trading range and closed at 1142.71 today. Joining the break are the Nasdaq 100 & the DJIA. Still lagging behind are the Russell 2000 and the DJT. Today's move will likely continue with further move toward the next target level (see charts.)

SP500:



DJIA:



Nasdaq 100:



DJT:



Russell 2000:

Getting Close

The SP500 is getting close to the 1130 level after holding above the downward trendline. Today, the Nasdaq 100 intraday high of 1942.34 exceeded the June 21, 2010 intraday high of 1939.77 and closed near the 1940 mark at 1936.60.

After today's market actions, it appears the SP500 will likely assault and move above the 1130 level. How sustainable this rally will be is depended on how quickly the Russell 2000 catches up with the SP500 & the Nasdaq 100. If the Russell 2000 continue to lag, then the extend of this rally could be limited. In the meantime, the momentum is on the up side and I will be selective long.

Here are the charts. Click on them to get a larger image and to read the embedded comments.

SP500:



DJIA:



Nasdaq 100:



Russell 2000:

Upward Bound

It looks like the market is making a move toward the upper level of the trading range. The SP500 and the Nasdaq 100 downward trendline that I have mentioned in my last post are being violated. If these two indices can hold above the trendline, then the upper range of their respective trading range will likely be the next target, i.e. 1130 for the SP500, 1940 for the Nasdaq 100.

SP500:



Nasdaq 100:

Still In The Range

The market has been choppy and it has not changed much. It is still trapped in a trading range. The SP500 is still in the 1040-1130 trading range. Until it breaks out of this range, the market will continue to be choppy and favor the short term traders.

Here is the latest SP500 chart showing a newly formed bearish trendline. This trendline along with the 1040 support trendline is forming a descending wedge pattern. This descending wedge added importance to the 1040 support level. If the SP500 goes below 1040, the bears will likely hit the market hard on this break.

SP500:

Where Will It Stop

After four consecutive down days, the market finally finished in an up day with the SP500 bouncing off the 1040 level, the DJIA bounced off the 10,000 level after it has briefly went below 10,000 during intraday, the DJT bounced off near the 4000 level, the Russell 2000 bounced off near the 590 level, and the Nasdaq 100 bounced off near the 1750 level. With all these market indices bouncing off their intermediate support, does it mean this downward trend has reached its end?

Looking at the technical, today's rally is no more than an oversold rally. I do not believe these support levels will hold. The momentum appears to indicate the market is destine to fall to their June/July 2009 low. In the coming days, the market could continue to rally due to short covering and some short squeeze. After some of the shorts have been taken out, the downtrend will likely resume. In the meantime, I will continue to treat this market as a trader's market with a downside bias.

SP500:



DJIA:



DJT:



Nasdaq 100:



Russell 2000:

Still Trapped

It has been two weeks since I last posted and the market has not broken out in neither direction; up or down. The SP500 along with many of the market indices are still trapped in a trading range. Although the technical indicators are in a slight negative bias, I will continue to take quick trades with reduced size until the SP500 either breaks above the 1130 level or breaks below the 1040 level.

SP500:



Russell 2000:

Getting Ready To Breakout

The Dow Jones Industrial moved above its June high on Monday and it has been able to hold above that level. In the meantime, the SP500 and the Dow Jones Transportation index are approaching their June high. The two lagging indices are the Nasdaq 100 and the Russell 2000. In order for this rally to continue, the SP500 and the DJT need to break above their June high along with the Nasdaq 100 and the Russell 2000. If these indices fail to break above their June high, then look for retracement back to their trendline for support.

Here are the updated charts for the major market indices:

DJIA:




DJT:




SP500:




Nasdaq 100:



Russell 2000:



I have been mildly bullish on the recent price actions and started to nimble on some long setup. I will continue to trade with reduced size until all the indices have broken above their June high with conviction.

Suspicious

The market ended the week showing some strength and the SP500 closed above the 1100 mark. The SP500 broke above the downward trendline and it is attempting to form a higher low/higher high pattern to reverse its trend. But until the SP500 can break above the 1131 level, I will be suspicious of any rally inside of 1040-1100. I still believe the current market environment is for short term traders, and I will continue to be cautious.

Little Help From Uncle Sam

The market sold off on Friday with the DJI down 261 points, SP500 loss nearly 32 points, and the Nasdaq 100 gave up more than 52 points. This came after a strong rally toward the close on Thursday’s trading session that resulted in wiping out more than 100 points of losses and ended with a small gain. But looking back at the last two weeks price actions, the market did what it set out to do; squeeze the bears and trap the bulls (with a little help from Uncle Sam near the close on Thursday.)

The following SP500 price chart illustrates how the dynamic of the market punishes the latecomers and the ill informed. Here’s how it played out as I interpret it: 1) SP500 start the oversold rally back to test the 1040 level after the 4th of July break. It reversed after it has reached the 1042.5, this gave the late bears confidence to go short with the believe that the market will head lower after it has recently broke the widely watched head & shoulder pattern. Of course, those that have shorted the market when it was above 1100 have covered as it bounced up to test the 1040 resistance. 2) On the following day after the 1040 reversal, the market rallied and the SP500 gained over 30 points. This rally trapped the late bears.



3) As this oversold rally continues and it has reached the resistance of downtrend price channel and the 50 SMA, those trapped bears are being squeezed and the lure is set to sucker those anxious bulls. 4) As distribution starts, the SEC put out words near Thursday close that a ‘significant announcement’ will be made at 4:45PM ET. And the people in the know (there are always people in the know) started rallying GS, and the market buzz is that GS has settled with the SEC on the fraud charges. This gave the early money a gift on exiting their long positions without putting pressure on the price as the last bunch of anxious bulls are being suck in with the help of Uncle Sam. This near the close rally helped the market to recover its losses and closed with a small gain. 5) The trap is set and snapped. Now those trapped anxious bulls will be hoping all the way down to 1040 for a bounce back up above the 1100. From the way things are looking in the price action, the market will cause the hopes from these trapped bulls to die in vain.

The near term support will likely be 1040 and the downside target remains to be in the 870 area. I remain to be bearish until the SP500 has shown it can break above 1125/1130 with convictions and breaking the lower high/lower low pattern.

Short Term Rally

After the 4th of July break, the market rallied and the SP500 moved back above the 1040 level. This rally came as no surprise after the SP500 has been down nine out of the last ten sessions and falling from 1117.51 to 1022.58 on a closing basis. The market was telling us a short term rally was coming as technical divergences started to appear. This rally will probably encounter resistance near the 1090 level or the 50 SMA near the 1100, and it will squeeze out those late bears and trap the early bulls when it resumes its downtrend.

Next week earnings report will start once again, it is also options expiration week, and these things will definitely create some volatility for the market. In this earnings reporting period, the market will most likely be keying in on the forward looking projection and not too much on the actual earnings (unless it is short of projection.) As more companies give cautious and less optimistic forward looking projections, the debate on the possibility of a double-dip recession will be elevated. I believe the market will continue to be pressured until either the double-dip becomes a reality or there are signs of a sustainable economic recovery.

Here is the updated SP500 chart. A downtrend price channel could be forming after the failure on the widely watched head & shoulder pattern. Until the market breaks the lower high/lower low pattern, I will remain bearish.

Faltering

The SP500 broke below the widely watched 1040 level last week. Talks are beginning to surface once again about a potential double dip US recession. The dismal job creation number clearly indicating the US economy is not recovering as many people were betting on. Until some clear signs on where the US economy is heading, the market will continue to falter.

In June, the market was watching the Euro-zone. Now, the focus is on China. Lot of people was betting on China's growth to bail out the global recession, especially US. However, one cannot overlook China's growth is depended on the growth of the US economy. Since China has not developed a large middle-class to become an internal consumption economy. Therefore, if the US economic recovery falters, China's growth will be limited.

Here is the latest daily price chart for the SP500:




The measured move from the break of the 1040 baseline (head & shoulder pattern) put up a likely downside target near 870. There are technical divergences that indicate a potential oversold rally could occur in the near term. Any near term rally is a good opportunity to exit longs and establish new short positions.

Could Get Ugly

The SP500 broke the 1070 and came down to test the 1040 level with a very negative market sentiment today. Having all the talking heads watching and talking about the 1040 technical level, and having lot of stock with negative momentum price actions, this 1040 level will most likely be broken after it chops around a bit. The long red candle that bought the SP500 down to 1040 level is not a candle that the market will print when it reached a reversal level. If the SP500 breaks below 1040, it might not find support until it reaches the May/July 2009 low in the 870-880 range, and that could get ugly.

A Slight Detour

The SP500 took a slight detour today. It failed to hold the 1106 support after moving above 1120 and tested 1130 level yesterday. 1040 remains to be the major support, but be on the alert for 1070 to provide an intermediate support. If the SP500 can recapture 1106, then it's time for me to go long with the SP500 possibly reaching 1170.

Busting Out

The SP500 busted through the 1106 level and closed at 1115.23 today. The following list of the sector ETF show how broad and strong today’s market rally was. Every sector on the list is green with technology and energy lead the charge.



Although it appears the recent down trend might have ended, but cautions still need to be exercise until the SP500 tested the 1106 level for support. The near term target level is 1170, and the levels I will be monitoring closely are 1106 for support, 1120 & 1140 (62% & 78% FIB retracemnt/50 SMA) for potential resistance (see ‘Double Bottom Scenario’ for details.)

Made An Attempt

The SP500 made an attempt to breakout of the double bottom pattern today. It was not a surprise to me to see it retreats after it has reached the 1106 level. The reasons I was not surprised by the reversal at 1106 level are 1) first breakout attempt on these popularized price pattern usually fail, 2) too many stocks faded from their opening up gap while the market indexes grinded higher, 3) too many market participants were waiting for the breakout to occur.

Does it mean today’s failure on breaking the double bottom pattern will result in further selloff? The answer is “not necessary so.” It can sneak up on us and break above it tomorrow, it can regroup by pulling back toward the 1075/1080 level to attract more buyers for the next push, or the bears get bold and drive it down to the 1040 level in another attempt to break below it. Therefore, until one of these possibility plays out, I will monitor the 1075-1080 and the 1106 level for market direction. Since this week is also options expiration, I will be very cautious and try to avoid from being sucked into a position due to false breakout caused by OPEX volatilities.

Here is the latest SP500 daily chart:



And the 15 minutes intraday chart on the SP500:

Double Bottom Scenario

The two recent low near 1040 made by the SP500 formed a potential double bottom. Since next week is options expiration week, the price actions will likely cause the SP500 to move above the double bottom breakout level near 1106. This breakout can cause the SP500 to move toward the 1170 target level projected by the double bottom measured move in one of two possible scenarios.

One scenario could be the SP500 will retrace back to the breakout level of 1106 when it reaches the 68% Fib retracement level at 1120, or the other scenario is the SP500 could hit resistance at the 50 SMA near 1140 (the 78% Fib retracement level) then it moves down to test the breakout level of 1106. After the SP500 completed a successful test of the breakout level for support, it will resume its move toward the 1170 target.

The following is a daily candlestick chart for the SP500 showing the various levels for the double bottom to play out.



Below is a daily candlestick chart for the SP500 ETF, SPY applying the same analysis used on the SP500 index to illustrate various levels of possible support and resistance, and the measured move target.

Breaking 1040 Support?

After the SP500 broke below 1060 and came near to breaking 1040 level, the market put in a strong rally today and held it through the close. With many talking heads and market participants anticipating the SP500 to break the 1040 support level, the market will do what it always does, defies the majority. Therefore, the market will likely continue its upward move to the 1100 while the masses wait for another test of the 1040 level.

Here is a 30 minutes intraday chart of the SP500 showing a double bottom pattern near 1040 formed couple days ago:



Here is a daily price chart of the SP500:

Sudden Reversal

After the SP500 closed yesterday above the 1100 at 1102.87, I was prepared to shift gear to be on the lookout for bullish setups. However, with today’s dismal job report and a whole host of negative news flow, the market did one of those sudden reversals and the SP500 ended up closing below the 1065 support level. Fortunately, I was not trapped by any long setups today. For now, I am just waiting to see what Monday will bring, a bounce back above the 1065 or a violent drop below the 1040 level.

As I have expressed in recent posts, the current market conditions are for day trading and scalping only. I would not try to be a hero here and go bottom fishing; I could end up being food for the bears. The critical levels for me remain to be 1100 on the upside, 1040 on the downside. Until the market has made a decisive move on one of these levels, sideline is the place for me to take shelter.

Like A Roller Coaster

The stock market has been selling off toward the close one day, and rallying toward the close the next day, like a roller coaster going up and down. The SP500 seems to be setting itself up to break below the 1065 level and then it reverses and moved near the 1100 level. It is this type of price actions makes it difficult to establish any position other than day trading. But even with these volatile market movements, a sign of consolidation is starting to appear. If the SP500 breaks above the 1100 and reclaim the 200 SMA, I will be looking for setups to go long. But until the SP500 moved above 1100, I will remain on guard for any sudden reversal that can lead to a break below the 1065 support level and I will be aggressively shorts if it breaks below 1040.