Wednesday, April 25, 2012

Why Does It Agonize Me To Get Bullish?


Just a heads up my friends.  I'm seeing something potentially "very bullish" signals emerging on a whole raft of charts.   I must admit that I'm a bit surprised by the recent developments because up until very recently we have been seeing some very bearish signals from... well all over the place.  But it's starting to look to me like the correction might have indeed already run its course and we may be heading for new local highs.  Perhaps 1450ish on the S&P 500.  If that's the case, forget the old saying about "sell in May and go to hell"... it ain't gonna happen.  At least not early in May.

Here's one of those very rare wave count offerings from yours truly.  And for the first time ever I can commit with 100% certainty that it is correct.  It is absolutely correct... insofar as that one of these two wave counts "is" right... probably maybe.  I'll temper that bold statement just a bit by adding that most likely one of 'em is correct... as long as the markets goes higher or lower from here.  In any case, all self doubt aside, it's sure become apparent to me that both possibilities really are becoming quite clear now.  I just don't know which one it's gonna be and you have no idea how much I wish I could tell you.  But I can't.  Nonetheless, I honestly am somewhat comforted after today's action... finally... in that in spite of the fact that it could go either way, the pattern does seem to becoming clearer.  That might sound like a contradiction but it isn't.  In other words, going forward I believe we're going to be able to make the correct investment decisions and with perhaps a great deal more confidence than we've had over the past 6 weeks or so.

With both possibilities seen in the chart below being viable (at least from the EWT perspective and with nothing else taken into consideration), I'd have to say that judging by the market internals data I'm seeing, I'm going to have to lean toward the bullish outcome... the green count.  Of course I reserve the right to change my mind but unless we see Monday's (April 23) low of 1358.79 get taken out, I'm going to assume we're heading higher.  NYSI is certainly lending support to that conclusion.  And with today's massive jump in AAPL, so is the AAPL:NDX ratio suddenly supporting higher prices... perhaps 'much' higher.

Click here for a live and updating 'print' version (I offer the 'print' so those who are not subscribed to StockCharts can see the annotations).

As well, the chart of the percentage of stocks above their own 50 day moving average is producing one type of signal that I promised myself that "the next time I see that signal I'm not gonna fight it... we're headed higher".  So there you have it my friends, I have little option as of tonight but to go bullish unless and until 1358.79 gets taken out.

There is a huge and unusual divergence going on between equities and the Aussie:Yen cross.  This 'has to' resolve one way or the other.  Click here for an updating 'print' version.

EDIT: April 29, 2012 - I wanted to stay on the topic that I was demonstrating in the chart above, so I've put together an improved version (below) for a handful of different reasons.  First of all, that's only a 15 minute chart and a lot can happen in a matter of just a couple of days.  So I've expanded the duration of time shown.  Secondly, I've separated the Aussie:Yen cross and now display it in a separate panel below the Russell... in the name of clarity.  The turd reason I wanted to update this presentation is to more clearly show that we can see 3-wave sequences in the Russell throughout the entire duration of the chart.  Some people might argue that where I see a 3-wave sequence, they see a 5 wave sequence.  For those people I'd highly recommend a quick visit to this fun page. You can thank me later :-)

Fourthly and perhaps most importantly, I really want to issue a "heads up" and draw your attention to the fact that at the close of trading on Friday, equities and the Aussie:Yen cross ended the week being way, way out of sync.  Here's what it all looks like now, in a new and improved version of the chart just above:

Click here for a live and updating 'print' version

To be honest, this particular topic is almost worthy of being issued in a new post so that all our friend out there on the interweb or whatever it's called would be alerted that yours truly had issued something he felt was relatively important.  But the issue is going to be resolved one way or the other so quickly, probably within the first few hours of trading on Monday, that by tomorrow at noon it might already be a dead topic.  Hopefully one that might have affected your positions in some positive way.  Because this divergence is going to correct.  All that remains to be seen is which of the two is going to surrender the most ground, equities or currencies.  

If nothing else, this is one of the best examples of why I'd urge you to watch for new charts every time you visit this page since I quite often add them when the urge strikes me.  I also always leave a notice in the comments section that there is a "new chart above".  As it turns out, my methods that seem to be evolving here also give me the impression of being  kind of "folksy", kind of like a "just between us friends" sort of thing.  It's just one of those things that happen I guess, for a person like myself who doesn't offer a daily dose of EW guidance.  I'm just not good enough at it to be of any value to you on that topic.  For that type of analysis I can recommend no free site any more strongly than Pretzel Logic.  I know, I know... I've recommended that site a half dozen times already but I'll do it again shamelessly because that guy does things right on so many different fronts.  Another site you might want to consider is Michael Eckert's Elliott Wave Trends and Charts which is a subscription based service.  I know Mike personally and am proud to report that he too is a great guy.  To his credit, he also owns the same newest model of troll gun that Pretzel and I have, the Binford 6000.  And regarding his visions for Elliott Wave Theory... absolutely top notch.   One of the very best.  He offers a free trial subscription and I'd highly recommend you give it a whirl.  

In fact it was on Mike's site where my writing really kicked into second gear after having spent a couple of years commenting on Seeking Alpha.  It was actually on SA where people began to notice my commentary and began to urge me to set up a blog and start writing articles.  As you probably know by now, I had steadfastly refused to start a blog at all and only did so after years of putting up with shit from either trolls or roosters.  For me personally, one is as despicable as the other.  I just wanted to be able to participate on a site where people talk with each other as equals... as friends... as allies... as brothers and sisters... all with a common goal... to survive and to help each other survive if possible.  Sadly, and frustratingly, I found that no such site existed.

UPDATE: April 27, 2012

I've finally caught up a bit and have time to post one of the market internals charts that, as of this evening, is pointing toward a bounce of some sort.  Perhaps way more than a bounce but it's in the very earliest of stages and is still inconclusive at this time.  In the chart below we take a look at the daily view of $NYSI, which is the summation index based on the McClellan Oscillator for the NYSE:

NYSI - Click here for a live and updating version complete with a few key indicators.  It updates after the close of daily trading.

As you can clearly see, as a result of the past 3 days action on the New York Stock Exchange, this indicator is issuing some pretty serious signs that it wants to turn higher.  It's difficult to tell yet whether or not this is indicative of a major bottom or whether it's just a hiccup in the indicator very similar to that which occurred in December of last year.  That December 'blip' was caused by a sharp rally on the NYSE but it quickly turned lower once again.  That same phenomenon could very well happen this time too.  Most notable is that although NYSI is definitely struggling to turn higher, it's not from a particularly low level.  In fact, if we look at a much longer view, it's clear to see that the NYSI could indeed fall much, much further before it could even begin to be considered as 'oversold'.  Nonetheless, we have to take heed of signals such as this.

On the other hand, a weekly chart for NYSI that I have in a totally different configuration is definitely issuing a buy signal.  It remains to be seen whether or not that one too will offer any follow-through.  At this time, in the wee hours of the morning, the futures are turning bright red with CAC lower by 1.51%, DAX lower by 1.07 and the FTSE lower by... who gives a shit about the FTSE, that market is more manipulated than Gumby's dick.  The S&P, Russell, DOW and NDX futures are all red as well and apparently wanting to turn redder.  So it remains to be seen.  From the Elliott Wave perspective, a case can be made for the market to fall directly from here and another perfectly legitimate case can be made for nothing more than a correction before the market scoots off higher yet again in a fifth and final wave higher.

One other chart in the long list of tools that I use, one which I mentioned further up, is the 'percentage of stocks above their own 50 day moving average.  At this moment it is showing a signal that I'd mentioned that I would not ignore the next time I saw it.  The action in the markets tomorrow and Monday should provide the confirmation I need to see before I could fully buy into it's bullish signal and accepting that the market is probably off to gain a 5th leg higher.  In other words, much like a stochastic or MACD signal, a lower low in this indicator is possibly still in the cards.  I'll show you that one when I get time to put it together.

On another topic, since I seem to be on an anti-corruption campaign today, I might as well show you an example of how incredible it is to witness the markets being levitated against all logic on days that matter most to JP Morgan and the rest of that den of Satan worshiping banker-thieves.  It doesn't matter whether we're in a bull market or a bear market.  It doesn't matter whether or not an investor has correctly pegged the market direction. It doesn't matter whether or not a person is even involved in the stock markets at all.  The topic here is "corruption".  In the chart below we take a look at NYUD, a figure that represents the "net advancing" volume on any given time frame.

NYUD - This is such a short term chart that there's not much point in adding a link.  All the annotations will have moved off the chart in a few days anyway.  Let the 'picture' suffice to make the point.

 NYUD is a calculation of the net result of advancing volume minus declining volume.  It just makes sense that in a healthy advancing market, more volume is flowing into advancing issues than into stocks that are falling.  That's natural.  That's what makes markets go up.  But when volume starts to dry up for the advancing issues and starts to increase in those stocks that are declining, and yet the markets just continue higher anyway, you can rest assured that there's an underlying reason for it.  Of course, one might argue that just as in any other indicator, a divergence can also be expected and shouldn't be considered too "out of the ordinary"  That's true, and the correction will come.  But the point I'm making here is that you can bet the farm that you know the days when this type of activity will happen... and "why" it happens.  It's the days leading up to and the very day of options exploration.  Most Fridays and certainly on the third Friday of every month.  It doesn't happen every time, but 90% of the time is a rate that is beyond any possibility of being just random.  It's manipulation and that's the end of that story..


My apologies for not supplying more supporting evidence with this post with the addition of supplementary charts of market internals data, but I find myself short of time at this late hour and having to play catch-up thanks to a totally unnecessary disaster courtesy of the local electricity supplier... a monopolistic fascist piece of shit corporation that has about as much social skill and care for its customers as all the rest of them.  I have been without electric power for the past 36 hours and am just now back on-line.  Needless to say I have a ton of catching up to do.  If you like, feel free to bookmark this page as it is often my style to just add charts throughout the week rather than set up a new post.  With limited time at my disposal and a lot of catching up to do I'll likely have to take that route this week.

I wish you the best with your trading decisions and bid you a happy and prosperous week.


Monday, April 16, 2012

As Advertized - NDX Breaks Down As AAPL:NDX Ratio Tumbles

As I've been pointing out for quite some time now, the value of APPL shares when priced in terms of the NDX 100 is undoubtedly one of the most important metrics we can study when trying to get a handle on the future direction of the entire tech sector.  Ever since the March 2009 lows in the equities markets, AAPL has been a clear leader and is largely responsible for the remarkable recovery in the entire tech sector.  For those who might not yet be familiar with that analysis, feel free to take a look at the article published on January 1st which includes numerous charts as well as discussion explaining why this ratio is so telling.  My apologies to those who have read the article before and who have seen so many links to that article that they're getting sick of it.  I sorry.  But for the benefit of those who might not yet have seen it, it's crucial to understand why the study is so valuable in it's predictive qualities.
Well in spite of this morning's glorious launch in the grossly manipulated equities market courtesy of the wormy minds power brokers within the banking community, a blastoff which painted promises of a new and exciting green week in the equities markets, the AAPL:NDX ratio is telling quite a different story today.  Just last Friday, we presented a short piece detailing several charts and indicators that were pointing toward a pretty darned negative outlook for equities.  That brief article, which included a good variety of charts, appears to have been pretty much on the mark.  In case you missed it, and if you're interested in reviewing those charts, complete with links to live updates, please feel free to visit "I Dreamed About a Little Bear Last Night".

As of this morning, AAPL seems to be confirming that at least a pullback is finally underway.  But most importantly, although the NDX 100 is dropping with some gusto (at the time of this writing down 1.01%), AAPL is falling more than three times as hard (down 3.2%).  And of course, as a result the ratio is turning south with a vengeance.  What's most notable is that important trend lines have been broken in all three, AAPL, $NDX and in the ratio between the two.  The implications are decidedly bearish for equities in general because the NDX 100 simply cannot continue higher if this ratio is breaking down.  When a single stock that represents a full 17% of the entire value of the NDX, (a stock that is worth more than all the stocks in all the stock exchanges of Portugal, Greece and Spain combined) starts to pull the NDX down, the NDX is going down.  AAPL is one powerful horse and it will not be denied.  And you know what this means folks.  If you don't, you haven't read the article yet.

We start by taking a look at the daily chart of AAPL which shows so clearly that a major trend line which has been providing solid support all year has now been cracked with a certain degree of enthusiasm:

AAPL Daily - Click here for a live and updating version which includes a few indicators that suggest there is more downside to come.

The most important detail is that although the Nasdaq is in retreat today, its major component is falling with triple the conviction.  The net result is clearly shown on the chart of the AAPL:NDX ratio which itself has finally broken the first of its own rising trend lines, a trend line which has not only been rising since the March 2009 lows, but accelerating relentlessly the entire time.  However, we should exercise a bit of caution and realize that these developments only represent an 'initial breakdown' because in reality it is only the very steepest of the trend lines that has been penetrated.  We mustn't get too overly confident that a major crash in the NDX is imminent because there are still formidable rising trend lines beneath this ratio.  We have to consider that they will hold until proven otherwise.  But as of this moment it appears that they are going to be tested in the coming weeks and that the Nasdaq is in the process of putting in a correction 'at least'.  In the daily chart below, we get a pretty clear picture that trouble is brewing:

AAPL:NDX ratio - Daily - Click here for a live and updating version
So as I was describing as early as a year ago, it was inevitable that day would eventually arrive when the ratio between the largest single stock in the world and the NASDAQ would betray a major change in the direction for equities.  We are apparently now getting the earliest of those signals.

With all the above information in mind, I also don't mind reporting that coming into the trading day today I was slightly positioned short the market and 92% in cash.  However, today's convoluted action, action clearly designed to suck in as many bulls and bears alike then whip them around much like a dog shakes his favorite slimy rag doll, I did indeed get deked out just like everybody else did... for a moment.  I added to shorts.  But when the downward reversal this morning did not develop in the S&P 500 nor the Russell 2000 as it did in the Nasdaq, it became evident that in the latter 2 indices a clear 3 wave structure had developed to the downside, implying higher prices in the coming days.  In the 30 min. chart below of the S&P 500 we can clearly see the 3 wave structure that has evolved (something I was not expecting at the open of trading today).  I do not profess to be an expert at Elliott Wave Theory so I rely upon the visions of my friends who are.  However, I also have enough support for my new-found expectations of a bounce from other TA signals that I'm fairly comfortable with the strategy now in place.

The 3 waves down pattern convinces me that OPEX week is in full swing.  Click here for a live and updating 'print' version.

Although I'm quite convinced that any bounce we see throughout the remainder of the week is OPEX related, I'm also quite confident that it should be short-lived.  Based on this morning's fast moving developments, and with full support of a few TA signals I need to see, I bailed out of the shorts positions which I had added this morning with a very small loss... and reversed them in the name of safety.  I converted them into a hedge position which will most likely end up being more lucrative by Friday than any losses incurred by the core short position.  Considering that Max Pain for SPY is way up there at 139 and for IWM is way up there at 82, if there's one thing I have an extreme amount of faith in it's that if there is money to be stolen the manipulators know where it is and have the power to take it.  But I have little doubt that any bounce this week will end up being a dead end street.  So barring yet another convoluted reversal to the down side, I now expect that for the remainder of the week I'll be positioned "short the Russell and long corruption".  By Friday I fully expect be in the green for the week and in great shape to add to core shorts with somebody else's money.  Hopefully Goldman's, but what are the odds of that? 

In the chart below we see the potential building for a beautiful H&S pattern.  At first I was expecting the right shoulder to peak at the end of opex, Friday April 20th.  But now I'd have to say that's too early.  In any case it's definitely a pattern to keep our eyes on.  If you like you can click the link beneath the chart for the live and updating version, and bookmark it.

The potential is building for this H&S set-up.  Click here for a live and updating version.  Let's see how this develops

 Best of success to all and I bid you a great, great week :-)

Friday, April 13, 2012

I Dreamed About a Little Bear Last Night.

A lot has happened in the equities markets this week and it sure appears to me that the signals are becoming clearer.  True enough, there are a few signals such as that of the McClellan Oscillator which suggest that the market is a bit oversold, but by and large the signals emerging as of today are, in my humble opinion, overtly bearish.  Without a great deal of commentary, I'll just post a few charts below that are issuing the signals I'm paying a lot of attention to.  With 2 hours remaining in this trading week, perhaps the signals will be even clearer by the end of the day.  And perhaps not, since we so often see the markets end a week leaving as many investors guessing as possible.  I don't know about you but I'd rather not be guessing.  I want evidence.  So without further ado, here's the evidence that seems pretty convincing to me... at least as of this moment:
In the chart below it is now evident that the recent bounce has been an 'abc' wave 4 correction.  In the interests of full disclosure, I do not pretend to be proficient at Elliott Wave Theory and am more than happy to defer to those who's work I admire a great deal and which I refer to on a daily basis.  That being said, in light of the fact that I am still permitted to have an opinion, this is what I think I'm seeing.  To the best of my knowledge, a wave 4 is followed by a wave 5.

Even for a person who's not the best at EWT, I think this picture is pretty clear.  It must be, it's about the only count I can ever recognize.  Click here for an updating 'print' version.
At the time the above chart was posted, the peak of wave (a) had indeed been penetrated.  Arguably, had it been a line chart showing closes only, it has not actually happened.  Make it a 10 minute chart though and even on a closing basis, yes it has.  Give it a couple more minutes then click the link for an update.  I think it's going to look quite a bit different before this trading day is finished.

In the chart below we see what the Russell 2000 looks like in terms of a Renko chart.  Basically it demands a minimum sized move before it will build another 'brick'.  The word "Renko" means "brick" in Japanese.  The word "merda" means "turd" in Italian... more or less  Just thought you needed to know that.  I don't specifically have a "merda" chart but just pick any bank stock if you'd like to see a sample of what a turd looks like.  Like Goldman for example.

Russell 2000 Renko style chart.  Click here for a live and updated virgin.

AAPL has broken a major 4 month long trend line and as we can see in the daily chart below, it continues to deteriorate.  Although it hasn't broken down convincingly yet, the indicators make it clear that the table is set for it to do just that.  Further, this breakdown is going a long way to confirming my alert of yesterday that the chart of the ratio itself is also breaking down.  We'll look at that chart a little further below:

Click here for a live and updating chart that has a few indicators which are pointing out a very precarious situation here.

And as a result, the AAPL:NDX ratio (which is covered in detail here) is issuing a severe warning.  Let there be no mistake about it, the NDX 100 cannot continue higher if this ratio is breaking down.  When a single stock that represents a full 17% of the entire value of the NDX, (a stock that is worth more than all the stocks in all the stock exchanges of Portugal, Greece and Spain combined) starts to pull the NDX down, the NDX is going down.  AAPL is one powerful horse and it will not be denied.  The ratio hasn't yet broken the trend line convincingly but judging by the momentum indicators that event is darned near inevitable.  And you know what this means folks.  If you don't, you haven't read the article.

Click here for a live and updating chart with indicators showing why this breakdown is likely to continue.

Next up is those air pockets.  Let's not forget about the air pockets because they identify price ranges where the candles should slice right through like a hot knife through butter.  Look out below (I mean 'look at the chart below'):

Look out below.  Just a heads up that there are significant air pockets just beneath the market.  This situation exists in every single market I can get volume stats for.
Judging by the past volume activity, we could argue for a case where we won't even see any support until the S&P has dropped down to perhaps the previous support somewhere around 1340.  In fact, I'm fairly convinced that's the target and I'd consider 1340 to be a key level.  But first up... let's see what happens at 1370.


With the chart below I'd like to demonstrate why I focus on the market internals data as much as I do.  This kind of information is crucial to understanding whether or not a sustained rally (or decline) is real or not.  Many times it is very real, with a head of steam that is surely not going to end anytime soon.  At other times, it's as phony as a 3 dollar bill.  Lately it has more or less been doing the old Wylie Coyote trick.  Sooner or later a market has to either pull back or crumble completely when it becomes apparent that fewer and fewer horses are pulling the old stock wagon up the hill.  More often than not it's just a pullback.  When we're in a bull cycle that is, as has been the case for the past 37 months.

Here's what has been happening with the number of stocks that are considered "bullish" as determined by their point and figure charts, aka the Bullish Percentage.  The chart looks kind of "busy" but really, it's the annotations that best describe the more poignant things to be looking for.  In order to make it "less busy", I've removed the S&P 500 as an overlay and have placed it in a separate panel below.  I've also provided a link below the chart to the version which shows the both of them overlaid against one another:

Bullish Percentage betrays undeniable market weakness when it occurs.   Click here for a live and updating version of the chart above.  Click here for a version where the S&P 500 has been moved up to become an overlay.  It might look a bit "busier' but it's the best way to actually appreciate the divergences.

Here's another peek into some of the studies I do for my own satisfaction that I know which way the market is going to be headed.  Not always dead on but seldom do they lead me too far astray either.  This daily chart below shows the Russell as priced in units of its own VIX.  It's a measure of whether or not the Index is becoming cheaper or more expensive relative to 'insurance' against a drop.  When the stock markets are rising and the ratio is also rising, it means there is very little fear out there of a pullback.  And 'they' are probably right, 'they' being the world of the larger players because after all, it's they who are doing most of the options trading, not us little people.  In the chart below we can see that the ratio seems about ready to tip over, meaning that the Russell is getting cheaper relative to its VIX.  In other words insurance is getting more expensive.  And we know what that means... "risk" is beginning to taste pretty bitter right about now:

The Russell 2000 is beginning to get a bit cheaper vs. its own VIX, meaning that the appetite for risk is waning.  The correlation between this ratio and the Russell is very reliable.  Click here for a live and updating chart.

The correlation between this measure and the Russell itself is undeniable and is an excellent indicator betraying when the RUT is about to roll over.  Of course it's not perfect but it sure as heck does reveal the general attitude that the big players are adopting.  When they're getting nervous we'd better take note because generally speaking they're going to be right.

In conclusion I'd like to share a little personal story.  For as long as I can remember, my beloved parents had been taking me, along with my siblings to a wonderful little mountain hideaway so far from the beaten path that very few people have even heard of it.  Waterton town site, within Waterton National Park is a true gem and so under-commercialized that the majority of the residents and visitors are wildlife.  In my entire lifetime, I have never once visited Waterton without seeing a bear unless it was winter... in which case I'd have to dig into the snow or a cave in order to find them sleeping.  My dad always told me that that wouldn't be a good idea so I've never tried it.  But if there's anything I have confidence in, it's that I recognize a bear when I see one.
Here are a few sneak peeks into some of the beautiful visions I have enjoyed since my youth.  Thanks mom and dad. You're still the two most beautiful people I've ever met:

Cameron Falls right in the Waterton town site.  I stood at that rail 50 years ago.  I stood there 2 years ago.
Red Rock Canyon
Prince of Wales Hotel
Where it's located - I was born 40 miles from this spot.  Could see these mountains from my back yard.
Prominent Waterton Resident
Autumn anywhere in Alberta is beautiful, but Waterton seems special.
All of it in one big snapshot.  And now you know why I use the name I do

Well that's about all I have time for today.  Here's wishing you the very best going forward and I bid you a wonderful weekend.

Tranquility Base - over and out


Sunday, April 8, 2012

This Particular Diamond is a Pearl

One of the failings of the style of beanery we're running here is that once a post has been published, over the course of the next week or so additional charts are added from day to day.  Friends tend to gather at that post to discuss the charts as well as other general market discussion. Occasionally new charts are added at a key juncture in the equities markets and may display something of key importance such as a major trend line break or a very important reaction to some particular market force.  There could be no better example of that than the chart we're adding right now... with this post.

However, by adding charts on an ongoing but irregular basis to an already existing post, none of the other blog owners nor their readers are being informed about the addition of those charts nor about any of the accompanying discussion surrounding them.  The other blog owners and their readers 'want to be' informed, which is why they carry this blog's name in their blog rolls.  Conversely, this is why we carry the names of other blogs in our blog roll as well.  Whenever a new post is published by 'any' blog, that blog rises to the top of all blog roll lists (where it is listed and where 'feeds' are enabled) as a method of 'alert'.  In our case, that alert to our friends is not being issued, which is perhaps quite unfair to the other blogs who have chosen to include this one in their list of associates.  They simply are not being told about the additions to existing content.

From this day forward, any charts that are added to an existing "gathering of friends" will also be published as an original post much like our friend Chartrambler does.  Each of those new additions will also carry a brief description of the main topic of attention as well as a link to the pub where friends have gathered for discussion about that chart as well as all others that had been posted previously.  In this way, the friends of this blog will also be kept up to date to the fact that there are new charts that are available for viewing.  And of course, all are welcome to drop in for a cool drink and a bit of chat.

With that said, here is a 60 minute chart of the S&P 500 which shows both the classic diamond pattern that completed on Thursday as well as what the first hourly bar on Monday would look like after Friday's futures action... action which occurred as the western markets were closed for Bad Friday:

The potential target of approx. 1366 by Wednesday comes from the white arrows, not from the diamond. A more or less typical 'angle of decent' for pullbacks in the S&P is also used in order to make the projection as reasonably accurate as possible.   Click here for an updating 'print' version.

As I'd mentioned, from now on these 'updating' posts will be restricted to the chart itself with perhaps a brief description of it's main theme.  Analysis and dialogue about it will be available at the general chat post where friends have gathered for general and ongoing discussion. Of course this chart well appear there as well.

Since this is the first post of this type, I consider it almost as a test post.  We will be able to measure its effectiveness immediately as other blog owners and their readers will from now on be alerted in a much more timely manner that additional charts have been included for their consideration.


Friday, April 6, 2012

Where Friends Gather - April 6, 2012

Welcome to the new pub ladies and gents.  The previous pub session (March 31st) was located here.  We enjoyed some great discussions back there covering a whole range of topics and were blessed with some really good charts.  So feel free to revisit that post at any time.   What better time to start a new session than now, now that we're firmly embedded in a long weekend, last week's trading having closed precariously at the edge of a cliff.  And now that the markets are closed, the jobs report turns out to have been a gigantic miss and of course, as is standard procedure that report was issued on a day when the markets were closed but the futures were open.
Well what do you know?  When the markets closed on Thursday, we had witnessed a day when not a single market tipped its hand, steadfastly refusing to give traders any idea which way it would be headed on Monday morning after a 3 day weekend.  In the last pub I had mentioned the air pockets that lie just beneath all markets and that there were H&S patterns showing up in large numbers seemingly everywhere.  Add to the mix the fact that market internals were in such an incredible negative divergence with the equities markets and we suddenly find ourselves looking at the possibility of seeing the markets drop into the abyss.  Let's get started with a few charts that I brought from the last pub.  Let me stick 'em up on the wall here and let's get started.

First up is a chart of IWM which I have full confidence in as being one of the biggest, fattest canaries in the entire world of western equities markets.  Small caps lead, (in both directions) and when the markets closed on Thursday the Russell 2000 was poised right at the edge of the cliff.

Futures have shown what lies in store next week.  Click here for a live and updating version with a couple of indicators.  Click here for a 'print' version for those not subscribed to StockCharts.

Pick anything you like and enjoy the rest of the week.  We never run out of drinks in here.

And in order to avoid looking like a complete idiot on Monday morning, here's a screenshot I took as evidence of what futures looked like on Friday when they closed.  Again, this is the Russell 2000:

Futures on the Russell 2000 as they appeared at the close of futures trading on Friday, April 6th.

Next up we take a look at a classic diamond pattern that formed in the S&P 500.  It too provides a measured move opportunity that gives us a reasonable target.  Keep in mind that the 'measured move' possibility comes from the white arrows and not from the diamond.  In no way do I pretend that I "knew" markets would be headed lower based on the diamond because realistically they could end up being a 'reversal' pattern just as easily.  All I was confident about was that "if" the markets headed lower, it would more than likely be with a vengeance.

The potential target of approx. 1366 by Wednesday comes from the white arrows, not from the diamond.  Click here for an updating 'print' version.

Last week I was speculating on the fact that the first two waves down from the recent high were of equal length, that the next move lower (the one that we're apparently going to see starting Monday) would be an extended 5th.  I still think that's the case.  So I expect the entire move beneath the "neckline' or whatever you prefer to call it will be a 5 wave structure.  If that's the case, the target shown will probably be exceeded judging by the length of this first candle alone that's apparently going to show up first thing on Monday.  That measured move as shown is a 'minimum' and not necessarily the full extent of the decline.

With the chart below I'd like to demonstrate why I focus on the market internals data as much as I do.  This kind of information is crucial to understanding whether or not a sustained rally (or decline) is real or not.  Many times it is very real, with a head of steam that is surely not going to end anytime soon.  At other times, it's as phony as a 3 dollar bill.  Lately it has more or less been doing the old Wylie Coyote trick.  Sooner or later a market has to either pull back or crumble completely when it becomes apparent that fewer and fewer horses are pulling the old stock wagon up the hill.  More often than not it's just a pullback.  When we're in a bull cycle that is, as has been the case for the past 37 months.

Here's what has been happening with the number of stocks that are considered "bullish" as determined by their point and figure charts, aka the Bullish Percentage.  The chart looks kind of "busy" but really, it's the annotations that best describe the more poignant things to be watching for.  In order to make it "less busy", I've removed the S&P 500 as an overlay and have placed it in a separate panel below.  I've also provided a link below the chart to the version which shows the both of them overlaid against one another:

Bullish Percentage betrays undeniable market weakness when it occurs.  Click here for a version where the S&P 500 is moved up to become an overlay.  It might look a bit "busier' but it's the best way to actually appreciate the divergences.  If you left click either chart in order to bring up the "lightbox" you can then toggle between the two versions.