Nice round numbers (3X S&P 500 Bull)

Disclosure:  I am long SPXL, seems to be headed higher.

 

Fifth Wave?

Yesterday's breakout in the major indices brings into view the all time highs on the S&P 500 and the DJIA. As stocks continue to rally through new 52 week highs towards all time highs, investors should keep in mind that this is the third major multi-month push in the bull market that began in 2008. In terms of Elliot Wave Theory this would be the fifth and presumably final wave of the cycle. There's a very good chance that we will push up to those all time highs soon, testing the highs of the 2000 and 2007 bull market peaks (at ~1500 on S&P). While everything is 100% bullish in the short term, this fifth wave is likely going to be the end of the recent secular bull market. The direction is higher for now but I feel fairly confident that sometime later this year deflation will rear is ugly head. Be prepared.

Five Charts Suggesting a Top is Near

1. Key divergences on the S&P 500. As the index has made new highs recently, key price indicators such as RSI, CCI and MACD have made lower highs:

2. Apple has capitulated. The three year rally in AAPL shares from $100/share that has made the company the largest in the world appears to have ended with a blow off top:

3. The VIX broke out. Despite the recent rally in stocks, the volatitlity index has broken out and remains off the recent lows set a few weeks ago:

4. Bonds remain in a long term uptrend. Bulls want to see yields rise as investors favor stocks over bonds. Instead, bonds have held support recently and remain well above their 200 dma:

5. The dow transports are rolling over. Dow theorists will note that the transports are significantly underperforming this year, hinting at underlying weakness in the market:
It feels like most market participants are expecting a massive rally after Greece gets bailed out again and are afraid to sell. I don't claim to know how the market will react to the inevitable bailout news, but stocks are well positioned for a fall from here. I'm thinking that any push higher (perhaps on bailout news) from here provides a low risk shorting opportunity, at least in the intermediate term. So far I just have a few small shorts on but hope to add more this week.

Disclosure: I have no positions in the above stocks but am short IWM with puts.

Saturday Rock Blog: Burnin' (S&P 500)

Double bottom, simple ABC correction or something far worse?

A simple ABC correction targets $106 on SPY or ~1057.5 on the index. If this is the beginning of a new long term trend, as the cross overs in the chart above suggest, then the bottom could be potentially much lower. However, I wouldn't be surprised to see Bernanke play some card up his sleeve and send us spiraling higher out of a double bottom. I am posturing bullish at the moment even though I don't think we've seen capitulation yet (on either side). I tend to think that the bull market isn't over yet and that we have one last big leg up, but honestly, these charts suggest otherwise. I'm leaning more towards a fundamental, longer term, argument that inflation should start creeping back up with rates at zero percent for two more years. So I'm not trying to trade these swings but nibbling when there's blood on the street.

Disclosure: Long IWM, LNKD, FSLR (broken charts, I know)

09/10/10 SP500 Market Update - Battle of the Golden Crosses

$SPX Cash SP500 Index Daily 04/01/10-09/09/10:

The SP500 is stuck between a rock and a hard place after the highs for the year were made in April up to the 1220 level. For the past three months, the market has been trading within a range of 1000-1130, as forces continue to push and pull this market back and forth. The SP index is up 7.1% for the quarter, up 10.8% from the lows in July, down 9.5% from the highs in April, and still finds itself to be at -.01% for the year! There has been a lot of fundamental activity that has attributed to the indecision in investors and the market to find direction, however this market has also rallied 83% from the lows in March of 09 before the brakes were hit in April as the SP retraced nearly 61.8% of its fall from 2007-2009. This year has been a year of consolidation to put it at best.

The high created a small head and shoulders in April which ultimately led to the flash crash. The past 4 months has been a right shoulder of a much larger h/s formation as seen in the weekly and monthly charts below. The daily chart above has brought 2 "golden crosses". A golden cross is when a short term moving average breaks through a longer term moving average. The first cross was created in early July as the SP500 sold down to then 1010 level, the 50 day crossed through the 200day moving average. This breakdown failed and the market marched back up to 1130 and created another head and shoulders formation between 1060-1130. The second golden cross was created in late August as the market broke the neckline of 1060 and the 100 day moving average crossed through the 200day to sell down to the 1040 level. This breakdown once again failed and the market held to create a right shoulder in an inverted h/s pattern from May to August. This test late August saw 3 lows (1039.83, 1039.70, 1040.88) another inverted h/s pattern. This area subsequently was also the time that the Fed chairmen Ben Bernanke reiterated he did not expect to see another double dip in the economy. Another squeeze occurred and the market traded back to the 1100 level. As of this Thursday the SP500 has broken through the trend line from the April highs to the August highs. This is a major area of resistance, as the market is now testing the "head" of the h/s pattern up to the 1130 area. The reason there are so many h/s patterns in my opinion is due to the market consolidating and fighting between forces back and forth.

The bulls at these levels need to try and hold to regroup and attempt to squeeze higher once again. They can say the ball is in their court because the market is in an uptrend for the past 2 years, and the longer they hold these levels the better shot they have at pushing higher. Working with an inverted h/s formation between 1130 and 1060, which could potentially target them to the 1256 area. To do this, they will have to break through 1130, hold to test 1150, 1175, and ultimately the larger head and highs in April. Sellers will be met at all of these levels with first line of defense at 1130. Below the weekly chart will attempt to show a different view and possible scenarios.

Continuous Emini SP500 Weekly 01/16/09-09/09/10:

Weekly shows a 38.2% retracement of the rally from March of 2009 to April of 2010. Since the highs the market has consolidated and stayed well under 1130. This has created an inverted h/s formation between May and August of (1129.50 head, 1002.75 neckline) that would lead to 1256. This formation is within a right shoulder of a much larger head and shoulders pattern that forms from September of last year to now with the highs in April and 1000 level as the neckline. This range and break of 1000 targets the 783 area. If you have faith in Ben Bernanke, you would not be in this camp looking for that direction. However it is the larger formation which is stronger and leaves the market needing more energy to push higher and get through resistance.

$SPX Cash SP500 Index Monthly 02/01/07-09/09/10:

Above, the monthly chart shows the head and shoulders formation that is embedded between the neckline of 1000 and the highs in April of 1219.80. So for the past 4 months, we have been digesting market activity within this right shoulder. Head being near the 61.8% retracement, and neckline being at the 38.2% retracement. If you are a bear, this would be the right level to sell into and risk the highs, bulls have the "plunge protection team", quantitative easing, and nothing but buy stops above. Continue to monitor these technical levels, with the break of support we want to be sellers, and with the break of resistance we want to be buyers. Play the range until the market finds conviction to move one direction or the other.

$VIX Cash Volatility Index Daily 03/01/10-09/09/10:

Volatility and "fear" factor continues to die out and the vix has traded within 21 and 28 for the past two months. This is a range where one would want to consider buying protection against long positions when vix nears lower end.

Continuous Emini SP500 / Continuous 30 year Treasury Bonds Weekly:

Quick video on price action from April highs to today:

RISK DISCLOSURE: PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING FUTURES AND OPTIONS IS SUBSTANTIAL AND SUCH INVESTING IS NOT SUITABLE FOR ALL INVESTORS. AN INVESTOR COULD LOSE MORE THAN THE INITIAL INVESTMENT. OPINIONS EXPRESSED. INFORMATION COMPILED FROM SOURCES BELIEVED TO BE RELIABLE, ACCURACY CANNOT BE GUARANTEED.

Thank you and best of luck trading!

Stewart Solaka
futuresMONSTER

Twitter -Chicagostock

Saturday Rock Blog: Wildfire

The S&P 500, 3 month, daily:XLF (Financial sector ETF), 6 month, daily: