Pullback on Monday?

With April options expiration, and Friday marking the end of the 6th straight up week (wouldn't have been with a decent down day), as well as 875 SPX resistance so close to being hit, Thursday was a day to test that resistance and push the technical indicators a little bit more to the extreme.

We think Monday will be a big move day. A small change in NYMO Friday indicates a big move is coming, so we expect a big move early next week. Also, the Monday after expiration has had big market moves recently.

Friday's late breakdown of the rising wedge that formed over the last 3 days, combined with some extreme indicators and negative divergences, make us think the big move will be down. Below are updates to the charts we posted Thursday:

Here's the updated close-up chart of the 10-day EMA of NYSE TICK:


If Monday starts a pullback like the last 5 times this TICK 10-day EMA peaked over 600, the market should sell hard into Tuesday at least. If the huge rising wedge below breaks on this pullback, it should sell off much more.

Here's the updated chart of the % of S&P 500 stocks above their 50-day moving average:

Before this rally, spikes over 80% preceded significant selling. Friday, this indicator moved even higher, to 89.6.

Finally, here's the updated hourly chart of the S&P 500 showing a huge rising wedge along with a bunch of bearish divergences on PPO:

The PPO histogram has started to turn over, and it looks like PPO is making an incredible 5th lower high while the market makes a 5th higher high. A bearish cross of the black line below the red line would confirm the sell signal and the start of the pullback.

Many technical indicators are pointing to a pullback starting Monday. That worries us a little bit, because it seems almost too clear, especially given the exact hit at 875 resistance (like the early March exact hit on the devilish 666 support) and all the obvious rising wedges/ending diagonals with many clean trend line hits. If the market instead launches higher through 875 resistance on Monday, it could be a big squeeze move up rather than the big move down we expect. However, we think the chances of that are remote.

Comments

[RiskReturnO...:]

Fibonacci and astrology guys also point to Monday as start of new cycle ... we'll see shortly as Asia opens in few hours.

Apr 19 07:10 PM

[ctalk:]

charts don't lie.
Still have to test 6500 level on the dow a couple of times to confirm the bottom folks


On Apr 19 05:08 PM Cetin Hakimoglu wrote:

> Even if there is a pullback it will be very brief and the market
> will keep rising, anyway.

Apr 19 07:23 PM

[allforone:]

I totally agree. Monday's market might tank, or else it might go up. It seems the only thing charts note is history and not a predictor of the future. If charts told the future we would all be rich.
I'm really hoping for an up Monday and a big, big squeeze. That would make for an interesting day.
S&P 870 end friday, 885 end monday.

Apr 19 07:52 PM

[Buy and Hol...:]

A pullback after a 30 percent rally is something that should be expected. The bigger question is whether it's just a temporary dip or not.

I find it hard to believe that people are so optimistic about things given the fact that 600K plus people are filing for unemployment claims every week; earnings are going to be horrible; and we are nowhere near done with the deleveraging that needs to take place.

Apr 19 10:33 PM

[robo:]

Ok I've never posted any opinions about market direction before but here is a very small coincidence I noticed. The market trended down about 41 days into a inverted head and shoulders formation and has now risin to complete this formation and retest the neck line. Neck line highs were all between S&P 868 and 875 . Significant resistance at 875 and market was rejected there last week. If you project the formation out 41 days from the low on March 10th, you get......April 20th as upper range of the neckline. If it mirrors the opposite shoulder exactly well head lower during this week with a short pop mid-late next week maybe 15-20 points max. I'm not a techical anylist and this is just my opinion

Apr 20 12:47 AM

[Roger Knights:]

Three and a half hours before NYSE open Monday and Dow futures are way down: 7987 (and sinking).

Apr 20 05:54 AM

[frank90291:]

all these technical analysts, clairvoyants and predictocrats remind me of the b-s the politicians and their spinners are foisting on the gullible............

these guys must all be trillionaires ..... LOL

Apr 20 10:14 AM

[gregor1066:]

Looking for the most unexpected outcome for the market, I am sure that it will trend sideways for a week or so......

Apr 20 11:43 AM

[gregor1066:]

Market as always will do the unexpected. To wit, it will tread sideways for a week or so...............

Apr 20 11:44 AM

[Skeptik:]

Not only TO in play now::
seekingalpha.com/artic...

Apr 20 12:26 PM

[Jasper M:]

And he is vindicated.
Try not to be too insufferable about it. In roman times, we would park a slave behind him, in his chariot, whispering "Remember, though art mortal, doomed to die, and all this glory is fleeting . . . "

Apr 20 12:32 PM

[Quasar71:]

YAWNNNN!

Apr 20 02:07 PM

[Dustinian:]

Yup, pullback on monday.

Apr 20 02:24 PM

[TraderRob:]

Leading into earnings season the street expected reports to disappoint but felt guidance would move markets. Ahead of financial reports WFC pre-announced "record profits" for Q1, sparking the fierce exodus of short positions into Easter weekend. Initial reaction to the "earnings blowouts" among financial firms has been positive, but banks stocks have risen drastically and many are suspect of earnings numbers, given the new recording options of toxic asset values under mark to market revisions.

Economic indicators such as jobless claims and housing data began to slow their rate of decline simultaneous to the aforementioned earnings reports, causing euphoric sentiment to extend the rally in U.S. equities. However, the thought process leading stocks to the current levels must subscribe to "V shaped recovery" theories, which will be debunked as economic conditions continue to worsen.

The S&P 500 is diving towards support at 830, which should hold up in the short term. Below that the next level is 790, symbolic of the 50 day SMA, and will serve as the hard floor through which a bull market would not break. Keep an eye on macro data and earnings from tech, which may keep things in this range for a time, but take profits on pops and look to short banks and retailers.

Apr 20 02:38 PM

[Abraxas:]

well, I certainly looks like you will be the one flushing all you learned!

The authors were spot one!


On Apr 19 03:17 PM ZAIDANE wrote:

> If the market goes up Monday,will you flush all you learned so far
> in the toilet?

Apr 20 06:33 PM

[ed233:]

Great call!!!!!!!!!!!!!!!!!

Apr 20 06:48 PM

[cebu sun:]

TEch Analysis haters:
Don't hate what you don't understand. "Those ignoring history are doomed to repeat it." That's OK, pls continue with your vapid methods. We will continue toprofit while you curse the charts you cannot understand. History does not repeat itself but it sure does rhyme.

Apr 20 09:53 PM

[Suncatcher:]

Cetin you must have been buying like a madman today. Dang I wish the author had told us what to expect for Tuesday.

Apr 20 11:44 PM

[123dawson:]

Let me quote the author for you:

"If Monday starts a pullback like the last 5 times this TICK 10-day EMA peaked over 600, the market should sell hard into Tuesday at least."


On Apr 20 11:44 PM Suncatcher wrote:

> Cetin you must have been buying like a madman today. Dang I wish
> the author had told us what to expect for Tuesday.

Apr 21 12:28 AM

[David Hasson:]

Sadly I wish that had been true

Apr 22 01:58 AM