Why The Market's Set to Move Lower For the Rest of the Month 15 comments
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With pretty much all major indexes pointing toward a lower market open this morning, it's time to think about the scary reality of the that stocks are facing right now... Welcome to the failure zone:
The bears are starting to sway the market right now, and it looks like the rest of the week could see things significantly lower. The "Failure Zone" -- that area between the red lines in the chart above -- is the area to watch in the next 2-3 trading sessions.
For the last few months the market has been in a series of rally and slide cycles generally lasting around a month. At the beginning of November, as the S&P 500 bounced off trend channel support (the lower blue line in the chart), it looked like we were starting yet another month-long cycle with a price target of around 1150.
But stocks hit the brakes early in the week, giving already nervous investors even more reasons to turn bearish. So, should you be worried right now?
Probably not.
While seeing the S&P make it up to trend channel resistance (the upper blue line) before turning tail would have been an ideal situation from a technical point of view, with the current cycle top only around 4% shy of that target level, we can safely assume that the market's just following its own rules right now.
And with the 50-day moving average AND trend channel support sitting well above 1050 right now, the market has a double safety net to fall back on.
Prognosis: Expect a couple weeks of losses down to the strongest of those two support levels.
But what about that "Failure Zone" in the chart above? The Failure Zone is basically the area that determines where stocks are headed in the short term. If stocks manage to break out above the danger zone, we'll likely make it to that 1150 cycle target that we were hoping for at the beginning of the month. If stocks continue to push below it, then expect that move down to support to happen sooner rather than later.
Either way, it seems pretty clear that a pullback is in store in the next month...
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I'm playing for a breach of the "failure zone."
If I'm wrong, that will make me a failure.
You, my friend, have much potential. Keep going.
The central banker and the Fed are busy pumping up the market with billions of tax payer money.
This is a one way street my friends, there is no room for failure of the market. There may be drop in the market, but it will last for a short period and there would be no meaningful correction.
We live in an era of separation between the main street from Wall street. Good luck trying to apply Technical and fundamental analysis on your investment.
While the fundamentals are no doubt bleak, to say the least, I'd be very careful about shorting this market until there is true confirmation that the next leg down has truly begun.
In the longer term, the uptrend is still holding strong (see the chart above).
Probabilities in that order.
Highest probability is still the consolidation range of higher highs and higher lows that has formed since August is either a regular flat or a running flat. An A-B-C pattern with the C-wave down finalizing at 1029 for SnP500 which was the last low in Oct 2.
Target for a normal flat will be 1150 to 1182 range while a running flat scenario can support a rally toward 1270 to 1330 range.
My comment of Oct 31, 2009 still stands as is.
Running Flat failure can result in 957 as the most obvious support for the bulls if panic selling happens on the weekly chart. Vertical selloff usually happens when the running flat results in traders and/or investors running out of patience with the prolonged period by which the stock or the market not being able to produce a vertical rally despite their repeated attempts to drive it higher.
Timing is everything when this type of higher highs higher lows start forming on the daily chart after a potential bottom has been established such as the one we had in March 2009.
So far; my analysis at 1020 when Spx first tested the daily 50ma had been correct and at 1030 area on Oct 31.
Either we go vertical rally on the weekly chart or traders and investors will run out of patience at this critical time period.
The 12 days of rally will require 12 to 18 days consolidation range preferably a shallow one and not too much time doing nothing with the run from 1029.37 of Oct 2 low to the last high of 1113.69 as the defining range. An attempted rally toward 1121 fibo extension resistance is also not out of the question but more likely will result in a headfake.
1081 and 1071 are the most obvious fibonacci supports on the 60min chart with the current wavecount structure. The daily 20ma can also provide a viable support for the bulls.
As long as the bulls can keep preventing a sudden death meltdown and/or a prolonged indecision trading range; we are good to go for 1150/82 range and if time permits 1270 to 1330 range before the next earnings season starts January 2010.
A potential panic selloff after the re-entry below 1101 is the last best hope for the bears for their meltdown agenda.
This was attested by the low volume rallies and high volume selloffs and the "unusual" rallies of VIX in Sept and Oct during rally days. Investors were buying protections during rallies and selling as much stocks as they can during selloffs at that time period.
At this stage; perma-bears should be running out of capital already with the repeated short squeezes they suffered if not many of them bankcrupt already.
Perma-bulls, at the same time, will be running out of cash and holding lots of stocks and may run out of patience if a vertical rally does not happen soon. They may decide to sell and take as much profit as they can while the going is still fairly good if not great at all.
Most TA's failed to recognize that the volume spikes during sell-offs are divergence signals. During normal lower high lower low corrections; high volume sell-offs sustain further downsides. From August to Oct, high volume sell-offs resulted in higher prices later on. Those are the divergence signals.
Those undecided investors will be the deciding factor.
They kept reducing their holdings and many of them too disgusted with themselves by now that the markets are still going up. They are holding too much cash for nothing and can't buy at lower prices since the stock market just simply and plainly kept on going up.
Any sign of volume pickup during rallies will start a stampede of those left-behind investors too tired of waiting for the market to give them a reasonable 10 to 20 percent pullback or discount.
If we get a strong stampede; then 1270 to 1330 not too far away.
It's the fundamentals that no longer count. MSM does.
How crazy it is that, fundamentally speaking, as the FED QE's our economy into an abyss, the stock market is rising.
The quirky reverse conundrum theory is that if the FED does the prudent thing, to understand one can not spend what one does not have, then the entire planet will drop into a depression.
Catch 22.
What to do? I say take the pain now. Rather than putting it off, exacerbating the future pain that will endure for the next generation.
Given the fundamentals of our economy, it's a perfectly valid choice to stay in cash now. You won't make any money, but on the other hand, because you aren't losing any either.
But if your choice was to short this market, in face of a clear technical uptrend, well, the losses you incurred are exactly what you asked for.
Ignore TA and market direction at your own peril.
On Nov 20 04:12 PM twitee wrote:
> In case you have not realized, technical and fundamental analysis
> has been out of the window since March 9 2009.
>
> The central banker and the Fed are busy pumping up the market with
> billions of tax payer money.
>
> This is a one way street my friends, there is no room for failure
> of the market. There may be drop in the market, but it will last
> for a short period and there would be no meaningful correction.
>
>
> We live in an era of separation between the main street from Wall
> street. Good luck trying to apply Technical and fundamental analysis
> on your investment.
>
>
>
>
none of the problems have been fixed...
it's a zombie rally in a zombie market...
it's Japan only global...