$SPX 04/04/2014: Consolidations don't breed rallies, Part II

SP:SPX   S&P 500 Index
228 10 3
I have to tell you that I was confused by the 5pt gap up in the S&P             futures last Sunday evening. I was further confused by the intensity of the rallies on Monday, Tuesday, and Wednesday. When you see a rally of 33pts over three days on nothing, you just have to wonder. Because the P/C ratio dropped to .66 and the $TRIN closed at .64 on Wednesday, I did expect a pause for Thursday, but I was totally blindsided on Friday as I fully expected they were going to run $SPX             to 1900. The measured move on the break out of the symmetrical triangle pattern would take $SPX             to about 1910 and that still could happen but right now we're back inside that pattern which suggest this was a false break out. Confirmation of this false break out theory would come with a break of the lower triangle line now at about 1845. (Edit: After taking a closer look at the $SPX             symmetrical triangle, I see that the bottom of the triangle pattern is closer to 1850 than to 1845, so this 1850 area becomes much more important as a support level .) But we're not there yet.

In the meantime, $SPX             has moved back inside the upper consolidation range. The bottom of this particular consolidation is 1850. I don't know that $SPX             will hit that as Friday's big sell off might just be a one-day event, but if Friday's sell off proves to be more than a one day event, then you just have to expect 1850 will be tested and perhaps fail. Since so many of these consolidation periods have led to pull backs, then, until $SPX             breaks back above 1884 with gusto, you just have to on the look out for a break of 1850 in the first few days of the upcoming week.

With $SPX             up less than 20pts for the year and with QQQ's, IWM             , IBB             , and $COMPQ in negative territory for the year, it should be obvious to everyone that there is something wrong with the markets. Are we witnessing a major distribution phase similar to those of 1999-2000 & November 2007, or are we just going to consolidate between the low 1700's and the high 1800's in preparation for the next move higher? I don't have an answer but surely the market will show its hand before too much longer, or famous last words. For now, and until we do get a clear directional signal, caution is the word of the day.

IMHO and subject to change without notice.

GL in the week ahead.
Hi trucks,

Just a quick note in the event you don't have time to get to the DXD board today (Tuesday 4/8).

The SPX 50 DMA is tagged today at 1840.34. This is higher than yesterday's 1834.63 tag point as the 50 rising because the values dropping off are below 1800. The ES overnight low traded at an SPX fair value equivalent of 1839.54 so on a fair value basis the 50 has been undercut slightly. No idea if it will hold but of course what is more important is the close.

FOMC minutes tomorrow at 2. Anybody's guess as to how the gyrations resolve out. Strap up and GL.
CurtisM RedQueenRace
RQ, as always, these kinds of pull backs end with a major red day on heavy volume. Hasn't happened yet but back in late January it appeared the pull back was over and then market dropped like a rock into a capitulation event so just be careful until we get that.

Also, I did post over at DXD that my $TRIN gave a sell at the close yesterday, Monday. $TRIN close above 1.xx today will confirm. Late this time.

I'm doing a road trip today and won't be back until late Wednesday. See ya then.

The SPX bounced off the 50 dma support line. The Nasdaq composite had breached both the 50 dma and 100 dma and approaching the critical support of 4500 and 4000. Tomorrow could very well see a bounce but shorters might just take that as another opportunity to short the market. Time will tell.
got out a little early was faked out by spx being so strong, figured IBB would bouince too.
CurtisM stockSMASH
If you made $$, then that's the only thing that matters.
CURTISM....major, total and undeniable breach of important ALGO line on SPX, DJIA and of course, NASDAQ on WEEKLY charts. WEEKLY CONFIRMATION IS THERE. Much more down coming. Dow will test 15,400. Spx 1810, Bounces possible, but 1770 likely in da SELL in MAY. April will be red. Your rising wedge should scare all who see it.
CurtisM stockSMASH
biff, I'm pretty late to the game on this bearish rising wedge. I just noticed it this morning but others here at TV have been watching it for a while. Regardless, it is bearish pattern and because these patterns are rare in uptrend, it is a major red flag until proven otherwise.

Are you still short IBB or have you moved on?
Very confusing market action indeed. I fully agree there is a serious distribution in play from momos to value sectors. Value sectors I liked since end of last year include: airlines, autos, energy, banks, and large cap tech. All performed accept autos. I have trimmed some positions in energy (refiners), and tech. I still like the banks in particular as they will do well in a rising economy with increased loan rates and margins. Airlines will continue to do very well for the first time in forever, as I have counted at least 8 tailwinds, haha.

The NASDAQ is now trading right at the 1 year lower channel. The MACD appears to indicate this correction may be winding down (or at bottom) in spite of all the fear. If the lower channel holds, this becomes a set-up for a major move by mid-year toward 4500 range. At this point there is no reason to conclude this bull market is over. A significant breach of the 1 year lower channel would however represent a trend break so a move toward 5 year mid-channel near 3950 is probable.

NASDAQ is leading the SPX in this correction so it is quite possible that the oversold NASDAQ rebounds at the expense of the SPX. The VIX 5 EMA reached 13.3 but investor sentiment remained neutral. These mixed indicators are making this correction more difficult to call. It looks like the NASDAQ is the index to watch this time around as opposed to the SPX for others. All eyes will watch for the NASDAQ to hold the lower channel. A big IMHO.
CurtisM SimGlenn
Glenn, if Friday's action is the first overt sign of a major distribution event, then we should have confirmation within the next 3-5 sessions, so sometime next week. I'm looking for something along the lines of how IBD measures bottoms. First you get the big sell off and then 3-5 sessions later you get another sell off of somewhere around 2% to confirm that the first sell off was not just an isolated, one day event.

The RSI on the $COMPQ is at 38 so this is not yet oversold and suggests several more days of selling are possible to take the RSI to 30. Maybe the RSI will reverse here. Maybe not.

The $VIX has bothered me for several weeks. Even as $SPX made new highs, $VIX hovered around 13 instead of dropping to the low 12's or into the 11's, so this one didn't go to 11.

Bearish rising wedge on daily $SPX chart says be extra crispy careful here as there might be something major afoot.

SimGlenn CurtisM
Will do. Thx.
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