$SPX: Consolidation to define markets for months going forward

SP:SPX   S&P 500 Index
143 5 0
You probably know that the FED is planning on eliminating the market's crack via the taper. You probably know about the record setting margin debt that is much like the huge margin debt that was present before the markets tanked in 2000 & 2007. You've probably seen the DOW chart from the 1929 crash that overlays perfectly with the current DOW chart. You probably know that earnings warnings are at record highs. You've probably heard the superstition that each time since 1999 when a movie has been released about Wall Street that the market tanks. You probably know that the RSI's on the weekly and monthly charts for all the majors reached levels in December that haven't been seen since just before the major market corrections of 2000 and 2007. If you've been watching the $VIX chart that I use, then you know that when the 5EMA on that chart drops down near 12.5 then you have to be on the look out for some kind of negative market reaction to that. You probably know all that, but what you may not know is that the $TRIN has closed above 1.00 for 13 out of the last 17 sessions, the longest run I've ever seen. More importantly, 5 of those sessions were green days and this indicates true stealth distribution. Another thing you may not know is that the large commercial traders in the S&P 500             futures went bearish on the market about two weeks ago. And one thing that no one knows is which way the markets go from here. How all this is going to play out, I don't know but, based on what's happening in the futures markets at around 6:30 A.M., ET, on 1/24/2014, I think we're going to find out soon.

We've been in this large consolidation pattern for a month and this area is going to define this market for several months going forward. This huge area is either going to turn out to be a major support zone or a major resistance zone , with emphasis on MAJOR. If the futures don't turn around and head north at sometime between now and the close of trading on this Friday, then we are headed below the intermediate support level at 1818. If we should close below that level today, then 1811 may come into play on Monday, and if 1811 does not hold, then this market is in trouble. But here's the deal: often times the first break of any trend or consolidation is a false break and needs to be confirmed. There are several ways to do this. You can watch for two closes below the range or, the more conservative approach would be to wait for a move 3% below the consolidation zone. That 3% drop would take $SPX             down close to 1750. If I were long, I wouldn't want to give the $SPX             that much room, but I'm not long anything but gold             right now. My thinking is that if we drop below 1811 on a closing basis, and regardless of any bounce that might follow, then the voodoo round number of $SPX             1800 will surely come into play. We take that out and close below 1800 for a couple of days and we probably are headed to $SPX             1750 +/-. Interesting thing about that is that the mid-line of the long term $SPX             monthly chart is right at 1750. But I'm way ahead of myself so let's see how it goes over the next few days.

RQ, good to hear from you. I visit the DXD board occasionally but rarely log on. If Yahoo ever changes their policy and allows links, again, I would probably post there a little bit.

Meanwhile, I just put up another chart in which I discuss a potential bounce for Monday/Tuesday. I'm in the camp that a bounce is all we get and that we're headed lower after that, but I'll let the market lead and follow it up if that is what it wants to do.

SimGlen, I think a test of the monthly mid-channel in that 1740-1750 area is likely, too, but as I point out in my most recent post, that is not a real area of strength as $SPX spent so little time there. If we do in fact head that way, then I think that mid-channel support line will fail and we will head to the lower trend line. Time will tell.

Thanks for all your comments.
Curtis. Thanks for the insightful analysis.

The 1 year SPX Mid-channel of 1800 was indeed breached soundly. A lower channel test near 1740 appears highly likely. Unless EM's break down significantly further, the lower channels is likely to hold. A break below the lower channel starts creating long term trend breakage and cascades to multi-year support level tests just below 1700. Let's hope we do not see that, since the probability of a bear market goes much higher.
While the EM currency issue and China PMI data are disturbing, these issues seem to be more of after-the-fact explanations for an already extended US market that had come up to serious trend-line resistance. This pullback, if orderly, should reduce the "buyers' strike", accumulate equity inflows, elevate fear index, and normalize investor sentiment. This all creates "potential" for the next advance to new highs in the March time-frame. I would expect a sharp rebound at least one day this coming week, and volatility to continue another two weeks. The key will be the markets ability to maintain an orderly sell-off to complete this corrective phase. A soft word from the fed on taper pace should be sufficient. I suspect the US Fed, BOE, and BOJ are having some chats this weekend.
Hi trucks,

I think the market is in trouble but we will probably have a short-covering rally from hell coming up soon. At the very least one would expect a bounce to test the 50 DMA and I am looking for wash-out action on Monday.

Longer term, Yellen takes over at the end of the month. It's anyone's guess how long it will take the markets to test her but test her they will.

Make a guest appearance at the DXD board on occasion when time permits. We miss you over there.


Tks a lot , it is an usefell description. Ciao
ya man... glass about to be shattered. da big boyz needed to sell to da little boyz... 177 a cometh...
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