S&P500 breaks out of triangle November 17th 2011

Will the move be confirmed?  That is the question but a clear breakdown in the S&P 500 occurred today.

Trade with caution, Europe is by far from solved.  The US "supercommittee" has failed until now to agree on a solution.  China has stood its ground on many issues, demonstrating a shift of power to the east.  Japan is continuing to print to keep the Yen from appreciating.     

The purple line is where I see as a huge level.

See   Long term forecast For an explanation of the significance

S&P500 In a Triangle - Options Expiration Week - Beware of Volitility

S&P500 Hourly Chart

With momentum (MACD) waning, watch for increase in volatility as the market works out of this triangle.  The move will be explosive either way.

S&P500 Drops after LCH hikes Margins on Italy Bonds

UPDATE: Italian Bonds Sink As LCH.Clearnet Ups Margin Calls
From the Wall Street Journal 

The yield on the benchmark 10-year bond soared by 45 basis points to 7.12%, according to Tradeweb, above the psychological 7% mark that prompted Greece, Ireland, and Portugal to seek external assistance as funding costs became unsustainable.

Reality sets in (at least in the short run) - S&P500 down over 2.2%, Eurusd collaspes

Anyone that participated in that ridiculous rally on the news that the Eurozone is "saved" have just got served.  The price action has moved sharply lower.  This Candle stick pattern some what fits the classic Evening Star

  

The EURUSD has led that collapse as Greece have been discussing a potential referendum on the current plan.  Judging by the number of violent riots and strikes I highly doubt the referendum will pass with flying colours.

Correlation breakdown SPY vs GLD: Repeat of August 2011?

During the market crash in August 2011, gold found its place as a reserve asset as the USD was under fire due to a lack of a debt agreement.  It appears that from the latest move in gold and S&P500 that this reserve / safe haven status is returning.  With the market dropping almost 2% today and gold rallying almost 3% the lock step correlation over the past 2-3 months appears to have broke down. 

The next few days will be key to determining where these asset classes will go next.

Overview of past week for the S&P500 - bearish outlook

Needless to say articles calling the tipping point here and here were dead-on.  Over the past couple of months since August decline it was all to clear that this was a period of consolidation before another push to the downside, and this push is gaining steam.  From the time I have spent looking at charts, I have never seen what many of the perm-bulls were expecting.  A Massive drop in august and then magically a regaining on confidence in the system resulting in a buying back to yearly highs.  There is on caveat...  QE3... This appears to be off the table right now, but you can easily foresee S&P500 at below 1000 as a signal to the FED that the market needs more money pumping. Again, this market is strictly controlled by central banks at this stage, if they ease it will go up, if they signal a halting to easing (not even tightening) the market will meet the reality of price discovery.

October I don't think will disappoint the crowd that fears this time of year based on historic data (ie crash of 1929, and many others).  The first day of October is listed here on a 5-min intraday chart.

Using the SPY as a proxy for volume, we can see that this market ended at the lows of the day on substantial volume. This market also closed below a key level that has been a battle ground throughout Aug-Sept 2011 as well as key resistance in the early part of 2010.  The level was 1120, some commentary about this battle can be found at: Once Again The Battle For SPX 1120 Is Raging

Lets take a step back and look at the daily chart from March until now.

From any technicians perspective this chart is broken.  We are heading into an area of consolidation which occurred in early 2010 which may provide some support but this market getting to 1040 in relative short order is becoming every more likely.

One technical indicator that I think is important to note is the MACD.  There has been a failure to reach the 0 (neutral) level, and the momentum has rolled back down to the bear side, setting the stage for a rough week ahead. 

The S&P500 has decisively broke out of the consolidation range over the course of September.  And a similar move to August could be in the works.  Eurozone failing to react, weak US financials, poor world  economic data all point to a deep recession in the short - mid term.  But remember the caveat ... QE3 (probably valued at $1 trillion +) will of course cause this picture to be voided but all we can do now is wait and see how governments, investors, corporations will respond to this new phase.

I guess it was time to short :) - S&P500 drops nearly 3% - on Fed annoucement - September 21 2011

Two days ago I warned that "We are coming to a definitive point in the markets" in the post :
Time to short S&P 500 ? Depends on Fed Meeting Wednesday 

Evidently it was time to short as the Fed announcement disappointed the markets as the "Operations Twist" was already priced into the markets and then some.  It appears Big Ben realized that further asset outright purchases would elevate commodities (ie gold) to levels that are unthinkable and with that inflation creep which has already started to occur.

It has been commented on many websites that until the S&P 500 gets to the 950-1000 range QE3 will be unlikely. 

We will see if the range will be broken sharply tomorrow, the selling continues expect that 1000 much sooner that most people think.  October might be a "typical" October where markets get reacquainted with economic reality.

Time to short S&P 500 ? Depends on Fed Meeting Wednesday

We are coming to a definitive point in the markets.  The Fed will be announcing its meeting Wednesday, which will really set the pace of the next 3-6 months.  The chart below shows also a short signal.... Slow stochastic is getting into overbought territory and the 50 day MA resistance is right above the current price.  A touch of this level at 1226 could be an optimial short entry with a tight stop above this level.  If the Fed disappoints the market, look out below, however there has been talks the FED announcing some form of stimulus which is not priced into the market (ie surprise).

Consumer Confidence Report - Big Miss - Employment Situation Friday

Consumer Confidence Report

Prior Prior Revised Consensus Consensus Range Actual Consumer Confidence - Level 59.5  59.2  52.5  45.0  to 59.0  44.5

Released on 8/30/2011 10:00:00 AM For Aug, 2011

From Bloomberg : Economic Calender 

As expected in yesterday's post : Big week - A slew of economic data this week will make markets rocky

Consumer Confidence released today at 10am was a huge miss.  The other piece of economic data to watch out for comes in Friday which is the employment situation.

A Recession is looking ever more likely as the economic data has been confirming the stock market plunge over the past couple months.

S&P500 - Bearish Divergence - and why lower prices are likely

This is just one observation that might provide an indication of the market rolling over here.  However, looking back at 2008, similar topping pattern resulted in a choppy and UP market before the bigger months later.

In the RSI, it is clear that there are lower lows between the 9th and the 22nd.  However, the price action which seems to be in a clear bearish triangle pattern, has higher lowers between the 9th and the 22nd.  This type of divergences is expanded better on other sites:


Specifically: RSI Divergence

Other: 
Bullish & Bearish Divergence Pattern
Divergences, Momentum And Rate Of Change


Ben Bernanke has made a Jackson Hole speech - Full Bernanke Speech
This speech did not announce any form of stimulus, and put ball in the Fiscal court.

Lets see how this markets hold up over the next few weeks.


One thing that is clear --- Volatility is going to be huge over the next few months.

S&P 500 predicitions into the end of 2011 | S&P 500 Technical Analysis

These are my targets for the next 6 months.

Looks like we have entered a triangle that will terminate at the latest early 2012.  The targets I am looking at are 1230-ish and 1260-ish.  At that time I am expecting substantially lower prices in the S&P500.  Below are the downside targets if these levels prove to be resistance.

S&P500 : 1000 level and 850 level are expected.  Watch for the break of the white line as confirmation lower levels are likely.

Gold, Silver, and S&P500 Correlation Breakdown | Silver chooses to follow Gold rather than the S&P 500

The last few days have been all over the map, but it can be clearly seen that today resulted in Silver deciding to trade like a precious metal on the back drop of possibly the worst economy backdrop in the history modern economics. Watch for silver out performing gold over the next few months, including dropping less in a correction than gold.

S&P 500 drop Recap and Marc Faber logically breaks down exactly what is wrong with the world economy and how to fix it

Zerohedge provides commentary + transcript of the interview

Ultimately the next 2-5 months will be an illusion, where a bounce in the economy is strictly due to technical levels (outlined in previous posts before the heavy selling came into the market: S&P 500 Analysis | August 2011 | Bear Market emerges  & S&P 500 Analysis | Long Term Outlook | Economic End of Days?).

Technical charts for S&P 500 July-August 2011, for analysis see the above links

July 27th, 2011

August 2nd, 2011

August 9th, 2011

 Things are getting real folks.  Metals one year from now are likely to be easily 30-50% higher especially gold, silver.

S&P 500 Analysis | Look out Below | Mid-term bearish but watch for bounce this week

A in-depth analysis on the S&P500 long term outlook was completed last week.  Today we saw something that was "unexpected", when everyone thought the relief rally would occur after the debt deal was signed, the market had different thought process.

INDEX	VALUE	CHANGE	% CHANGE	TIME
DOW JONES INDUS. AVG	11,866.60	-265.87	-2.19%	08/02
S&P 500 INDEX	1,254.05	-32.89	-2.56%	08/02
NASDAQ COMPOSITE INDEX	2,669.24	-75.37	-2.75%	08/02

 I sold my bear position today a bit too early at around 1-2pm but with reason.  The markets are extremely over extended, the likelihood is a rally will come the remainder of this week.  My game plan is to wait for the market to trade back to the 1290ish level before getting a 2 month options contract with the expectation of the Head and Shoulders predicted drop which comes in at 1150.  There are serious issues and this market could continue its decline next week.  However, the government of the US has just extended the debt limit by another $2 trillion which means any Stimulus talk, QE3 talk, etc could send this market roaring to the upside.... but remember this roar to the upside is not because companies in the US are doing better or because the economy is getting better it will be due to the fact that the USD which is used by companies to report earnings / Market value will be devaluing.  Making 10% more revenue but the currency which the revenue is based on has declined 10% in the same time frame is still a net value increase of $0.  

If the predicted path of last post is correct, the next couple years will be quite rough.  Again this is a long shot but anything can happen at this stage of the game.

Here is the chart from my previous post without comment

UPDATED: S&P 500 Analysis | Long Term Outlook | Economic End of Days?

See update below.

I want to proposal a "Economic Doomsday" scenario as more of a thought experiment than anything else.  This is a scenario that potentially could unfold based on the current price action and wanted to view this chart with Volume, MACD, and Slow Stochastics to show a technical argument for December 2012 Economic End of Days.  I would highly doubt that the economic powers will let this unfold yet it is interesting nonetheless.

There are 6 key points that will be discussed from the above chart along with supporting evidence from Volume, MACD, and Slow Stochastics.

1. The orange horizontal line is based on March 1994.  This note is combining myth and technical analysis to show that a potential target for a drop could be this orange line (435).  If you look at the intersection of the orange line, red Vertical line (Dec 2012), and the mid line from the Andrew's pitchfork, it seems like a curious coincidence. 
2. Looking at the current retracement in the context of the top (2008) to the bottom (2009), the current move has retraced 76.4% which is a deep but not unheard of correction.  If this does signify the top, a impulsive wave 3 would be expected.
3. This analysis is uses  Andrew's pitchfork which helps track channel lines.  Obviously if this is not the top then the projected path would be incorrect but as stated in point 2, a 76.4% retracement has occurred so looking for a turning point now is likely if the long term bears are still in control.
4. An interesting trend line to watch.  The bulls will have to hold this line if the bears make a run for it. This level sits below all major moving averages (20, 50, 200 month MA) therefore this region should act as significant support on pull backs.  If these levels are sliced through as seen in 2008, limited support remains until 750.  
5. Another interesting trend line as this would technically be considered a neck tie of a 15 year head and shoulders pattern.  It would be impossible for a real head and shoulders pattern to play out as price action would have to drop less than 0 to complete the typical move equal to the distance from the head to neck tie. 
6. As mentioned in point 1, This intersection point seems relatively plausible if major panic selling started taking place.  Another interesting coincidence is from the most recent high a month or so ago to the intersection point 6, is approximately equal to the drop in time and price from peak 2008 to the lows in 2009.

The MACD on a monthly basis looks tired.  It has accomplished to make two strong moves to get above the 0 level however no significant pull back has occurred to reduce the strain on this indicator.
Looking at the Slow Stochastics one of two things are going to happen either the K and D line embed propelling the stock market higher as long as the K and D stay above the 80 level.  If the K like (yellow) falls below the 80 level expect it to head back to the 20 level resulting in a relatively hard sell off also confirming that the momentum has shifted.

I am reluctant to say a top is in, but with the geo-political craziness happening around the Euro Zone, the US debt ceiling, and rising oil prices.

Take this outlook with a grain of salt but know that there are people that consider this view relatively likely, so be wary in the upcoming news, stock market action and currency market.

 UPDATE

 Apparently the trend lines drawn with Andrew's Pitchfork are having some effect on price action.

 The rally today failed precisely at the upper trend channel.  This sharp failure leads me to believe that a decline is imminent.  Short Entry at sub 1300 with a stop at or around 1300 would be a low risk high reward short play.

This post will be updated again with any significant events tomorrow.

S&P500 Update: New short term uptrend established and Wednesday's Greek Austerity Vote

June 28th saw a pop from the markets at the beginning of trading.  This jump was sustained into close.  Interesting enough, using Andrew's Pitchfork, from the lowest low to the high point and the low of the correction, we can see a potential uptrend being established.  This lower channel is where support was found in the morning setting off a rally which ended in the middle of the lower channel.  Watch for retests of this channel for clues to see if a change of trend is actually occurring.

The major caveat is systematic risk.  There is a lot of problems showing up again and the governments around the world are attempting to find answers for them.  Most notable is the Greek austerity vote tomorrow.  This vote will be a sign of things to come, as a rejection of this vote means a renegotiation with IMF and EU on aid packages.  This would bring the markets under pressure as sovereign default becomes a plausible outcome.  In addition, Greece would likely have to vote for a new government one which aligns with the interest of the citizens. 

A summery of the Greek Austerity measures that are on the table can be found at the BBC in this article

The measures are broad based touching taxation, public sector cuts, spending cuts, cutting benefits, and privatization.
A few examples:
"A solidarity levy of between 1% and 5% of income will be levied on households to raise 1.38bn euros."
"The tax-free threshold for income tax will be lowered from 12,000 to 8,000 euros."
"The VAT rate for restaurants and bars will rise to 23% from 13%."
"Nominal public sector wages will be cut by 15%."
"Wages of employees of state-owned enterprises will be cut by 30% and there will be a cap on wages and bonuses."
"Education spending will be cut by closing or merging 1,976 schools."
"The statutory retirement age will be raised to 65, 40 years of work will be needed for a full pension and benefits will be linked more closely to lifetime contributions."

I always wonder about the reaction to such measures if they were instituted in Canada or the US.  More interesting would be the government reaction to protests to these measures.

UPDATE: 5 day Moving avg holds - End of Day SLV and S&P 500 charts

Just to update my last post with the end of day charts.  As expected the 5 day MA held.  The S&P500 and SLV made their way higher to close.
Using the SPY as a proxy for the S&P500 to show volume:

The yellow line is the 390 period moving average which equals a 5 day moving average on the 5 min chart.  After the test just after 11 am, the market rallied quickly higher, pulled back, then closed up for the day.  This is a positive sign that the short - mid term trend change that happened on the 17th might be continuing for the next couple of weeks.

Above chart is the daily for the SPY.  Since the January 10th, 2011, the market has been trading sideways.  Today the SPY has broken above the top of the channel.  What is more encouraging is that the momentum indicators show a shift as well.  Slow Stochastics is pointing up indicating a increase in upside momentum as well as the MACD that has held the 0 level and is looking as if a "buy" signal cross over will occur early next week. 
I am not long term bullish on the Stock market, as the economic situation is unsustainable, however, QE3 will enviably give the market a boost.  However... If Elliott wave count that is generally accepted is true, then the impulse wave off of the July 2010 lows is in its final leg to the upside.  If there was a 32.8% retracment even from the current level, a drop to 121 would occur on the SPY.  Another way to look at this is that this entire year has been a correction through time and thus upside movement would be a confirmed trend change leading to another impulse.  Regardless, stay vigilant and ensure risk management via stops.

Silver has followed a similar pattern with a test of the 5 Day MA happening just after 11.  The SLV closed basically flat on the day.  This is to the surprise of the sellers between 10-11 am.  The bottom fell out of silver but the 5 Day MA held quite nicely.

As you can see, Silver had a substantial retracement from the highs of around $50.  This was not unexpected, as the price moved from around $17 to $50 in about 9 months.  The Slow stoch looks like it could pop up however it would be considered "locked in" at this stage until it can get above the 20 level.  The MACD is less encouraging that the S&P 500 as the MACD line is under the 0 level but is currently looking as it a bullish cross over will occur next week or the week after.

5 day Moving avg holds - SLV and S&P 500 charts

Below are 5 minute charts.  To get a 5 day moving average I placed a 390 period moving average on the charts which is denoted in yellow (usually my 200 MA).

Today just after 11 am, there was a test of the 5 day moving average.  The fact that a change of trend appeared to occur the 17th, this successful test and bounce could indicate additional upside potential.

The upside could be justify as more QE3 chatter is circling on the internet.  This speculation may not be very trust worthy, but have a look at the latest Philly Fed survey released today.

	Prior	Consensus	Consensus Range	Actual
General Business Conditions Index - Level	18.5	23.0	15.0  to 28.0	3.9

Dramatic miss on the consensus could force government to provide further accommodation as the QE2 deadline quickly approaches (June 30th, 2011).  Many people including myself don't believe the US economy can handle the removal of this critical source of funding that the government has created.  A typical analogy is the economy is like a drug addict with cheap credit / QE as the drug.  When the party is up, an extended crash will take place.  If this scenario does take place, it could signify a dagger in the heart of the worlds current economy practices.  That is, stimulating an economy to cushion a recession just kicks the can further down the road but every kick requires an exponential amount of stimulus. 

I reluctantly call this Keynesianism as I wrote a paper on how Keynes would never have agreed to this continuing action as his principles were not meant for our current system.  He proposed a dramatically different and more sustainable system that was shot down by America using the Breton Woods convention as it was in the worlds interest but not in America's interest at the time.  Coincidentally, now the US would be benefiting from the system which was purposed.  Read more here: Is John Maynard Keynes Turning in his Grave?

The scariest part of this current economy conundrum is that there are only two outcomes.  Deep recession surpassing the 2008 crash or hyperinflation due to additional quantitative easing.  This is another article I wrote which can be read here: Pick your poison.

Next chart is SLV which is the most popular ETF that tracks Silver.

 
Exactly the same test of the 5 day MA  which has up until now held twice.  Sliver have pulled back almost 15 dollars since it almost touched $50.  This correct was much needed and could provide an entry into this metal.  Commodities have come off their highs but with additional quantitative easing the safest trades are in the commodity complex.

Why hold a short position in the S&P 500: Part 2

On March 28th, 2011, a post entitled: Why hold a short position in the S&P 500

I was about 9 days early on the call, however, since April 6th,  the markets have been rolling over.  Today, we go a strong drop in the morning as S&P put United States AAA debt rating on Watch with negative implications. 

With its mounting debt / deficit, the US economy requires a lot of fixing, however,  the threatened government shut down two weeks ago, a lot with the larger debt ceiling argument coming down the pipe, S&P determined there is potential for additional risk associated with US debt. 

If you couple the political risk with QE programs, and the dollar decline the past year, it is obvious the world is changing dramatically around us. 

Have a look at Gold, being ever so close to the 1500 level.  The number of stops (for Shorts) that are placed above this level is likely massive.  Breaks about this will send gold to 1525 /1550 in short order.

S&P 500 update and Silver potential breakout

Above is the S&P 500 chart.  Back to the same old low volume float.  I still feel strongly that we will see a test of the 200 MA before the end of the year.  However, there is potential that the market will continue up to make new highs which will be a definitive wave 5.  If this is the case, expect a deep correction.

At some point the Fed will have to raise interest rates or at least announce that QE2 has ended with no QE3.  What is holding this market up has been the daily POMO so removing this will inevitability lead to a deep correction as the true price will need to be discovered.


Crazy stories from Zerohedge show that the US is weeks away from a full out default on US debt.  It is laughable for this to be allowed which is why I totally expect them to raise the ceiling asap.  A default of the worlds reserve currency would put global prices of commodities and companies in a state of crisis / panic.

  Break of the 38.00 level should quickly lead to an increase to the 40.00 mark.  My expectation is 50 will be hit by the end of summer or early fall.