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.

Avalon Rare Earth Metals ( TSX : AVL ) | Follow Up - 6.8% pop | Stock Technical and Fundmental Analysis

In a post on Sunday I said " leads  me to believe a turning point is into the works over the next few weeks".  Well we might have just seen that turning point in Avalon Rare Earth Metals ( TSX : AVL ).

  6.8% jump today on 2x average volume.  The 20, 50, and 200 day moving averages were sliced through with relative ease, however, the 50 day ma ultimately held.   The trend line from the recent declining peaks was broken indicating a potential change is trend is likely occurring.  Increasing upside is likely as the MACD breaks above the 0 level indicating a change of medium-term trend in favor of the bulls.
The Slow Stochastic has plenty of room to run, therefore I expect a run to 6.76 at which point there might be some sideways consolidation before another break to the upside.

 On the fundamental side
Avalon Rare Metals Inc. Announces Proposed Public Offering of Common Shares

"TORONTO, ONTARIO, Jul 26, 2011 (MARKETWIRE via COMTEX) -- Avalon Rare Metals Inc. CA:AVL +6.80% AVL -6.02% ("Avalon" or the "Company") announced today that it has filed a preliminary prospectus supplement under its final base shelf prospectus dated May 4, 2011 with the securities regulators in each of the provinces and territories of Canada, other than Quebec, and with the U.S. Securities and Exchange Commission (the "SEC"), pursuant to which the Company proposes to complete an offering of 7.0 million common shares of the Company upon terms to be determined in the context of the market."

Rare Earth Names Rally As GE Briefing Paper Circulates (GE)

"A number of names in the Rare Earth industry are trading higher today, including Avalon Rare Metals (AMEX:AVL) up about 4.5% and Molycorp (NYSE:MCP) up about 5.6%. GE Lighting (NYSE:GE) recently distributed a document entitled "Rare Earth Briefing Paper," which stated that a huge growth in consumption coupled with China's production limits and export quotas have driven Rare Earths prices up dramatically."

Avalon Rare Earth Metals ( TSX : AVL ) | Materials for Clean Technology | Stock Technical and Fundmental Analysis

This is a Weekly Chart of Avalon Rare Earth Metal ( TSX : AVL ).

The stock has retraced 50% of its move and looks like it has down bottomed around that level.
The volume has been diminishing however, last weeks volume was notably higher that the previous few weeks which may be a slight hint of more players stepping into the market shortly.  The MACD has been exaggerated and is reaching the "tipping point" of 0.  Given that the stock is over sold and is finding support at the 50% Fibonacci retracement, which also happens to coincided with the 50 week moving average, it leads  me to believe a turning point is into the works over the next few weeks.  The stock is primed for a nice size bounce.  I recently picked up some September Call Options for $7.00 strike price.

Where will that turning point come? The Daily Chart above shows what might be unfolding.  A break of the trend line holding the stock lower since early April.  The MACD seems to want to pop through the 0 level which would be an indicator of the end of a downtrend.  The key is to pick a position and keep a tight stop at 5.80 ish.  Low risk, minimal downsize, large potential with geopolitics playing such an important role within this space.  Since AVL is a Canadian Company and Property, if quotas continue to be squeezed in the global supply (>90% China) then AVL is poised to become a very stable source of Rare Earth metals for Canada and the US.

Related News Links

Rare earth demand on the rise

"With an increased global focus on the introduction and sustainability of green solutions for economic growth as well as easing pressure on the environment, rare earth metals appear to have become increasingly important."

Rare elements needed for high-tech applications

"Rare earth elements are a collection of 17 elements that are critical for civilian and military high-technology applications. The rare earth elements are scandium, yttrium, lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium and lutetium. However, rare earth elements are not really rare. They are distributed globally, with 36 percent of known reserves in China and 13 percent in the United States."

Seagate Blames a "Bubble" In Rare Earth Prices for Causing a Margin Squeeze

"For some time now, rare earth supply, demand, and prices have been hot topics of discussion and debate. While these elements are critical components in many high-tech products, they usually represent a very small part of overall product costs. While the Japanese have clearly been scrambling to reduce their dependence on Chinese exports and to otherwise secure greater supplies, I have never heard a company complain that soaring rare earth prices were materially hurting profit margins, until now."

Maple Leaf Foods (TSX: MFI), Essential Energy Services (TSX: ESN), High River Gold (TSX: HRG)

Maple Leaf Foods (TSX: MFI)

Maple leaf foods have been working through a 6 month triangle.  Today there was a break in the price down almost 4%.  However, monitor this stock as if this break turns out to be a fail move, the upside potential is quite large.  Therefore buying at 11.80-11.90 with a very tight stop could be a low risk high reward trade. 


Essential Energy Services (TSX: ESN)

Essential Energy Services on strong volume confirms the move yesterday.  It is at bollinger band limits but over the next 2-3 weeks I would expect continuing bullish action unless oil crashes dramatically.

High River Gold (TSX: HRG)

High River Gold - HRG - Has had a sharp pull back into strong support.  The 20, 200, 50 Moving averages will provide support, with rising gold prices seeing a price of  1.50 is within a few months is more likely than not.

Oslo, Norway Bombing | Deadly blast hits Norway's capital | Two dead as explosion rocks Norway; shots fired at youth camp

Deadly blast hits Norway's capital - Europe - Al Jazeera English

At least seven people have been killed in Norway in two separate attacks, the first a bomb blast that went off at a government building housing the prime minister's office and the second a shooting incident at an annual youth event.

Two dead as explosion rocks Norway; shots fired at youth camp

A man wearing a police uniform opened fire at youths during the annual gathering of the government’s Labour Party youth section at Utøya, an island outside Oslo, spokesman Per Gunnar Dahl said.

Live updates: Oslo bombing

• A bomb has been detonated at government headquarters in Oslo
• Norwegian police say seven people have been killed and two are badly wounded, Reuters reports
• Oslo police are advising residents to stay at home
• No-one has claimed responsibility for the attack
• Unconfirmed reports say several people have been killed in a separate shooting at a Labour youth camp outside Oslo
• Unconfirmed reports say Prime Minister Jens Stoltenberg had been due to attend the camp

Oslo bombing kills 2, man opens fire at youth camp

 Police in Oslo now say that seven people have been confirmed dead in Friday afternoon's explosions at its government headquarters.

The above link is to Google RSS Feeds under the topic of Oslo Bombing, copy URL and add to RSS subscription service of your choice (Google Reader is Recommended) to stay up to date with this event.

Last year there were early warnings of problems with in Norway.  There was a Bomb lab discovered and arrests made.

Norway "Bomb Plot" Underscores Al Qaeda Pitfalls - August 2010.

An Associated Press investigation shows that authorities learned early on about the alleged cell by intercepting e-mails from an al Qaeda operative in Pakistan and - thanks to those early warnings - were able to secretly replace a key bomb-making ingredient with a harmless liquid when one of the suspects ordered it at an Oslo pharmacy.

Platinum Group Metals (TSX: PTM) - Stock has not taken a hint from Platinum and Palladium rallies...

Interesting stock I follow in the metal space is called Platinum Group Metals (TSX: PTM).

This stock is set for take off, and similar to SBB post a couple of weeks back, this stock is approaching a breaking point.  When the trend line is broken, expect strong movement up.  What is a bit strange is the stock is extremely under priced if you consider the rally by Platinum and Palladium the past 30 days.