If you day traded today, then you know what I talking about. Today was a day of wearing out traders and washing them out. The path toward the rising wedge/funnel created a major problem for shorts. I issued a "short" order at 10:15AM and a "Hedge" order at 11:12AM for when the SPX hits 865. This type of pattern showed from the very beginning that price exhaustion is occurring, and it was nothing to fear. However, anything could have happened. I utilized extensive hedging techniques today, more any other day this month. At 1:01PM, a "100% Short" order was issued and all hedges to be sold. A 2:15PM order went out to cut short positions and hedge once again. At 2:28PM, another "100% Short" order was released. At 3:15PM a "Neutral" order was issued and finally at 3:38PM, a "75% Short" order was issued. The frequency of trading shows what type of day it was - a nimble one.
Looking at 3-day charts, these daily patterns are not very bullish at all. We are closer to testing the Friday lows. Intra-day I made use of the fib retracement levels during the wedge's progression, another tool to keep yourself from panicking. The very long neutral range was especially problem due to false breakouts and breakdowns. If you tried to play every peak and trough, you definitely lost money. I was looking for what happened in the last 10 minutes all day long. Sometimes, patterns do not breakdown as quickly as anticipated. We are currently at support levels, and bounces should be expected. It's easy riding the market down (if you're short), but if you can't handle the pullbacks, then don't trade. In any case, this was one of the more difficult days to trade. Today, I made enough to pay for a steak dinner, for one, and that's about it.
I mentioned in a previous post on my blog that we have to cancel out Friday’s 4-5% loss today (with a 4-5% gain) and break through the 20-day MA within 3 days. This still holds true. The purpose of support is to become a spring board for the markets to attempt to head higher. However, if the market reaches its 4th attempt or greater, the chances of a significant bounce diminishes. Support isn’t supposed to be used that often and we can see many descending triangles form as a result. In addition, we need new and fresh buying pressure on the markets, but I don’t see where that will come from in the near-term. Many institutions are sitting on the sidelines (or lost it all) and many hedge funds publicly stated that they will remain in cash for the rest of the year. If hedge funds make (made) up 25% of the trading volume on the exchanges, then there is no other greater influence to buying and therefore a large, sustainable rally cannot take place without conviction. By observing the talking heads on financial news outlets, we may have a near equal division among bulls and bears. I want to note that a bear market cannot end unless there is 100% pessimistic sentiment ruling the markets and a complete sense of hopelessness. That level has not been reached.
What’s interesting is the divergence among all the indices. The Russell 2000 (not picture) is performing the worst of all indices. The NASDAQ is forming a diagonal neutral range or a wedge, but is threatening to break the lows as the 2nd worst performing index. The DJIA and S&P 500 are very similar, but they too are threatening their own lows. In the midst of all the technicals, let’s not forget the dire fundamentals of GM’s demise. The uncertainty surrounding that alone will prevent the markets from rallying.
NEW HIGHS-NEW LOWS, ADVANCE-DECLINE INDICES
Both the Advance-Decline and New Highs-New Lows lines have been declining during the time spent in the current neutral range. This suggests that we may have some serious problems coming if we keep hitting new lows. New highs remain only in the single digits out of tens of thousands of stocks. You can also see that the $NYAD is only one-day from breaching its low while the $NAAD has already breached and pulled back and will likely head lower. I provided a VIX update on my blog and that too suggests that the market may be heading lower given that the indicator is forming a bullish ascending flag.
GOLD & CRUDE OIL
There’s no question that oil is heading lower due to the numerous bearish flags that continue to form. I wouldn’t be surprised if oil hits the $40’s within 2 weeks. Unfortunately for oil bulls, this is a classic technical boom-and-bust pattern. Gold has been acting strange as everything in the world decouples. Gold is currently in a neutral range or symmetrical triangle; however you want to look at it. The fact is that gold can either spike higher or lower, even though its range is bearish. The chart is too unpredictable and therefore unreliable and will not give you too many clues as to where the next probable direction will be.
SPX 1-day
SPX 3-day
SPX 6-month
NASDAQ 1-day
NASDAQ 3-day
