spy -July 28, 2009

Well the markets are rallying again, and today's pitiful consumer confidence numbers did almost nothing to hurt the market's enthusiasm. A few weeks ago mainstream media were touting the head and shoulders pattern on the daily chart, and expecting the market to die hard, and what happened instead? The market staged a spectacular rally in the last week or so, making a higher high and a high for the year on the SPY. Now mainstream media is looking at the weekly chart of the SPY from November 2008 to this day, and touting how the chart is forming an inverted head and shoulders pattern, arguing for continued bullishness. The government is saying that life is good, green shoots are growing, and GS is making a prediction for 1150 on the SPX this year. (Remember when GS called for $200 oil last year?) All I can say is from failed moves comes a fast move (look at the rally that followed the failed head and shoulders pattern a few weeks ago). I wonder what will happen if the longer term inverted head and shoulders pattern fails? Notice in particular that the right shoulder comes on very weak volume, and it seems like the market is being propped up by buy programs. The fundamentals are terrible. Revenues are down but companies are making record profits from firing employees. Does anything exist to justify higher stock prices? Will profits still be expected to grow even as revenue shrinks?

Having said that, I don't think the markets are ready to die yet. Today's pullback, and perhaps a another pullback or two (to 95-96 on the SPY) would be healthy for a continuation of the bear market rally... perhaps to 102 on the SPY.

SPY support-resistance levels week of July 20, 2009

The white lines in the chart denote support and resistance levels on the chart of the SPY. Around 94.6 would probably be very heavy resistance for the upcoming week. A slight pullback from current levels will probably support the thesis of continued upside moves. Even a pullback to 90.6 would likely support a continued uptrend as that is gap fill, and is the 50% retracement level from the lows of 87 on the SPY to the highs of 94.6.

First post - SPY analysis July 17, 2009

Hello

I've decided to start a blog for fun. This blog will mainly discuss financial matters, as I have developed quite an interest for trading various financial securities, and also in maximizing one's value for the money. What goes on at Wall Street is absolutely astonishing, and I have learned the hard way that what Wall Street tells the public, and what you financial advisor at the local bank tells you may not necessarily be in your best interest. So this blog will provide a counter balance to all the hype that is coming from Wall Street, governments and maybe your personal financial advisor. This blog will also refer to my personal scorecard of how well I can predict the markets. Anyways I am new to blogging so excuse me if my posts don't look to fancy.

Anyways on to my analysis for the day. Needless to say that I'm quite bearish overall especially with the nonsense that's been going on in Wall Street lately. But rather than impose my views, I'll let the charts do the talking and the reader can decide for themselves. Above is the daily chart for the S&P 500 (SPY), which you can enlarge if you click on it. As you can see we've been in a very strong uptrend since early March. Lately, this upside momentum appears to be stalling, where the market has more violent corrections downwards, and the rate of ascent of the chart appears to be stalling. Over the last couple of weeks a bearish head and shoulders formation was forming, however since Monday July 13 2009, a violent upswing took place invalidating the bearish head and shoulders pattern, and a failed pattern usually results in a violent reaction in the opposite direction, hence the strong rally that transpired this past week. If we look at the chart of the recent month or two, we might be experiencing a megaphone top pattern (the megaphone has been drawn in white lines on the chart). This is when the bulls and the bears are really fighting for control and emotions become stronger. However with the trading volume extremely light and the financial mess that the economy is in, I would place my bets we will see a top in the markets within the next couple of weeks before a violent crash. But before that top happens, we could possibly top out at the top range of the megaphone which is about 100 on the SPY. If we manage pass that, then 102 on the SPY will be heavy resistance (indicated by the horizontal yellow line), as that was the high in November 2008 as the market rallied euphorically on Barak Obama's presidential victory before crashing down into multi decade lows this March.

So in a nutshell, I think the markets are going to crash, but before that happens, we might have some good upside left in the market about 5% - 10%.