W bottom or bearish continuation flag?

The market is extremely technically damaged. looking at the chart pattern what will happen? Again 2010 is turning out to be a trader's market where one has to be fast and nimble. It won't be a very productive year for buy and hold investors.

Looking at the chart, one can argue that we have a bearish flag continuation pattern. But is the market really ready to roll over and die at this period of time? Probably not, but we have to be flexible to that idea. What might be a more likely scenario is that we have a short term W bottom, and the market will rally a bit from here after of a lot of choppiness to shake out the small people. If the market rallies from here, we'll see heavy resistance on the SPY at 111 (one of the orange lines on the chart). That also happens to be where the 200 DMA lies and the 38.2% fib retrace from the recent highs to the recent lows, so expect that to be a resistance point, but it seems likely we'll at least see 111 in the next few days.

What's next afterwards is anyone's guess. We can roll over and die from 111, or we could continue an advance to 116 on the SPY also where the 50DMA lies and the 61.8 fib retrace from the recent highs to the recent lows. Expect that to be a major resistance point.

What would happen after that? Ultimately I still think the economy and the market is in real big trouble, and I really do expect to see new lows for the year. If you look at the chart of oil (USO), and Goldman Sachs (GS) you'll see what I mean.

May 28, significant technical breakdown on markets

I think I'm going to alter my view as to what I think will happen to the market. While I think the short term lows are likely in, I won't say that we will make new highs for the year in the SPY. It's possible that we could make new highs (ie. we only hit the 200 DMA once during this bull run, and the recent correction could be just to shake out the weak hands). But what is also possible is a very bearish head and shoulders pattern as illustrated in the chart of the SPY above. We could also get the bearish head and shoulders pattern, and then fail the bearish pattern and make new highs for the year. Again anything is possible, and I will be lying if I said I knew what will happen. The point is that we must be flexible to what will possibly happen. I will say that the markets on the SPY could probably rally to 118 in the next couple of weeks, but then we have to re-evaluate what will happen later, but judging by the chart of oil, it's possible that we have already seen the highs for the SPY for the year.

Looking at the chart of oil (USO) it is really ugly. We have significant technical breakdown, and I no longer think that printing money will just inflate oil prices. The market obviously thinks something is really wrong with oil (and the markets), and have sold off oil accordingly. At this point in time, looking at the chart, any rally in oil will probably will probably lead to 38 on the USO and we will have significant resistance there. Again anything is possible, but oil is telling us that we have real troubles in the economy.

Lastly gold, looking at that chart it appears to be the only thing that is healthy these days. The bull for gold seems like it will continue. It will be a safe haven in market uncertainty like what we're experiencing now, and also good when governments around the world print money. Any violent dips in gold can likely be safely bought.

will we roll over and die, or will the markets recover

Well, alot of what will happen in the markets depends on the price action that will happen early next week. Despite what I think will ultimately lead to a 'death spiral' in the markets, I somehow don't believe that the death spiral is upon us yet. I think the powers that be will try their best to delay this death spiral, which should ultimately lead to higher energy prices due to money printing, and that's when a real death spiral will occur as the powers that be cannot print their way to lower energy prices.

Anyways, looking at the SPY chart, the markets ended Friday on a very sour note, however, it is resting on an ascending orange trendline, that dates back to July 2009. It also filled the gap from the previous Friday's gap lower, to Monday's gap higher, making the SPY sitting on some kind of support. If the market has any chance of recovering (in the short term) it must stay above this orange trendline, otherwise this death spiral in the markets will occur much sooner than I anticipated. What happened with the 1000 point plunge in the Dow, and the market selloff last week really caused lots of fear in the market. If you look at the chart of the USD (not posted), it's at new highs for the year and really extended upwards. Considering the huge rally in the USD, I'm surprised the market didn't really tank further. Anyways if the USD pullbacks, expect the rally to rally.

I charted the SPY on the weekly chart, and noticed that there is a descending 200 week moving average at about 123. I will make a revision to my forecast of the SPY. We'll be lucky to hit 125 on the SPY, before the market in all likelihood starts crashing down. (Just look at what happened between July 2007 and October 2007)

what might happen before the death spiral...

In my previous post I noted what I believed was the 'death spiral' in the markets and the economy in the weeks and months to come. Well this post will detail what I think will happen in the next few days to weeks.

Gaps are meant to be filled. They are magnets. From the Friday lows to the Monday gap up is a lot of air, and that gap has to be somehow filled. We are now sitting on resistance 50 day MA on the daily chart @ 117.5. 118.5 will be a very heavy resistance level. In the near term, the market should pull back to gap window (115.2) and possibly gap fill (110-112), and in the extreme case, a retest of the lows last Thursday (105), which also happens to be the February 2010 lows. Then the market should rally higher and make highs for the year (125-140) before the death spiral that I believe will happen.

the beginning of the death spiral?

I'm more than convinced that in the near future we are going to see a market crash that makes 2008 look like a joke, and possibly even the great depression look like a joke. We have Greece and the PIIGS countries basically living on borrowed time, the European Central bank finally caves in and prints money.

A normal functioning market in a healthy economy does not plunge 1000 points in one day. The news all claim it was the "fat finger" pressing a B instead of a M for trading PG. Do you actually believe that nonsense? Basically to make money these days means to buy shares at low prices and sell them at high prices. And some guy was playing a game to make people sell stock at distressed prices. Example, PG was trading at about 60 before the crash last Thursday. It plunged to $39, and recovered back to $62 as of yesterday. A lot of stop losses set in the 50s or 40s probably got taken out, and really this is how a transfer of wealth takes place from the guy who is scared and sells to the vicious shark on Wall St. You can't possibly win this game. Wall St has the tools to create any market outcome they want making this game even worse than wagering in a casino these days. In a healthy market, games like this don't happen too often at least not like that magnitude of what happened last Thursday.

So really I think this all are signs of an impending death spiral in the markets that will make 2008 look like a joke. It's what happened in the initial 50% recovery from the crash of 1929 and it is what I think is happening now. In the meantime if you are still inclined to play this game, I believe the market is ready to make a push to new highs of the year (possibly 130-140 on the SPY) in a few weeks or months, before the party ends. After all, Wall St. has to sell stocks at expensive prices which they picked up for cheap last Thursday. With every government on earth printing money that will spike oil prices, and with unemployment everywhere, I think the consumer finally rolls over.

reversal - the markets are always interesting

The markets are always interesting... just as Goldman Sachs was getting chastised by the Senate for making good money at the expense of others, and Greece problems are problems once again not a problem anymore, the markets fail to confirm the downmove on Tuesday, and stage a nice rally today. (Look at commentary on the charts). When a move fails, typically a violent move in the opposite direction will occur, and it appears this is what is happening. Although the market is long overdue for a correction, it seems like it's not gonna happen just yet. However any long side trades should be met with extreme skeptism. Having said that, it would not surprise me if the SPY makes its way to 125 before we try for another hard correction. To support this argument, look at the chart of oil (USO), the market tried to break it below the descending red trendline and the 50DMA. It broke, but did not confirm the break the following day, and now instead we have a break upwards of the 20DMA. If oil goes up, oil stocks go up, and so will the market, so that's why I think a sizable correction is probably still at least a week or two away. As always be flexible with your oppinions, things can really turn on a dime in this fake manipulated market.

has the elusive correction finally come?

Well it looks like the elusive correction is likely happening now. For once we had two back to back down days, with the close of the SPY close of the lows of the day. XLF has broken out of a triangle to the downside. The problems with Greece, Portugal, Italy etc. which have been largely ignored by the markets are finally becoming a problem just as the SPY made new highs, and the S&P rating agency suddenly decides to downgrade Greek bonds... coincidence? If this correction is for real, it will be scary. It will be swift and fast and cause widespread shock. But I think the correction is just that... a way for the big boys to buy cheap shares from scared little fish at depressed prices.

So I think once this correction has run its course, the market will be ready to mount one final parabolic move up. The real depression like crash will not occur until we either see a currency crisis in the US dollar or the Euro, or oil quickly soaring above $150 in a very short period of time which could happen with a crashing US dollar, or perhaps hyper inflation setting in, and these scenarios do not seem too far fetched anymore. But until this crisis occurs, we should be able to enjoy a nice parabolic move in the markets, and a steady decline in the US dollar.

where is the elusive correction?

I was really tempted to scale in some shorts on Friday, and then common sense prevailed... NEVER TRY TO PICK THE TOP... even if it had turned out to be the top, any decline is still a counter trend, and should be reserved to those who are very quick and nimble... the rest of us don't really stand a chance playing the counter trend.

Not much has changed since my last posting. It does not matter that forclosures have skyrocketed, Greece is still in trouble, America is still printing money like mad, unemployment is still a major problem... for now all we should be aware of is that we are in a raging bull market (although possibly the final leg prior to a very nasty unpleasent surprise).

Anyways I said the SPY was toppy back a few weeks ago, and now it is really toppy... although it will not surprise me at all if the SPY were to make it to 125 before a quick scary pullback occurs (say to 110-115 in a matter of a few days)... and it has got to happen one of these days, and that pullback will be the time to back up the truck, and load up on stuff related to oil, gold, or heck even stocks.

For GLD I would expect a pullback to about 108 (or even 105) will make for an attractive entry point.

Perhaps the market needs to wait for an excuse to pullback, perhaps after options expiration this week will be that trigger. Eg. kill the shorts, and whip the longs around playing games and then use the problems in Greece or Portugal to correct the market so the big boys can pick up shares at cheap prices. Then put out some prediction of oil going up to $300, make oil skyrocket, sell all the stocks that have rallied to the little fish before the final crash and the start of the great depression 2. At least that's what I think will happen.

still the same holding pattern. be patient

It has been a rather frustrating market for those who invest based on common sense. Greece is in trouble, Portugal is next, America continues to print money, investors in gold and oil have to suffer through violent swings in price because the US dollar rallies, and yet the US stock market is happily rallying even though the economy is probably on life support.

As much as I'd hate to say it, but being long US stocks has been good. While I'm not saying to buy right now because we are really toppy, it's also not yet a reason to sell either. I would say that this moment in time, it would be safest to be a "skeptical bull". Eg. go long when opportunities present itself, but be ready to alter your views from bullish to bearish almost immediately.

Anyways click on the charts, and look at the comments there. The SPY is toppy now, long overdue for a pullback, but I wouldn't count on one occuring until I see it. GLD looks like it has a head and shoulders formation which is bearish, making a possible move to 103 a logical. But if this head and shoulders formation fails and manages to take up lots of resistance, then I'd say that the gold bull will continue, as it eventually should with all that money printing. GDX looks weak, but even with a correction in the stock market, and gold, will take down GDX, but based on the charts, I wouldn't bet on a steep decline. As always be flexible about oppinions. US dollar, look at the comments. But we've been experiencing a steady non violent rally in the US dollar that has been depressing oil and gold. Once the markets get past Greece and whatever country chooses to default, then the fundamentals of money printing should catch up with USD, making it decline, inflating gold and oil, and leading to a repeat of 2008. Remember that year? The first half of 2008 was an excellent time to be in gold and oil.

be patient before going long

The markets have been on a tear for the past 6 weeks. The markets have staged a spectacular rally without much volume. The big boys are basically doing nothing with the exception of the small propping action and make sure that the markets float higher on light volume. Once again it's the little investors who are chasing the market higher.

Well gold and oil appear to be at a resistance point (look at the charts), the SPY is extremely lofty. And the US dollar (UUP) well it's either topping, or there will be one final blow off higher before all that printing catches up with the fundamentals, and the USD starts it's long term decline again.

I highly doubt the big boys will not be playing some game in the very near future to shake people out, just like they did in late January, and likely what they will do in the very near future. After all they have to sell their options to dumb people and make them expire worthless. They have to sell their shares at high prices to dumb people , and buy it back from them at low prices. (Dumb is a relative term, I don't mean to offend anyone). CNBC, Marketwatch is all vouching for the stock market and how there are good buys everywhere... (is that a forshadow for topping activity?)

I don't doubt that the SPY can reach 125 within the first half of this year. Gold will be rallying, and so will oil. Guess what happened in 2008 when oil rallied to $147?? Well oil is now at $80, and if the markets continue to rally, guess what will fuel that rally? Oil itself... and guess what will happen at the end of the rally? I'll give you a hint... consumers will not be very happy with high gasoline prices. And that's when Ben's printing will catch up and make things that were suppose to happen to the economy a reality.

mid term bull, but what will happen Monday?

So whether you share my views that we are going to have the great depression 2 or not within this decade, you got to believe that in the mid term the bull is going to continue with all that printed money sloshing around. But will happen on Monday, and what will dictate market action in the short term?

Well look at the chart in the SPY, and look at the commentary in the picture. The SPY opened at the high of the day, and closed significantly lower than the opening high. In the past when that happened, what did the market do? It happened in early January and we got a correction that lasted a month. It happened in mid February, and the market pulled back a bit before making the most recent highs. So what will happen next? Well certainly the chances are good that Monday will mark a pullback, and where will the pullback lead, if this pullback does transpire?

Well lets look at the chart of gold. GLD has recently broken below a descending turquoise trendline. What is the US dollar doing? Well the chart of UUP either shows a topping pattern, or bullish consolidation. Since the market is really overdue for a correction, I would say that there's a good chance that the dollar will rally just a bit more to cause a much needed correction in the market, and continued declines in commodities, before the mother of all rallies happens in the markets and commodities like gold.

Again, stops are required to play this game.

bullish stampede

Well I know a few weeks ago I said to keep a close watch for GS at 160 resistance level for possible signs of a rollover, and thus the broader market will take a dive. I also mentioned to be on the lookout for a possible "reverse the reversal" for a move higher. Well it appears that we have done the reverse the reversal, and GS has blown by the 160 resistance to the upside.

If you take a look at the SPY chart, from the commentary, you will see two arrows one pointing to early February, and one pointing to late February. The "reverse the reversal" came in late February, and a common thing is that the market tried to sell off significantly, only for buyers to come in later in the day to either push the market to positive, or significantly higher than the days lows. These type of days also come with high volume, and therefore days like those usually tell that the market is ready to rally, and that does turn out to be the case. Also the US dollar looks very tired, and appears to be ready to roll over and die any day, thus supporting higher stock and commodity prices.

So now what? Well the market does seem short term toppy, so a minor pullback will likely be healthy to the bull market to continue. Maybe the US dollar will be able to rally just a bit more to pull the market back a bit (eg. 110.5-111.5 on the SPY) and about 108.5 on GLD. A minor will give a nice setup in which to go long, of course with appropriate stops. Because really who knows whether this minor pullback actually becomes a major crash down, or continuation to the upside. But with all that printed money around, I am more comfortable to bet on the upside.

is the chart of GS trying to tell us something?

Let's look at something different this Feb 24, 2010. Looking at the SPY, it doesn't really tell you much, except that we have a possible lower high, with the recent rally off of the January lows, a rally up to the 50 DMA. Looking at Gold, its similar, it's been in a downtrend since late December 2009, however is it bottoming or is there a little more to the correction to go (eg. will GLD trade down to 104 or 101 which are heavy support levels?)

Well let's look at one thing which seems more conclusive, the chart of Goldman Sachs. If you look at this chart, since Jan 2010, it doesn't look too nice with a series of lower highs and lower lows. the 50 DMA has crossed below the 200 DMA. The 50DMA , the 200 DMA, a previous support line, and the upper bar of the ascending trendline all seem to intersect at 162, which will likely be a major resistance point. Also recent price action would suggest that GS is forming a bearish wedge since forming the January lows. Say GS is able to rally to 162, then what? I would say that the likely direction for GS is further downside pressure perhaps to 141, which is an area of previous resistance.

So if GS goes down, guess what the SPY and the markets will do? Guess what commodities like gold will do? Mind you if the correction continues, it won't be anything like a crash, but in the very short term perhaps it's better to sit tight and wait for better opportunities to present themselves before buying anything.

feb 18 - FED raises discount rates

Feb 18 , the market rallied on relatively low volumes, but rallied impressively especially at the last hour of trade. Do you think the big boys were playing games, perhaps convincing people to buy when they should not buy? In the last 10 minutes of trade, you really saw a large volume selloff on the SPY, and that should have been warning signs. After all the SPY traded up to the 50 day moving average, the 61.8 fib retracement number, and frankly failed to convincingly break above a key resistance level (notice the little topping tail). And what does the market do after hours? S&P futures are down 9 points because of the FED raising the discount rates.

The market tried to break to the upside today, and it looks like it has failed. I have been taught, that when the market tries to do something and fails, it will reverse to the opposite direction violently. So what will happen? Well I guess I'll be a little bolder and say that we're probably gonna see some more downside pressure in the markets. I could be wrong, and the markets can "reverse the reversal", but it appears likely we'll see SPY prices closer to the 200DMA at what appears to be 103 now. Once this correction has run it's course (or a "reverse the reversal" happens), then the last final leg in the market rally will likely transpire. For short term traders be nimble.

feb 16 - short term target achieved as i said

Feb 16 update. The short term target I outlined earlier has been achieved. We got our rally on the SPY to close to 110 on very low volume. What will happen next? I wish I knew. Certainly commodities, and stocks for that matter are overly extended and due for a pullback.

Whether this pullback is a nasty correction (SPY 102), or the SPY will continue to rally is up in the air. Certainly it is troubling that the rally today came on very low volume. Also this week is options expiration, and a lot of wacky things can happen.

Long story short, be defensive. If a major correction occurs, wait till the dust settles before trying to find the last leg in the bull. If the market rallies, and confirms a rally, then this may be the last hurrah for the bull market before all the real fun stuff occurs when many countries, companies, or people starts defaulting on their debts.

consolidation continues... what will happen next?

I know I said in my last post that the markets will take a few days to figure out where they want to go. Well as of now Feb 12, it's still trying to decide what to do. But I certainly think in the very short term, (next 1-3 days), the market is going to rally because the US dollar (UUP) appears to have made a double top, and is ready to pullback a bit. That would mean that stocks, and commodities will rally. Especially when you see Friday's trading action, the market rallied from significant lows to just about break even, so certainly the market is not ready to die yet.

But my forecast last week remains the same, looking at the charts in the next 1-3 days, I believe the SPY will make it 110-111, GLD will make it to 109 and change. What happens after that is debatable and will again depend on price action. But if you look at the chart of UUP, and the SPY, I have outlined two scenarios, with the red hand drawn arrows. One is where the dollar continues to rally (UUP 24) and that would likely the SPY to correct back to 100-102. And the other scenario is that the dollar just starts to die and the markets will continue to party as if all the financial mess in Wall St. Greece, Europe, or heck the US gov't is non existant. Which one will it be?

Again while a correction back to SPY 100 would be significant, I don't believe that the market is ready to die just yet. We need to have a blowoff rally to suck everyone's hopes in before someone realizes that printed money is worth less than toilet paper (hey at least you can use toilet paper for something useful :P ), and that is when financial armegeddon will occur. Or maybe I'm just too pessimistic and that the model of printed money can continue forever???

is it breakdown or massive shakeout?

After trading on Feb 5, at least in the very short term, we can expect a snapback rally, especially with the bottoming tail on the SPY with massive volume, and a topping tail on the US dollar. A rally back to 110, or 111 on the SPY would not surprise me. But what happens after that depends on price action. If the SPY is able to decisively break 111 to the upside, then I would say that the rally is on... the recent correction would have been a failed breakdown, and the markets will rally violently. If the SPY is not able to break 111 to the upside, then there's a good chance that the SPY will correct to 102 ( where the 200 DMA is, and also symmetry from the two turquoise vertical lines).

Gold will likely see the same trading action as the SPY. It looks like it's forming a huge consolidation bull flag, but at the same time it could correctly back to the high $900s low $1000s , before a resumption of a huge rally. But if it is a failed breakdown, within the next few days, gold has got to decisively break $1100, and then it would be safe to say that we've seen the lows for gold for a while.

So a lot will depend on the next few days. If in a few days, the rally fails at the levels that I mentioned, then it's safe that the correction will continue. If it breaks past the resistance levels I mentioned, then we'll have a massive rally. So it's wait and see now... I can't see past the next few days, and we got to be prepared for anything.

support is broken... all bets are off

Well I thought that support was going to hold, but it appears, that support is broken... all bets are off, and it appears that we are in for one nasty correction. Wall St. has a way to manipulate people's emotions big time, and I admit that I have fallen victim sometimes as well.

We have to trade what we see, and not how we feel. Today thursday Feb 4, is a massive down day. I would not be surprised to see a bit of a bounceback tommorow Friday Feb 5, and that would probably be an opportunity to reduce long exposure.

I expect gold to dip into the $1000 range, and perhaps we'll see high or mid $900 for gold as that appears to be another level of massive support. As for the SPY, the correction will likely make it go to 99.

It appears the US dollar is sexy again. Don't know why, but investors just like this piece of fiat currency.

correction over pt 2... with charts...

I said that I would post some charts when I get a chance. I don't have access to my charting software, so stockcharts.com will have to do. Looking at the SPY, it's sitting around critical support, ascending purple trendline with double turquoise lines for support. Oil (USO) is sitting on support (ascending black trendline along with 200 DMA). Gold appears to have broken it's ascending turquoise trendline, yet is sitting on red line support of 106. and the US dollar (UUP) is sitting around 23.3 resistance (turquoise line), along with massive overhead resistance of the 200 DMA at 23.4.

So again what do I think? while anything is possible, I would say it's likely safe that commodities and stocks are trading at a stable support level, and that the US dollar is at massive resistance. So given that I think that the US dollar should fall, that should bode well for commodities and commodity related stocks.

Of course it is also possible (but less likely) that the US dollar will continue its rally, and then all bets are off and we are in for a more sizable correction. But personally I think we're probably at least a few months away from a large scale correction, because the powers that be (eg the US gov't) will throw all the money they can print at the financial mess to try to preserve a false sence of economic recovery. When people realize that printed money is not a prescription to the world's problems that's when we'll have dire consequences, but I don't think we're there yet.

long story short, I think it's a good time to accumulate some gold.

correction over?

I'll try to post some charts later. But anyways if you chart Gold, and the S&P 500, you'll find that they are ho vering about a major support area. (GLD- 107.xx, SPY - 109.XX). In fact gold seems to be forming a double bottom. You will also find that the US dollar is hovering around resistance (23.xx on the UUP).

So what will happen next? China has been saber rattling about reducing stimulus and loans, which is the cause of the recent correction. Even Obama's threat to Wall St. about closing the ability of banks to run hedge funds is likely just a farce for show, since the US government has already been bought out by the major big US banks. But what will the US government continue do? They will naturally continue to print money. So baring any major event that will upset the market (eg. terrorist attack, blah, blah), it's likely that the US dollar will see its high recent highs. So if the US dollar declines from now that will likely bode well for gold, and other commodities. Anything can happen but I say that it's likely a good entry point to get in commodities.