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Stock Indices Break Below Important Support

The link to today’s Briefing is below.  From a price development perspective a lot of damage was done today in the Stock Indices.  The S&P has broken down below 2065.  The Transports closed below 8250.  The Industrials appear to be breaking down outside of their rotation.  The NASDAQ closed below its lower support.  Most important, the structure of the move was strong internally.  The day patterns suggest additional selling tomorrow.  However, the Indices reached a point of being extremely oversold today, where we can typically expect some type of rotation to work off the oversold condition.

The Indices can stay oversold for a long time and selling can certainly persist tomorrow, but we must be aware markets never move in a straight line.  Therefore, I have to expect some type of rotation up.  How that rotation develops will be extremely important.  Also, holding the S&P below 2065 and the Transports below 8250 will be critical.  If they do hold below those levels on any rotation, it will suggest we have are transitioning into a greater degree timeframe move lower.  If there is a break above those levels and close above those levels, the probabilities will have switched to today’s move being a false breakout.

As I said in the previous Briefing, expect volatility this week.  That is certainly what we were faced with today.

The Markets in Development Briefing

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A Week of Much Volatility May Be Coming

The link to Friday’s Briefing is below.  I wanted to wait as long as I could this weekend to do the analysis and recording.  It appears the Greek situation is not going to get resolved.  Asian and Middle East markets are already down.  If this persists at the Globex open this evening, we will likely see a large move to the downside.

As you will see in the Briefing, Breadth was strengthening going into Friday’s close.  This suggests the higher probability of a more higher on Monday.  However, internal divergences typically are eliminated on a news event.  We certainly have a significant news event in front of us.  Expect a lot of volatility and for the powers that be to put as good a spin as possible on any Greek default.

Markets are closed on Friday.  Normally, as the week progresses, volume would fall off in anticipation of the long weekend.  However, that may not be the case, due to events in Europe.  Additionally, we may begin to see the Metals making significant moves as well.  This is the time period when I am looking for the Metals to begin bottoming.

Expect a roller coaster ride.

The Markets in Development Briefing

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Stocks May Be Entering Critical Area in Terms of Time and Price

Below is the link to today’s Briefing.  The Stock Indices are looking very tired.  For quite some time price has held up longer term in spite of weakening internals.  While the rotation back down does not have the appearances of being impulsive, that can always change.  Yesterday’s volume was strange.  Today’s was better, but still fell off as the market moved down.  There is a slight divergence in Breadth over yesterday.  Unless that is eliminated tomorrow early in the day, it could be signaling some type of rotation back up.

The Transports are right at the 8250 area.  Breaking below that could usher in selling in some of the other Indices.  The S&P closed below 2096 today.  As long as it remains below 2096, the probabilities are such that we will see a retest of the 2065 area.  If and when that occurs, it will usher in a very important and decisive time for Stocks.

The Markets in Development Briefing

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Critical Week for Stocks, Metals and Euro

The link to Friday’s Briefing is below.  It is extremely important to recognize changes in the environment of any market or information that can come into the market that will change the environment or perception of value by the participants of that market.  There is much speculation as to what will happen in Europe in the coming week and the potential for Greece to exit the Eurozone.  Expect leadership to play down the repercussions as they did with the failure of Lehman in 2008.  However, the actual outcome will only be known after the fact.  If the proverbial can is kicked down the road, I would expect the markets to take that as a positive.

In any event, in analyzing price development and price structure, there is a larger probability for a continuation of rotation down to test the lower extremes, as outlined in the Briefing.  While Breadth was not extremely negative on Friday and volume declined going into the low of the day, the Indices closed on the lows, suggesting the selling would have continued if the markets had not closed.  Based on this, I would expect some follow through on Monday, not taking into consideration the European situation.  Remember in Thursday’s Briefing I suggested there would be some rotation down on Friday and how that developed would be important.

Silver is not confirming the strength in the Gold market.  However, any Euro weakness the first part of the week will have a positive impact on the Metals and the Dollar.  This could be a case where we see the Metals and the Dollar rising, as individuals move to safety in lieu of an unknown impact of a Greek default.

Most European markets are six hours ahead of us based on EST.  What happens in the Globex session may set the tone for the next few days of trading.  If Globex can hold at or just below Friday’s low, it would indicate a positive situation and potentially higher prices.  However, if Globex is substantially lower, I would expect a the S&Ps to test 2065 and that would give an opportunity for a breakout to the downside.

The coming week will be very important in terms of price development.

The Markets in Development Briefing

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Stocks Rally Supported by the Internals But Now Face Resistance

The link to today’s Briefing is below.  As discuss in yesterday’s Briefing, the Indices were poised for a large move in one direction or the other.  Today’s rally was definitely supported by the internals, so it should be taken seriously.  While there can be additional upside tomorrow, the Indices will reach a point of being extremely overbought, suggesting some type of rotation to work off that overbought condition.  Also, they are approaching significant intermediate term resistance.  

Short term, the first hour of trading will be important.  Intermediate term, what happens above the 2124 – 2134 area in the S&P will determine the next potential larger degree move higher.

The Markets in Development Briefing

 

 

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Stocks Continue to Rotate But a Large Move May Be Coming

Below is the link to today Briefing.  A confluence of timeframes may be coming together that will result in a large move in one direction or the other.  The determining factor may be how traders interpret the FOMC announcement overnight.  This makes the initial balance period extremely important tomorrow.  Unless the longer term structure of price development changes, the higher probability will be for a move lower.  Watch 2065 carefully in the S&P.  Alternatively, if they decide the announcement was bullish, expect the structure to strengthen to support price.

The Markets in Development Briefing

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Rotation Continues but Testing Lower Extremes

Below is the link to today’s Briefing.  The development of the Stock Indices is very interesting.  Neither buyers nor sellers are able to take control of the market.  Since the beginning of April the Indices have been in rotation and unable to breakout in either direction.

When I left for vacation two Fridays ago, the S&P closed in the 2090 area.  While Wednesday of last week appeared that buyers were gaining control, they were unable to sustain the drive.  The result was sellers coming in and taking the market back down to test the 2065 area today.  At some point the current rotation between 2065 and 2124 in the S&P will be broken.  Currently, with the S&P testing 2065, the higher probability is for a break to the downside.  However, until that occurs, expect the rotation to continue.  A break below 2065 and holding below 2065 will suggest sellers have finally taken control in some greater degree countertrend rotation down that will likely test the 2020 – 2030 area.

If the S&P cannot break below 2065 and hold below it, expect some type of rotation back up.

Gold is trying to move higher, but Silver is not confirming.  It will soon be time to begin putting on long term long positions in the metals.  However, there is still a risk there will be additional downside before a bottom has been put in.

The Markets in Development Briefing

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Stock Indices Short Term Oversold

Below is the link to last night’s Briefing.  The move down yesterday may be the beginning of another rotation to test 2065 in the S&P.  If that is the case, the failure of buyers to drive the S&P and other indices above their current highs will increase the probability of a potential break away from the 2065 area and a large degree move lower. 

As I have been stating and especially in Friday’s Briefing, the Structure of the rally was not supporting price.  It was anybody’s guess as to when a decline would come, but the Internals were sending multiple signals the rally was tiring. 

I have to expect some type of rotation to work off an extreme oversold condition.  If that is the case, how the Development occurs will be extremely important.  If there is a countertrend rotation, then it will open a tremendous opportunity for short positions.  If it is not countertrend, then we will test the highs.  Evaluate any move higher to determine if it is countertrend.

The Markets in Development Briefing

 

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Stocks: Long Term Structure vs. Price Development

Below is the link to today’s Briefing.  It is a little longer than normal.  I wanted to take extra time to analyze the longer term development of the market and its structure.  This is very important in going forward.  The Indices are sending more and more warning signs of an impending rotation down.  While they can continue to move to slight new highs each day, unless the structure changes, there will be a good move to the downside.

The development of any move lower has a higher probability of being a greater degree timeframe countertrend rotation, similar to what occurred in October of last year, when the S&Ps tested the 1800 area.  Breaking that area would suggest a trend change.

For now, the trend of price is up.  Therefore, short term traders should be looking for long entries with the understanding the rally appears to be very tired and the Transports have just sent a warning shot over the bow of the other Indices.  We must be aware, if we do begin to see some selling pressure it could be the influence of a greater degree timeframe and therefore a greater move than a daily rotation.

How any move to the downside develops in terms of price and structure will be important going forward.

The Markets in Development Briefing

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Stocks Complete Another Rotation.

For the past few weeks I have been discussing the rotation in the Stock Indices and the importance of the 2065 area in the S&P to be more specific.  I also have suggested the rotation over the last month looks a lot like distribution, which occurs around market tops.  When distribution occurs, large money distributes shares slowly to small money.  This occurs with larger volume.  As the market declines, they step back from selling to allow the market to move back higher.  Small money steps in to buy the dips and you get a rotation back up on low volume.  That is certainly what has occurred and specifically today: large volume selloffs and low volume rallies. 

I received a phone call from a friend who wanted to discuss the market development today.  During the conversation, he told me a client of his informed him he took out a second mortgage on his house to invest in the stock market.  This is certainly an indication of large (smart) money selling to small (dumb) money.  While the Indices can certainly move to slight new highs, once again, the structure is not supporting it.  The higher probability is always for rotation. 

At the end of the day today, the Indices were extremely overbought and the day pattern is exhaustive in nature.  The only positive for the move was Breadth.  It was at an upper extreme.  It is now at a point where some type of rotation down should occur.  This is the same position the Indices were in when testing the lower extreme and in particular the 2065 area in the S&P a few days ago.  I suggested there had to be some type of rotation up and how that developed would be important. 

Now we find the Indices testing the upper extreme in an overbought condition.  Therefore, there should be some type of rotation back down.  How that develops will be extremely important.

The Markets in Development Briefing