Bear Flag or Ascending Triangle?
by Jerome "Mel" Hickerson
Friday's session began with heavy selling pressure from the futures as the pattern of recent overnight news creating a negative reaction continued. The SPX gapped down almost ten points within the opening moments, worked its way down another four points before 9:40, then tried weakly to bounce. Just after 10am, the index created a double bottom and set the low of the day at 10:04. The next two hours consolidated sideways. The noon hour saw the market begin to gyrate with a swift upward move of almost ten points in 20 minutes followed by a similar downward move over the next 50 minutes, followed yet again with an even larger upward thrust setting the high of the session at 2:23. Once more the SPX proceeded to give back most of that gain before rallying into the final 30 minutes.
It was an interesting session, ideal for day trading, and our systems performed well. Our System 2 was quiet during the morning as the index coiled but gave an aggressive Long signal at 11:50 just in time to catch the swift upward move. At 12:25, just four minutes after the top, the system generated a sell and reverse Short signal and we took advantage of the ten point downward move generating a cover and reverse Long signal at 1:18, just two minutes before the bottom. Our Long position then struggled for 15 minutes or so before taking off. The system then generated an exit Long signal at 2:15 capturing most of the upward move before generating a Short signal at 2:27 four minutes after the high of the day. That position was stopped out profitably at 3:10 wrapping up a fun and volatile afternoon, all trading within a ten point afternoon range. It isn't often that a ten point range can be traded for 35 points within a little more than three hours.
Stepping back and looking at the week, we had a choppy volatile week with trading heavily driven by news. Last weekend's report stated that "the model is suggesting that Friday’s turnaround may have marked a short-term bottom and that the market could respond with a multi-day rally attempt." Subscribers were given data strongly suggesting that this week's close would be higher than the previous week's close.
The results this week were a bit disappointing on the rally front but the SPX did manage to close exactly ten points higher than the Monday open. The bottom generated on the previous Friday seems to be holding for now.
Mixed signals abound. The daily chart is an unmistakable classic bear flag pattern with heavy volume on the pole and light volume on the flag. But an ascending triangle can also be seen.
Other internal evidence such as stronger action in the technology sector suggests more upward action, at least early in the week.
The weekly chart is inconclusive as well. We painted an inside narrow range week which are often followed by large range weeks with no evidence to suggest which direction.
The monthly chart is also unhelpful as we are currently painting a doji and almost exactly at the mid point of the monthly range.
Taking all the evidence together I come up with this: I believe that the short-term bottom of 1044.5 will hold over the next week. We are currently in a news driven environment and it's not an environment conducive for sustained rallies. Sideways, volatile and choppy trade seems most likely. There may be fewer reasons to rally than reasons to decline yet the bulls will continue to have their days; but the path of least resistance remains downward.
I have been short-term bullish; I now move to the neutral camp. Yes, I still think we may visit 1090 and above 1100 won't surprise me. But I don't see Mr. Market checking into an extended stay address above 1100.
This is the time to trade the market with short-term trades; choppy trade is made for quick moves. If you hold more than a day or two, you'll likely get whipsawed for losses or see gains quickly erased. Conversely, if you are quick, you can likely make some money trading either short or long.
For Tuesday, our model is weakly suggesting downward; but I would not be surprised to see a positive close after a weak open.
I entered the long weekend flat because the news will drive and betting on the news is chancy at best; even if you guess correctly, can you also guess the market reaction which is often even more erratic and unpredictable?
SPX Summary for Friday, February 12, 2010
205 Advancers/283 Decliners
Today's SPX component winners and losers:
• Largest one day loser is ADBE with -3.62%
• Largest three day loser is DF with -17.56%
• Largest five day loser is DF with -18.03%
• Largest ten day loser is NYT with -17.43%
• Largest one day winner is MOT with 7.52%
• Largest three day winner is AIG with 16.54%
• Largest five day winner is HAR with 26.54%
• Largest ten day winner is ARG with 46.61%
*** SPX Technical Summary ***
The lowest 14 day RSI component is BSX; the highest 14 day RSI component is SLE. The average 14 day RSI of all 500 components is 45.
The greatest positive five day momentum component is HAR; the greatest negative five day momentum component is DF. The average five day momentum of all 500 components is 1.53.
9.20% of the SPX components are giving a crossover Buy signal; 65.60% of the SPX components are giving a Sell signal. This is a 7.1 to 1 ratio of Sell signals over Buy signals.
SPX component signal changes today (evidence of trend):
• From Sell to Neutral: 34 components.
• From Buy to Neutral: 1 components.
• From Neutral to Sell: 6 components.
• From Neutral to Buy: 13 components.
Monday, February 15
U.S. Markets Closed President’s Day
Tuesday, February 16
Economics
08:30 Empire State MFG Survey
09:00 TIC Flows
Earnings
Before: ANF, CPLA, CF, FOSL, KFT, MRK, PDC, Q, TEVA, UTHR
After: AAN, GIVN, JAH, LZB, MRH, MBR, RAX, VCLK, WFMI, WINN
Speeches
12:45 Narayana Kocherlakota
Auctions
11:30 3-Month Bill Auction
11:30 6-Month Bill Auction
Mel’s Random Hits:
• Total tick for the day was +121,000. The first 90 minutes were negative but soon after the open the trend was clearly moving positive. By 11:30 breadth was suggesting a rally attempt. But around 1:15 the bears made their presence felt forcing breadth negative for an hour. The rest of the session closed with positive breadth.
• Total tick for the week was just under +600,000. This was the greatest total since the first week of January. The large total reflects the fact that most of the downward moves this week occurred at the open and then the market worked back upward during the day. Every dip since the Friday reversal a week ago has been met with buyers.
• The day's range was 14.84 points. This is not a very large trading range but it felt larger because the index was volatile within the range.
• The range for the week was 23.53 points; 2.21%.
• The day's volume was 76.26% of the average daily volume for the last year. Volume was 82.2% of the last 10 day average.
• 26% of the SPX stocks closed with two day RSI above 90. 43% closed with RSI above 80. 7% closed with RSI below 20 and 2% closed with RSI below 10.
• 75.6% of the SPX are above their five day moving average, 50.2% are above their 10 day average, and 33.4% are above their 20 day moving average.
• 4% of the SPX stocks closed below their most recent previous lows.
• 37% of the SPX closed above their most recent previous high.
• 89.4% of stocks closed in the top half of the day's range. (10.6% closed in bottom half.)
• 1.6 of stocks closed in the bottom 20% of the day's range.
• 32.4% of stocks closed in the top 10% of the day's range.
• 4.2% of stocks closed within 2% of their 52 week high. 12.8% of stocks closed within 5% of their 52 week high.
• 29.6% of stocks closed within 50% of their 52 week low. 9.8% of stocks closed within 25% of their 52 week low.
• 38.8% of stocks closed within ¼% of their high for the day.
• 1.2% of stocks closed within ¼% of their low for the day.
• 42.2% of the SPX closed up from the previous close; 80.6% closed higher than the open. This is strong evidence of the gap down followed by recovery.
• Sectors weaker than the SPX for the day: Industrials and Utilities.
• Sectors stronger than the SPX for the day: Basic Materials, Financials, Consumer Staples, Health Care, Energy, Consumer Discretionary, and Technology.
• The $SOX index strength was stronger than the SPX Friday for the sixth consecutive day. This is often a short-term signal of a strengthening market.
• The 2 Day RSI of the SPX is 57. The Dow RSI is 51, NASDAQ is 89 and Russell 93. The NASDAQ and Russell seem to be nearing an overbought area.
• Over the last five sessions, the average session closed 59% of the range above the low.
• Upward momentum held steady from yesterday’s 1.89 to today’s 1.53. The ratio of SPX components giving a crossover sell signal compared to buy signals is at to 7.1 to 1. This is the 16th day of Sells outnumbering Buys; the longest such streak since February 2009.
Have a great weekend everyone!
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"Mel"
ETF’s we trade:
Ultra S&P500 ProShares (NYSE: SSO)
Ultra Dow30 ProShares (NYSE: DDM)
Ultra QQQ ProShares (NYSE: QLD)
PS UTLRSHRT QQQ (NYSE: QID)
UltraShort S&P500 ProShares (NYSE: SDS)
UltraShort Dow30 ProShares (NYSE: DXD)
PowerShares QQQ Trust (NASDAQ: QQQQ)
Direxion Daily Small Cp Bear 3X (NYSE:TZA)
Direxion Daily Small Cp Bull 3X (NYSE:TNA)
