Do or Die for the Bulls
Jack Steiman, www.SwingTradeOnline.com, on Do or Die Time for Bulls
Wednesday spoke volumes about the type of market we're in right now, a market that can't break out. It's a market that has been moving laterally, but with Wednesday's action, we may be ready for some much deeper downside action.
I've been around for a long time, and on Wednesday I saw the two highest prints of the put-call that I've ever seen: 2.77 and 2.03. Those are unheard-of levels of pessimism which almost always lead to tremendous rallies. Not surprisingly, we rallied 160 Dow points off the lows. But while the natural move from there would have been to continue the rally higher into the close with the market up triple digits for the day, instead news from Fitch Ratings on bank exposure to European banks crushed the market in the last hour. That's not really news and should not have had such a profound negative affect. The market should have been able to shrug that off, but instead it collapsed 200 points straight down and closed, basically, at the lows for the day.
That was awful action in the face of 2+ put-call prints consecutively. Bear markets can be tough, but with those two readings the bears should have melted away. But they did not. They roared back with relative ease. Bottom line is the bears can call Wednesday a slam dunk victory.
From a true technical perspective, Wednesday wasn't a breakdown. The action was awful, but the market still hasn't broken down below its 50-day exponential moving average. That level is currently at S&P 500 1224. Only a forceful break below will give the bears the ammunition they need to take the bulls down to their knees. They're closing in, but do keep in mind that we've been here before. We've seen the bears look like champions only to have things reverse on them in the next one to two days. Last Wednesday, we were down nearly 400 points, and things were a mirror image of today. All hope looked lost. To know for sure that the bears are now in total control, we have to see a break below 1224 with some force, followed by a failure on a backtest.
One cause of support giving way would be bank stocks. They have a tremendous weighting on the averages, and if they come under severe duress, the rest of the market is almost guaranteed to follow them down. The market has tried at times to bifurcate from these losing stocks, but our financial stocks have some very decent exposure to the European mess, and if there are defaults in Europe we will see some financial stocks crash right here in the United States, which, in turn, will bring about a recession.
For this market to be considered a bull market the following would have to take place. We'd have to break through S&P 500 1275 and run up to massive trend line resistance at 1325. We'd then fall back towards 1275/1260, and explode higher once there. Ultimately, we'd then break above 1325, and the bulls would be in full control.
The technical set-up, however, is getting less and less positive for the bulls, especially if we get one more strong gap down that can't be recovered. There would be too many open gaps from lower levels to allow for anything resembling a breakout to the upside. The action is overall neutral, but Wednesday definitely put the market on alert for that next big gap down that doesn't get filled. Thus, that would create exactly what the bulls fear most, another large open gap that seals their fate negatively.
The market is in real danger here with news coming out so bearishly day after day from Europe. It didn't take much news Wednesday to bring the market down huge late in the day. The wrong news could take this market down 500 points or more in a day on the Dow. There's no news for the bulls to bring them those types of gains. The range won't last forever. It'll break one way or the other soon enough. Today was bearish. The bulls need a miracle here to prevent the next big gap down, which, if it occurs, will likely start taking us below S&P 500 1224. We closed only 1% above that level today at 1236. It's do or die time for the bulls here.
Jack Steiman is author of SwingTradeOnline, a journal of his market analysis and stock trading alerts. JJack has a 93.7% total return so far in 2011, with his strongest trading coming in the last two months (20 winners of 25 trades)!Sign up for a Free 21-Day Trial!
Mike Paulenoff, of www.MPTrader.com, on Very Precarious Position for Emini S&P
That was one scary and vicious last hour of trading, which is a departure from the profile of other vicious down-moves during the October-November time period. Why?
Because this vicious decline from 1252 to 1230 from 3 to 4 pm ET-- to close right at the low of the session -- was initiated during the U.S. trading session rather than at some point overnight.
There was NO invisible hand or mysterious buyer out there during the final hour of trading. This acute weakness leaves the e-mini S&P 500 index in a very precarious position heading into the overnight session.
The e-mini S&P is approaching its key Oct-Nov support line, now at 1227, which has in the past thwarted weakness and must continue to do so in order to average a potentially intense bout of long liquidation the projects to 1185/77 upon a sustained breakdown.
Meanwhile, the euro/USD, which has been trading in tandem with the S&P, continues to press lower in its stair-step bear phase off of the Oct 27 high at 1.4245/50. A sustained breach of 1.3380 will project lower towards a test of the October low at 1.3150.
Mike Paulenoff is author of MPTrader.com, a diary of his intraday chart analysis and trade alerts on both ETFs and key ETF component stocks. He had 162 winning trades out of 260 in 2010 (125% total return) -- and is 172 for 289 in 2011 (with 30 Winners of Last 40 Trades)! Also Features Member Discussion Board! Sign up for FREE 15-Day Trial!
Avi Gilburt, of www.ElliottWaveTrader.net, on Anticipating December Rally
Talk about the market following a plan, as we had been waiting for the market to reach our 1225es target for several days now since we hit the 1270es Fibonacci complement level. Today, were watching the little grey b-wave triangle, and after the market came right up to as high as it could move without invalidating the triangle pattern, it dropped right down toward our 1225es target. This target level provided for 1:1 Fibonacci relationship between grey waves a and c to complete this down leg.
However, it does not necessarily take the larger options we have been watching off the table, but it does modify the probability of the patterns.
Triangle – Complete? The purple triangle count that “everyone” has been pointing to is now considered complete. Based upon this pattern, tomorrow should begin a 5 wave move off the lows to start wave 1 of this final blue c-wave with our targets over 1300. However, even though that is the expectation that many in the market have right now, I am not on board with that perspective. I do not see this pattern as completing a blue b-wave at this time, for the reasons we have covered several times in prior updates. Since a triangle is usually followed by a thrust out of this formation, and I would also be expecting a 5 wave move up in the ensuing blue c-wave, we should know rather soon if this can be completely negated as a possibility or not, as the other patterns we are watching would provide only 3 wave corrective moves up towards their higher targets. (10% probability)
Larger Triangle – (c) wave complete tomorrow with drop to 1212es region. A week ago, I had been musing about a potentially larger triangle pattern that could be playing out. Although I do not have it on the chart, if we drop towards the lower 1212es target region tomorrow, then that makes this pattern a strong candidate to complete our blue b-wave correction by the November 22nd -24th turn window we have on the calendar. This would mean that this drop is part of a larger and more complicated purple (c) wave, which is very common among c-waves. This pattern would most probably target the 1262es region on its next move up, but the low for an upcoming (e) wave would most probably be the 1225es region, which would be expected to be hit within our turn window. (10% probability – but increases significantly if we drop to the 1212es region for support tomorrow)
Large Flat – 1275-1285es target. We still have the potential to move up to the 1275-1285es region to complete a (b) wave of the blue b-wave before we drop in a yellow (c) wave to complete the blue b-wave on our 60 minute chart. This still remains a possibility, but this (b) wave would be proportionately too large relative to the (a) wave and what would potentially be a drastically declining (c) wave to complete the blue b-wave within our time pattern. Rather, it would mean that we would have to reach 1285es by the 22nd of November, followed by a several day decline that can shave off 80-90 points off the market before beginning the final rally we are expecting in December. The target under this scenario would be the 1194-1203es region. (30% probability)
Smaller Flat – 1262es target. This now leaves us with the most likely pattern, being a smaller flat pattern that has been our primary focus since we began this correction at the end of October. This would entail a rally into the end of the week which should ideally not exceed the 1262es level. The target to complete the blue b-wave would then be the 1194es region, which has some very nice Fibonacci confluence based upon this wave action. (45% probability)
There are many reasons that I view the higher probability patterns as such, which I have mentioned several times in prior updates. Among them is the fact that I think the market needs one more shakeout before we will have our final rally. Furthermore, the word on the street is that the hedge funds are looking for the market to hit the 50DMA (currently at 1205 and rising) before they “load up” for the Santa Claus rally. This region has also been our target for quite some time now as well.
Tomorrow’s action should eliminate at least one of the above patterns, and we should be able to eliminate at least one of the remaining patterns by Friday.
Again, based upon this corrective action, it does make sense to initiate some long positions in this region to begin to build a core long position in the event that the lower probability triangle does play out and we start moving up in the final rally. We can add to that position if we are able to move lower to our higher probability targets. But, the main goal upon which we should be focused at this time is setting ourselves up for the rally we are expecting in December to complete our Wave 2 retracement with a target as high as the 1330-1340 region in the cash index.
Avi Gilburt is author of ElliottWaveTrader.net, a subscription service featuring his intraday and nightly Elliott Wave analysis on the emini S&P 500 as well as markets such as oil, gold, silver and the U.S. dollar. Sign up for a Free 15-Day Trial!
Harry Boxer, of www.TheTechTrader.com, on 4 Charts to Watch
It was quite a negative day on Wall Street on Wednesday, and since we didn’t go over the Boxer Shorts on Tuesday, we‘ll take a look at some of the ones that are looking pretty ominous.
CVR Energy, Inc. (CVI) dropped down 3.57, or 16%, on 13.6 million shares on Tuesday. It closed right on the neckline of about an eight-month massive top formation. If 18.38 is taken out, this stock could slide into the mid-teens pretty quickly.
Abercrombie & Fitch Co. (ANF) is a stock that we’ve been talking about for quite some time now. It ran back up to test the double-top, fell, and rolled over hard with a big gap down. It dropped 7.60 to 48.10, or 13.6%, on 22.4 million shares. A massive liquidation. More downside may be had at this point. Look for something down toward 41, and then the mid-30s.
Gen-Probe Inc. (GPRO) has had a beautiful run up the first part of the year. It reversed sharply in May and June, came down sharply from the 81-82 zone down to the mid-50s. It bounced around for a few months and formed a potential bear flag. If it cracks to the downside, look for something in the 54 range short-term. If it reaches 54, then it could go all the way down into the mid-40s.
BMC Software Inc. (BMC) got hammered in July and August. It went from 56 down to the mid-30s. It bounced around, rallied back to the 50-day, came down 4 times, and keeps failing to get through the 50-day moving average. There’s a rising wedge that appears like a bear wedge, or bear flag. Look for a retest of the lows down around 33 short-term, and 30-31 intermediate-term.
Other stocks in our Charts for the Day are HollyFrontier Corporation (HFC), Edwards Lifesciences Corp. (EW), TRW Automotive Holdings Corp. (TRW), The Ensign Group, Inc. (ENSG), Franklin Resources Inc. (BEN), China Yuchai International Limited (CYD), OpenTable, Inc. (OPEN), The Scotts Miracle-Gro Co. (SMG), Kraton Performance Polymers Inc. (KRA). View Harry's complete Charts of the Day video.
Harry Boxer is author of TheTechTrader.com, a real-time diary of his day and swing trade alerts, including live audio-video of Harry discussing his charts throughout the trading session. Sign up for a Free 15-Day Trial!
Sinisa Persich, www.TraderHr.com, on Free Stock Pick: MPEL
Melco Crown Entertainment (MPEL), which lost 36 cents to 9.56 on Wednesday, broke a support level in the 9.80 area and is testing triple-bottom support around 9.40.
Traders may want to use 9.30 as a sell stop price to confirm downside momentum, with a target zone on a short trade at 8.89 to 8.43.
Sinisa Persich is a technical analyst and author of TraderHR, our newest AdviceTrade service, featuring day and swing trade set-ups for yielding profits in both up and down markets. He has 82 winning swing trades out of 112 so far in 2011 (39% total return). Sign up for a Free 15-Day Trial!
