Hit by a train and still dragged - WMA 21 August 2011

Looking at the charts this evening, I realized something... that the move in the markets over the past 3 weeks had been so great, everything else look similar (except precious metals) and many stocks, ETFs, etc. all have this waterfall look.

Therefore, to cut to the chaste, I shall just comment on the E-mini S&P500 Index futures, ES.

The /ES daily chart shows that earlier this week, there was a dead (fat) cat bounce which saw the bounce find itself in the Fibonacci retracement area of 50% to 61.8% (aka COP). As it progressed, the rally got weaker and it rolled over on Wednesday.

The roll over can be observed in the ES 30 min chart where a sudden spike in the futures (together with low volume) failed to sustain and subsequently broke the EMA(s) as well as the 200MA. By the market open on Thursday, the ES was down -30 points due to lousy economic news from Germany. On Friday, early in the market hours, a short rally resulted in an "ice hole failure", which then saw the ES restest the low of the day, with the MACD looking as if it is not the end.

Back to the Daily chart... a new downtrend has resumed and should hold for the next week, less several bounces. Furthermore, after rolling over on Wednesday, the swing point hints of a major reversal. A new SELL signal emerged for Friday as well. What can be seen also is that the Open Interest for the ES has decreased as the dead cat bounce progressed and then increased as the downtrend continued. This is indicative that open positions were being closed as the rally proceeded, and with the downtrend continuing, more positions were opened... very likely, >6% short positions. As the downtrend continues, watch the open interest escalate and this would confirm that the market has more to go. Also notice the alert at 1106.5... this is a significant support level, having break this level on a weekly basis would provide evidence that a bear trend is confrimed in force, at least for the rest of 2011.

Furthermore, in a custom scan, over 35% of the tickers that are tracked put out a SELL signal on Friday. IF this is not enough, then also note that the market registered two "Down Friday, Down Monday" (DFDM) consecutively... and if Monday registers the third consecutive DFDM, the outlook would be very omnious. A DFDM is a statistical observation that two weeks of downward movement follows a DFDM.

Given this very bleak outlook, the Fibonacci downside target is estimated to be about 980 on the ES... and if the Fibonacci Fans are telling, then 5 September is the target timeline date. However, it is not expected to head down immediately nor in a straight line and a support is likely to be about 1010 on the ES.

See also a decent summary from Bloomberg: CLICK HERE and HERE TOO

Have a good weekend, and a better week ahead!

The MadScientist - 21 August 2011

Note: Any material posted here is of my sole opinion, and my opinion may differ from others. It is definitely NOT a solicitation to do anything else as a consequence of reading this material. The material presented here is intended for educational purposes only.


*charts are from TD Ameritrade Thinkorswim platform