SPY (S&P500 ETF)

Weekly

Immediate support lies around 115-117. The Head and Shoulders pattern achieved its target within this support level.
In the next 7 weeks, watch 107.55 on the SPY. Closing below this level would confirm the bear cycle.
The weekly MACD has been patiently forming a bearish divergence (white arrow in MACD panel), and it is only now that this divergence is starting to equilibrate.
When the SPY breaks the immediate support, which is also the weekly 200MA, and a long term extended trendline, it is likely to break the TDST support (red dotted level @ 109. By this time, the MACD would be in bearish territory and a cyclical bear would be firmly established.






SPY
Daily

The daily chart shows a very clear Head & Shoulders pattern (outlined by the white arcs). A break of the neckline at 126 occurred on 2 August 2011, and it was quickly tested the following day. This test failed, and together with the MACD running into bear territory, resulted in a breakdown.
The H&S target was 117, which was subsequently hit on an intraday basis 3 days after the neckline was broken.
Clearly, the SPY is well below the 200DMA (dark blue line), which is a long established support for chart technicians, and plasters a bearish outlook. The last time this happened was in 2008 and it resulted in a hefty breakdown of the equity markets before a recovery was in place. Today, it appears that the depth of the tank is nearing a possible end, and it is likely that a test of the 200DMA would be along shortly. Again, this test is expected to fail.
Notice at the bottom, a customized indicator called the TTR. Note that when the TTR spikes above 0.86, after being less than 0.85, it represents a significant turning point.
The SPY has clearly topped out and the bull turned over. What entails shortly could be a dead cat bounce and more downside risk for the rest of 2011.


VXX (VIX ETF)

The daily chart of the VIX ETF, VXX, has a very clear bullish divergence. In May 2011, this bullish divergence did not equilibrate and instead continued its build-up. The recent breakout of volatility as indicated by the VXX suggests that volatility is likely to be increasing in the weeks to come.
This sudden increase of volatility has met with one of two resistance. The first resistance is the 200DMA of the VXX. It is not clear at this point if the test has failed or there is more of a volatility spike.
The other resistance is the TDST resistance which lies on 34 of the VXX. The current Setup is short of breaking that level.
Given the circumstances, a breakout of the VXX would mean a consequent volatility increase, which is bearish for equity markets. This bullish divergence has yet to run its course and this supports more volatility in the coming weeks.
However, it is possible for a decrease in volatility and the VXX to find its way back to 25 before another spike in the VXX.


TLT (20Yr Treasury Bond Fund)

The daily TLT chart went parabolic with heavy volume this past week. This is happening as money is moving into US Treasuries and out of the equity markets as a very fast pace.
Clearly, the extreme short term movement is past mania and a reversal looks to be due soon. This reversal may be seen as soon as Monday 8 August 2011, as the USA was downgraded by S&P to AA- from AAA. While the weekend saw media and experts argue both camps, the TLT chart suggests a return to mean. A close below 101.54 would signal a possible drop to less than 98.
At this point, the demand in Treasuries may mean that a recession is expected and therefore funds are flowing into “safe haven” US Treasuries. An outflow of money from Treasuries would spur the equity markets into a rally.
Having said that, the US Treasury is likely to remain in demand given the developments in Europe, and possible surprises from China.


From the charts above, which are not the usual charts I use for analysis, there appears to be a short term reversal which is likely to be a relief rally, or a technical rebound, before a larger second leg movement follows. Given the current scenario and status, if there are no major changes (eg. QE3), the equity markets would be in bearish territory and continue to be hot with negative news from Europe, and perhaps even China, in the coming weeks to the end of the year.
Just a brief, yet significant mention that the usual charts all signal weakness in the coming weeks. Something I have not seen for a long time.
Fair warning had been given in the charts, and if anyone out there is still applying a dollar-cost-averaging or buy-and-hold strategy, it might be high time to for a review.
For now, let’s see what happens over the next few weeks…


The MadScientist 7 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.

Single worst day loss since 2008 - a chart technician's dream come true

Good morning!

You just woke up to a MAJOR day in global markets. The S&P500 puked its guts out and Asian markets are going to BLEED! The Head & Shoulders pattern broke down 2 days ago, tested and failed the neckline and then hit its downside target within 2 days with a 60 point drop in the S&P500! Amazing volatility!

What was highly possible became real in just the last TWO days!!!

The MadScientist

Debt Deadline Today! - Market Analysis for 2nd August 2011 by Singaporeseeds

Daily chart for Dow


Daily chart for S&P


Daily chart for NASDAQ


The market made a 6 day consecutive down move over the past 2 weeks. This has brought the S&P futures down to its channel bottom and broke the 200 day moving average. Dow and Nasdaq are currently still above its 200 day moving average. With the US debt issue still unresolved, I believe we would be seeing more weakness in the market.
The markets had been moving sideways for the whole year now with a huge bearish divergence. As we move into August which is a seasonally weak time of the year and with the US debt issue still unresolved, we might be seeing more down moves over the next few weeks going into October. I’m expecting the S&P to break channel support and move down to around 1,200 by the end of the year.

Daily chart for the Dollar


The dollar had broke the wedge and is now testing resistance at the bottom of the wedge (red line) and also the 50 day moving average. I’m expecting this to fail and the dollar to continue to drop to around 68 on /DX.

Daily chart for Gold


Daily chart for Silver


The uncertainty over the US debt issue is pushing gold and silver up. Gold may continue to rally against a bearish divergence on MACD up to fibo retracement XOP at 1,726. Silver might have just started rallying following gold’s lead.

Daily chart for Crude Oil


Crude oil broke below its 50 day moving average. This shows that the current RSI and MACD bullish divergence in crude may not last. However there’s still the 200 day moving average. As long as crude can remain above this level it may continue to move higher.

Daily chart for Natural Gas


Natural gas is still moving in an slightly uptrending channel. We should see a bounce off the lower channel over the next few days.

MadScientist Quick Pre-market Analysis - 29 July 2011

The S&P500 E-mini futures had some very interesting action this week and it is time to review that action and what it is suggesting for the coming week.
The weekly chart over the past year shows a stalled rally that is forming a head & shoulders pattern, currently the right shoulder is in the process of completion. The 1260 level is the H&S support to watch as breaking of this level suggests a target of 1190-1200. Sell signals were given late in the left shoulder, at the peak of the head, and there should be a Sell signal by next week. The indicators are weakening and suggest a bearish undertone. A weekly Buy Setup is starting and this may put a nine week setup till October 2011.

The daily chart over the last 6 months show an ugly shoulder formation with a lower high that had broken the uptrend support line on Wednesday 27 July 2011. A Buy Setup is in the third period today and the first level to watch is whether the TDST at 1271.5 will be broken decisively over next week. Currently, the charts are telling of a Down Friday, given the deadlock in US Government about the debt ceiling, amid downgrading threats from rating agencies. The indicators are bearish… with RSI going well into bearish territory, as are the Stochastics and Force Index.

The 30 minute charts show of a recent downtrend that tested the uptrendline as a resistance intraday and the RSI at this level bounced off the bearish resistance. The MACD is also showing that there is consistent downward momentum. The Force Index should should later today a stronger down force, especially when the MACD lines are in bearish territory and turning over. It is also observed that the Gann Swing points are still making lower lows, making the downtrend intact for the very short term.

Looking at the SPX chart with the TTR indicator, when it is <0.85 and starts rising, the market tanks. This has happened in the last 2 years and is looking to happen again. Watch this space!

MadScientist – 29 July 2011

MadScientist's hypothesis for 3Q 2011

Today is 28 July 2011 and the US government is still in deadlocks about the debt ceiling of 14.3 trillion due next week Tuesday 1 August 2011. They are supposed to be having a meeting today (Thursday) and come to some conclusion.

Here is my hypothesis of what is likely to unfold based on news and developments in the USA as well as all over the world.

The US debt ceiling WILL be raised… but late. It is not likely to be in time for August 2, 2011, however, may kick in later in August. The date is likely to be missed, and markets will react badly albeit briefly and this is followed by the US government official getting together over a weekend and thrash things and sorts it out. Again, only temporarily.

Sometime in September, it will start with one of the rating agencies downgrading the US debt status. About that time, perhaps into October, European contagion will spread and thrash the markets. This should coincide with the Kress Cycle peaking out in October 2011.

Given such a scenario, IF it plays out as hypothesized, the USD (equity and bond markets along with the USD) should be falling until the government acts together, and then followed by European contagion which should propel the USD further.

Technically, there is a bullish divergence in the USD and there needs to be a trigger to start the equilibration.

One thing is clear, the Japanese Yen will be the haven, as will Gold. Gold is likely to go parabolic and correct that parabolia.
Checking the VIX, VXO and VXX (Implied volatility indexes and ETF), there is a bullish divergence that looks to have started the first bullish phase.

As of yesterday, the S&P500 has reversed and the fear indexes gave Buy signals. The Head & Shoulders pattern top appears to be completing with this down move. Many sectors including financials, oil, utilities, etc. have also given Sell signals. Yesterday is a turning point, at least for this short term. It remains to be seen if it will go further, and confirm this down leg move.

More later as I develop the technical picture and hypothesis with details.

The MadScientist

Finding Support Before the Next Rally - Market Analysis for July 11th 2011 by Singaporeseeds

Daily chart for Dow


Daily chart for S&P


Daily chart for NASDAQ


The latest rally in the markets had reached an end on Friday. This was indicated by Demark’s sequential system. We should see the markets find some support over the next few days before continuing its move up.
Support should come around its 50 day moving average at 1,310 for S&P, 12,300 for Dow and 2,315 for NASDAQ.

Daily chart for the dollar


The dollar is still in a wedge now. The side where it will break out from will determine its movement over the next few weeks.

Daily chart for Gold


Daily chart for Silver


Seasonally, Gold bottoms in late July and will rally into September so we are approaching the most bullish season for gold. However the triple top resistance with a bearish divergence in MACD and RSI will still weigh heavily on gold. We’ll see how gold behaves over the next few weeks before we decide. However I will be looking for bottoming signs for both gold and silver over the next few weeks.

Daily chart for Crude Oil


Mid to end July is seasonally a bullish period for crude oil. This coupled with the bullish divergence in MACD and RSI indicates that we should see a short rally in crude oil over the next few days.
I’m expecting crude to rally to 45.6 by August 2011.

Daily chart for Natural Gas


Natural gas is still in a slump. However we can see increasingly more bullish bets entering the market over the last few weeks. As I’ve mentioned many market analyses ago, this is a long term bullish play.

Daily chart for Cattle (COW)


The ETF for cattle futures is COW. This follows the futures price for cattle livestock. The recent shortage of cattle supply coupled with rise in feed costs (rise in grain costs due to the numerous crop-devastating floods around the world) will be a huge factor in keeping cattle prices up.
Seasonally mid June to October is a bullish time for cattle futures. Target at the April highs at 33.09 by mid August 2011.

Pause before a Bigger Rally! - Market Analysis for 5th July 2011 by Singaporeseeds

Daily chart for Dow


Daily chart for S&P


Daily chart for NASDAQ


My last market analysis was right on the spot as the past week was one of the best of the best weekly moves for the last 2 years. All 5 days of the week ended as long bullish candles on all 3 indexes and broke through their respective 50 day moving averages.
As Monday is a US public holiday, I’m looking at a consolidation starting this Tuesday. This is especially so after an uninterrupted 5 day bullish move ended with all 3 indexes closing at a significant retracement level way. However we should not see S&P close below support at 1,320. This would be 12,400 for Dow and 2,765 for NASDAQ.

Daily chart for the dollar


The dollar (UUP) is at the base of the wedge that had formed since beginning of May 2011. We shall see whether it would break below this wedge. At the moment, I believe it should.

Daily chart for Gold


Gold (GLD) gapped down and closed as a doji on Friday. Although Gold had formed a triple top at 151.50 with a bearish divergence on both RSI and MACD, I’m still having doubts whether there would be an extended downtrend for Gold. I still believe gold should reach 156.15 on GLD by end August 2011.

Daily chart for Silver


Silver (SLV) is slowly trending down towards its 200 day moving average at around 31. It is already forming a bullish divergence on RSI and MACD. We should see some bullish action soon.

Daily chart for Crude Oil


Crude Oil (USO) formed a bullish candlestick pattern just at an important support level at 35.50 on USO. This is formed on the backdrop of a bullish divergence on RSI and MACD. I believe we should see crude oil (USO) break it’s 200 day moving average and trendline soon.

Daily chart for Natural Gas


Natural Gas (UNG) is still enjoying the sideways bounce. However on RSI trendline pattern, it should be the last sideways dip. Let’s see if this is able to bring Natural Gas (UNG) above its 50 and 200 day moving average and form a bullish crossover for these 2 moving averages.