Interactive Widget --SPY Mimics S&P 500

Saturday, November 19, 2011

A Slightly Longer View

Here is a look at the SP500 Index since the beginning of August - daily bars.

I've outlined three channel that have been in existence since the 8/09 bottom.  The first, in purple, starts with that bottom.  It was badly breached in late September - early October.  An expanded trend channel, at double the width (not shown) would come close to containing the October 4 low.

The blue channel, up from there, outlines a steep and dramatic retracement.  This trend topped on October 27, and the index has been sliding since.  I've placed the red channel lines around this decline.

I thought the purple channel was gone after the late September drop, but the lower boundary has been touched several times since mid-October.  If the red channel has any validity, this week's penetration of the purple channel bottom signals a new phase of decline.

Looking at the even bigger picture, it's hard to see anything really positive happening.

Thursday, November 3, 2011

Thursday 11-3

Today, nothing definitive happened in Greece.   "Stocks rallied for a second day on Thursday as Greece backed away from a proposed referendum that threatened its membership in the euro, which could destabilize global markets."  So - stocks were strong today because the Greeks decided to not do something that maybe they weren't going to do anyway, and nobody knows what the effects might have been if they had.  Well, stock increases climb a wall of fear and uncertainty, so that all makes very good sense. 

Another way to look at it is that after a five wave decline covering 3 trading days, the markets are now in a corrective phase.   From Thursday's SP500 high of 1292.66, the index bottomed at 1215.42 on Tuesday.  Today's high of 1263.21 is only .06 above the .618 retracement level.  Of course, there is no particular reason for the advance to stop exactly there.  Recent retracement have been quite steep and the .786 level, at 1276.14, is not far off.  The way markets move these days, that could be reached in a few seconds of trading.

If the advance were to end now, it would mean that, once again, it faltered at its trend midline.  That would be esthetically pleasing, at least.   Note also that the open gap from Tuesday's opening has been filled.

If the index doesn't turn down here, I expect it will soon.

Wednesday, November 2, 2011

Wednesday 11-2

On a day when the Fed did nothing, but projected a bleak outlook going forward and no new revelations came out of Europe to relieve the Greecy mess, the stock market went  . . . . . . UP?

Yep: 1.61% for the SP500, 1.53% for the DJI, and a measly 0.87% for the NASDAQ.  How to explain?  Will, since the top last Thursday, the SP500 has complete 5 waves down, and now there is a correction at some small level of trend.

Here is a longer range view of action over the last year and a half.  Again, we see trends within trends and trends faltering at their respective midlines.

The wide channel, outlined in brown, goes back to the 3/6/09 low of 666.79.  Within it is the green channel originating with the 8/31/10 low.  Note that the trend fails exactly where the two trendlines converge.  Yesterday's purple channel is back as well.  Extrapolating its midline back shows that it was a support resistance line during the last throes of the brown and green channels.

The red lines represent horizontal support and resistance levels.

Tuesday, November 1, 2011

Tuesday Nov 1

Welcome to a new month.  The Major indexes all took a deep dive at the opening today, made a couple of attempts to recover, faltered, and all wound up close to the early morning lows.  Losses were 2.5 to 3%.  Coupled with yesterday's similarly shaped performance, this could be the beginning of another crash.

Blame it on Greece? Hell, you might as well blame it on the bossa nova.  The Greek situation cannot be a surprise to anyone who has been paying the slightest bit of attention and also has a couple of toes planed in reality.

Or not.

If the European rescue falls through and Greece defaults on its debt, the ripple effect would be global. Europe could fall into recession, hurting a major market for American exports, and banks could severely restrict lending.

It was only last Thursday that European leaders announced a deal that they believed would be a turning point in the two-year debt crisis. Banks agreed to take bigger losses on Greek debt and to boost their levels of cash, while the European Union increased the size of its bailout fund. Global stock markets surged after the plan was unveiled. Now, those gains seem to be fleeting.

"The stock market is expressing disgust with Greek politics and a lack of confidence that Italy and Spain will generate the growth needed to pay down their debt," said Peter Boockvar, equity strategist at Miller Tabak & Co.

On the other hand, maybe they don't read Krugman.  Whatever.

Here is a chart of daily ranges in the SP500 Index since the beginning of July.  After a deep plunge, it's been basically sideways for three months.  What can we make of it?  (Click to enlarge.)

Trend Channels

Stocks staged a terrifying drop in early August, which was the first line of a broad "W" formation which seems now to be complete.  (I'm not suggesting the "W" shape has any inherent significance - it's just an observation.)  This does give us the opportunity to look at the channels that the stock movements have defined.

The initial drop traced out a narrow channel, constructed by placing a line across the tops, then dropping a parallel line across the bottoms.  I constructed the blue upward-trending channel the same way, (which is not technically correct, since that should be done be connecting the bottoms.  Oh, well, you have to be a bit ad hoc at times; and since the lines are strictly parallel, it hardly matters.)  Another red down channel followed, and then the steeply upward green channel.

Let's pause and think about all this Greek stuff in the context of the chart.  Could that have caused one big day as the up-trend was exhausted, and then, conversely, two days of steep declines?  Believe that if you want too.  I find the proposition very difficult to swallow.  But people get paid to make that stuff up, and if your perspective is only a few days, ignorance of a bigger picture can make you susceptible to spurious assertions.

Back to the chart: for three of the "W" channels, I've also included a midline in yellow.  In the blue channel, the midline seems to offer a bit of temporary support/resistance from time it time.  Ditto, for the green channel.  Interestingly, in both of those cases, the trend faltered right at its own midline.  

To put a bigger perspective on things, I've added the outer purple trend channel, framing all of the other details. That couldn't be done until the recent top was defined.  Note that the bottoms of the "W" very cooperatively touch the bottom channel line.  Note also that the midline of the purple channel (even before we knew of its existence) was a support/resistance line.  The break of the blue channel where three midlines converge is especially intriguing.

Several weeks back, I thought that the break through the bottom of the blue channel signaled the next down phase.  This could well be the case now, but it will take a convincing break of the purple channel to validate that notion - somewhere around 1050, I suppose.