My focus in this analysis is the Intermediate term, by which I mean multi-week to multi-month trend - Marked 'weekly trend' on the chart below.
i.e. I am not talking about hourly, or daily, or even swing moves.
I dont' have time or desire to post all my short term stuff at message boards or blog.
(for more details read here - http://entropyhome.w...m/stock-market/ ).
*** OK. An Update.****
I've been bearish the Intermediate(weekly) trend at the 1320 price area looking for an IT decline. I posted many reasons for the decline, primarily sentiment,
but also technical, and wrote one of my more important pieces on what fundamental reason ( in hindsight atter the decline) would be - in Sins of the Father i..e. that the FED were trapped: http://entropyhome.w...s-of-the-father
For those following comments in my blog, know I've remained bearish the IT trend, primarily due to trader sentiment.
On May 23 the bottom picking frenzy begun in earnest, and I posted the following reasons why no way did sentiment support a bottom, and sxome potential SPx tagerts for this downmove :
http://entropyhome.w...r-a-bottom-here
*** The reason for this update, is I am now looking for an END to the IT downtrend, and a significant low to be put in here, and an IT Up trend. ***
But hold your horses !! .understand the trend I'm referring to, I am not saying the low will be today, or this week...I will try to be ultra clear infact. IT bottoms take 1 or two forms:
Form 1 - The V Reversal - where we have a huge down day, with panic and blood in the streets..that reverses by the close to finish near the open.
For example, last weeks litttle attempt...which I said wasn't one...but that's the idea. It wasn't one, because PANIC is the key, there was no panic that day...well, except a dip buying panic and fear of missing a bottom.
V-reversals are rare....I thought we might get one here with a true washout, and I still think we might. Let me define more spefically what I need to see technically for a V-reversal
1. Hugely out of band VIX/VXO ...and disproptionately large moves for the the price movement ( like the relative VIX, but on hourly chart).
2. Huge spikes in Down volume...not huge volume...but SPIKES in down volume on down bars.....I don't want to be anymore specific than that.
3. An equity put/call over 0.9, ideally over 1
4. Trin over 3
5. The DOW taking the lead on the downside or at least making the headlines ( see 2 below).
Those are what I'd called 'tangibles'....but some intangibles are just as important
1. Trader message boards very active, and full of end of the world projections with extremely convcing arguments, no or very little 'going long here' posts.
2. Media gloom and doom - typically that happens when the DOW breaks some level, we sort of got that yesterday with the 'DOw turns negative for the year' - but its still not enough for me yet.
Form 2 - the Exhaustion Reversal
This is far more common...all the lows of the Bull market have been this type...i.e. where we setup some classic divergances
on the favourite technical measures...I don't think I need to go into this, its well covered on posts on TT.
What will we get here?
I don't know what's going to occur, but I do believe were into the last part of the IT decline here. If we get a V-reversal, we could fall another 5-10% before
the low, if an Exhaustion 1190-1210 is what I'm looking for.
The key points here are:
1. I believe a major low is forming, and a significant multi-week or month rally is setting up, either from around 1190-1210 in an exhaution low,
or 1100-1150 in a V-reversal low.
2. If we chop around in the 1200-1220 around building positive diverages over the next week, I believe that will be the low.
3. If we plunge through 1210 price to close the open gap at 1195 and the odds of a washout down to 1150 and V rises significantly for my analysis,
and it needs to occur in the next week if its going to occuring to my analysis...ideally, next few days.
Not trading advice, but my trading stragey for the IT term trade is to remain short here, with a 2% trailing stop....but as said, I wouldn't be opening shorts here, especially if you've not riden this thing down, and infact I'm constanly hedging intra-day with longs on rally attempts until I see them fail, and that will be especially true at 1210 which I'm confident were going to soon.
What would change my mind about a low ? another surge in dip buying
How much of a rally do I expect? 5-10% SPX
Over how long - Don't know, don't care...but weeks to months.
What happens after that - Don't know, Don't case right now....OK, but if 1200 is broken, I favour a major bear market is starting.
Are we in a bull or bear market? - Weak bear, or early stages of major bear...where big rallies can occur before the 'real decline'.
Why do I expect a low?
There are lots of technical, price and sentiment reasons. But let me review the sentiment picture before the decline about the IT topping on April 4 -
Link: http://www.traders-t...0906&hl=entropy
"Basically there's absolutely no reason to be short here...what's there to worry about? 4 year top is obvisouly nonsense now, markets are at new highs.the 'trend' ( try not to laugh is up......all over the financial press, economy is super strong I read everywhere....not a black cloud to be seen, and so clearly the logical thing is to be long, therefore were going down
But I'd like to see a upside minor break first to 1320Spx'ish...accompanied by breakout fever....this is going to continue to be tricky as hell to trade I think...best to stick to 5 minute trends for trading....until Miss Whiplash sings"
So now I would summerize the reverse is setting up as follows -
"Basically there's absolutely no reason to be long here, what's to like here? 4 year top is obviously in, markets are breaking supports, the
trend is down ( economy is going into recession I read everywhere)...so clearly the logical thing is to sell, therefore we are going UP.
But I'd like to see one of the two bottoms I described above first..it will be tricking ( it always is.)
Good trading to all.
Mark.
