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End of the Bull: Primary Trend Shifts as Markets Shatter
While technical analysts and traders have numerous techniques for determining trends, the most basic method is the tracking of higher highs and higher lows (bullish trends), or lower highs and lower lows (bearish trends). Tuesday's relentless sell-off across US equity markets marked an undeniable end to the continuous series of higher lows that had been intact since July 2009. With Tuesday's close below 1,044.50 on the S&P 500 Cash, 'bulltards' can no longer claim that the primary trend of equities remains bullish.
Traders are going to have their work cut out for them in the days and weeks ahead as a plethora of support levels remain scattered between the levels of 950 - 1,030. Though equities appear poised for downside acceleration into Q3, remaining short may prove difficult in days ahead for most as increased volatility, erratic HFT algos and near-record market internal readings combine to create yo-yo-like equity markets. Tuesday's Advance / Decline line for the S&P 500 clocked in at -498, with only Zimmer Holdings (ZMH) closing higher. As a company that designs, develops, manufactures and markets orthopaedic reconstructive implants, dental implants, spinal implants, trauma products and related surgical products ... could GETCO be anticipating a large order from Mr. Market for a new hip?
Joking aside, what can we expect after such an all-encompassing technical rout? There are essentially two ways to interpret such overwhelmingly positive / negative market internal readings: temporary exhaustion and inflection or breakaway continuation. Normally, when US equity markets exhibit an opening dislocation (greater than +/- 1.5%) and an extreme trend day (greater than 90% A/D, VOLD, etc.) there tends to be an immediate reflex so as to offset lopsided internal measures of momentum. And though the majority of such dislocationary instances immediately resolve themselves in the opposite price direction, the possibility of witnessing a breakaway continuation to the downside here looms large.
The only other modern instance of a -498 Advance / Decline reading on the S&P 500 occurred on September 29, 2008. Equity markets had effectively crashed before 9/29/08 saw an -8.83% swoon; the next day closed 60 points higher, retracing 63.08% of that loss before an eight day waterfall drop shed almost another 28% off the index. Though the technical posture of the S&P is much different today than that of late-September '08, behavioral similarities do exist. And while a 1.8% - 2.2% reflexive bounce would be the historical norm, such a move would likely prove to be little more than a dead cat bounce before the next support shelf that spans 980 / 950 is tested. Add the positive seasonality of July 4th into the mix and the next few sessions are shaping up to be very, very interesting for price action across a short-term sold-out S & black-eyed P 500. With short covers, HFT algos and the handful of remaining human prop traders the only ones possibly interested in renting longs into the weekend, there is not a compelling reason to look long until at least after a baby bounce and an explicit failed new low develops. From our perspective, the only decent setups over the next few days would be to either re-short a bounce around 1057 on the cash or to simply wait for an explicit failed new low to develop in order to play a follow-through bounce. For most traders and technicians actively gauging the market's reflexive reaction over the course of the next session or two, the most prudent course of action is to sit on one's hands until a clean setup presents itself.
NYSE Up & Down Volume
NYSE Up - Down Volume Differential
Advance / Decline Lines of the 7 Major US Equity Indexes
Relative Percent Change of the S&P 500, NASDAQ & DJ-30 since 4/23/10
S&P 500 Futures - Daily
S&P 500 Cash Index - Daily
S&P 500 Cash Index - 50% Retracement & Swoon
S&P 500 Cash Index - Remaining Support Shelves
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Battle of the Algos
the market becomes a self-fulfilling prophecy as the algos now simply predict what the algos are going to do and all relation to the fundamentals of investing are tossed aside.
I'm staying away from GP/YEN. Not sure what you see there.
Descending trendline/channel from July/Aug 09 on a daily chart that may see support around 125/124 or resistance up around 140. If it breaks lower with conviction then maybe around mid July for 125.
Also an ascending wedge on a 4H - S at 133 and R at 136. It is testing the lower range of the 4H this AM pushing below 133, but not a decisive break.
Not in the trade, but watching it along with GBP/USD. Interesting how GBP and CHF have reacted to the dollar over the past days of risk aversion as compared to other major crosses.
Why is it that everyone is trying to trade the bounce? Isn't anyone short yet? Yes, there will be bounces, but yesterday was a damn good day to be on the other side.
It seems that when the market is going up, like most of last year, traders were buying the dips. Why can't we make the shift to selling the rallies? Is a continuously overbought market a PPT-given right?
There are numerous chart patterns that have a high degree of reliability and can be traded on the short side here.
Quit whining and get busy learning what the road signs are saying! After May 6th, we should not be surprised by a repeat performance!
Where is Harry Wanker
I wouldn't be so sure that the neckline on the H&S is broken decisively. A lot of indicators are oversold. It is more likely that we see a head fake downward, at least for tomorrow. What happens in the next week or so will be the true decider. Still, I don't think that the technical bust will happen tomorrow as a lot of people expect. We could still be building a base, which is another possibility.
If the bust happens, it has to decisively close below 1040 to see a real bearish trend begin. I'm not saying it can't happen, but I'm entirely skeptical.
When people all expect the same thing, it becomes less likely. Everybody and their mother has been talking the H&S, and that's why I think that H&S might fail to break tomorrow and could even cause a short squeeze.
I'd cover my shorts at this point and wait for a more decisive move to initiate new short positions at this time.
"Joking aside, what can we expect after such an all-encompassing technical rout?"
Sideways Wednesday as the algos and tape painters vie for a good half, then, Thursday, a puffy early open dust up, as the sickening realization that the European continent wide vendor financing scheme that the Euro created has hit another wall...
I see a blood bath by weeks end. But what do I know...I couldn't see how the route was gonna be stopped in spring of '09.
Welcome Bitchez - I guess I passed my ZH intro math test and got to see the inside of the clubhouse.
Thanks Tyler et all for the excellent website. Love the reporting/blogging that presents information never to be seen in the MSM - the piece on the irrelevancy of the MSM this weekend was well done. Enjoy the comments and perspectives as well.
I've felt for awhile now that 'we' seem to be whistling past the graveyard - having fixed NOTHING from the liquidity crises (not counting solving debt with more debt) and watching the market rally 80% from the lows (and look at some of the penny stocks like GGP and DTG). Watching the market rally 400+ Dow points on a silly EU Ponzi scheme/bailout (can you really bail yourself out?). Or trying to imagine how Greece is 'saved' when the exit debt to GDP is 150% (and why debt to GDP and not debt to tax revenue?)? Anyway, it's been nice to find a website of like-minded souls to learn that my stockpile of food, bullets, and PM doesn't make me raving mad.
Just wanted to get the kudos out of the way. I personally think this week's BLS data is going to be a little ugly even post-census. They might pump up the B/D model or seasonality to juice it a bit though. I also thought BB looked sullen/ashen/distressed with Obama this morning. Like a man that was watching his life work progressively get discredited - though that level of perception might be a bit generous. I think he'll go to the well one more time in panic mode/QE II. I just hope my AMPEX order shows up first. But what do I know, I was totally bewildered watching the market rally off the February lows on...? And rebound last week...why? It seems the cracks are starting to show in this Jason Bourne market and one day there just might be no bids for...1000...2000...Dow points...?
Oh, I had google PPT to figure that one out...
Whilst others are making their introductions I thought I'd better do the same.
I've been lurking around these parts for a while and hope to offer some input in the future.
Welcome to Reality Island.
Look Boss, the PAIN, the PAIN!
whatever...we're headed lower, one way or another. trading this bullshit is madness. sitting in cash and gold and waiting for the fireworks.
bla, bla.........if you are so convinced why aren't you all out shorting "this bullshit".
Because people that can print money out of thin air can inject liquidity into the market at any moment.
...until they can't
What are your odds for a GBP/JPY testing 124 somewhere around July 15?