Monday, February 28, 2011

Russell 2000 Bearish Pattern

The cycle appears to be mature and that would indicate a sharply bearish move next for $RUT.  Short term 800 may be the next target.  I will review at that time. 

Since from the Right side of the cycle line, the pattern is sloped upwards, that may indicate an especially powerful decline to compensate for that build up of pressure.    

60min Chart

Short term watch 800 for $RUT.

30min Chart

Tuesday, February 22, 2011

S&P 500 Symmetry

The following chart shows the symmetry in the trading pattern of the S&P 500.  Notice how this chart predicted the timing and shape of the April 2010 top, the timing of the May 2010 flashcrash, the bottoming pattern in Summer 2010 etc... 

Next, watch for a decline shown roughly with the green arrow since that is symmetrical to the trading patterns in 2007.  I expect to see a large and steep capitulation bottom this time as well. 

2-day Chart

If you follow the logic in the above chart, then the longer term $SPX chart below indicates a very large decline due to the symmetrical patterns.  

6-day Chart

I am watching $SPX 1305 short term for a possible bounce before further declines.

30min Chart

Saturday, February 19, 2011

Shanghai on the Edge

There is still talk that China will invest, and thus solve the debt problems of other countries.  Demand from China is often listed as a reason why oil, metals, and other commodity prices will rise.  Yet it is clear from this chart that the Shanghai Composite has declined steeply from the 2007 top.  Frankly, there are false hopes currently that China will lead the global economy out of recession in the near term, and this represents evidence of a bubble in investor perceptions.

The too-fast boom in China was similar to the boom in the United States in the 1920's.  The "Roaring 20's" led to the "Great Depression".  These are the growing pains governed by the cycles that China now faces. 

Another reason to pay attention to the Shanghai is that the index bottomed in mid-November 2008 (3 1/2 months before the March 6th, 2009 bottom in the S&P 500).  The last major top in the Shanghai was November 11, 2010.  So we are coming up on a 3 1/2 month difference again, and that may be a leading indicator of a top in the S&P 500 (as it was in 2008).

My cycle analysis shows that the consolidation period is nearly over for the Shanghai Composite.  The cycle predicts a sharp decline to follow.    

3-day Chart

Weekly Chart showing how the index has been struggling at the mid-line of the pitchforks:

Saturday, February 12, 2011

Update #2 - $Rifin Likely Topped!!!

The numbered cycle pattern suggested that to be consistent with the inverse of the August 2010 $Rifin bottom, a final shoulder should form.  That is exactly what has happened over the last several trading days.  Price was supported at the midline of the regression channel and the final shoulder is forming now. 

The entire 3-top topping process is sloped upwards which is why the final shoulder is a higher high.

It is very likely that the top is in (within a few points)!  Take a close look at the daily chart and compare it to the daily chart in my last update.  The reason I say the top is, in place, is because the lower turquoise expanding triangle ending diagonal line is exactly aligned now with the lower pink fork line.  If you compare this to the previous update, the 2 lines were not lined up.  I have not touched the turquoise line from the previous update, and just moved up the top corner of the pink fork line to match the higher high in the last session.

I hear people say all the time how the market is not "precise", or can't be "timed".  The market behaves in ways that are very complex, and it takes considerable time and effort to figure out the intricate patterns.  Yet it can be done. 

Especially now, the most common complaint of the market is that the Fed has distorted prices.  Manipulated or not, the market is currently trading with incredible precision and that means we can still identify the turning points.  The evidence is clearly shown in the way the pink and turquoise lines match up on the daily chart.  The geometry of two different chart patterns is matching up nearly perfectly over many months time.  

Some choppy sideways trading might be in order to finish off the shoulder, but I do expect that the high is in.  The market is vulnerable to an extreme selloff now since the topping pattern is basically complete.

30min Chart

Daily Chart

Wednesday, February 9, 2011

Update: $Rifin Inverse Pattern Bottoms/Tops

My cycle analysis indicates that I should closely compare the current topping pattern in financials with the bottoming pattern at the end of August 2010.  The patterns should mirror each other. 

The bottom at the end of August 2010 was a triple bottom for $Rifin.  This time the topping process is sloped upwards as shown with the regression channel.  The 3 required tops are in place now as shown in the first chart.  The pattern indicates that a shoulder still needs to form to be comparable with August 2010.  So the index should decline some more and then watch for a final shoulder. 

After the shoulder has completed, then the cycle predicts the start of a massive decline for financial markets.       

30min Chart

Daily Chart

Monday, February 7, 2011

$SPX - One Trendline

One trendline provided support and resistance during the entire rally in $SPX since July 1, 2010.  Notice how price stayed above and found support on the trendline during the months of September and October 2010.  Then price broke down through the trendline in November 2010, and since then has been grinding up underneath the resistance of the trendline.  It has been one giant backtest!  

Importantly, today was the first day in weeks that price was able to touch the trendline again.  Notice also how the red declining days are becoming larger as the rally from November has continued. 

The blue lines represent Fibonacci fan lines.  Keep an eye on these lines to watch where bounces may occur.  There is a lot of air to the first fan line so that could result in a sharp decline.  The main cluster of support occurs in the 1100 - 1140 range for $SPX.  Ultimately, there may be a test and bounce up from the red support line before further declines.

The market behaviour from the March 2009 bottom has been unusual.  The market has not experienced a rally of this magnitude since the period of the Great Depression during the 1930's.  Therefore, it makes sense to look closely at the 1930's to see how the market may act as it enters the next bear phase.  Some of the trendlines in these charts are based on similar patterns in the 1930 period, and I will have further analysis on this in upcoming posts.   

Here is an example of how unusual this rally has been. 

As of last week:

BULLISH Sentiment as measured by AAII has been above its historic average for 22 consecutive weeks, the second-longest period ever.

Daily Chart

A closer look:

Daily Chart

Tuesday, February 1, 2011

$Rifin Inverse Pattern: Bottoms/Tops

One of my favorite techniques is to use inverse patterns to identify tops and bottoms.  This technique worked extremely well for me in 2010.  For some reason it works particularly well with $Rifin.  The theory behind it is that cycles rhyme again and again as there is a certain elasticity to market behaviour.  Another way to think about it is that under the same technical characteristics (due to similar complacency/fear of traders at a given time), the market will react in a similar manner each time.  Hence the cyclical patterns.

I am simply counting tops and bottoms on the 1st chart below - the numbers do not represent Elliot Waves. 

Rather than using the same analytical methods as others, I have found that the most valuable methods are the ones others are not using or seeing.  There is a saying: if it is obvious - it is obviously wrong.  So true.

Note: I am not calling a "flashcrash" type of move specifically, but rather the pattern suggests an extreme selloff may happen in the short term. 

I had suggested a more gradual selloff in a previous post as another possibility.  I am not ruling that out just yet either.  Both are very bearish.  Let's see what signals the market provides next... 

4 Hour Chart

The same topping pattern has happened before as shown below, and it is very similar to what I have derived from the inverse of the September 2010 rally as I have drawn in the above chart: