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Sunday, June 12, 2011

$SPX - Bear Trap

Friday appeared weak on the surface, but it is deceiving because the index close was only 6 points lower than the June 8th low.  Financials have been pulling down SPX, but capitulated on Friday with a powerful surge up late in the day.  The strong reversal in the Financial sector to the upside is a warning for bears. 

The low VIX is another warning sign, and in my view signals a relief rally to commence shortly.  I see VIX spiking up eventually as fear sets in, but not until later on (after a relief rally) during the "Freefall" phase.

Last week, SPX coiled up, like a spring, and I see this breaking up with a short squeeze.  The target is 1315.  Following the relief rally, a Freefall to the calculated 1239 target is anticipated.

I'll use 30min charts and my timing cycle charts to fine tune the smaller movements and timing more precisely.

2hour Chart
 














This is an update on my "2007 Top" cycle, and I've shown how it relates to our current trading patterns in the market.  I'll expand further on the big picture at a later date.

6day Chart















The Financial sector is approaching my long time target.  The timing cycle indicates a breather bounce is due.  Only a moderate decline in July is expected after a bounce.  Avoid shorting Financials!

4hour Chart

30 comments:

  1. Thank you for your analysis. Do you think the bounce will start Monday or after all the data from Tuesday?

    Time for a short ride on UYG and UPRO?

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  2. What about gold and silver this week?

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  3. Verra, the rally is coming really soon imo. Let's see how things unfold tomorrow, I'll try to point out when it is kicking off.

    Silver lost the Fib fan support Friday. Likely a small brief bump up for Silver here. SLV could see $36.10 or a little more, after that it looks like heading to $33.50 area to me.

    I have analysis coming for Gold. Interesting patterns shaping up to say the least....

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  4. SC: Your longer term view. After the rally and subsequent dip to the 1240 area, do you then see the S&P climbing to new highs for the year or revisiting the 1040 area of last springtime? I know you will have to make a lot of assumptions in your answer, but I would appreciate any clue.

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  5. Tom, Power rally but with severe whipsaws. By late summer most will believe that QE is not required as the mkt is rallying "on it's own".

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  6. SC,
    Do you have a view as to the winning/losing sectors during this pop and drop over the next couple of weeks or so? anything you would recommend watching as a leading indicator to see how/when the top/bottom are forming?
    We have seen financials and tech leading to the downside so far (Nasdaq now negative for the year) followed by the vertical move in financials on friday (GS had a 3.5% intraday swing)
    Again, i ask from the vantage point of a day trader

    Cheers

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  7. Financials and probably tech should perform better early on, then slow down in the later stages. That would be the sign that the top is approaching.

    I like to follow Financials closely. I have found they give good signals of tops/bottoms approaching in all time frames. When relative performance tapers off for Financials compared to S&P, time to start looking for a top. Same at the bottoms.

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  8. A rather soft opening for Silver. I still think it should pop before the next decline.

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  9. Soft opening for silver indeed. Seller are going to have a difficult time pushing it lower than this point over the next few days in my opinion. I would agree that it will go lower than this over the next month or so, but seems dangerous to be short right now.

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  10. For SPX sluggish consolidation today. Looks like the setup for a rally tomorrow and Wed to me. Financials are holding well today.

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  11. Silver breaking down badly now

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  12. Took profits on the short side since 1st June - expecting a bottom to be in - or very close to be in .... looking for a rally to 1315-1320 over next weeks , will add if we plunge down further

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  13. Gents what are your thoughts on playing this bounce on the upside? My thinking is it may be a better risk reward trade to short after we get this push over 1300 again.

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  14. Muzz, I'm trading this up until around 1310. I think it will overshoot 1310, but thats my target to get out and begin pick an entry point for the downside. Playing both sides is definitely tricky, but I think there's money to be made both ways.

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  15. Armstrong's 86 year bottom today. Wither I am from MARS or he was a month early and it was a top and not a bottom. I don't follow him and don't kno about his accuracy. Any comments?

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  16. "By late summer most will believe that QE is not required as the mkt is rallying "on it's own".

    agree 100%. think we rally to NH this summer to prove above... everybody will believe in we go up to heaven, then look out below.

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  17. Good Morning SC- any thoughts on silver here? It looks like a good long play to me here, thinking of picking up a couple of contracts.

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  18. SC,
    Good call again on SPX.

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  19. I think there is some moderate upside for Silver.

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  20. you still see 36.1? or is that too high given the recent drop? thanks!

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  21. I'm going to look closer at the numbers but it might be just a small pop here, then it might even decline a little further. Eventually I think it should get a better bounce $35.50 area.

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  22. For SPX the basic plan is to top out maybe tomorrow and then see a selloff into the end of the week. Rally again further next week.

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  23. difference between bid and ask is so huge on silvers right now -- hard to make a buck either direction :)

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  24. Hook - it is the lunar eclipse tomorrow.

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  25. SC, do you think the top in SPX for this week is in or do we have more upside?

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  26. Leaning towards more upside tomorrow 1297 perhaps. Notice that the Financials are flat today - that suggests to start looking for a short term top.

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  27. Nice analysis.

    So the current call is to pop tomorrow, then sell off, then bounce back again to your 1315 target, then the final 1239 target maybe in late July?

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  28. Thanks.

    Basically right George. Bottom in July though the steep declines come sooner than late July imo. I'll use timing cycles to show timing estimates later. From the top to bottom won't take long...

    It will be choppy on the way up to 1315.

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