Wednesday, June 1, 2011

SPY - "Flashcrash Cycle"

The dreaded and forgotten "Flashcrash Cycle" struck today like a bandit in the night.  Notice each time the market slumped for days off of a major high, and then finally plunged in dramatic fashion. 

In each case the plunge took the index down to near a bottom with sideways chop and a rally to follow.  I expect the same this time as well.  SPX probably has some sideways trade, with a little more to decline and put in a bottom soon, and then we should see another rally commence.

Last week we saw bottom Number 1.  We are now approaching bottom Number 2. 

Daily Chart


  1. If I understand your words correctly, you're saying that we might get a 1300 test soon (as last week bottom was at around 1303 PSX), but nothing more, then a rally will shortly ensue.

    Is the obvious implication of the above that the silver short has little room to go before turning as well?

  2. I want to see a little more to be definitive on that timing. It's hard to say because the correlation hasn't been that close. It is clear to me though that Silver is heading into those upper $20's in June - whether it is ready or not quite yet....

  3. Hi SC,

    I have been following your work for some time but its my first time posting, so let me start by saying thanks for your amazing analysis and timely updates... it has helped me in a big way in making sense of these markets!

    I am wondering if you can give some sense of timing and levels to watch for SPX for Bottom #2 and the rally to commence after it... this would help the short term and day traders among us :)

    Thanks again

  4. SC

    Thanks for the analysis. :-)

    Why do you think that we will get another short rally before going down again? We will go back lets say to 1300 and then bounce back 2 or 3% before going back down again..

  5. Will do AR, thanks very much.

    We should spend some time down here, with some sideways and chop. I'll show more charts with levels to watch.

  6. Money, I have a very particular pattern, the mkt has shown it's hand, and that is where the numbering system comes in. I'll explain how this all fits together later.

  7. The chart that you had been showing, when I first started watching, had us going down to 1206. In what you described as a very fast descent. What happened to that scenario ??? You described it as the reverse of the rally to 2007. Now you are off on a different tangent. That is the only thing that concerns me here

  8. Is 1206 no longer in the cards?? The Bear Trap you are now talking about, could that be 1206??? The June 6 to7 date, could that be 1206?? Is a bear trap a quick reversal from a low, in your opinion??

  9. Great question. The pattern that I was looking for did play out with the profile of the trading (I'll explain what I mean by this more in detail) so I was correct. However, I can see that SPX is in a bubble and that has been complex and persistant.

    In contrast, the financials have not held up, and and have taken out the March lows. So the financials are trading at what would be the equivalent of the low 1200's for SPX.

    The bubble is going to pop, and I can see how and when by the price patterns. Wait until you see the bigger picture, the targets are amazing to say the least.

  10. SC- Then I must ask, how and when? I am not going to close this silver short even if it bounces here. It is too tricky to count on trying to find another good entry

  11. I've had most of the puzzle in place for a long time, and the last piece is in place. It took a while to balance the dynamics just right. Better to show this with charts and explanations. There is plenty of time and some volatile moves that we need to play out first.

  12. SC, just like Blake, I'm holding on to my short position for now, will c how how this goes. Thnx for ur analysis

  13. Another beautiful day in the silver market

  14. Silver doing its bit, but the big news is that gold is finally joining the party - massive dump in the past 20min.Gold break lower is critical to drive silver much lower.

  15. Blake,GL, when do guys plan to take ur profit?

  16. auag- I don't see any reason to take profit anytime soon. Perhaps it will bounce up from here, but I already have nice profits and it will bevery difficult to shake me out, so I will be short until the trend changes at this point. Something that is very difficult to learn is to let a trade go as long as it is profitable. It took me a very long time to learn this, but taking profits early is the kind of mentality that will keep you from being profitable in the long run

  17. hey auagbuyer, honestly, it depends on so many factors (trade size, entry level, investment horizon, risk tolerance and so forth), hence I think it's truly a personal choice. That being said, I'm pretty much with Blake on this one. In addition, I added to my previous position overnight (as I'm based in Asia), and will simply let the trade run with stops at various BE levels. In plain terms, I want to see if a proper downtrend gets under way; if not, I'll settle with the little profit left by then. As I don't really trade very ST moves, I try to capture as much as I can from fewer swing trades. As for some points of reference, other than staying on top of the SPX, I closely watch gold to spot any possible turn. One last thing: I suppose SC sees a silver bottom this month in the high 20s; I have the same exact view, however I expect the big bottom later in the summer, hence I'm trying to stay short in order to capture the big move.

  18. SC- any updates today on what you see? Thanks

  19. so how about tomorrow ?

    I believe 'the number' will rule the short term

    if there is a beat, meet or slight miss I would not expect much lower

    only miss/ big miss will move markets lower -

    why? there is still much liquidity injected

  20. Blake,GL: Thnx for ur views. I need to play this long and not get tempted with this current profit.

  21. USD still acting quite poorly. Confirmed break of 1530 in gold would go a long way to support medium-term short silver position. If we stall around these levels, I'm inclined to take partial profits ahead of NFP later today, as the increased volatility will almost certainly provide further entry levels, while at the same time locking in some gains.

  22. Sorry guys had a glitch and couldn't post, frustrating, but I think it is finally fixed for good!

    Lots of updates coming.

  23. Everything as expected, we did see further downside. Silver is still struggling this morning. Yesterday provided clarity on the Silver timing, progressing nicely.

    I thought best to cover SPX shorts since Financials are trading firmer, and lock in the profits ahead of the weekend.

  24. SC, as we previously noted, correlations have been all over the place. Nice to see silver trading so poorly even with such a crappy USD. I did cover SPX on the test of previous low this morning, as I don't think there's much room below 1294 in the very short term. Do you still see some consolidation down here then a bounce higher? I suppose you'll have to wait and see the action on MON/TUE of next week before taking a further stand.

    As for silver, it seems you're inclined to ride it out lower all the way to the high 20s, unless you get a different signal next week or so. However, with the USD coming under a lot of pressure, don't you think we're gonna soon get better levels to add further/new shorts?

  25. I'm going to look at these levels closer on the weekend, but generally I favor that we can see just a moderate bounce now, and then around June 7 might be a lower low SPX 1290 area or so. That would be the spot for a stronger rally back to 1330 area. So if SPX can rally today/Monday modestly, I may put the short back on...we'll see.

    I think SLV can test $33 roughly area early next week imo. Then it might muster up a decent bounce. The next leg would take it down into the upper $20's. Mid-June by the looks of it.

    I will be fine tuning and showing charts for all of these numbers and timing.

  26. Hi SC I have only recently discovered your web site and I find your analysis excellent and also the comments made by the other followers very interesting. Your recent call on the S&P has been spot on and I have been very impressed with your cycle and price target projections.

    Just on the current situation with S&P it does look like we may have already found a short term bottom or are close to it in this 1290 to 1300 area and I agree we will see a bounce then a resumption of the downtrend continue. I look forward to your latest updates on where you see the markets heading and also the price targets in mind.

    Keep up the great work :)

  27. S&P has been acting like a well trained dog in the last 2 months, following cyclycal patterns very closely. The last 2 days was the first real news from this point of view.
    I'm expecting a small bounce, but no more than 1-2 days.

    Thank you for sharing your work.


  28. 2nd half of august or sepember for the next leg to 1370+, low could b around 1219 ?

    after the low of this move, prob ending in the first half of this month around 1260-70, going in some lazy action-time consuming, ending in first half of august. for those who are familiar w ew, im talking abt an abcde

    What ur opinion SC?

    Thank you for sharing your thoughts with us.

  29. first half of this month around 1260-70
    then up till first half of august
    end of all correction end of august or first half of september

    im thinking that all this correction is triangle/abcde.

    financials are interesting, could be them holding the spx? i think financials didnt lead the market up after an important low