Thursday, October 01, 2009

What now ??


Here is an hourly chart of day session e-mini trading. I had thought that yesterday's low at 1041.50 would hold, but it didn't. Now what?

Whenever I confront a market that seems to be trendless I always remind myself of the bigger picture. In this case I am still convinced that the move up from the July low at 866 is not yet complete - certainly there is no technical evidence that would suggest such a completion. Moreover, I think a new bull market started at the March low of 666 and that it will continue through most or all of next year. So I have a strong bullish bias at the moment. The worst thing I can do is miss an up move because I let short term bearish evidence influence my market positions too much.

When I look at the chart above I conclude that the most likely move from current levels will be down to the 1015-1020 zone (green oval), near midpoint support at 1015 and the lower boundary of the bearish trend channel I have drawn. This conclusion follows naturally from the fact that yesterday the market established a lower top and lower tops are usually followed by lower lows.

But there is a fly in this short term bearish ointment. I have drawn red ovals and red arrows to highlight three instances of high volume selling during the past week. Each ended in the vicinity of the 1040 level and there was little follow through selling in each case. This is unusual behavior. Normally one selling squall, let alone three, is followed by substantially lower prices. Since this didn't happen I infer that the market is being supported near 1040 by longer time frame buyers. This is bullish looking ahead over the next month, but doesn't by itself preclude a drop to 1020 over the next couple of days. Nonetheless, If the market should show strength above the 1050 level I would conclude that a move to 1120 has begun.

Tomorrow the employment number comes out at 8:30 am. The market often establishes short term extremes on this news. So if we are to see a low near 1020 I think it will come tomorrow or Monday. For the rest of today I think we are going to see the e-minis trade essentially sideways. I think most of today's range has been established already and that traders are going to sit on their hands until the news comes out tomorrow morning.

16 comments:

extrader said...

1120 a distant memory now!

To much damage has been done for us to see 1120 by the end of October as Carl has been predicting... That would mean we will go up 100pts in one month or 10%, NO WAY that will happen!

Good Luck

extrader said...

ES is down to MAX support with possible entries to go long com in at 1032 and 1028-1027... see if these levels hold and should get a bounce!

MaverickUK said...

Carl - you are missing one thing and that is the market actually double topped - well the spy did. It double topped at 108.05. The FTSE double topped yesterday. The eminis have a target of 1026 which will probably hit later today.

I think the rally is over. Goldman Sachs - who own the market - said that the top would be between 1050 and 1100. I think we hit that top.

Kishore said...

extrader, how much damage is too much? The on going correction is still within the bounds of keeping the uptrend intact on daily charts.

Once this correction is over, we can expect a move up and that should be in line with the way the market has been acting for the last seven months, unless the on going correction is deeper and a lot more damaging, and that is still a remote possibility but with low probability.

TAE said...

Popular media (WSJ, MSNBC, etc.) have been calling for a top and a correction. If we were to get one, it would be the most predicted market event ever. By default, we should be going higher.

Johan Nilsson said...

"So I have a strong bullish bias at the moment"

Carl, when I look at old posts in this blog, have you ever had any other bias?

The forecast is always that ES will be 100 handles higher within a month.

Not saying that you are wrong this time.

White Powder said...

Carl,

dude, youre smoking crack if you think we're in a new bull market. By what measure? This entire move upward has been because of QE, and garbage MBS purchasing by the Fed. There is no fundamental reason for stock prices at this level. Im not saying this bear market rally is over, but technically speaking, the /es decisively fell out of the rising wedge forming since july, not bullish at all.

extrader said...

I think the 1032 level may be the low of the day, if we lose that level, next support comes in at 1027-1028, I would be surprised if we went lower than that... If 1032 is the low, i think we have a good chance to close at/near 1041...

Urban said...

Carl

TNX pierced your low. It is now just above. The trend since June has been down. Any commentary on this would be welcome.

Thank you

MaverickUK said...

There has been a change in character in the market. Before it would go up even on the most horrendous news - now it is using nay excuse to get whacked.

Kishore said...

White Powder, some permabear sites, e.g. RebelTraders.net, have been talking about a "rising wedge", for the last, at least, 4 months, if not longer. These are very deceptive lines that overlook the trend!

John said...

I have been watching the bond market for some time. There has been strength there. Economic numbers have shown deflationary pressure. It's very hard to buy being long stocks with those conditions. I know everyone loves gold, but the real economy emits deflationary signals.

boris said...

I indicated before open today that if we break below 1044, most likely stop is 1028. Picture is posted.

Looks like i got that correct.
I still think that we will get the final rall for this market by mid October, lead by GOLD/ENERGY etc. And then the Down move starts. A while ago, I commented here that top is most likely 10 october +_ few trading days, in response to Carls indication that he expected top between Secptember and November.

I still support that Idea because YBR( YELLOW BRICK ROAD) our Market Mulityear projection says the same.

As posted here last week or so. OUR YEARLY HIGH ATTRACTION POINT(FIRST) was hit within 0.3 percent just few days ago. So, I view the OCtober rally a possible echo top rather than a much higher top, even though one cannot rule either 1200 ( DECENIAL Attraction Point) and/or 1120 , 62% rally and 50% retracment both extremely powerful, and confluenced at that point.

Good Trading All

As for bonds, we told our audience to BUY bonds in JUNE( at precise top), when Bill Gross was aexpending on ideas of USA debt degradation( of course , now he says he is buying it(:- ).

tapped out said...

Look at the daily $INX. A clear channel contained, primary wave up from the March 6th low to wave 1 complete on June 11th then a short wave 2 dwn complete on July 8 then wave 3 up complete on Sept 23rd and now a (short?) wave 4 dwn before we resume the (long?) wave 5 up to completion.

Ker said...

isn't that dark cloud cover on the weekly (in a stage of confirmation) enough evidence?

Market Karma said...

Yes, bond prices are bullish and my analysis has been saying so since early August. The real test will be at 10y = 3%. Also the flood of negative risk comments on CF's blog today! -MK

http://marketkarma.blogspot.com/search/label/US%2010yr%20Bond%20Yields