Thursday, November 19, 2009

Supply shock

Here is a 30 minute bar chart of e-mini day session trading. A supply shock hit the market this morning (red arrows and red dash oval). The question now is whether or not this shock means that the market is headed back down to 1030 or so.

When I approach a question like this one I always try to interpret the new evidence provided by the market in the context of the longer term situation. I have said before that I think the 1026 low on November 2 was comparable in importance to the July 8 low at 866. As yet I see no evidence that would make me change my mind on this point.

So I am not inclined to interpret this supply shock too bearishly just yet. Instead I think the market is in the process of establishing a new trading area between roughly 1083 and 1100. If so it would only be the first lower area relative to the previous one between 1100 and 1112 (highest dashed rectangle). Most up trends survive one or even two lower trading ranges without reversing.

I am going to lean on the last reaction low on the way up at 1082.50 (horizontal green dash line).
As long as no significant trading activity occurs below that level I will stick with my view that a new step upwards is imminent and will take the e-minis to 1126 and eventually higher than that early next year.


Wags94596 said...

The 21 day MA on the SPX would tend to support your view and claim. :)

extrader said...

I would be watching for 1092 as a top on this upside reaction from 1087... dont think the market will get above 1092.

Good Luck

jeff said...


I think it is ultimately inevitable that this bear market rally(ABC retracement from the March lows) will end sometime. However, if we in fact, head all the way down to 1030, the TOP is in and we will be in midst of another major 5 wave down in the next couple years.

Personally, I think we have already peaked and sense we will have some retracement rally to fill an unfilled gap during the light trading Thanksgiving week(this time period has typically seen positive market action). Thereafter, I'm preparing for another large wave down.

At this time, I'm out of my shorts and will watch the wacky options expiration tomorrow and low volume price increases next week from the golfcourse.


me said...

The high was 1110's, so 38% retrace 1080's and 50% retrace 1070's. I believe we should be bullish next week. The long-term trading is still bullish.

extrader said...

Im thinking the market may want to test 1093-1094 soon... If we get there, dont think it will go higher, as this was prior support!

In any event, I think more selling is ahead in the coming days!

Good Luck

Kishore said...

Unquestionably, bulls are in control of the market.

Today's drop was primarily due to an overnight gap in S&P, and there has not been much follow through selling of STOCKS at lower prices.

The market internals are showing a down trend day.

So, either there will be more selling in the afternoon or the bulls have just created yet another buying opportunity for themselves, before a blast off.

Quite frankly, I don't care, because I waiting for a firm confirmation of change of trend from up to down on daily charts.

jeff said...

Addendum: If we go back above 1102 quickly(later today or tomorrow), I'm of the mindset that we are still in a 5th wave up to new highs.

me said...

The downside is benign.

extrader said...

The market will test 1082 either today or tomorrow!

Bill said...

I see a lot of comments on the long term, and I see people being bearish long term.

This is far from proven, and people with a bearish view over the next 5 years are missing the big picture. And if you miss the big picture it'll reflect on your short term trading.

1) The market is cheaper than it was 10 years ago. So this market has nowhere to go but up.

2) The kind of bear markets of 2000-2002 and the 2007 - 2009 do not repeat often. It may take another 20 or 30 years before we see something remotely close to this.

3) When we move from a war to peace it signals the beginning of a bull market. After World War 2 a bull market developed, after the Berlin Wall fell around 1989 and 1990 we had a decade of peace (the 90's) and one of the biggest bull markets in history. Right now with Obama in the White House, and Iraq and Afghanistan winding down (and the end of the war on terror) it signals to me a time for a new long term bull market. I'm talking Dow 20,000, 30,000, 40,000 over the next decade or two.

me said...

I believe the downside is a correction for this will take the bull higher toward 1126 (carl's prediction). I also believe the overshoot 4th wave, bear trap, is done.

Wags94596 said...

The lower opening and the sell program that kicked in several minutes later was a total "head-fake". The Dollar has sunk back and the S&P will rally back into the close. Bulls are still in control. :)

Naveed said...


How can you say that the bear markets of 2000-2002 and 2007-2009 don't happen often or at least 20-30 years away. 2 of them happened 5 years apart!

me said...


I see 2 scenarios. One is we are in the 4th wave with a correction, retracement may go down to 1050's. Two is we are in wave ii of 5th with a-b-c waves down to 1080's and then back up to wave iii of 5 to finish out wave 5 on a 'C' (brings the bull to new high level 1120's). Long term pattern is still bullish, so I think scenario two will play out. The picture will be more clearer next week.

Todd said...

Bill, I completely agree with Naveed. 2 devastating bear markets within a 5 year stretch cannot be overlooked. As well, please keep in mind that 2012-2014 will be one of THE most devasting periods in our economic history as all major cycles will be in their hard-down phase.

extrader said...

I only see one scenario, after we hit 1120-1170, next year the market will retest the March lows in at around the 750 area.

me said...

We may have done with wave 5 and on the way down to 1050's (lowest) or we are on wave ii of 5 and on the way up to iii, iv, and v 1120's and higher. I'm looking for 1080's support level for the 2nd scenario. If it goes below 1080's then it will most likely to go down even further to 1050's. Long-term trading is still bullish though.