Monday, June 22, 2009

Technical Picture - Bears Step Up

Last weekend I wrote in the chart notes of the weekly chart, that I wasn't optimistic that we could hold the January highs and declare a new bull market. Since then we've pulled back, and judging from today's action, the bears are finally stepping up their game.

So, just to be clear, the rally off of the March lows was a bear market rally. The criteria for a new bull market was to clear the January reaction highs. That was tested and failed. Now, assuming the lows have been made, we now need to clear the June highs. The June highs mark the beginning of the RS, if in fact that pattern proves itself. For the time being we'll assume it will and target a retracement back to the ambush zone - 50-62% Fibonacci retracement of the March-June rally.

What's the point of all this? The key is not to get of ahead of ourselves. In order to have a new new bull market, we have to form a proper base and break out. That has not happened., which leaves the door open for a retest of the March lows. For the time being, I'm still betting on an inverse H&S bottom until the price action confirms, or proves otherwise.

FOMC on Wednesday afternoon will be interesting.

On the daily chart I'm drawing in a new down sloping trendline, and now we look to short rallies. Today's aggressive selling and late day slide keep the door open to additional short term downticks with next support at 890/888 followed by the May trading range floor at 880/878.

The NAZ looks to be forming a H&S top which will take weeks to confirm. We closed below the neckline and should see a further decline to the shoulder line soon, before the RS begins. Typically, we should see light volume on the RS to confirm the pattern.

Short-term we are approaching oversold.

Today's trades - short SPY and CME. The entries are key because we don't want to get in too soon. The SPY couldn't catch a bid at support and CME filled a bullish gap and consolidated in the low end of the range with NRBs. Both trades were executed on the 5 minute timeframe.

Need some help with short selling? Try this post by John Lee - a good primer on bearish patterns.


Tyler said...


Great trades today! Thanks for the analysis of the overall market, that definitely helps me to understand the longer term view, not just day to day like I trade.


Jamie said...

Thanks Tyler,

Nice to see you posting again.