Afterhours

The bulls begin the new month with a significant rally after an ugly August. So does this mean the downtrend which had started early last month is now over? Let's take a closer look at our 1 minute point & figure chart to figure it out.

As you can see, the S&P in one day achieved both upside targets 1,063 & 1,082 which is quite impressive and bullish. In my view, the short-term trend will become increasingly bullish as long the S&P maintains above 1,060 for couple days and not roll back inside the highlighted box. 

In my previous report, I have wanted to short this market but given the bullish divergence on the momentum indicator and the positive seasonality I decided to wait for further signals. However, the market is quite extended on the short-term after today's rally so I have decided to nimble in on the short side. If I'm fortunate and the S&P rolls over in the next couple days I'm watching for 1,060 as the first level of support. As for the upside, let's put the August high 1,100 which the bulls must take out in order to confirm this downtrend is finished. 

"This can't be good." 
The market slowly but surely surrender most of its gain last Friday. Just when you thought the bulls could pull one off, the bears remind us who's in charge of this market. 

I showed you this chart before the market opens and stated how the bulls must find sufficient strength to keep the S&P above 1,060-1,070 levels for the next few weeks for any hope of changing this downtrend into a bullish one. Unfortunately the market rolls right over today and it's going to make the bulls job even more difficult down the road. Even worse, today's action once again suggested to everyone who's willing to listen that the bears are in complete control. At this point, the bulls need to stage a huge Tuesday Turnaround tomorrow in order to save this market. 

Bottom line - as stated this morning's report, my plan for this week was to play on the long side amid cautiously because of possible false breakout. I completely bailed out this plan when the first hour lows was violated. So for good or for ill, I'm putting together a list of possible short candidates. I'm mindful of possible Tuesday Turnaround and early of month rally, so I'd wait until Thursday or early next week to short this market. We'll see how it plays out!

The market once again successfully re-test the key level support S&P 1,040 last Friday which I believe is an enormous victory for the bulls (click to enlarge). 

As can be seen on the chart, the market finally impressively breakout the range 1,040 - 1,060. Of course, we must be mindful this could be a false breakout as it happened in early August. However, rarely does the same pattern repeated again so quickly. So if this is indeed a true breakout, I'd look for the S&P to break the overhead resistance 1,070 -1,080, and more importantly it must sustain above that level in the upcoming days. If, on the other hand, we quickly reverse from this level and head back down then it's safe to say the short-term downtrend is still intact. To confirm the long-term downtrend, the bears will have to solidly take out the strong support 1,040. 

In term of upside targets, we have an activated upside target 1,082 hanging on the chart. Again, achieving this target would certainly help build the upside momentum going forward. 

Bottom line - the bears inability to close the S&P below 1,040 keep the bulls hopeful once again. My plan for this week is to trade on the long side cautiously and watch how it reacts to the overhead resistance 1,070 - 1,080. Failure to clear this levels would probably invite more bears back in the market. So let's see how it plays out today and the rest of the week.

The action of the past several days absolutely remind me of the bear market in early 2009. That is the market fails to bounce amid the oversold conditions. And any bounce is unsustainable - even for a day. I am absolutely convinced we're in a bear market and the price will head much lower from here. However, I will give my expectation the benefit of the doubt until the S&P is closed below the key level of support 1,040. So for now, let's focus our attention on the short-term 1 minute point & figure chart of the S&P 500 (click to enlarge):

As can be seen on the chart, technical conditions have deteriorated since the bulls cannot find sufficient strength to break the index above 1,130 last week. In other words, we now have a series of lower highs on the chart with the 1,215 the top in April. To confirm that the price is headed much lower in the upcoming months, the bears must prove that the June lows 1,015 is solidly broken. Given that the market is no where close to maximal oversold conditions, the bears should have plenty of opportunities to push it lower. In my view, it just a matter of when - not ifs - that the June lows will be violated and the S&P is headed lower than 900. 

Despite the volatility of the past two sessions, we're trading in a tight consolidation between 1,040 & 1,060 which is highlighted by the box on the chart. In addition, the price remains below the main bearish resistance line. 

Bottom line - tomorrow and next week will be key for the market. I have indicated technical conditions have deteriorated significantly since late last week. And at this point there is no evidence to suggest the bulls can repair it. In my opinion, any rallies back to 1,070 - 1,075 would be a terrific selling opportunities. If it wasn't for the bullish divergence in some momentum indicators and the fact the street is so pessimistic I'd have short all I got. 

In what could be a very positive weak could end up ugly. (click to enlarge)

The 5 x 3 point & figure chart of the S&P 500 above shows the price has once again reverses back to O's and threaten to break through the short-term trendline established since the July lows. In other words, a break below 1,070 would activate a double-bottom sell signal and at the same time violating the bullish support line which is very bearish. So at least the bulls were able to defend that level today. 

Notice since the S&P tops out in April, we have seen the S&P achieved two downside targets 1,125 & 1,020. We have two more downside targets 785 & 975 hanging on the chart - though they both not activated yet. Breaking below 1,070 would certainly activate the downside target 975 and breaking below 1,010 would activate the 785 target. So you can see why the S&P 1,070 level is quite significant for the bulls. 

Finally, today's action clearly suggested the recent breakout was just a false one. If we break below S&P 1,070 you can bet the July lows 1,015 is in jeopardy. For now I remain a cautious bulls and would probably get more aggressive on the long side if the bulls can regroup and push the S&P back above 1,085. Obviously all bets are off if 1,070 is solidly broken tomorrow.

Volatile day's end with small gains. (Click to enlarge)

The 15 minute 5 x 1 point & figure chart of the S&P 500 above shows we're in the process of building a upside channel which could lasts for several months. Obviously a break below Monday's low 1,070 would negates this possibilities. At the present, the price is in a tight consolidation between 1,090 & 1,100. Because the market has only recently turned higher from the deeply oversold levels I believe eventually the market will break sharply higher and maintain its upside for several weeks. But clearly the bulls must find sufficient strength to push the S&P 500 above 1,100 which is the strong overhead resistance the past two trading days. 

Bottom line - the market has only recently breakout its multi months downtrend channel so we should expect this bounce to lasts for several weeks. Historically September has been a terrible month for stocks, so my guess is we probably will rally until the end of this month. But we'll deal with that when it occurs, for now let's focus on this new possible uptrend channel.

Another quiet day...

The 60 minute 5 x 1 point & figure chart of the S&P above suggests taking a long positions after the second box X - where I marked buy at 1,080. A stoploss is placed one box below today's low which is 1,065. Personally, I do not recommend taking long positions at this level because of the huge overhead resistance 1,085. But if you must insist, take long positions with stoploss at 1,065 on the S&P 500. If we're fortunate to get an oversold rallies then the resistance levels to watch are 1,085 and 1,100. 

It's always a positive to see both the Russell & Nasdaq leaded the early bounce. Trust me, I've seen big rallies started this way. On a negative side, the action in the financials were very discouraging. We need this sector to participate if we're going to see a decent bounce in the days ahead. 

Bottom line - the market is quite oversold on a short term basis and today's action seems to suggest a bounce is underway. Ideally, I'd like to see the market closed sharply down today to setup a better risk/reward on the upside but the dip buyers obviously had other ideas this morning. So once again I'm anticipating a Tuesday Turnaround tomorrow. Let's see how it plays out!

Very volatile sessions, but in the end the market closed in no man's land.

The bears unable to find sufficient strength to push the index lower after a huge gap down. In fact, it didn't take long before dip buyers jumped in and push the S&P higher before rangebound between 1,080 - 1,085 for the rest of the sessions. And it appears this range will continue until all the big reports come out tomorrow. In my view, a break below 1,075 will resume the downtrend, while a break above 1,090 will likely bring back some buyers. 

I continue to monitor this chart carefully for indication if this is the beginning of a downtrend channel or it just a healthy pullback before the bulls take over control again. My prediction is that the S&P is in the process of building a nasty downtrend which could take the S&P well below 1,000. 

On a positive side, the short-term bullish percent index has halted so the downside momentum is clearly easing. Needless to say, for me to turn bullish again this indicator must turns higher, for now it remains overbought. So it could be several weeks away before we get a buy signal, preferably at the oversold levels.

Bottom line: The intense downside momentum is finally slowing down and the market has gone sideways for must of the sessions after opened sharply lower. On a very short-term, we might get a bounce but I'd rather used any rallies to short as I firmly believe we are not done on the downside until late next week. But that's just me. Let's just continue to monitor the action and see what this market is made off. 

The bulls have no chance today:

Today's selling pressure is as intense as I've ever seen - no intraday bounce at all. When all durst settled, the S&P has managed to find support on the 1,090 area which is the first horizontal red line drawn on the chart. A break below this line and the next support is around 1,075 - 1,080 which is the second red line. The horizontal count is predicting a downside target 1,070. 

Notice the possible downtrend channel drawn on the chart. It is my hope the S&P 500 is not forming a downtrend channel because it could take the index back 1,000 in the upcoming weeks. If this bearish scenario turns out to be accurate, the S&P could retreat all the way back to 900 or lower. On a brighter side, if the S&P manages to find support around 1,080 and bounce off from there and rally in the upcoming weeks then we probably will see more gains for the rest of the year. 

Finally, the S&P 500 bullish percent index is officially producing a double-bottom sell signal so traders should prepare for more downside ahead. In addition, this indicator suggests any rallies will be short lived as long it's heading down.

Bottom line - so far not much technical damage has been created. However, a few more days of weakness would certainly change this view. The market already reacted very negatively on the Cisco earnings so a gap down to 1,080 tomorrow is very likely. We'll find out what this market is made off. 

Another terrific intraday rallies - but the bulls came up short. 

The S&P 500 continues to hover around the trading range between 1,110 & 1,130.  In addition, the S&P was once again able to defend the lower trendline drawn since the July lows. Until this major support line is violated, we must assume the bulls will find sufficient strength to push the index higher in the upcoming weeks. However, on a short-term, I suspect the risk is to the downside.

On a brighter side, despite failing to make a higher highs, the S&P has managed to put a series of higher lows. Could the S&P position itself for a explosive upside move ahead? It's difficult to imagine this tight consolidation range will lasts forever, so a huge move is imminent. 

The bottom line: I maintain that the stock market remains overbought and vulnerable to a shakeout. This can be seen from the falling S&P 500 bullish percent index, which is creating a massive negative divergence. The longer this indicator continues to behave this way, the bigger the drop will be. So any rallies will be short lived and provide a terrific opportunity to initiate short positions.