Tag Archive for SPY chart

Mind the Gap

Why am I getting all London Town on you?

I’m minding the gap because Monday’s gap down was predictably filled today as promised by the chart. Next we have to wait for Apple and Bernanke… Without these two wildcards this chart is a sure bet from the short side because we still sit below the 50 day moving average.

I think there could be some whipsaw action so I went all cash for now for our discretionary account. I will watch the bullets fly and sort it out afterwords — too much risk either way as the short side is likely getting crowded, the RSI is getting more oversold, and the news will be driving the tape. So for me, I’m out for now… For the model, Hedgephone.com is bearish equities here as we have been for a month or two. We always suggest stopping out of losing trades and moving back into the trade when the tape is favorable to your side of the action. Right now, the short side looks OK but you have to watch the 50 day, Apple, and Unlce Ben. For now, below the 50 day the momentum is actually solidly on the side of the mighty bear. Watch out because this could get ugly…

5 Reasons to Be Bearish and 5 Reasons to Be Bullish

BEARISH:

1. The market is up 30% or so from the August 2011 lows — bulls make money, bears make money, pigs get slaughtered.

2. Europe is nowhere near “fixed” yet market participants are buying like it’s 1999 again.

3. The Shiller or CAPE is well above historic norms.

4. The rally we have seen has been on light/non-existent volume.

5. Everyone is bullish.

Reasons to be Bullish:

1. Everyone else is bullish… The self-reinforcing trend may push stocks much higher.

2. Corporate earnings are at all time highs as are corporate profit margins.

3. Even the perma-bears are getting bullish (rhymes with Houdini)

4. Over the long term, stocks go up…

5. Over the long term the dollar loses purchasing power…

 

All in all, we remain short term bearish and long term bullish on US equities at Hedgephone.com

Chart Study: SPY Head and Shoulders Top, Breakdown Below 200 Day MA

We are short term oversold here, and today’s volume was strong which when combined with all of the CNBS pumping and the intraday reversal together with the specky tech index outperform the boring Dow index suggests we have another half a percent or whatever to move higher. Heck, we may even test that 200 day MA again. After that, however, we will likely head towards serious bear market territory. I view any rally here as a selling, not buying opportunity despite DOW stocks being fairly valued — there are too many MOMO junkies right now chasing the pump and dump “leading” stocks like their next hit of crack cocaine… but I digress… Note the oversold RSI, but the bearish break below the long term trend following signal — the 200 day moving average… The 200 day MA system is a religion among trend followers, and when combined with a head and shoulders you can believe a Bill Dunn, Monroe Trout, the Turtles, etc.. will be shorting this market right now, not buying it, despite what Investors Business Daily readers (I’m one of em, but when the nation’s main economic indicator switches from GDP to the share price of Chipotle, or CMG, it’s time to get cautious) will tell you right now:

 

$SPX.X Chart Analysis

MACD: Bullish in that it’s oversold, but the issue here is a possible divergence — still the oversold nature as well as the crossover makes this slightly bullish here.

Moving Averages: I view the MA’s as mixed because we are still over the 200 day, but nearing a sell signal because we are close to a MA crossover of the 50 and 100 day simple moving averages, IE we are close to a Death Cross…. Although the Death Cross initiated last June (late June 2010) was a total false signal, the current potential Death Cross is more significant because there is no QE2 coming (at least not to our knowledge). I assume there will be some type of deflationary market drop after June 30, so I am unwilling to speculate on higher index prices this week although I do expect window dressing over the next three days.

Slow Stochastics: No real signal here, though the fact that that the we have a crossover below the signal line makes this slightly bearish. Overall slow stochastics are neutral to bearish right now, which cancels out our oversold MACD.

RSI is 44 which is neutral.

Overall, I think many market participants will be feeling queesy (no that was not a QE pun) that QE2 is ending in four days. I would put in tight stops on your long positions and I don’t trust today’s rally.

I do expect window dressing to drive up “leading stocks” into the end of the week, but after that I think we will see a severe selloff in the more speculative, overvalued issues in the marketplace.