Thursday, July 9, 2009

S&P500 Daily Comment July 09, 2009

Well it seems that some things are clearing up, but no absolute clear signals for up or down. But my inklings are making me want to learn a bit more bullish mid term . The high risk of the downside makes me wonder if a drop is necessary before a continuation in bullish pattern. Though however it seems that if things do go bearish it would need to be longer than short term, hence still the unclear picture. So let me clarify...

Trend: (neutral)
Trend is a big "?" mark ... From 4 Quarter 2009 until present, one can say there hasn't been much of a change.

Lets take a look at the general trend 2008 and 2009. Yes the S&P500 dipped below 700, but its only recently was about recover gains from the begging of the year. In the bigger picture there is no real strong trend in place, arguably sideways accumulation (one can also argue short term bear market rally from march as more significant, but Im considering a wider scope).

SMA action: (short term: bearish, mid term bullish, long term is showing signs of possible bullish moves)

Evidence to this downward - to side ways accumulation is seen by the SMAs. Starting from June 2008, short mid and long term SMAs (50, 100, and 200) are all above prices until Mid march 2009 ( 200 over 100 over 50 = bearish). Which is when we get this bear market rally and mid bear market rally we get prices crossing above the 50 and 100 SMA. The 200 SMA managed to stay under prices for the past few weeks but currently is facing a huge battle of staying under or above prices.

Here's my final interpretation of the SMAs 50 SMA is above the 100 SMA which means this is more bullish mid term, however currently prices are above the 50 SMA which means short term downward pressure. OVERALL the 200 will seem to be the big decider. In a few weeks out it seems that the 200 SMA will cross under the 100 SMA making things even more bullish. Though short term risks can change the 200 SMA path.

If Friday can close out above the 200 SMA strongly this may mean shorting at these levels maybe a bad idea.

(arguable bearish short term, I say overall useless)

I tried using the RSI as indicator for ideas of momentum and it seems that in the short term it confirms a bearish pictures(not over the next few days, but maybe into next week or the week after). Though on a whole back testing shows the RSI is not the best indicator for precise trend reversal signaling.

Support/Resistance: (support: bullish)

my 877 resistance level held! On supposed surprise news on Alcoa earnings, the bulls came to defend the level (close of July 7th). Through the day I assumed that the 877 level was going to break, which would have made me much more bearish since this would mean prices closed under the 200 SMA strongly. However, this was not the case, support held and the 200 SMA is neither above or below prices.

seems to me the mid term telling me to be more bullish and the short term is a big "?" mark. After friday's close hopefully some of these indicators will be more clear.


Ill present two patterns that can point to more bullish signs, though unfortunately they have questionable volume confirmations(no strong volume accompaniment, though one should consider that you won't always find textbook charts in the real world situations)

Pattern 1: Flag/pennant continuation pattern (bullish sign - though lack of clear volume support)

Pattern 2: (can be read bullish or bearish) rectangular continuation or rectangular ... FAIL

I point to the abnormally large bullish volume (the first circle)in mid June (June 19th I think?) . Too be honest I don't know where this volume comes from since the volume on shows something COMPLETELY different. I even tried playing around with the parameters but apparently Bloomberg's volume doesn't match up with stock charts (its probably because I'm making some noob mistake in setting up the volume parameters).

Assuming bloomberg is correct in its all mighty powers, then this volume for surely points to possible confirmation on any bullish pattern formation!...


To be honest, I won't be pulling any buy triggers from these signs due to lack of clear volume confirmation and questionable indicators as from above (see table charts)

Though take them for what they are worth since they maybe true!


I'm now going to throw down the more solid evidence for bulls. I do EMPHASIZE however, the downside risk remains significant for the short term.

Chart 1: (CO1 ICE brent, very similar and highly correlated to NYMEX crude CL1)

Now some of you maybe wondering why Im thrownin down the oil charts. Well some view markets as currencies leading commodities and commodities leading equities (or equities leading commodities?). Well whatever the arguement is, the oil markets maybe sending early signals of a bounce off support of 60 or if more bearish 55!

SMA action:

Oil SMA action is much more clear, 200 already crossed under the 100 and the respective order of 50 over 100 over 200 is in place. The only thing is short term downward pressure of price being below the 50 SMA. Though overall more bullish in all time frames.


RSI is a much indicator for oil and it tells me its about to enter over sold conditions or bounce of 30 (it will go oversold if we see 55 support holding). On the whole more bullish.

All these indicators tell me oil is going to rebound off a short term support be it 55 or 60.

So how does this affect equities?

with a .8135 correlation, that's how!



I was doing very brief currency analysis as I finally learned how to take advantage of technical features on bloomberg! It seems to me all this dollar strength we have been seeing (possibly causing the S&P500 to trend sideways and oil to dip to new support), was really only the dollar trending sideways. On a brief analysis it looks like the dollar will continue to be weak well into the 3rd quarter!

So if we get Dollar weakness 3rd quarter (which will lead commodities) we will see oil strength and equity strength as well.


Again I stress that its probably better to be conservative and wait for bearish indicators to disappointing as the risk is still there, but the bullish evidence is getting more compelling as I analyze more.

Obviously, today would be a great opportunity to buy if you were long or to short if you were short.

But don't jump the trigger my fellow traders, stick to the discipline and wait for a trend to develop with the appropriate confirmation signs!

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