UPDATE  — 2:00 AM EDT

SPX closed down 8.30 at 1329.47, down 3% from the high of 1370.   The Asian markets are mostly flat or mixed, with the e-minis indicating a slight rebound.

The weekly charts look abysmal, but there’s still the possibility that we’ll bounce off these levels for one last push.  In addition to the below-mentioned trendlines, the 50 day EMA and .618 fib lines would offer support at 1323.  And, am I the only one underwhelmed by the volume accompanying today’s decline?

Other considerations include TICK, DVOL TRIN and the A/D  — all of which have thus far failed to confirm the downturn.  Also, the USD is probably due for a bit of a breather. And, at this late hour, the hourly e-mini charts leave open the possibility of a near-term bottom.

The VIX is breaking out, as would be expected if the decline is real.  But, at these prices it has nearly completed a bearish Gartley Pattern that started on May 6.  Of course, bearish for VIX means bullish for stocks.  It would complement the bullish Bat Pattern detailed below.

Lastly, don’t discount the Fed’s determination to avert a crash.  We have some oft-manipulated economic indicators coming out in the morning (housing starts and building permits.) And, any positive news on the debt ceiling (or even QE3?) might turn things in a flash.

If the decline is arrested here, the market’s vulnerable to a short squeeze.  Given that Friday is OPEX, it’s easy to imagine one last turn of the screw for this past week’s put buyers.

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ORIGINAL POST — 3:15 PM EDT

Feels a bit like a bear fake-out to me.  Unfortunately, as a frequent victim, I have more than a passing acquaintance with how they feel.

We’ve bounced three times today (5th in 3 days!) off the 2nd Biggest Baddest trendline on my charts — the one that started at the Oct ’07 highs at 1576 [see The Trendline That Just Won’t’ Quit on May 5].  Today, it sits at about 1332.

We have additional support at that same price from the .50 fib retrace (of the 1294 to 1370 move.)  One way or the other, this descending triangle is just about done.  Below here, out next major support is the trendline from August ’10, with touches on 3/16 and 4/18 — currently around 1326.

If this support holds, we’ve either started or are about to start [v] of P[2] up for the final push to:

(a) 1381 — the .786 fib line off the Apr ’09 lows);

(b) 1393 — the upper bound of the rising wedge since Mar ’09; or,

(c) 1410 —  the Supercycle line from the early 1990’s (The Biggest Baddest Trendline, also in the vicinity of the inverse H&S; target.)

I suspect we’ll be there within the next 7-10 days, in time to stay within the 105 upper limit (June 3) of the 87-day cycle [see Sure It Works Fine in Practice, May 10.]  After that, we should officially start P[3] down with a 10-12% or more decline.

An alternative view is that this cycle decline will be on the lower end of the scale.  The smallest over the past 4 years was 3.88%, which would indicate 1315 or so.  That would also mark the lower bound of the Mar ’09 rising wedge.  If we stalled here at 1331, we’d be down only 2.9%.  Not bad, but not in keeping with the cycle pattern over the past 4 years.

The interesting thing about 1315 is that a decline that stalled there would result in a very well-formed Bullish Bat Pattern.  Such a pattern, if it played out, would take us back to 1370+  muy pronto.  I drew the following chart last Thursday, when Blogger was on the fritz.  (I incorrectly labeled it as a Gartley, kissin’ cousin of the Bat; a Gartley would have had a bigger retracement at point B.)

Which way do we go?  I see three possibilities:

(1) we’re entering [v] up to 1381-1390 before starting a big P[3] down.  If we close above 1344 today or tomorrow, I’ll favor this route.

(2) we’re going to fall to 1310-1315, bounce off the lower bound of the rising wedge up to 1381-1390 before starting P[3].  This will be easy to spot, because we’ll fall decisively below the above-mentioned trendline at 1332.

(3) if we don’t stop at 1310, the next levels of support aren’t until 1295 and 1249. 

Weekly MACD, RSI and STO are all trending down and show plenty of room on the downside before we’re oversold.  Make no mistake, this market is one sick puppy.  The only question is whether he limps over to the side of the road and croaks right here, or whether he’s got a little fight left in him.

We should know in the next day or so.

Reposted from Thursday, May 12, 2011

While it would be easy to jump on the P[3] bandwagon right about now (and it wouldn’t take much convincing) a note of caution is in order.

A pullback that stalls in the low 1320’s on SPX would leave a fairly well-formed bullish Bat Pattern. Point B should be a few points lower, allowing a fuller CD extension to .886, but these things are rarely perfectly formed.

Why should we care?  Bat Patterns work well in forecasting market moves.  It’s estimated they’re successful about 70% of the time — house odds, if you will.  The most recent notable example was on March 4.  After the market had nearly recovered from the previous 8 days’ mini-crash, many were expecting further gains.  A Gartley Pattern — close cousin to the Bat — correctly forecast an 80 point drop.

A bullish Gartley Pattern that plays out successfully from 1321 could be expected to boost the SPX by a quick 24 points to 1345, with an ultimate target of 1391.  I don’t believe in coincidences (unless CNBC tells me to) but 1391 also marks the upper bound of the rising wedge from Mar ’09.
It’s also only 10 points north of the .786 Fibonacci (off the Mar ’09 lows) levels at 1381.50.

If we don’t turn down from here, and that’s a BIG IF, I expect P[2] to finally die between 1380-1390 sometime in the next 10 trading days.  It coincides perfectly with my 87-day cycle of downturns, but these cycles have taken up to 105 days, so it could be as late as June 3.

It only took a week of posting on Blogger for me to crash the entire system!

Google assures us the system is back and better than ever.  Posts from Wednesday and Thursday are slowly coming back on line.  I’ll give it till tomorrow morning, then try to repost what hasn’t reappeared. 

Lots of action in the markets these past two days.  Volatility’s on the rise, but the fluctuations have been fairly predictable…so far. 

I’m doing some interesting analysis on Gartley patterns.  They’ve been helpful on several short term trades this past week.  I’ll take a look at some patterns forming that might prove helpful in anticipating bigger moves.  I hope to post something this weekend.

In the meantime, happy Friday the 13th!

Silver just completed a nice little bearish Bat Pattern, targeting 31 if this retracement is done at the .886 Fib levels.  Should be a good day trade with the May 29 puts, currently at .17 — with tight stops of course.

The market’s off 16.60 at 1341.05.  I think this is the “Y” from Daneric’s W-X-Y count and a result of the bearish Gartley pattern we saw conclude yesterday.

http://danericselliottwaves.blogspot.com/2011/05/elliott-wave-update-10-may-2011.html

While SPX could easily continue down, I’d be watching for a bounce at:

(a) 1333 — the long term trendline from the Oct ’07 high (stopped the last decline cold); or,

(b) 1329.17 — the previous low, and support from the trendline beginning 4/18.

If we can clear those levels, I’ve got my fork ready. Otherwise, I’m thinking one more frenzied, pull-out-all-the-stops push to 1370-1390 before P[3]’s finally here.

Watching SLV this morning. It’s turning on the fib levels religiously, topping within a nickel of the .382, toying with .236 and heading south now.

I’m watching the 5-minute bars and, FWIW, a pattern has repeated three times in a row: every little dip is followed by exactly 9 sideways/up candles before the decline resumes.

As stated yesterday, the current holders of SLV — most of whom bought at these levels — are more likely to bail if they fear a continued slide.  The volume is respectable, and if this is a 3 of 3, should pick up right about now.

However, there’s support coming in from the long-term trendline at 34 and the previous low of 32.28.  The May 32 puts have tripled in the past two days, so I’ll be keeping a very close eye on things at these levels.

It was supposed to be a great turnaround story, a good cause and a profitable investment, too.  After going public again post taxpayer bailout, GM dropped like a rock

despite research report puffery that would have Shakespeare drooling with envy

http://in.mobile.reuters.com/article/rbssConsumerGoodsAndRetailNews/idINN1824469820110419?irpc=984

 http://www.bloomberg.com/news/2011-05-10/bank-of-america-billions-of-dollars-in-losses-at-stake-on-moynihan-outlook.html

 

Bank of America Billions of Dollars in Losses at Stake on Moynihan Outlook

 

 

This bounce is lasting longer than I anticipated.  SLV experienced extraordinary volume trading during its decline:  988MM shares over 4 days, a big number as there are only 335MM outstanding.

Given that the ETF is now owned by a whole new crowd (or repurchased by those who sold last week), we can expect the new owners to behave a little differently. 

First, they mostly bought in the mid-30’s, so they’re up slightly at these prices ($37.75.)  Good enough for a short-term trade.   Second, they shouldn’t be affected by those pesky margin calls as were last week’s owners.  Last, they’re traders.  If they were patriotic, died-in-the-wool EOTWAWKI silver holders, they would have already maxed out on their holdings (which would be in coins, bullion and old tooth fillings anyway.)

Absent any further manipulation by CME, I suspect the current bounce will be contained by resistance at 38.7.  There’s also a .382 fib off the 4/28 highs at 38.4, the 50-day moving average of 38.2 and the apparent rolling over of the MACD and RSI.  Last, trading has been confined since May 6 to a rising wedge with an apex at 39.6 the morning of May 11.

If SLV breaks down, it should return to test support at 30.6.

A week ago, I stumbled across an anomaly that puzzled me.  Looking at the SPX weekly, it appeared that we had a significant correction every 90 days or so.

I posted a quick chart on May 2 that, when eyeballed, looked pretty convincing.  Now that I’ve had the opportunity to go back and study it a bit, I’m convinced there’s a bona fide phenomenon here.

I haven’t a clue why it is happening, but it’s happening all the same.  First, the picture that speaks a thousand bucks:

Digging into the SPX daily data, it’s remarkably consistent.  I found 15 instances, going back to July 2007, where we had a downturn within 15 calendar days on an 87 day (average) cycle.  The longest cycle was 105 days, reached 8/9/10 and 2/18/11.  The shortest — and only one that didn’t meet the +/- 15 day criteria — was 63 days reached on 2/27/08. 

Most of the big declines were captured by the cycles.  One notable exception was the June ’09 decline, which was bigger than the May ’09 decline captured in the predicted time frame.

I measured the declines beginning with the intraday high within 15 calendar days of the cycle predicted date.  I then measured the lowest point within 3 trading days, within 30 trading days, and within the remainder of the cycle.

Now, for results:

The range of 3-day declines was 1.85 — 9.99%, with a mean of 4.16% and median of 3.63%.

The range of 30-day declines was 3.88 — 26.45%, with a mean of 11.40% and median of 10.18%.

The range of intra-cycle declines was 3.88 — 36.15%, with a mean of 13.31% and a median of 10.79%.

For anyone wondering, we are currently at 81 calendar days since the 2/18 top.  If the pattern were to hold, the 87th day is Monday the 16th (although Friday the 13th has a nice ring to it.)

If we were to rally up to the .786 fib off the Mar ’09 lows (1381.50), the model would suggest a decline within 3 days to 1324, within 30 days to 1224 and intra-cycle to 1198.  The fact that each of these price levels is significant (50-day EMA, .618 fib, round number) gives me additional confidence.

Today would also be a logical entry point, as we’re at the .618 retrace off the 1370 highs.  The corresponding targets would be 1297, 1200 and 1193 — also logical from a charting standpoint. The one thing the model does not say is WHERE the top is (it’s always something!)

Last, as someone who’s admittedly bearish at this juncture in the economy/market, I should point out that the biggest cycle declines I found were only the first stage of multi-cycle declines — especially the Oct ’07 — Mar ’09 crash.  So, it’s entirely possible that a decline to 1200 within 87 days of the next cycle start is only the first stage in a larger move down  — the first leg down of P[3].

On the other hand, this could be one of those 4% blips that’s already come and gone.  The 1370 high was on May 2 — 73 days into the cycle since 2/18.  We were down 3.02% when we hit 1329 on Mar 5.

But, my bias and my gut tell me otherwise.  IF anything, we get one more bump up before the bigger move down.  We’re technically overbought, sentiment is very high, the end of QE2 is in sight and we face three strong points of overhead resistance:

(1) the .786 fib line at 1381.50
(2) we’re VERY far along in a rising wedge started in Mar ’09.
(3) we’re right up against the supercycle line from the early 90’s, currently about 1390-1400.

Happy trading!