Short Term SP update and possible Triangle pattern.

Last update for the year, shorter term update for the day traders out there. Next short term upside target for the benchmark comes in around 1310 spx as shown in top chart above. This will take out the last swing high marked as the horizontal red line. Trend line support shown rising below. Of course in our last post long term next upside target continues to remain 1376 approximately.

The chart below is the SPY or the exchange traded fund that most closely tracks the S+P. It appears to be forming a triangle pattern with downside trend line support below and upside resistance above. The Blue horizontal line just shows where we started the 2011 year trading at. A breakout in either direction will produce a nice trending move, of course you know my bias coming into this, I believe the break will be to the upside barring any unforeseen macro events.

Going Forward... Redux

Surprisingly the market made a break to the upside last Thursday on apparent Euro-Zone can kicking. And this week it appears we have successfully retested the breakout point giving the next upside projection to be approximateltly 1385 on the S+P 500 if you take the length of the last few month's trading range and add it to the breakout point.

This seems like a logical first upside target, then expecting the market to take a break there before proceeding into the 1420 - 1470 zone.

Refer to this previous post from February on the significance of the 1470 level, as it matches in length the bull market we had during 2003-2007. Key Levels still remain.

A weekly close below 1215 on the SP 500 would invalidate any upside target and would mean the drop to 950 is back on.

Otherwise it's risk on.

Another Wave Down Likely.

We got some price stabilization right at our first support level below, which coincides with the 38% retracement of the current bull market from the March 2009 lows. So what happens next?

Well my model calls for another wave down likely to complete the Domed House pattern of the Three Peaks and a Domed House for you George Lindsay followers out there. I expect prices to continue to rally back into the 1230 - 1270 area over the next couple of weeks or so, with a slight chance of even returning to 1290. From there I expect another drop, the question is how big will the drop be?

Well I believe it will basically match the size in length of our last drop from the May highs to recent lows, that created approximately a 270 pt S+P 500 drop to our support level. Using these numbers going forward I would expect a similar drop to possibly take us below the 1000 level on the S+P depending on where the high is put in.

Again refer to the previous post as the 935 final support level will be key to keeping the bull market structure intact. Hypothetically as long as that level doesn't get violated to the downside, the potential is always there for price stabilization and new bull market highs eventually made maybe as soon as next year.

But as always trade safely and stay well hedged, I can not emphasize this enough!

S+P 500 down to 1160 then up to 1520.

The market has sold off a bit more than expected here by taking out 1270 to the downside on global macro slowdown concerns. A deeper retracement to entice buyers is now expected.

We had a 210 pt drop in 2010 from the April highs of 1220 to the July 2010 lows of 1010. And a subsequent rally of 360 pts proceeded.

A similar drop from the May highs of this year would take us into the 1160 area. We have plenty of confluence in the 1200- 1160 to boot. I expect the market to make it's low around this level.

An estimated 360 pt rally should occur at that point which will take us into 1520 on the SP 500 somewhere during or after the 2012 elections.

Market Update (SP 500)

Well the short term picture is unclear, let's review what has happened so far. We had a correctional pull back into our support zone and a proceeding rally just above our noted resistance area to watch in the last post. Now what's next....

Even though today's sell off was done on less volume than Tuesday/Wednesday of last week the fact is the 1330 level was rejected as unfair and sellers stepped up in force and maintained control of the entire day session with little to any rotations to the upside.

I now have to be prepared for a potential drop into the 1270 - 1280 area. With Oil prices once again looking to regain control of $100/barrel , but I can not rule out the possibility of a double bottom at last weeks low pointed out in the above chart. I will use that low as my line in the sand for the short term bulls.

Now why 1270 - 1280?

The bottom chart is a weekly chart of the SP 500 futures, I see a measured move long taken from the 1224 high from November 2010 to current highs created 2 weeks ago. The midpoint support levels as noted on the chart come in approximately 1285 - 1270. As confluence I have added the volume profile to the right hand side. As you can see the high volume demand in the 1280 - 1270 area on the profile highlighted by the black horizontal lines. I expect to see buyers come back in to attempt to push prices back up to new highs.

Regardless, I still fully expect to see this market trade at least 1360 - 1380 in the coming month(s) and quite possibly higher. Which may be the end of this bull trend for awhile.

S+P 500 Market Update.

The S+P did indeed drop into our price zones discussed this week. We saw a relief rally occur during Friday's day session. Question is was it just an oversold bounce or something more?

One thing we have to keep in mind is the type of resistance we are up against in the short term. The top chart above shows the weekly chart of the NASDAQ, as you can see we came into the top of the trading range dating back to 2007. The middle chart shows the small caps (Russell 2k), also up against some tough resistance levels coming in at all time highs. So we must keep this in mind as this could end up warranting a deeper size retracement.

The bottom chart shows the S+P 500 futures 4hr, we are inside a measured move long taken from 1/30/11 's low to the 1343 high. Market has paused and began to rally here, I am going to use that low that we created this week as my bull/bear line in the sand for the short term. Above we are coming into resistance, I am looking to see if 1323 - 1330 will hold. If so look for a drop into the 1270 area to follow. If bulls can break 1330 new highs will likely follow shortly thereafter.

In either event I expect to see new highs in this market by April/May, with a high of at least 1360- 1380 before this bull trend is over and done with.

Where are Oil prices headed????

Is what I have been asked quite a few times this week. With all the news coming out of the middle east, a fundamental shift pushed fair value of Oil prices above the $100 level for the first time since Mid 2008. So where do we go from here?

The chart above shows a weekly chart of Oil futures continuous contract over the last couple of years. The retracement levels above show resistance, below are dynamic support. In the near term (within next 2-3 years) I am leaning on the above levels to act as resistance to take us back into at least the 50% retrace level long setup coming in at the $65 - $60 level with a chance of even falling into the $50 price level.

While there is a chance of going up to test the $120 price level to attract sellers, I see that as a remote possibility as of right now. The action in the USD dollar this week tells me that the concern level is really not there at this point in time at least.

To be clear though I do think commodities in this environment are an excellent choice for the long haul. But these have all had quite the run in the last few years and to establish new positions at these price levels is extremely risky. Wait for the market to come back to you.

35pt drop in the making.

The markets may be reacting to some of the news out there, pre-market trading yesterday and overnight today have dropped the SP futures back into previous trading range. Albeit on very low volume. This sets up for some great trading opportunities this week. I will be watching 1326 for today's trade, bullish above/bearish below.

But for the IT picture here is what I am looking at, the biggest drop we have had on this run up came on the first test of the 1300 area, it produced a 37.50pt reaction and put in a low in the 1260's area before taking off on a 80 point rally.

I will use the pattern of repetition for this and look for an eventual bottom in the 1303 - 1308 area, which is also a 50% retracement level of this measured move higher. Followed by an equal sized rally which should take us into the 1380 - 1390 area by April.

2-18-2011, Neutral Extreme Day, bulls win again!

Going into Options Expiration Friday I was anticipating slow choppy price action. We opened inside Thursday's trading range above the Volume point of Control and open gap. Sellers came in quick off the open but not very strong, as the market moved down to fill its gap, return auctioned back above the opening price signalling caution for the shorts.

An Initial Balance was formed that was 2.75pts in length confirming the OTF was inactive, also confirming that IB low and high was in jeopardy. As we continued with our vertical price discovery to new yearly highs taking out the IB high, return auctioned back below the IB low no doubt taking out bull stops in the process.

We then have a confirmed Neutral Day Type as both IB high and low were taken out, question was where would it close, inside the IB or in either one of the extremes.

Well we got our answer during the last 1hr of trading as the OTF either by short covering or establishing new long positions were strong into the close. Thus making this a Neutral Extreme day type.

We have a long weekend this week and have to see where price opens on Tuesday, but as of now this sets up for more bullish activity in the overnight session but the two way buy/sell activity coupled with the divergence in the NASDAQ points to some potential weakness.

We have heavy price acceptance in the 1339 area which is key level to pay attention too on Tuesday. Also 1333 on the downside as well.

SP 500 Future upside targets, Key Lines in the Sand

Key Upside targets on the SPX coming soon, 1360 (Green horizontal line) represents the approximate equivalent perecntage gain matching the bull market of 2003-2007 off March 2009 lows, this target will be reached by April if not much sooner. The 1475 level (2nd Green Horizontal Line) matches the 800 pt rally in the SP 500 that the 2003-2007 bull market also produced.

However there is no way to predict the future, longs should be in a position to sell/ scale out of there positions at these levels and NOT be taking on new positions. Monetary policy with QE's is king right now, as long as the US dollar is falling and 10 yr yields rising we won't see any historic market collapse regardless of all the news or what I like to call "noise" out there.

We are at a crossroads here with the Nasdaq nearing its 2007 high and the Russell 2k getting close to it's all time high. If the market can not break above 1475 and puts in a lower high, we are headed for 450 on the SPX most likely putting in the final bottom. I see this scenario as unlikely at the moment, as inflation and possibly hyper inflation will be seen before a major deleveraging event will occur.

All the best.