Market Overview (May 23 2006) – How Low Can we Go ?

[Terliso]

Bear Power is not yet over.... We have more downside to come in the coming days

[Melf Elf]

Right.  I think we're still okay if we sell off today toward the bottom of the channel and finish this week on a long black candle,

We finished last week on a long black candle

but we'll need  something like a Bullish Hammer next week and maybe the week after, then the rally, like August, 2004 and April, 2005.

At yesterday's close of 1520.31, we're now more than 20 points below the channel, and we're less than five points away from taking out the October low.  This is where we need something like a Bullish Hammer, or the weekly chart isn't going to look pretty.

 

By the way, yesterday the QQQQ came within $0.16 of its Double Top Target IN PLAY.  That might be "close enough."   I'll post the chart in that folder.

Yesterday's 37.39 low was within six cents of the 37.33 Double Top Target that is IN PLAY.

[Ramsburg]

We started the week dropping below the long term support, and this is really not good for the «big picture»… but the week is not over yet (for the good or the worst scenarios).

The NDX had a strange session today, a lot of intraday volatility with several bull raids during the session but without enough strength to turn the direction yet (although, the bear momentum maybe slowing down).

Yesterday we also achieved several technical references, like the last October lows, which can be considered a potential support / reaction level, we also printed 1512 pts which are the long projection of the last big trading range (or a complex H&S pattern).

The market is discounting new interest raises because of inflation concerns; on the other hand commodities have already started a considerable correction; I’m not sure what the CPI report will bring, but after this sell off the worst scenario may be already assimilated?

This week will be very important if not crucial for the index… we are either watching the official confirmation of a mid-term trend or a major buying opportunity…

Regards !

[shawFund]

Based on historical pattern, the market should have a bounce.

It is in deep oversold condition.

Also inflation is the story wall street made up to the public. They try to bring the stock lower and lower. This will create a good buying opportunity for them so they can have a fat bonus at year end.

In the mean time,  the market will continue its down trend until 90% of people gave up.

Right now, I did not see that happen.

I will put my money to work in the near future.

I am glad to have dumped all of my MOVI share at its high and made 126% return in 4 months (it used 30% of my portfolio money)

My portfolio will gain 20% in June because I did not buy anything after the sell of my MOVI shares. 80% of my portfolio is seatting in cash now.

[Melf Elf]

More Bearishness in the SPX yesterday: 

1. Bear Move #1:  Fakeout Breakout above the Channel in early May.

2. Bear Move #2: Close below the channel on May 17.

3. Bear Move #3:  Bear Flag rally off SPX 1245 December, 2005 support that failed just inside the channel, and just below the 50 DMA, which had rolled over and was declining.

4. Bear Move #4: Break below the Bear Flag on June 6.

5. Bear Move #5: Successive closes below the 200DMA on June 7, 8, and 9.

6. Bear Move #6: Reistance (high of the day) at the bottom of the Bear Flag on June 6 and 7.

7. Bear Move #7: Resistance (high of the day) at the 200DMA on June 8 and 9.

8. Bear Move #8: Break and close below key SPX 1245 support on June 12.

9. Bear Move #9: Break and close below 22-month trendline support of the August, 2004 low on June 13.

I've heard a lot of "reasons" for the market selling off.  Rate hike fears.  Fears about inflation, etc.  I don't try to figure out what the reason is.  When the market keeps breaking support levels, then finding resistance at former support, I doubt very much that players are fearing rate hikes or inflation when they press that sell button. 

More likely,  players are fearing losing any more money in a wicked market Slapdown. 

[rickjust]

More Bearishness in the SPX yesterday: 
I've heard a lot of "reasons" for the market selling off.  Rate hike fears.  Fears about inflation, etc.  I .don't try to figure out what the reason is.  When the market keeps breaking support levels, then finding resistance at former support, I doubt very much that players are fearing rate hikes or inflation when they press that sell button. 
More likely,  players are fearing losing any more money in a wicked market Slapdown. 

true melf,
the only thing we fear is losing more money or losing profits.. crowds follow eachother. the human condition is one of fear and there is no way around that fact. everything here that is good will hurt you. (market goes up, market goes down market goes up market...................)
it really doesn't have to do with the fundamentals of the company. the stock price always relfects what someone will pay for it. what is true value anyway? no one really knows. it is all based on  opinion and nothing more. oh, and that's just my opinion
the way it is,
maxi

[Ramsburg]

We started the week dropping below the long term support, and this is really not good for the «big picture»… but the week is not over yet (for the good or the worst scenarios).

Well… the weekly chart is completely different now then 2 days ago,,, now we have a good looking hammer suggesting a reversal with a reaction on the support zone…but like I said before:
«the week is not over yet» (and what a week !!!!)

One session to go, and in fact a very special one: Triple Witching day…

From the daily chart, yesterday’s high was what we can consider a reaction zone, projecting a new descending resistance for this move. Daily DMI is showing a divergence with price during the last two relative lows, (which is bullish and suggests a reversal), a confirmation could be a close above 1580/90.

Today is the day !

[fous]

Great analysis Rams, (applauds)

Thought id throw in my 2 sense on the $COMPX

The Nasdaq made a huge bounce off its major support area today along with an awesome particular bullish divergence set up which Dr Elder(author of "Come into my trading room", great book by the way ) suggests that its the most powerful move set up in Technical Analysis that he calls "The Hound of Baskervilles" refering to some sneaky manuever by this hound from an old story, i can't remember it off the top of my head. Besides the point, i definatley have seen this pattern work out great in the past for  spotting bottom reversals.

First chart shows The Nasdaq making an awesome bounce off of the major support level as indicated by horizontal price support and Vol by price bars.


This chart shows Elders "Hound of Baskervilles" Macd-histogram divergence pattern.

How to spot the Hound:
First off their needs to be a large retracement in price as noted on the chart below by points A1(price) and A2(Macd-Histo). Secondly price will rebound from this low to make a short rally that allows the MACD-histogram to break the 0 barrier, or backbone, of the histogram. From here Price will again retrace but this time it will break through the low of A1 as indicated by point B1. Although on this second retracement the Macd-histogram(B2) will not break the low of the its first retracement(A2). The farther the distance points A1 is from B1 and A2 from B2 the more powerful the divergence in turn the more  powerful the reversal. Elder suggests that confirmation of this pattern on the first uptick of the MACD- Histogram which hasn't happend yet but i imagine will soon. And there you have it! The Hound of Baskervilles

[Melf Elf]

what is true value anyway? no one really knows. it is all based on  opinion and nothing more. oh, and that's just my opinion

maxi,

lol...if I played my opinion, I'd be bankrupt. 

Elder suggests that confirmation of this pattern on the first uptick of the MACD- Histogram which hasn't happend yet but i imagine will soon. And there you have it! The Hound of Baskervilles

fous,

I like The Hound of The Baskervilles. 

Do you mean just an uptick in the histogram for confirmation, or a tick above the zero line?  Thanks.

Well… the weekly chart is completely different now then 2 days ago,,, now we have a good looking hammer suggesting a reversal with a reaction on the support zone…but like I said before:
«the week is not over yet» (and what a week !!!!)

Frederick,

Boy, I'll say!

That hammer (so far) is what we were needing this week.

One session to go, and in fact a very special one: Triple Witching day…
Today is the day !

Makes it fun, huh? 

I have the bottom of the Bearish Channel/Bearish Rising Wedge coming in for this week at 1542, so at yesterday's close of 1573, we've got 31 points to play with during Triple Witching, and still be able to close the week out at/near the trendline on what would look like a Bullish Hammer, or a Bullish Doji Star.

On a rally, I'm looking at the 1628-1634 resistance area.

It isn't uncommon for Bear Channels/Bearish Rising Wedges to "morph" (change) into H&S Tops.  The neckline would be the recent lows of 1515-1511.  The Right Shoulder would be a failure near that 1628-1634 resistance area.

If that occurs, and if we then take out the neckline, that would put something like NDX 1269 IN PLAY.  I want to keep an open mind, as we all do, but I'm suspicious about this working out as well as it did in August, 2004 and again in April, 2005.

We're in the part of the four-year cycle that suggests that "Sell in May and go away" will work in 2006, so a H&S Top completion this summer, and subseqent tank, would be consistent with that.

[fous]

fous,

I like The Hound of The Baskervilles. 

Do you mean just an uptick in the histogram for confirmation, or a tick above the zero line?  Thanks.

Gotta love the hound dog

as an uptick i mean it breaking the zero barrier, we'll see how she plays out

ouch! that wolfwave would be killer! 

-fous

[Melf Elf]

Gotta love the hound dog

as an uptick i mean it breaking the zero barrier, we'll see how she plays out

Thanks, fous!

ouch! that wolfwave would be killer! 

Yeah, it sure would be.    

[Melf Elf]

I have the bottom of the Bearish Channel/Bearish Rising Wedge coming in for this week at 1542, so at yesterday's close of 1573, we've got 31 points to play with during Triple Witching, and still be able to close the week out at/near the trendline on what would look like a Bullish Hammer, or a Bullish Doji Star.

The bottom of the channel held, and we got the Bullish Hammer weekly close.

On a rally, I'm looking at the 1628-1634 resistance area.

That's a guess, of course, but that's what I'm thinking at this point.

Beazer Homes (BZH) was similarly postioned, at the bottom of its Bearish Wolfe Wave/Bear Channel, in early March, 2006, just like the NDX is now (chart below).

I'll post a current chart of BZH next, which illustrates how that particularly chart played out its Bearish Wolfe Wave pattern.

[Melf Elf]

It doesn't follow, necessarily, that the NDX will play out the exact same way as BZH, of course, but the home builders were a market leader in the recent Bull market, and its possible that they are telegraphing the future course of the NDX.   

A rally to NDX 1628-1635 area, a failure there, and a downside break of the Bearish Wolfe Wave/Bear Channel wouldn't be pretty.

Something like that would, however, be consistent with the 4-year cycle (e.g., rally into July...down into October/November), so we want to be vigilant about that possibility.

[Melf Elf]

A rally to NDX 1628-1635 area, a failure there, and a downside break of the Bearish Wolfe Wave/Bear Channel wouldn't be pretty.

It would look something like this (red arrows):

[Melf Elf]

Just when we think it might be safe to re-enter the water...

...another shark attack yesterday. 

The low in the NDX was 1543.85, exactly one point below the channel, which comes in this week at at 1544.85.  The NDX closed at 1548.94, a few points back inside the channel.

We'd like to see the bottom of the channel hold now.  Sometimes we will see a channel break...a rally back into the channel...then a re-test of the channel that holds.  The stock (or index) is saying, "Okay, that channel really is support.  I was just joking around, breaking below it."

 

BRCD did that recently, on May 22, and again on June 14.  Broke a channel on the first occasion then a trendline on the second occasion, then in each instance, used them as support and rallied.  (The jury still is out on BRCD.  It needs a DOUBLE breakout at 6.31).

If the NDX channel isn't support, and if we take out that neckline at 1511-1515...

YEEKS. 

We saw that recently, too, in GIGM.  It completed a Bearish Rising Wedge...put in the second data point for a possible H&S Top...but, never rallied to form a Right Shoulder.  GIGM tanked and hit 3 downside targets in one day, then tanked further after that, off 42% from its May 11 earnings high.

YEEKS. 

As I've said in my last couple of posts, I'm looking for at least a "Right Shoulder rally" to that 1628-1635 resistance area, but I'm also aware that a lot of other analysts are looking for the same thing, feeling that we've reached a capitulation low and that last Thursday's 200 point rally in the Dow was the beginning of a summer rally.

It better be the beginning of a rally, because the alternative (taking out that 1515-1511 neckline) could be very nasty on the downside.  One of those "NO RIGHT SHOULDER" H&S Tops, indicating that the index is in too much of a hurry to the downside to bother with putting in a Right Shoulder (like GIGM).

I'm a very weak-handed long at this point (got in and out of APPL yesterday for a paltry 1% gain) until I see that this channel is going to hold.  I got out of AAPL because I didn't like the H&S Top completion in the NASDAQ Composite yesterday afternoon (10-Minute chart), which I'll post next.

Good luck everybody.  Watch that 1515-1511 neckline.  We don't want to see it taken out.

I take that back.  Alister (Terliso) probably wants to see it taken out.   

Alister has done a great job, shorting this market these last several weeks, BTW.