Ready for a market charts Rorschach test? Your interpretation may depend on your point of view, though sell signals have been triggered

Here are some charts across the equities, oil and gold markets, as well as the volatility index, the US dollar and bond etf (TLT) - how you interpret them may well be a function of your point of view! One example being that we are entering a consolidation or mild correction that will be followed later by another rally leg up (and if you're really bullish, then a new secular bull!). Another being that "this is it" and it's on down to new lows. Certainly chart interpretation can be affected by one's feelings about fundamentals and the like - a type of "Rorschach" test! "The Rorschach test (also known as the Rorschach inkblot test or simply as the Inkblot test) is a psychological test in which subjects' perceptions of inkblots are recorded and then analyzed using psychological interpretation, complex scientifically derived algorithms, or both." http://en.wikipedia.org/wiki/Rorschach_test (where I also located that image, upper left, of Rorschach slide 10).

I've marked onto most of these charts some basic points about how they can be seen. One thing is for certain - many of us would like to have answers, yet the action is not definitive enough to give clear direction whether market weakness here is pointing to only a mild correction. It's similar to the comments I posted earlier about the UNG (natural gas ETF) - the market price movement looks concerning, but not technically triggered yet.

The banking index chart, upper right, I didn't add markings to, but you can see it looked like one of the strongest (if not the strongest) sectors today. I still have chart resistance marked for this index in the high $46's so we'll just have to see if it can push past that. From the Elliott Wave perspective, I don't think we can rule out its recent rise as being a "b" wave, meaning I don't think we can rule out a deeper pullback in this sector. Today's action did have relative strength but price can also be stalling out here or at slightly higher levels.

Another thing is for certain: a sell signal has been triggered for the broad equities markets, as you can tell from the McClellan Oscillator. It's something I show from time to time. At the bottom are the versions for the NYSE and Nasdaq, courtesy of DecisionPoint.com (via Stockcharts.com, you can locate there using the search box function for McClellan). As usual I added some markings - but if you see nothing else, you should notice that the Oscillator fell under the zero line which is a "sell signal." Theoretically the Oscillator cannot generate a new buy signal until it goes back over the zero line.

Perhaps the McClellan Oscillator will get support again, such as along one of the uptrending lines I marked onto it (as has happened before like back in June/July). The raw volumes, along with the Summation Index being relatively high, suggest that it's too early to call this a serious bearish slide. So I'm not going to jump firmly into the camp calling for new lows around the corner (even though I recognize it remains theoretically possible). On the other hand - I will suggest that the correction still looks like it's in the early stages here.

These pictures of the market across sectors and asset classes are telling an interesting story

As the QQQQ's continue to weaken from the 39.82 level I've described a lot lately, even the S&P 500 (SPX) looks like it isn't certain it can make 1012/1014. We have reason to think it yet may, if this morning's weakness is a small 4th wave that paves the way for a small 5th wave up in an Elliott Wave sequence. I've got some reasons to think the SPX may be in a wedge up, and the dollar in a wedge down, with some movement starting for a turn. If I'm right this should become more apparent tomorrow. I know the FOMC is next week and that could provide some reason for the markets to try to wait it out, but we should see some more clues before then. Meantime, here are the candleglance chart views across markets where you can see even the recently-strong banks are struggling. Let me tell you that GS, despite its own strength, is running into more Fibonacci resistance, and the financials are among the most active already this morning which can often be a clue too. So far, the dollar is giving signs of being willing to spring higher.

Never any guarantees with the markets but what I've been pointing out for a long time, despite the fact that it has been taking a number of days for the picture to come into focus, is that a turn can still be in the works. And I'm sure this weekend will be a great time to review again what a turn might portend. We should have more indicators to work with from the action today and tomorrow too, which should help with that. Meantime - there might be reasons to look for some strengthening again in equities this afternoon, or at least some of the sectors; so just watch your levels and indicators for the specific sectors/stocks/ETFs you're involved with, intraday today.

Charts overview intraday

The blue line is 20-day moving average, red is 50-day moving average:

If the SPX can make 904/906 a low and leave it behind, the bulls can hold on - but how long?

Pictures speak louder than words so here is an overview of how the markets are looking. As I've tweeted, the levels of 904/906 and 898 are to be watched because, as the .618 and .786 retracement levels back to 889, they can theoretically be wave 2 pullback levels for the bullish idea of more waves up. I'm not confident I share that point of view, because it looks to me like many sectors and indices are settling in for another leg down. Breaking under 898 would make it very likely I'm right on that, and of course losing 888 would confirm it absolutely. Do we get those confirmation levels today? I'm doubtful on that but will see.

As you can see, the dollar is moving up, and the VIX also. Did they finish putting in their lows? There's a good chance they have. Many traders will need to be thinking then, whether to hold or fold into the 3-day holiday weekend.

The negative skew has taken over so that the ChartsEdge weekly forecast was not able to produce a gain for any cash portfolios trying to buy on Monday and hold through today, as we are under Monday's levels. That seems bearish in and of itself. The only way I can see the bulls pulling it out is if we see a fantastic reaction today that pulls above the 904/906 level (I think that 898 would be too low, just my thought) and really looks like the beginning of a third wave up. I'm doubting that because of the ChartsEdge daily map as well as my views that I posted here last night.

The other problem as I mentioned yesterday is the VIX. It's just as likely that the 24.80 level put in the low there. Yes, theoretically equities can edge higher with divergence from the VIX, but in this environment I don't see that in the immediate future. It would have to be something that occurs after several days if not longer.

I've mentioned that trading styles differ and this week has been a classic example, as only the daytraders and margin traders have been able to navigate the choppy waves. That's why I do try to focus my comments in ways that cash account swing traders can still benefit. The market this week hasn't been as cooperative, unless you were conservative enough to just stick with the idea that the head and shoulders (and the 930.49 level) were the important picture to watch for the slower moving accounts and don't get bullish unless above 946 or of course 956. That's still a good way to go, because we cannot guarantee that 904/906 gets respected as a low with the markets pulling a bullish, big wave 3 upward out of a hat.

So as always, be careful out there, and happy market navigating!

(click on an image to see it larger)

As belief in equities markets rolling over grows, Elliotticians and other analysts more seriously debate likelihood of new lows

The movement in the S&P 500 and other equities markets today was consistent once again with the intraday map provided by ChartsEdge, as well as the projections and levels provided both by Andre Gratian as well as (separately of course) Elliott Wave methods including those of Tony Caldaro. I've provided a sketchy view in the chart at right, in which the rise yesterday would be the "a" wave of a second wave pullback up, and today's action being the "c" wave up after the intervening "b" wave down. The "a-b-c-" assuming it completed a second wave, then opens the door to a third wave down. There may be some counting methods that would look for the next wave down to be a 5-wave "c" instead of "3". For now, we've got the "max pain" numbers and overall chart positions that signal to use that the continuation move is to the downside.

What happens after that is what many are beginning to think about, and can definitely affect you depending on how you choose to posture your positions. Some people who really believe all we may see is a mild or moderate pullback, are talking about hanging long through it. That's pretty complacent for a couple of reasons! One, there are legitimate predictions calling for either a very deep pullback, losing almost all the ground gained since the March lows, or even losing that support and heading to new lows (one example being the 578-600 area I've discussed here). Two, even if there's just a mild or moderate pullback, you cannot assume it becomes the right shoulder of a bullish reverse head and shoulders pattern - people are talking about an "L" shape rather than "V" shape "bottom" that could see positions taking a loss for now, and then turning into "dead money" for months. If you have a significant possibility of seeing no upside return for months, you can even do better in an FDIC-insured CD!

Earlier today, I posted an intraday "charts roundup" at my Unbiased Trading - No Bull, No Bear, No Bias (tm) [or "UBTNB3"] blogspot so you can see how a variety of markets and indices are looking, including equities, the banks, the transports, retail sector, biotech sector, gold, the dollar and euro and yen, and oil. It's interesting to see the areas of relative strength and weakness. Also, more sectors have begun to lose their 20-day moving averages, and a few have lost their 50-day moving averages. In many cases, the move up yesterday and today is simply a retest of moving averages from below, which means those moving averages are likely turning from support to resistance.

Similarly, the VIX which broke above its downtrend channel, today tested back down to it as equities made their tepid rally. With the likelihood that equities drop into opex tomorrow, and even though there's a weekly tendency for VIX to weaken on Fridays, it isn't unreasonable to expect that the VIX will move up from that test back to the broken trendline along with equities getting pushed back from moving average resistance.

There are reports that Glen Neely of NeoWave, who has his own views about Elliott Wave, has gone public with a "public service" (publicity) press release saying the markets will roll over to new lows. Hey, welcome to the club! He certainly isn't alone in seeing that, although he's also putting himself out there firmly in that camp. Come to think of it, it's now fashionable again to be bearish, although I agree that many are only thinking of it in terms of a mild pullback. Then there are also reports that one McHugh is trying to find a Hindenburg Omen that will signal a similarly sharp, nasty drop down to new lows. In Elliott Wave parlance, we'd be thinking of that as a larger third wave down as the extended middle component of another leg down. Whether that's in a wave 5 down (as I've tended to refer to it, and also Allan at his AllAllan blogspot (in the list at right)) or a Primary wave C as Tony Caldaro refers to it in his Objective Elliott Wave (featured in the sites of interest listed at right, and links to his daily updates are in his site feed below that sites list).

Of course, Tony's OEW work allows for the possibility that the rally hasn't totally ended and that we'll see a pullback followed by one more set of "abc" waves to complete Primary B, before we see Primary C. I respect his integrity in maintaining that possibility as an alternative count. And as he points out, while we position correctly for a defensive posture for whatever level the markets seek on a leg down, we can and will be looking at the wave structure and indicators to clue us in whether or not the markets get support instead of crashing to new lows.

Others will be looking at cycles projections such as the Bradley model, Chris Carolan's Solunar calendar and similar work, as well as the 4-year cycle, Dow Theory and the like. For example, the Bradley model points not only to another set of significant turn dates into and on July 14-15, but then to the probability of equity markets rolling over to what may be new lows - or just a very, very deep correction - by the fall of this year. Of course, this is all material that we've really covered here at various times, so readers are likely familiar with these scenarios.

I've included one of my monthly charts of the SPX below - it gives a closer view of a large downtrending fork in this index. You can see that the trendline from which the SPX bounced in March will intersect with the 600 price line right about in June 2010. I've mentioned before that from a Fibonacci perspective, good times for the index to get to new lows would be either this fall (and/)or mid-2010. So it will be interesting to see if price and time get together for 600 in June 2010. Then again, more bearish views would be looking at the other, lower trendline on the fork to see if the index will dig lower to that line.

(If you look at the Xtrends website for which I provided the link at my UBTNB3 blogspot, you'll see that the index already did move under very long-term trendline support. So unless the index is ready for a very large bullish diagonal triangle upward, it would seem the long-term trendlines won't prevent another move lower. Alternatively, one of the more bullish views we can look at if and when the time is right, is that the index completes whatever wave 5 or wave C lows it needs to complete, and then is finally ready for a much more bullish huge wave up whether that turns out to be a diagonal triangle or a huge "flat" wave B that could theoretically retrace 90% back to the all-time highs! So it's quite possible for the index to surprise many with new lows, and then turn around to surprise many with a massive rally.)

Scary stuff folks! Which will provide a great basis for deeper review once again this weekend! But first, we've got to let the week play out and get through opex Friday. So have a great evening all!

Inclined to see channels and wedges in equities indices? It isn't your imagination

Since I noticed a number of narrow price channels and similar formations appearing in various indices, including small wedges that might (stress: might) be diagonal triangles, plus a few small standard triangles that have led to corresponding moves up, I decided to pull and mark these on a number of charts. Here's the result, below. So if you also have been inclined to see these, it isn't your imagination. Some of these are "inclining" more than others, but in each case the big question is whether these are ending formations signaling the type of trend reversal that we and many others have been watching for. Without dissecting the internal subwaves on hourly charts, or even cross-referencing to other technical indicators, one easy way to see if trend reversal sets in will be whether and when these index prices break below the lower trendlines I've marked on these charts.

As an aside, I do like the relative strength appearing in the biotech index ($BTK, shown as a standard full-size daily chart below). So I am staying in, but have decided to move my stop to yesterday's low just to give me some more peace of mind about staying in at this point. And then there's TLT ... a lot of volume yesterday and today. Today can be interpreted as a bullish engulfing candlestick. So just maybe, finally, it's time for TLT? Once again, most investors and swing traders should allow it a bit of room to confirm a trend reversal pattern before just moving in. Those interesting in trying it a bit early can wait and see if it moves - and especially looks set to close - tomorrow above today's high. If so, tomorrow could be used as an entry day, with a stop at today's lows (and then moved to tomorrow's lows).

Something I don't like the looks of - RTH, which looks bearish to me; see its standard daily chart at bottom. Not in a channel or wedge, but just looks like it is breaking down. I may initiate a short in that sector, and the easy way to set the stop for that is at yesterday's high ($81.94 in RTH).

**UPDATE 6:38 pm - Check out Tony Caldaro's update this evening at his Elliott Wave Lives On site (link is in the "other sites of interest" at the right side of the page, plus his site feed is underneat that list. Andre's subscribers also have some interesting updates (as always) too.
And yes, SPX did reach the 953 number I was interested in. There does remain another at 963, so we'll see whether or not it wants that one too, or does it decide to break trendline support instead.

(click on any chart to see it larger)

Quick snapshots across markets this morning

Oil and bonds are at new levels, and SPX is trying to; other markets are not looking at new extremes at this point (click on any image to see it larger):

(yes, this is a challenging format for really showing a lot of charts!)

One quarter after the March lows - a feast of charts with a little something for everyone

We've made it to three months (approximately 90 days - a Fibonacci and Gann time frame) from the March lows, so let's celebrate with a feast of charts and an overview of where we are! Not only is this one-quarter of a circle turn from then,* but the March lows were about 1.382 year from the October 2007 peak and currently this is about 1.618 year from that same peak. We'll have to see if this turns out to be a turnaround Tuesday (although maybe that's supposed to be next week), but with rollovers setting up and "Weird Wollie Wednesday" tomorrow as folks start to reposition for next week's options expiration (opex) we should remain alert. We're tickling some projection numbers that Andre Gratian has and, separately, that Tony Caldaro has, as well as Fibonacci levels that I've been noodling around with on the daily and weekly charts. The Nasdaq appears the strongest of the major indices, most of which are struggling with their 200-day moving averages, while the Dow Industrials and Dow Transports still haven't surmounted their January highs. The banks are still with us, although grappling with their 200-day moving average and haven't pulled up out of their swoon since a failed breakout attempt a couple of weeks ago. The financials are in better shape, which should be comforting at least to those on the Street! Oil's continuing to probe upward and we should know soon whether it's just a last small 5th wave for this rally leg, or if it just refuses to trend reverse and keeps marching to $85+ as some expect.

*Update at 11:46 pm: note also, SPX has moved up three times 90 - from the low at 667 to 757, 847, 937 in this time.

U.S. Treasury bonds and notes continued pushing into my targets today, and this is the first time that I could consider that the last 5th wave of the movement may have finished. With a doji candlestick on the day, maybe we'll see tomorrow move above today's high with a possibility that it's time to buy them again. Corresponding movements occurred today in gold, the dollar and other currencies - so it depends whether you are bullish or bearish on those assets, whether you consider that just a pullback before continuation with a trend reversal (up for the dollar, down for gold and other currencies).

On the daily SPX chart, I started marking horizontal lines for support/resistance areas, and then vertical lines to mark off monthly time periods based on the 6th to 9th day since there's a hint of pattern with highs/lows. Didn't mean to go too far with it though. The other charts below, the indicators pretty much tell the tale. Nasdaq definitely stronger, while other indices that (unlike Nasdaq) had made higher highs after the year 2000 are looking weaker. The technical levels in some cases show relative strength compared to the year 2007, so you decide whether that means the rally continues on up or that the market's overbought and in need of correction. Maybe some of both. Even if we do see new lows, I'm guessing that the relative strength in some of the technical (advance/decline) indicators is telling us that the next rally after that will be an even better ride.

Sentiment still seems rather hot to me, so I'm counting that in the bearish column right now along with negative divergence in some of the indices' indicators as well as the bank sector's sluggishness. The CPCE chart, I put onto a longer time frame so you can see that it's recently been starting to zigzag up to its 200-day moving average. I'm thinking that if CPCE starting doing its zigzag by pushing up and bringing its other moving averages with it, accompanied by a move up in the VIX, should clue us in about a pullback coming. So many are looking for "the pullback" once again, and there's a lot of hope that it's going to be the right shoulder of a bullish head and shoulders pattern (whether it's considered a B-wave pullback, wave 2, "W" bottom, or whatever they have in mind). If indeed the market does cool off and roll over, I just hope my readers will remember that those ideas are possible. But not guaranteed; meaning, it's also possible that we see a retest of the March lows that fails and tests lower (yes, I'm still thinking about 578-600 in the SPX).

What about not a pullback, or not a meaningful one, and the market just shoots on up? You might be seeing that if you have your green shoots glasses on! Hey, in theory anything is possible, but let's just say I'm not going to chart that out unless and until the Dow Industrials and Dow Transports both exceed their January highs. I'm not old-fashioned enough to be simply a Dow Theorist, just pointing out that sometimes the "old school" ideas can keep us grounded.