More Volatility

After long periods of quiet market action, equity markets have come to life, providing newfound riches to active traders.  After dropping 16.15 points (SPY) last week, closing the week at 258.05, stock markets soared on Monday, rising more than 7 points to 265.11 on to give much of that back today, with the market closing at 260.76.

 

On a positive note, SPY continued to hold the 200 day average.  For many, this is significant so if we break below, we could see a waterfall event bringing price down to around 250 and perhaps even lower.

More details as we progress during the week.

 Another positive sign is a short term stochastics indicator.

On the bright side, this indicator is starting to turn up.  But it will need to go a bit higher before market players will take serious notice.  Usually a break above 20 can bring in buyers.

Stochastics is an indicator that looks at the ranges of the highs and lows for a recent period of time and shows were the current closing price is in relation to that range.  A rising indicator shows momentum building.

On the negative side of the equation, short term volatility is increasing.

When this SIZE indicator is increasing, you need to stay with the trend, which for the moment, is down.  When this indicator reverses, it is often a good signal to enter the market as the strength of the trend is starting to diminish.

Overall though, I continue to look for opportunities to build a position in anticipation for a possible rally to the highs, as soon as next month!

The monthly chart shows how I expect this to play out.  January marks the closing high point.  February was lower and March is a good bet to close lower yet.  But I expect that come the end of April, prices will try to move above January's high.  If it does, we can expect the market to continue on to much higher levels.  If we fail to make a new high, on the close, then I would be positioning for a decline, possibly very significant.

Currently, I have several positions working for me.  As the market has been volatile, it has provided good opportunities to buy call options, for possible moves higher, and put options for possible moves lower.  With the level of volatility we are experiencing, if one is paying attention to the squiggles of the market, it's possible to take positions at good prices, for both market directions.  And the kicker is, no matter which direction the market moves, if volatility is high enough, one could profit.  More on these details in the future.

Bottom line here, as SIZE is increasing, I expect lower prices in the near term but expect to test the highs next month.

Market Prices Fall

Markets fell sharply this week.  SPY, an Exchange Traded Fund that mimics the SP 500 index, fell 16.24 points (-5.92% on the week).

While the downturn appeared severe, technically, the damage appears minimal so far with support coming in at the 40 week average, just as previous downdrafts did.

For trend buyers, buying at or below a chosen long term trend is a good strategy.

From a cycle perspective, the timing of this decline is similar to the previous decline.  Not to say that the decline is over, but Size, my view of volatility over the past 20 week period, continues on a downtrend and is easing to the moving average.  Further declines and an increase in this indicator would push me to reevaluate my current thinking, that we are at or close to the bottom of this wave.

On Thursday and Friday, I began purchasing call options.  On Thursday, I purchased options with an early May time horizon, anticipating that SPY will make a three-month test of the recent highs.  The test occurs at the end of April.  Throughout this bull market, prices easily cut through the previous highs.  Not saying that this is what I expect, but I am positioned for it.  Should price meet with resistance and it fails to make new highs, at that point, it would be a good time to begin positioning for a downturn.

Analysis, that I will present at a later time, shows that the wave 5 can run for quite awhile, like longer than a year.  More to come.

Markets Soar

Markets surged this week, quickly rebounding from last week's sudden melt-down after the UK populace voted to leave the European Union.  While US markets fared well, with the Dow and SPX rising more than 3%, bigger gains came in most European shares.  Latin America shares also outperformed.

The star of the week though was Silver, which soared 11% on the week.  Silver also starred on the monthly returns list, rising 17%.

Notice the stellar year-to-date returns for Silver and silver and gold mining shares, Silver Wheaton (up 99.5% on the year) and Barrick Gold (up 200% on the year).


STOCKS REBOUND

Surprise, surprise!  Another V-shaped rebound.  Just look at past attempts of the market to sell off.  Each time, markets quickly rebounded and climbed back to the highs.  It was clearly evident last week when after the Brexit vote, it was immediately announced that the ECB (Euopean Central Bank) would add 250 Billion Euros to shore up the system.  I.e., more quantitative easing.  Other central banks also added that they were at the ready to print more money.

I had recently provided a story about how the hacker group Anonymous had hacked into Federal Reeserve systems and found that the Fed owned more than 50% of many large US corporations.  I have seen no additional news regarding this nor had Anonymous, to my knowledge, released the files that showed this.  Yet it's not surprising that The US Federal Reserve would be buying stocks to "stabilize" the market.  Other central banks have released information showing their US stock holdings so why wouldn't the US be in the lead on this?  Even if the US Federal Reserve is not holding large stock positions, other Central Banks are and of course, they are too "SYSTEMATICALLY" important to allow their assets to fall.

Well, perhaps this game is over.  And the sudden surge in SILVER could be the evidence.

SILVER SURGES

The breakout in silver was as unexpected as ever.  Many have suggested that the prices of gold and silver have been manipulated in the futures markets where institutions sell futures contracts to artificially suppress prices.  This can be easily accomplished in the futures markets since seldom does delivery of the actual physical commodity occur.  And, should anyone actually try to corner the market and buy more silver and gold than is available for delivery, the contracts may be settled in cash.  As a result, the laws of supply and demand go out the window since supply can be created just like our paper money is created, with a key stroke.  There is nothing real that supports it.

It will be interesting to see how far the silver rally can go.  Many have felt that silver and gold prices were suppressed so that people would continue to have faith in the paper fiat currencies that we use.  Surging metals prices would indicate that people are losing confidence in the fiat system

So where might silver go?

This chart is a weekly chart of paper silver (SLV) if you wish to trade it.  We can see the multi-year selloff after a big run-up.  Included in this chart are Fibonacci retracement lines.  After a move, traders often refer to these Fibonacci retracement levels to project where price might go.  Common retracement levels are 38%, 50% and 62%.  There could still be some decent trading profits to be made should these projections play out.

Then what?  Some believe that prices will then fall back and even hit new lows.  They believe that we will be experiencing a long period of deflation, similar to Japan, whose economy has stagnated for 20 years already.  Others believe that the massive amounts of money printing that have occurred will cause hyperinflation.  Perhaps we are already seeing signs of that in the food we buy.  Hey, even prominent fast-food burger joints are using "sawdust" as filler in their burgers.  Certainly my 1/2 gallons of ice cream are no longer 1/2 gallons and even my one pound package of hot dogs are now shrinking to 12 ounces, although the price remains the same as the one pound package (in better days).

The government cannot show that there is inflation as this would result in higher interest rates, higher social security payments, etc.  With the US debt at $19 trillion, interest rate shocks would certainly cause a lot of pain for the government (and taxpayers).

The deflation story also used debt levels as a cause.  We've all learned early on that when you borrow money to buy something today, you are borrowing from the future.  In the future, you will have to pay back the loan.  So with governments borrowing so heavily these days, we are consuming today what we would have in the future.  Therefore, there will be little growth.  Another cause for deflation is demographics.  As the populations of many developed countries decline and the birth rates slow, spending cycles will decline.  That makes sense.  If we build enough houses to suit the baby boomers, when they die off, will there be enough people to sell these houses to?  Not if the future generations are smaller than the previous ones.  I think that this might be one of the reasons why the government is so pro-immigration, even if it is not done legally.  We need more people here to be working and paying taxes to support the social security, medicare and other benefits to the elderly, who are living longer than ever.

Whatever happens, I believe that the massive amounts of money printing that have taken place over the years provide reason enough to be an aggressive buyer of precious metals.

WHAT ABOUT STOCKS?

Looking at the totality of the market move since 2009, we can see that if markets are topping now, the Fibonnaci retracement levels show the potential for pretty good downside moves.  Again, we are talking 38%, 50% and 62%.  Such moves are unheard of for many people but these are normal market moves.  Could it happen?  Yes.  Will it happen?  ???  Someday.

While we have made a huge move, a move that has been largely supported by central banks around the globe printing more and more money in an attempt to make their economies more competitive.  It is truly a house of cards.  But even as I say that and continue to position myself for a major move down, it's possible that the game can continue with higher prices still.  This past week, the European Central Bank indicated that it would continue to print even more money and buy securities in the European markets.  Japan is all in on this and many suspect that even in the US, the next move by the Federal Reserve will be to lower interest rates and do more quantitative easing.  Certainly this will catapult market prices even higher.  Where else can the banks go with the money in a world of negative interest rates.

As mentioned last week, I was eying EWL, a Swiss stock fund, at 28.  I bought it there and it nicely rebounded along with other European stocks.

I also jumped on Royal Dutch Shell (RDS.B)  Wanted to get a piece of the oil game.  Both did well on the week.


Next week, we will get the jobs numbers on Friday.  They tend to be meaningless.  If they are weak, it will just support the current thought that interest rates will continue to go lower, even negative, in the near future.  This will cause stocks, bonds and precious metals to continue rallying.  Bad News is Good News.  And even if the jobs numbers are good, the feeling is that the Federal Reserve will use the turmoil in Europe as a reason not to raise interest rates this year.

So might as well play the game for as long as it lasts.

OK, You Voted Your Desires, Now Get Back "In Line"

Friday's dramatic market moves are totally baffling considering that the Brexit vote, which markets had been trading off of for days now, is really irrelevant. 

It wasn't too long ago that the same thing happened in Greece.  The people had a chance to break away from the bondage of the EU and ECB and voted for it.  Now their punishment for disobedience has only increased.  When will they ever learn?

I can't believe that the UK will ever have the opportunity to break away from the EU and the power behind the curtain.  Consider that to even begin taking steps to move forward in this direction, it will have to wait for three months until David Cameron resigns as the UK PM and someone new comes in.  THEN, they will have TWO YEARS to put things into motion.  And then how much longer after that to establish the actual dissolution?  I doubt if I will even be alive then to see it, should it actually occur.

In the end, the bankers always win.  Even as the markets were being rattled, what was happening behind the scenes?  Central bankers were nimbly creating billions and billions more of fiat currency to provide liquidity in the event of margin calls.  And with interest rates very close to 0%, it's no problem to just go to the reservoir and borrow more free money to cover your losses.  After all, even if the markets should continue crashing, it's almost a certainty that the famous V-shaped recovery will again come in to save the day. 

So I can't see any real reason why the markets would crash, unless the powers behind the scenes Will It.  The UK vote is Non-binding.  It's just one of those "bones" us minions are thrown every now and then to appease us.  Even here in the US, the recent Primary season let us know the truth.  Voters don't nominate a candidate, the party does. 

****************************************

For the week, US stocks were down slightly and remain negative for the year.  European stocks, generally represented with EAF, was down 5%.  A closer look at country funds within the EU showed considerable damage to the weaker members, Italy and Spain. 

Precious metals again rose but as I had mentioned in other social media outlets last week, Silver looked to be hitting resistance.  I expect it to trade between 15 and 17 on SLV, offering some trading opportunities for those who have been accumulating positions at lower levels.  As prices surged above 17 on Friday, I sold some 17.5 call options in July.  Price couldn't hold the 17 level and fell back. 

The 15-17 trade range is clearly seen here.  Often, trading patterns are symmetrical.  We can see that the SLV price traded between 17 and 15 from September to the following June, nine months.  If we continue this pattern, it's possible to see silver trade sideways until early next year! 

But with the printing of hundreds of billions more dollars and Euros, and the potential for QE 4 in the US, I'm only selling options on 10-15% of my total position. I will be aggressively adding more physical silver and SLV to my portfolio as we test the rising trend lines.

**************************************************

We can see the dramatic fall in price on Friday, and on big volume.  We have to wait and see what happens starting Sunday night when the SP futures open up, along with foreign markets.

It could be that the rally from early February was just a rebound from the big move down that we saw at the end of the year and now we could be headed down further.

Many are predicting a big move down but I'm not so sure.  The weekly chart shows that we just coiled sideways after rebounding from the Jan lows.  Normally, this type of action is very bullish and I would buy the trendline. 

I did sell some of my position in SDS (this is an Exchange Traded Fund that moves up 2% for each 1% that the SPX moves down).  But I only sold about 20%.

I added to the "bearish" position on Wednesday when I read in ZeroHedge the reason why the odds on the Brexit vote changed so much.

It appeared that after one British politician was assassinated, the atmosphere about the UK leaving had changed and that Remain was taking charge.  This was spotlighted with massive coverage of the Odds.  Apparently, there is big time betting there on political outcomes.  Suddenly the odds had changed, in favor of remain.  Markets across the globe began rallying and the US market came within a heartbeat of new ALL TIME HIGHS!  but a closer read into the ODDS which appeared to be driving the market showed that 75% of the bets made were for LEAVE while only 25% of the bets were for REMAIN!  Those that were betting REMAIN were betting big!  Big enough to considerably change the odds.  But unfortunately, when it comes to voting, the vote of one rich man equals the vote of one regular guy (at least in theory).  THOSE DOGS I exclaimed, they are rigging the markets by reshaping to odds.  I immediately increased my Bearish position.

************************************************************

So I might do a little buying should the markets continue to tank next week.  I was looking at some of these European Exchange Traded Funds (ETF).  I get it that fundamentals have been deteriorating for years now.  I think that the markets have every reason to go lower, even by 30% or more, and that wouldn't be abnormal.

I'm interested in EWL, the ETF that covers Switzerland.

I want to see if it holds this 80 month trendline at 28.  It pays a 5.6% dividend.

We shall see how the markets play out in the coming weeks.  On one hand, I see that any violent sell off will be quickly bid up.  There's no doubt in my mind that Central Banks around the world are big owners of stocks in the US market.  This has more or less made the US stock market TOO BIG TO FAIL.  Central Banks just have too much skin in the game at this point.  If the markets really fell to where they should be, currency systems around the world would become insolvent with only gold and silver benefitting.

So with that in mind, I'll be picking up bargains, if I see any.  Good luck.  Should be exciting times coming.  But in the end, remember, it's all fiction.  If the UK does leave, it won't happen for at least another 4 years.

The Top is In !!

 

Surely you are laughing at the headline, The Top Is In!!!  But in my work, it's worthy of adding to my Two Time down position on the SP 500 (ticker SDS). 

Failed three period tests normally indicate a top or bottom but in this crazy world of Fed manipulation, can anyone actually make an accurate prediction?

Sure, the guys (and gals) working at the Fed trading desks.

But today's action, a sharp rise that occurred when one of the Fed Presidents, Bullard, famous for several previous Fed rallies, got on tv and jawboned the market.  Don't quite know what he said as that's not as important as the SP failing to take out the high set three days ago.

Supporting my call is declining momentum in the 20 day moving average.

 
 

This indicator actually provided me with a great buying entry point.  Notice the underline at the three period test of the low.  Now we see, that while the moving average is still positive, it is now losing steam and a significant down day would push it back into negative territory.

 

A review of other world markets show that many of them are already down significantly from recent rally highs.  Just the US continues to maintain so well.  Whether it is because the US is the cleanest dirty shirt in the hamper?  Or if it's Fed manipulation?  Or what?  It's no secret that corporate earnings will be down this year and even GDP will be lucky to eke out a positive number. 

 

Oh yah, the market looks out six months ahead.  So if you believe this market, you can be expecting nice raises and great job offers allowing you to cash in on the growing economy.

 

Well, if you don't agree with that, perhaps it's time to lighten up significantly on stocks.  The next move down is sure to be a doozy.  Don't leave your accounts unprotected.

Goal Seek Mission Continues

Nothing new to add from my last post.  The goal-seek to the channel line continues after Fed confirms what many have been thinking all along - The Economy S#cks and that a return to zero interest rates or more QE might be coming.

Momentum is picking up here but will it break through the downward sloping channel and make new highs?  A review of other markets around the world suggests - NOT.

Stocks "Goal-Seek" Channel Top

Stocks continued to advance for the fifth straight week.  The Dow Industrials led the way moving ahead 2% on the week.  SPY, the ETF that replicates the Standard and Poor's 500, appears to have lagged but when adding back the $0.80 price reduction for ex-dividend day on Friday, it managed to advance 1.2% overall last week.

In my last post, I suggested that we might be seeing a top as 1) the 202-204 price gap on SPY was being filled and 2) some price derivative indicators where giving signs that a reversal might occur.  Yet the market continued onward.  From closing lows, marked on February 11, the Dow has advanced 12% and the SP has advanced 11.76%.  Gold and silver have done nothing in that same period and 10-year and 20-year government notes/bonds, as reflected in IEF and TLT, have posted negative returns.  For the year, Gold and Silver have led the charge while stocks continue to post negative year-to-date returns.

Price on the SPY appears to be dead set in reaching the upper channel line as illustrated above.  The move however defies my momentum indicators which show the price should begin reversing.

The chart above is the weekly measurement of the Size of a 20-da standard deviation.  As price rises, one needs to stay with the trend as price is rising faster than the moving average.  When Size reverses, the generally indicates that it's time to exit the move.  I can't recall ever seeing a Size chart that looks like this though.  Size generally is cyclical and doesn't show waves higher or lower as we see in recent weeks.

For those who follow waves, the recent series of A-B-C down and now an A-B-C up, might be of some significance.  In the end, it just goes to show that nothing works forever.  But keep in mind, I developed this method back in 1988 and it seemed to have worked well for almost 30 years.  So the dynamics of the markets are changing.  It is no longer a secret that Central Banks are now active in the world equity markets.  High Frequency Trading, Spoofing, low volume and other elements really make it hard to be in the market any longer.  Rather unfortunate. 

Another chart that needs to be seen is the weekly standard deviation chart.

This chart has been respecting the upper trend line but now we are right at the top.  Will it break out?  Not sure, without further analysis of that specific indicator. 

I could say that it is more evidence that we are topping, but in this new world of continued low rates in the US and negative rates elsewhere, the free money must continue to find a home and the US is the best place, or so it seems.

Still, as mentioned in my last post, I added some SDS (double SP short) to my account and will stand pat as we test the 207 channel.  Not sure what I will do then.  Quite frankly, I grow bored with these one-way markets.  Five weeks now more or less just in one direction, zzzzzz.

Best of luck in your trading.

Rally Continues

Stocks continued advancing this week with SPY rallying above 202.  There has been little to add to my previous commentaries as it appeared that the next two price objectives would be closing the gap that is seen between the 202 and 204 price points.

The gap appears at the start of the down move, at the beginning of 2016.

Could be that once that gap fills, the market might begin retracing the recent up move.

The next price level would be seen at 207.  That would provide major resistance as the daily close price channel appears to be well defined with the upper limit confined at the 207 level.

Huge Upside Day for Stocks

Big day in the market today with prices surging over 2%, across the board.

As mentioned last time, it appeared that SPY could surge as high as 207, another 9 points but there is some strong resistance overhead.

As seen here, there is apparent resistance around 200.  Should SPY surge beyond that, there is yet another target before 207.

Notice the "gap" from 202 to 204 occurring when the downtrend began.  This would be a likely "next" target should price break above 200.  Definite point to position yourself for some downside move.  Hard to say how low the next downtrend will go.

This could merely be a very sharp rally in a bear market, as many are predicting.  As we know though, when too many are calling for the same outcome, the masses are usually wrong.  I was very skeptical when sentiment turned bearish so quickly.  That got me thinking that we could possibly go to all time highs.  Anything is possible. 

Market Rally Continues

The market continued rebounding this week with major averages rallying briskly.  SPY closed up more than 3 points on the week, 1.6%.  Gold eased slightly but silver melted down more than 4%.

I mentioned last week that the 20 day average could provide support on the downside and that is exactly what we saw.  The market dropped to the 190 level but then immediately reversed and began the next move up.

While the market turned down on Friday, it does appear that this action was merely testing the breakout level of a possible reverse head and shoulders chart formation.

While my line drawing is crude, it does appear that on Thursday, price closed above the line connecting recent highs.  This line had previously served as a resistance level but on Friday, it proved to be support.  If this is true, then one can expect price to continue rising about 12 more points, or up to 207 on the SPY.

*************************

WEEKLY VIEW

The weekly bar chart shows price continuing to rise to the trend line.  The Stochastics indicator on the bottom of the chart shows that momentum continues sharply to the upside, indicating further positive price movement.

One of my derivative charts also lends support to the continuation of upward price movement.

This chart reveals the weekly change in the 20 week moving average.  If you see where I drew the red line, observe a three week test of a low point in this indicator, implying that next week, the indicator will move higher possibly into positive territory, meaning that the moving average, after falling since last August, will now be rising!  Is it the start of something bigger?

Most everyone is on board for a continued move down.  At the moment, the only indicator that I have that shows that the downtrend might resume is the Size indicator, or my measurement of volatility.

As mentioned, the rule is, as Size increases, stay with the trend.  But as mentioned above, the trend might turn as soon as next week.

Fact is, I've never seen size this large.  My current weekly data covers some four to five years.  While the number, 8.31, is the largest, in percentage terms, Size as a percentage of price, is starting to go down.  Two weeks ago, Size, as a percentage, peaked at 4.35%.  It reversed the following week to 4.29% and this week, it closed at 4.26%.

Here's what that chart looks like.  The previous peak, at 3.69% occurred during the August meltdown last year. 

So as an aside, it's interesting to note that the VIX index, an index of volatility based on option prices, does not reflect this increased volatility.

What does this mean? Imply?  Could be that options are cheap compared to the amount of risk that's currently in the market.

In summary, it looks like prices will continue higher, based on the breakout and test of the inverse head and shoulders formation and the change in moving average graph.

Market Rebounds

Stock markets surged this week, recovering from oversold conditions.  Silver and gold backed off from recent gains. 

Markets seem to still be under the whim of Central Banks, their actions and statements.  Many experts believe that the world-wide economy is nearing or actually in recession.  While the job reports continue to reflect increasing employment, doubt lingers regarding the quality of these jobs as well as seasonal adjustments, which add or subtract from the real numbers based on historical factors.

It's easy though to be convinced that economies are terrible and the markets have nowhere to go but down.  I, for one, have been seeing signs of deterioration all the way back to 2005 when pundits cheered the weakening economy since it led to lower interest rates and home refinancing and wealth harvesting was all the rage. 

This long term chart illustrates the 10 year interest rate.  Yes, over the past 10 years and actually, much much longer, interest rates have been falling.  These falling rates have added to market momentum but how much lower can rates fall?  And more than that, what do falling rates actually reflect? 

I left the financial planning/money management industry years ago when it was clear that markets were being manipulated and that there seemed to be no real place for individual investors in these markets.  Most cheered as they viewed their quarterly investment reports seeing that everything was going up.  But that means just one thing to me, and that's the flip side of this.  When things start falling, everything will be falling.  There will be no place to hide.  It's not rational that both stocks and bonds rally to their highs at the same time.  A strong economy will reflect high stock market prices but also, the demand for money will increase, causing interest rates to rise and bond prices to fall. 

When we see both investment areas at their highs, one has to ask, which market is telling the truth?  In the past, the sheer size of the bond market would prove that the bond market is the true indicator of what is happening.  Low interest rates and high bond prices reflect just one thing, weak economies and a lack of demand for money.

This chart shows the daily price of TLT, an ETF that allows the investor to trade the 20 year bond.  Observe what happened last week when the market was falling.  Bond prices surged even though they are already at very high price levels.  The spike we see shows that the US bond is the global catch-all of money. 

The upward trend of this instrument, to me, reflects either a flight to safety as many expect the stock markets to continue to decline, or a reversal of central bank policies and either a hold on the Federal Reserve raising interest rates any further, or the Fed eventually moving to Negative Interest Rates, similar to what other central banks around the world have been doing.  Bonds rise when interest rates fall.

So, where does this all put us with the stock market?  First of all, let's look at the long term chart.

Price continues to fall however at the end of last month, it appeared that we tested and held a previous low level.  The stochastics indicator, at the bottom of the chart, shows momentum is moving to the downside.  I've noted in the past that each time we touch the 40-month moving average, the moving average in this chart, the market has held support and rallied.  So for the long term, I still believe that it is prudent to buy at or below this trend line. 

Should SPY end the month up, it will appear that we have formed a monthly base.  That would be fairly compelling to be invested in this market.  I would also be looking at my various indicators to add support to this call.

On the weekly chart, we see support holding at the trendline, however, it appears that we are merely bouncing with some very strong resistance coming in a few points higher.

This chart, which illustrates momentum, is still rising.  The rule remains, as the momentum increases, stay with the trend, which on the weekly basis, remains down.  So this is a negative and a reason to be cautious.

On the daily chart, one could expect that prices will move to the neckline shown, a couple of points higher than the current level.  This will be important resistance.  On the surface, I would expect prices to fall from that level but how far it will fall is anyone's guess.  I'd still go with the 40 month moving average as support.

If you notice the 20-day moving average, it is now moving higher.  We will have to watch this more closely to identify a change in trend.

We identified, early on, this change in momentum.  I underlined the successful three day test of the low on the moving average change chart.  Yes, that was a significant turning point marker.  The average change in the moving average trend is up and breaking into positive territory. 

In summary, we need to see what happens at the 195 level, if that level provides strong resistance or not.  Then we see how price moves against the 20 day moving average, whether that will now provide support.  While next weekend doesn't quite market the end of the month, there will be just one more day left, Feb 29.  The monthly view may shed more light on where we will be moving for the long term.

And of course, watch for jaw-boning by the Fed or other central bankers, to get the game going again. 

Time For a Bounce?

The market fell today with SPY, a ETF proxy for the Standard and Poor's 500 index, fell 1.51% to 187.64.

I had been anticipating a harsher sell-off, testing the lows seen last Wednesday but the selling was moderate.

This is a common formation in my analysis.  I am always looking for 3 period tests of various time frames.  This is not to say that sometimes it doesn't go to four periods.  Or sometimes, the desired formation does pan out at all.  But as a trader by nature, I am always looking for some kind of pattern that I recognize to give me confidence to enter a trade.  Today's move gives me some confidence, on the short term. 

Should the rally begin, I would expect price to pierce the 20 day moving average, just as it has been doing during the past rallies.  Price could rise to 195-196.  Where we go from there, who can say? 

This indicator, which I call Size, appears to be reversing.  Still it's at a very high level but the reversal signifies that price will probably regress to the mean, which in this case, is the 20 day moving average, shown above in the price chart, and the target for price to move.

Another view that is of interest is a longer term daily line chart.

While it may not be too obvious what I am seeing here, price came down to the neckline and held above it.  A breakdown below this line will result in quite a nasty down move.  The target low should this occur would be around 160, or about 15% lower from where we are now. 

So the rule to follow in a downtrend is to sell the trendline.

Important support levels will be watched for over the next two Friday closes.  This coming Friday, the last trading day of January, I'll be looking for a Four Month test of the August low at 191.61.  The following week will be a three week test of January 15th's close at 187.81.  If we maintain support over these next two weeks, a substantial rally could happen.  But for now, longer term trends are pointing lower and frankly, should we get to 195-196, I'll be adding more Puts, expecting the market to break through the neck line and head for the 150 level.  I'll be buying more time, probably buying June or September puts.