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Thursday, March 19, 2009

Dark Cloud Cover On the SPX

UPDATE 10:30AM 20 Mar: As jejegig pointed out in comments, technically it isn't quite dark cloud cover. It has to open higher than the previous day. XLF did produce dark cover though as Kenny pointed out.

I use candlestick patterns often enough particularly in key situations. Perhaps today is one of those days. I overlooked it earlier but there is a classic "dark cloud cover" potential candlestick showing. Of course with candlesticks they must be confirmed by some kind of followthru action. So placing bets just on the candle can get you killed. However more often than not, they are reliable.

Stockcharts has an excellent "Chart School" and thoroughly explain chart patterns and Candlesticks. Its really my base reference.
The "shooting star" which is usually a reliable topping candle printed nicely last week and is one of the reasons I continued to go with the 5(5) down to new lows. Well, it certainly didn't work out. It got absolutely crushed the next day. Perhaps the worst violation of a nice shooting star I have ever seen.
So today printed yet another very bearish candle daily pattern. So all in all, being that the market is on the short-term overbought still, perhaps I should give more weight to the downside count of things. Particularly the "spiky" top at heavy resistance and finally a flirt with the 50DMA. Also the daily BB is sitting at 808 or so. But maybe it needs to puncture this a few times.
Also in my update tonight I was lookking at daily e-min volume which was indeed on the light side as compared to the last few days. However re-examining the SPX cash index (stockcharts dont print volume candles right away at end of trading hours) it was indeed high volume on the cash index.
I am not playing any longs here by the way (except my 401K I bought at sub 700), although I have a valid potential interpretation of the wave structure, this is new territory somewhat. So confidence is not real high that this market can get over 800 on fumes.
In fact I bought more FAZ on the 800 spike this morning and I still hold half.
I just wanted to make sure I got that out and I am giving slight odds to my alternate count as compared to the primary hyper-bull wave that eventually closes the 826 gap. So if a very bearish pullback is in order more than already occurred, 750 is a good spot for starters if 775 support breaks. 775 pretty much has to hold as support if any kind of hyper bull wave to above 800 is to occur. The wave structure would be "broken" if indeed it retraced to far. That would imply wave 2 of some sort has started down.
So 775 is a battleground area.

12 comments:

  1. Speaking of volume, it didn't look too good for the bulls in the 2 minute or 5 minute timeframe, to me. There was clear declining volume on the up moves and increasing volume to the downside. Absolute volume to me isn't as important as the direction of the volume trend, just like in the daily time frame you can see it in the smaller timeframes as well.

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  2. oh btw, on your poin about 775...by my count the june futures are at 776.50 right now. watch for a gap below 775 for a short term clue about the direction of things. but with opex tomorrow who the hell knows really.

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  3. dan
    nice work today and also all of march. love the blog setup
    linus

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  4. Dan, which minis are you looking at? The volume rolled up into I think June. So the March has had like no volume even on the way up.

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  5. I was looking at my TOS volume bars on the daily.

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  6. Thanks Daneric. All your stuff is great.

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  7. Thanks DE. I appreciate everything.

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  8. Is your primary count still in play?

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  9. I would agreee but you are just looking at the chart from a short-term viewpoint. Expand it out to the 3 or even 6 month view and you'll see an interesting development. Also, you may want to integrate some of the following facts into your analysis:a) Citi/BOA/JPM all said they will be in the black (have profits) this quarter.
    b) M2M has not been adjusted yet and still remains a potential catalyst (if only based on rumors) for a MASSIVE surge in financials.
    c) Geithner hasn't released his bank plan yet and the market hitherto is not expecting much. Again, this could backfire but given the time that he's taken so far, he will not come out with anything less than a stellar plan to wow investors/global markets/governments.
    d) A lot of new money in at higher levels with enough optimism to keep them from selling for a loss.
    E) Most importantly, with financials up ~ 60% over the past two weeks, profit taking is completely warranted and at these current levels is healthy for a more sustainable rally. Think about it, we're basically back to Wednesday's price as compared to a few weeks ago when we were hitting all-time lows.
    F) Short interest has been waning as shorts have realized that there is no such thing as "easy money" on Wall Street and thus they may be considering hopping onto the long side or just staying on the sidelines until this rally plays out.
    G) Talking heads and the president have been talking up the markets.... may not do much but is better than the converse.
    F) Since the recession started (~12/07)- our rallies have come in ~2 month cycles - we've had maybe 2 weeks thus far.

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  10. Dan,

    Thanks for your work.

    Thanks for the link to the intraday on NASDAQ too.

    I just wanted to get some clarification on the dark cloud cover.

    I thought a dark cloud cover is defined by:

    Price gapping up (opening above the previous day's high/shadow) and closing down (below the midpoint of the previous day's white candle).

    Here's a link to Street Authority's definition:

    http://www.streetauthority.com/terms/darkcloudcover.asp

    Here's a link to StockChart's definition:

    http://stockcharts.com/school/doku.php?id=chart_school:glossary_d

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  11. Jegjig, yeah it might not be. Its close though

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  12. Howdy! I just wanted to state that you definitely succeeded in building a splendid domain. Will you be so kind and provide an answer to my question. Do you plan to write as a professional or online blogging is basically just a kind of hobby?

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