Wednesday, February 8, 2012

Look at this!


The S&P 500- Daily Chart
Prices should soon enter what I call the rubber band effect. Under this theory, when prices trade farther away from their typical orderly movement, a snap-back to the trading norm will occur in a similar, or greater fashion. In the recent weeks, traders have become impatient and overly frustrated with the unusual longevity of this contra-trend. To put things in perpective, I have used the RSI indicator in the chart above to corroborate the idea that something has to give. Dating back to the May highs, this particular indicator does a fine job at accurately timing each directional move. Look at the chart above to see that prices will soon regress to their mean, but do so in a violent snap back sell-off.  


The S&P 500- Daily Chart
Massive resistance lies ahead for stocks, as you can clearly see in the chart above.


The U.S. Dollar- Weekly Chart
The Dollar still remains in a corrective decline. I have used the MACD indicator on the weekly chart to better evaluate the intermediate price movement. The bearish cross does overpower signals given on the daily chart, so look for more downside. My best guess is that we further correct to the weekly trendline, establish a higher low, and resume the dollar's bull market.

The VIX- Daily Chart
This signal is somewhat pre-mature, but do take heed to the break of the declining trendline. This particular trendline reflects the short-term movement in price, so keep that in mind. It also may be the beginning of a much larger move coming.

I hope you guys like the new look,
Darah




4 comments:

  1. I see you went with Halloween colors cause this market has gotten scary stupid?

    I went back a few years on the ES and calculated how far price stretched above and below the 200ma. I calculated a peak of 1.14 almost a year ago during post QEII euphoric melt up. Similar price action in that the market just ran away. But we all know what happened in the ensuing 6 months.

    Anyway, we're just about at 1.09 today. Of course, the 200ma will move up with price, but to paint a similar picture we'd be looking at 1400+ at least before a major correction.

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  2. Hey Durden,
    You can use the correlation between the price and 200 day. I prefer to use the 50 day MA to track the intermediate term. The 200 day MA was still rising when prices consolidated prior to QE2, so technically more upside was warranted. When the slope of the 200 day began to slope down- thats when I knew we had begun the bear market. This just happens to be a larger than life contra-trend, not a new runaway move. thanks for the feedback- oh and we're not going to 1400, not until we make a lower low- mark my words

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  3. A lower low - below 1074, you mean?

    Great new look to the site. Clear and easy on the eye!

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  4. Yes, a break of 1074, then to 890-950 on the SPX. Then we begin to rally out of that next major bottom. From there we will see new highs. If you follow elliot wave- it will be a c wave down, not a 3.

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