Luna $ Ticks

August 30, 2008

Cross-eyed Bull

Filed under: Trading SPX SPY — moontrader @ 2:43 pm

In the last couple of weeks the market has been choppy to say the least, bouncing between extremes, frustrating bears and bulls. Rallies would last two to three days and then the gains would be lost in just one session, in what would start as a simple and healthy correction and turn into a nightmare for the bulls. Although there’s still no clear sign of a short-term trend reversal, action in the last days suggest that this short-term uptrend is reaching a critical point of exhaustion.

Last Friday’s drop is concerning, but cannot be considered totally threatening to our scenario of SPY climbing up to 132.55 until Tuesday or Wednesday, at the latest. From Friday’s close at 128.79, that would mean a rally of almost 3% in two trading sessions. Absolutely not impossible however, in my view, time is running out and the inability to reach the 132.55 level by Tuesday or Wednesday would considerably increase the chances of another leg down without new highs.

In the chart above you can see that SPY closed above the three DMA’s and MACD is still positive with a buy signal (positive delta). Stochastics %K (black line) is also in positive territory and well above %D (red line). I’m showing both Stochastics and MACD today because sometimes, when the market is trading sideways, MACD loses efficiency, which might lead to erroneous readings. Stochastics is more reliable in anticipating breakouts in sideways markets. That said, notice that Friday’s drop didn’t do much to Stochastics: it’s pointing well up.

Notice also another important thing: SPY’s low today was right on the trendline (dotted). In fact, my stoploss for the small position I got two days ago was right below this trendline, at 128.40. Everybody is talking about SPY 126.40 being an important support, but for me, the important support now is 127.70: this is where both DMA 25×5 and 3×3 will be during Tuesday. DMA 7×5 will be at 128.20 (I’m getting these values from ToS charts, since Prophet charts don’t show values ahead of time – even when I’m displacing the moving averages forward in time). For those familiar with Pivot Points, next week Pivot will be at 128.60, while the First Resistance Level will be 130.56 and the Second one 132.33 – which is, by the way, more or less my target of 132.55.

Since Friday was also the last day of the month, I thought it would be interesting to talk about the medium and long term trends. And that doesn’t look so good for the bulls at all.

The weekly chart:

Although MACD is giving a buy signal, both lines are well below zero. Stochastics is giving mixed signals though. However, most important to notice is that SPX closed on top of DMA 7×5, well below DMA 25×5, and still above DMA 3×3. Therefore, the trend is still down until proven otherwise.

If you have some doubts about the medium term trend, just check the monthly chart:

The chart speaks for itself: there’s a huge potential for a major plunge ahead. Just everything is pointing down. MACD has just entered full negative territory, just like it happened in the beginning of 2001.

In my last post, I called a Full Swing Uptrend, but I’m afraid I’ll bite my tongue. This is more like a cross-eyed bull, who doesn’t really know where he’s heading. I believe we have the potential for a rally Tuesday and maybe Wednesday, but I’ll remind you that, for me, the important resistance level is 1325. Let’s watch closely how prices behave as they near this level – if they ever do.



  1. Your charts are most helpful.

    The weekly chart of the S&P, $SPX, shows that an Elliot Wave 3 Down commenced on December 3 at 1,504.

    The monthly chart of the S&P, $SPX, showing a blue over green cross over in December 2007, called the end to investing long the S&P.

    I am definitely bearish the S&P, SPY.

    I encourage you to trade according to your comments: “The (monthly $SPX) chart speaks for itself: there’s a huge potential for a major plunge ahead. Just everything is pointing down. MACD has just entered full negative territory, just like it happened in the beginning of 2001.

    I expect things to break down on Tuesday and Wednesday as the semiconductors, SMH, and the Nasdaq, QQQQ, have given way on Dell’s slowdown.

    Comment by Richard — August 30, 2008 @ 11:42 pm | Reply

  2. FRI Sept 5th is employment report.
    According to your LUNAR Sept 2nd estimate date, It will surely work on the 5th.

    Comment by zstock — August 31, 2008 @ 2:11 am | Reply

  3. Richard, thanks for your comment pointing out that my short-term strategy contradicts my long-term outlook. But, as I said, I’m trading a relatively small amount to the upside since the risk is high, but I believe there’s still some a potential for an up move. Short term, my charts are quite positive. I think medium and long term the trend is down, but I don’t think it’s still time to short (although the moment is approaching). I know a lot of people trying to catch the tip of the peak and being whipsawed.

    Comment by moontrader — August 31, 2008 @ 8:00 pm | Reply

  4. Zstock, proportions in time would match for a peak on September 2nd or 3rd. One or two days more would change the scenario in terms of cycles. Speculating on news, what if Gustav damages are well below expectations sending oil prices down and stocks up, then employment report comes up with terrible numbers triggering a major sell off. Anyway, I don’t like to think what news would trigger what, I prefer to stick to charts. During correction times there is not much rationality. But, you know, everything is possible.

    Comment by moontrader — August 31, 2008 @ 8:08 pm | Reply

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