An Intraday Internals View on the 1,150 Level in the SP500

Jan 19, 2010: 1:17 PM CST

I’ve been discussing the importance of the 1,150 level in the S&P 500 as a key boundary between bull and bear, but now let’s step inside the charts and inside the market to look at a few key market internal indicators as we again challenge that level today.

(Click for full-size image)

What I’m showing is the pure price action (with 20 and 50 period EMA) on the 15-min chart.

The indicators are as follows:

First Panel:   The 3/10 Oscillator
Second Panel:  NYSE TICK
Third Panel:  NYSE Breadth (Advancers minus Decliners)

In the chart above, I’m highlighting oscillator and internal divergences with price, which have been quite helpful in anticipating market turns in both directions.

We’re seeing a slight oscillator and TICK divergence as we plow into this level yet again on Tuesday afternoon, which is not what bulls want to be seeing.

We see that the 1,150 level is important resistance, as described in the following prior updates:

“Why the 1,150 Level is Important Resistance”

“SP500 Breaks Rising Intraday Power Trend” (then regains it!)

“SP500 Hits Monthly Resistance… but Will it Hold?”

A break above 1,150 would be very significant and would likely lead to a quick short-term ‘pop’ to the upside due to the ‘pocket’ of stop-losses from the short sellers (which would be defined as a short-squeeze).  Be ready for this potential outcome.

Otherwise, if resistance holds, then look again to lower support levels as we continue in this short-term trading range between 1,132 and 1,150 at new recovery highs.

While potentially very profitable for intraday traders, this has been an absolutely frustrating last few weeks for most swing traders who are getting chopped in both directions.

Keep a watch on internals, as we would want to see new highs in market internals to increase the odds for a breakout above the 1,150 level.

Traders of all timeframes are watching this development very closely for any sign of continuing strength or emerging weakness – stay on guard for any resolution here.

Corey Rosenbloom, CMT
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Bull Flag Formation in the US Dollar January 18

Jan 18, 2010: 4:49 PM CST

There is a distinct possibility that a Bull Flag pattern formation is setting up currently in the US Dollar Index, and we should know for sure by the end of next week if not early into the following week as to whether this set-up will be confirmed (triggered) or not.

Let’s take a quick look.

Starting with the December lows of $74.50, a $4.00 impulse formed which took price to the $78.50 level.

Now, price has retraced $2.00 to the support level at $76.50 (50 day EMA) and now appears to be mounting a move that could take price to the upper “flag” target at the $80.50 level (add $4.00 to the likely flag low at $76.50).

A similar surge in the US Dollar would be seen as bearish for gold and crude oil prices (in fact, gold prices appear to be forming an opposing bear flag on its daily chart).

I just wanted to highlight this potential quickly, and note that a move higher than $77.50 and especially $80.00 would confirm the bull flag pattern and the expectation for a move to take price to the $80.50 target.

However, a move from here that continues to swing downward through the $76.50 support area – and especially beneath $76.00 – would undermine and invalidate the flag pattern.

Even if you’re not trading this, it should be interesting to follow in the week(s) ahead!

I discussed this along with weekly and monthly charts of the five major markets in this week’s Weekly Intermarket Report.

Corey Rosenbloom, CMT
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Health Care XLV and The Massachusetts Senate Race Tuesday

Jan 16, 2010: 8:31 PM CST

It’s rare when a special Senate election might have a direct effect not just on the Health Care sector, but the broader Stock Market in general… and the direction of governmental policies until the next mid-term election in November 2010.

However, that’s exactly what might happen when residents in Massachusetts go to the polls on Tuesday, January 19th to elect either Democrat Martha Coakley or Republican Scott Brown in a special election to fill the seat of the late-Ted Kennedy.

Should Democrat Martha Coakley win, then the Democrats in the US Senate will maintain their “super-majority” (60 votes) which is the exact number necessary to overcome Republican filibusters – a unique procedure to stall and defeat legislation.  With 60 votes, Democrats can easily overcome filibusters and – in reference to Health Care – pass the Health Care Reform Legislation currently before Congress.

Should Republican Scott Brown win the election – an outcome deemed impossible a few weeks ago – then Democrats would have 59 votes in the Senate – one shy of the ‘magic’ 60 threshhold to overcome the filibuster… and likely doom the Health Care bill along with many other legislative initiatives they planned on passing while they enjoyed the super-majority status.

It is generally accepted (currently) as a certainty that the Democrats will lose Senate seats to Republican this November (2010 mid-term election), and thus lose the super-majority status then (when Congress reconvenes in 2011), so they will want to pass as much legislation as possible while they have the votes.

It may be difficult to understand for overseas observers to understand, but in the US Congress, a simple majority is sometimes not sufficient to pass key or important legislation due to the filibuster procedure in the Senate (see this link on the “Filibuster” from Wikipedia for full information).

What is the bottom line?

If voters in Massachusetts elect the Republican candidate Scott Brown, then odds are overwhelming that the current Health Care bill as proposed (and passed both chambers) in Congress will not be passed… I would go as far as to say it will certainly not be passed (in current form).

For a full discussion, see the following post from Mish at Global Economic Trend Analysis entitled, “Massachusetts Upset in the Making:  Scott Brown Pulls Ahead of Martha Coakley.

How does this affect Health Care Stocks?

This question is not as easy as “If Scott Brown wins, then the Health Care Bill is dead,” because it depends on what happens, as in whether Democrats fail to pass any bill through the Senate, or if they moderate the bill to bring on one or two (or more) votes from Republican Senators such as Olympia Snowe (which might be crafted to be favorable to Health Care companies).

First, let’s take a current look at the Health Care sector ETF – symbol XLV:

The ETF is currently just shy of the critical $33.00 per share overhead resistance level, which reflects the August 2008 swing high.

It would be very bullish if price can rise above the $33.00 level, and would argue in favor of a retracement at least to the $30.00 level if not.

We should know on Wednesday or Thursday of this week as to how the Health Care industry (companies and stock prices) react to the results of Tuesday evening’s election – whether the seat stays in the hands of the Democrats or switches to the Republicans, which again would be a major defeat to Obama and the Democratic Agenda in Congress.

Of course,  a Democratic defeat would affect policies well-beyond Health Care, but for now, it is easier to focus on Health Care stocks and how they react in the week ahead.

So in the course of your market analysis this week – with the three-day weekend – pay particular attention to the outcome of the carefully watched special Senate race in Massachusetts and what that might mean for your trades, investments, or portfolio.  Study this issue in more detail.

You might very well need to make a few key shifts if the Republican wins.

Corey Rosenbloom, CMT
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Why the 1,150 Level is Important SP500 Resistance

Jan 15, 2010: 1:18 PM CST

I’ve been saying that the 1,150 level is the next likely target once 1,121 was broken, and the market is struggling to overcome the 1,150 level currently.

Let’s take a look at an additional reason why 1,150 is an important barrier for the S&P 500.

In my prior post “S&P 500 Hits 1,150 Resistance… but Will it Hold?” I described how the 50 month EMA is serving as overhead resistance on the higher timeframe.

The chart above shows an updated Andrews Pitchfork Tool originating from the November lows, January highs, and finally the March 2009 lows which I’ve been updating you in prior posts.

The Pitchfork Trendline Channel still continues – amazingly – to contain price almost ‘perfectly’ in its rally seemingly without end – the Pitchfork tool has been helpful in guiding analysis.

Price has been ‘riding’ the upper mid-point trendline (61.8%) with the exception of a few ‘pop-outs’ in September and October 2009.

The 50% mid-line has contained price as support since the July 2009 lows – again, to me this is very eerie.

Beyond the Andrews Trendlines, I’ve drawn a Fibonacci Price Projection tool starting with the March 2009 low, rising to the June high and then ending at the July low.  The software (TradeStation) drew the 100% “projection” or equal “Measured Move” (also known as an “AB=CD” price projection pattern).

Surprisingly, this 100% projection price comes in exactly at 1,150 – where we are now.

Some people call this methodology the “voodoo technicals” but it is just one of many ways of assessing price action and setting potential targets and resistance levels and noting what happens at these levels (whether we reverse fully, pause slightly, or bust strongly through).

As such, this is one of the main reasons why traders are watching the 1,150 level so closely – and a break above would be significant, but until that happens, we could see (and are seeing so far) a retracement move down at this likely target level.

Become a Premium Member of Afraid to Trade and keep up with these and more market developments as they occur.

Corey Rosenbloom, CMT
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Price Compression Forecasting Intraday Break Jan 14 SPY

Jan 14, 2010: 1:36 PM CST

I wanted to show a quick chart of the current mid-day SPY (S&P 500 Index) on January 14th to highlight a good example of price compression/consolidation which is often a precursor to a price breakout in one direction or the other, according to the “Range Alternation Principle.”  Let’s take a look at the current intraday chart.

(Click for full-size image)

The main idea is that price alternates between periods of range expansion and range contraction, and consolidations often precede breakouts (and range expansion moves often end in a consolidation period).

Theory aside, let’s take a look at not just the price, but some of the indicators that help us identify price compression periods.

1.  Bollinger Bands (Look for a Compression or visual tightening in the Bands)

2.  Unbound Oscillators (such as the 3/10.  Look for compression in highs and lows)

3.  Intraday TICK (the TICK can show compression in highs and lows)

4.  ADX (Ave. Directional Index – A value under 15 indicates price compression)

5.  Basic Trendlines

These are some of the  helpful tools to use.

Compressions are known as “Value Areas” in Market Profile terms, and some traders thrive on trading breakout moves from such areas.

Keep a close eye on any break of the price above or beneath the Bollingers and trendlines I’ve drawn to play for prior highs ($115.00) or prior support lows ($114.50 and below).

This will serve as a good educational example regardless.

Corey Rosenbloom, CMT
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