A Look at Recent Short Term Peaks in SP500

Nov 16, 2009: 3:22 PM CST

With today’s price action breaking a characteristic behavior of the prior four short-term swing highs in the S&P 500, let’s take a look at those four prior peaks and what the same and what’s different about the current ‘peak.’

S&P 500 Daily:

I’ve highlighted the prior four ‘swing highs’ or short-term peaks (prior to quick and short retracements back to support) in the daily chart.

On each, price was met with a negative momentum divergence and at least one (in August, almost five) doji candlestick at the highs of the upper Bollinger Band before a quick and sudden down day.

The behavior was for price to “chop” around at the highs indiscriminately before a sudden down-day formed.

I mentioned the liklihood for a new high based on reading the ‘behavior’ of the market (and seeing similar “sprung” bear traps) in my November 9th post:

“New SP500 Highs Forecast from Fifth Sprung Bear Trap.”

What’s different about this time?

For starters, price ‘looked like’ it was going to continue its retracement back at least to the rising 20 day EMA at a minimum, but today brought a swift and stellar upward candle (one hour prior to market close) which seemed to thwart the selling pressure or expected choppy environment.

Another difference is that there is perhaps one of the most distinct volume divergences I can remember seeing on a short-term daily chart of the S&P 500 in recent times.

I’ve been discussing that volume divergence in the following posts:

“A Look at Declining Volume on Five Prior Market Tops”

“How Else Can We Interpret Recent Volume Developments but be Bearish?”

With the 50% Fibonacci retracement of the “Bear Market” resting at the 1,121 level, let’s keep a close eye on price to see if buyers still have the strength to overcome this negative volume (and momentum) divergence and push through the long-term Fibonacci retracement zone.

Corey Rosenbloom, CMT
Afraid to Trade.com

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Measured Move Price Projection Targets for SP500 and Dow

Nov 16, 2009: 12:51 PM CST

With price resembling a “Measured Move” pattern – a type of loosely defined flag pattern – let’s take a look at the full price projection target off the March lows for both the S&P 500 and the Dow Jones Index… which are now mere points away from a full move.

First, the S&P 500:

The “Measured Move” price projection target – using the Fibonacci Projection/Extension tool – comes in near 1,150.

Next, the Dow Jones:

The same price projection target comes in at 10,450 in the Dow Jones Index, roughly 50 points away.

The logic behind this tool is described in my “How do we Find Fibonacci Price Projection Targets” article which explains the use of the tool.

The basic logic is to observe a solid price swing, observe a pullback/retracement against that swing, and then “project” the 100% (or full) price projection of the prior swing starting with the low of the retracement.

This is the logic behind price projections in Bull and Bear Flags, but measured moves are loosely defined patterns that focus on price points instead of a pure pattern.

It’s not to say that price will hit these levels and fall downwards as if they were brick walls in the sky, but it will be interesting to note if price does move beyond the distance of the prior upward impulse from the March lows.

It would strongly suggest that the market was confirmed in an expansion phase if this ‘swing’ from the July lows is greater in price movement than the move off the March lows.

Otherwise, the classical interpretation would have us expect resistance at these levels.

Corey Rosenbloom, CMT
Afraid to Trade.com

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A Quick Look at the Crash and Recoveries in India, Brazil, and China

Nov 15, 2009: 8:47 PM CST

Let’s take a quick flight around the globe to view the weekly charts from the peaks in 2007 to the present recoveries in the broad stock market indexes of India, Brazil, and China to see how far an index fell and how much it has recently recovered.

First, let’s start with India.

India’s “Nifty” Index has retraced roughly 65% of the late 2007 peak (India peaked in December, later than the US’s October peak) to the recent index highs shy of 5,200.

Price briefly retraced in a pullback to the rising 20 day week EMA at the 4,600 level, though the recent October swing highs were met with a distinct negative momentum divergence at the upper Bollinger (volatility) Band – a move back down into the support of the 20 EMA was thus expected.

There is also prior price resistance at the 5,250 level from the May 2008 swing highs at the same value, so any move above 5,250 would be very bullish and argue for further gains.

Until then, the buyers are going to have to advance prices beyond this heavy resistance level and break through this negative divergence.

Trend and EMA structure remains positive – so watch for a break under 4,600 to argue for a deeper retracement in price.

Next, we’ll move to China.

Despite all the talk about the Chinese Economic recovery, the Shanghai Stock Exchange Composite Index has retraced only 38.2% of the 2007 peak (which also peaked about the same time as the US S&P 500).

Keep in mind that the S&P 500 is about 20 points shy of its 50% Fibonacci retracement.  We would need to see the Shanghai Index rally to the 4,000 Index level to accomplish this feat.

Still, there is strong support from the convergence of the three moving averages at the 2,750 – 3,000 level, which held as key support on the recent pullback, and any move above 3,500 would be very bullish and argue for a further run to the 4,000 level.

Finally, we’ll view the almost full recovery in Brazil:

Of the three global markets shown here, Brazil has shown the most relative strength off the lows – more than doubling in value and retracing around 85% of the fall from the 2008 highs.

Brazil peaked later than the US, China, or India – and was most tied to the commodity crash (see the $CRB Index) in mid-2008.

Despite this, Brazil’s Stock Market Index has recovered more than Brazil, China, India, the United States, and the CRB (Commodity) Index in an impressive and almost relentless rally off the October 2008 lows (bottoming well in advance of the US Market Low in March 2009).

I’ve drawn in rising parallel trendlines, and price recently pulled back from the upper trend channel as price tested prior resistance from the 66,000 index highs as shown on the chart.

I’ve also drawn in a possible Elliott Wave fractal five-wave count, though a breakthrough of the 67,500 level would argue for an extended ‘v’ wave instead of peaking where I have drawn it.

A break above the horizontal resistance – and a negation of the negative momentum divergence as shown – would argue for a march to new index highs.

Until then, watch the horizontal trendline for possible resistance.

Keep looking deeper not only at these indexes, but from other stock market indexes from around the world.

Corey Rosenbloom, CMT
Afraid to Trade.com

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Hewison Quick Video Updates on Gold and the Dow

Nov 14, 2009: 5:54 PM CST

Adam Hewison is back with two more quick update videos on two critical markets – the Dow Jones Index and Gold.

In respect to the Dow Jones and S&P 500, Adam published a video entitled “Two Forces are About to Collide,” in which he discusses the important 50% Fibonacci retracement level and a long-term trendline, both originating from the October 2007 high.  He makes a compelling case to watch this level for a potential top.

Adam also zooms in on recent candlestick patterns and shows a bit of the Williams %R Indicator.

Here is a screencap from the 6-min video (no registration required):


(Chart links to the video page)

Hewison’s second video, boldly entitled “Has Gold Topped for the Year?” is an interesting perspective on the recent rally on gold, as he takes an ambitious look at gold prices and does some cycle work (I personally am weak in cycle analysis) showing possible cycle top hitting.

He also uses the Williams %R indicator again and further describes the possibility of people entering the gold market late, and if any sort of pullback happens, it could shake weak longs out at the highs.

Adam makes a distinction between the short-term overextended conditions and the long term bullish trajectory in gold.

I am able to show you these videos (with permission) as an affiliate of Market Club – and my appreciation to Adam and staff for that opportunity.

Corey Rosenbloom, CMT

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A Look at Declining Volume on Five Prior Market Tops

Nov 13, 2009: 2:57 PM CST

With the current rally progressing on lower volume, I thought I would take a moment to look back at a few historical market tops – or prior to deeper pullbacks – to see how volume behaved just prior to the top.

Let’s see five historical peaks in the Dow Jones Index and pay special attention to the trend of volume  prior to these peaks.  Each chart was created with TradeStation and you can click to zoom-in on the chart.

1973

1976

1987

1990

2007

I’ll let the charts speak for themselves as a reference instead of commenting on each individual chart.

In all cases, we saw some sort of “trailing off” or decline in the ‘trend’ of volume prior to the absolute market peak.

When the final price high came, it did so on lower absolute volume as well – no chart above shows the absolute high of the rally taking place on the highest daily or weekly volume as shown on the scale.

This is a complement post to my prior “How Else Can We Interpret Recent Volume Activity but be Bearish?“.

Looking at this development from a different – more statistical/research perspective – Rob Hanna of Quantifiable Edges recently showed results of his historical testing on rising prices on declining volume in his post “Low SPY Volume Could Signal a Pullback.

In this post, he references two of his recent studies on higher prices on declining volume – both of which had bearish undertones and results.

As a caveat, there’s never a guarantee of anything in the market, but if history is any guide, we need to treat the market with utmost caution right here, especially from the bullish side.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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