Intense Selling Ahead?
Cycles showed their hand yesterday.
Editor's Note: This is a free sample of Jeff Cooper's Daily Market Report. To receive this regularly, along with his day and swing trading setups, please click here for a free two week trial.
The option expiration hangover arrived and it was a doozie.
Of course, there's always a wrinkle: I expected an up gap opening that would find a high in the first hour. However, the market powered higher than I suspected and for somewhat longer. Nevertheless, the market is not a fine Swiss watch: You have to allow for price and time to overshoot and undercut somewhat.
Be that as it may, the cycles that I saw hitting that could develop into intense selling by the second half of May appear to have shown their hand. Monday's liquidation looks like a first taste of that intensity.
The reversal by the S&P from a spike over its 200 dma and the double top, potential test failure pattern in the DJIA suggest a cautious stance until proven otherwise. A move back below my 1421 pivot (the prior double peaks in May) that holds confirms the correctness of a defensive posture. The bulls need to defend 1406 (the important low last November) or the S&P should find its way back toward a minimum of 1390ish.
The Weekly Swing Chart low is currently at 1386 so that looks like a viable projection if we see persistent downside follow through for this week.
Last week I mentioned the idea of an MA top on a spike above the twin peaks at 1421ish. That pattern (bearish) may have been satisfied with Monday's spike and reversal. If so a break of the 'feet' of the M in the vicinity of 1406 will confirm lower prices.
A look at the Square of 9 calculator, or the Wheel of Price and Time, shows that a price of 1439 is conjuct or a harmonic of May 16th. The S&P thrust to 1440 on the full moon on Monday indicates the notion of a climatic thrust and emotional capitulation. I know more than a few traders who were stampeded in by Monday's early strength, inferring an additional extension and that the 'breakout' above the 200 dma was a bullish sign.
Monday's sharp reversal from just as sharp an open trapped too many market participants to be done without at least two to three days hard down. A look at a chart of the behavior of Goldman Sachs (GS), for example, shows what a reversal from a Hook Sell over the 200 dma can lead to while players are assuming a bullish pullback is underway with the stock dripping persistently lower.
Conclusion: Many large range reversals in names such as Apple (AAPL), Research in Motion (RIMM), Cleveland-Cliffs (CLF) and DryShips (DRYS), to mention a few, as well as a 7th wave potential culmination move up on the daily chart of the S&P, suggest caution and that the most likely course is down over the ensuing days and likely for a minimum of a few weeks. I would not be in a rush to buy anything back to soon as Monday looked like the plug was pulled after a put/call dance left many participants without a chair when the music stopped.
Whiting Petroleum (WLL) was a day pick for Monday. My job is to identify set-ups poised to extend higher and lower. Trading would be an easy task if stocks always triggered without flushing out players. The thing to remember is that often short-term traders who carry over a winning position from the prior session will bang out a stock on the open. Consequently there is typically a lot of volatility in the opening half-hour to hour, making it crucial to consider taking retriggers, i.e. when a set-up retriggers.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter