Wednesday, October 15, 2014

SPX 2-Hour Chart Oversold Falling Wedge Positive Divergence

Here is an update of the SPX 2-hour chart. As described yesterday, the indicators are set up with positive divergence desiring a bounce. The MACD is teasing a drift lower so a couple more candlesticks of time may be needed to bottom (about 4 hours) but the chart wants to see a bounce and relief rally and the 1-hour and 30-minute charts are possie d across all indicators also wanting price to bounce. So the technical's say up in the VST and the only fly in the ointment that can occur is global news events.

About 4 hours ago, the news about a new Ebola infection in the US dropped the S&P futures. Since then, futures are trending lower and falling off a cliff as this is typed. S&P's now -21. A couple hours ago, a mid-size hedge fund is rumored to have blown up and that created another flush lower in the S&P's. The economic data minutes ago is weak; more bad news.

So the news negativity is overriding the charts. The daily and weekly charts do want lower lows in the SPX moving forward but the hourly and minute charts want a relief rally for a day or three. The weak futures will drive the SPX down at the opening bell into the blue circle. Perhaps another touch of the lower trend line occurs. The falling wedge pattern will be played out with price printing in the apex of the wedge. Since the hourly and minute charts were set to send price higher, they should readjust after the negativity is absorbed during the first hour or two of trading and should set up again as described above and help stocks to bounce.

Since more lows are coming the current 1877 level will be important resistance on the way back up. The 50-week MA at 1888 and 12-month MA at 1894-1895 remain key levels. The 12-month MA signals that stocks have fallen into a cyclical beat market. Of course if the selling begins to cascade and more hedge funds blow up, the crash scenario is on the table. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added 8:56 AM:  S&P futures -22. Dow -144. Nasdaq -39.

Note Added 8:56 AM:  S&P futures -24. Dow -154. Nasdaq -50. 10-year yield 2.04%. WTIC crude oil 80.68. Hold on tight. The excessive margin interest is coming home to roost as those over-leveraged to the long side are now getting forced out. Funny how no one is laughing now at those that went to cash a couple months ago. Hedge funds (those heavily-leveraged) are melting down.

Note Added 9:37 AM: It's ugly today. Carnage. Dow down 300 points. SPX turns negative on the year at 1848. Dow dropping under 16K now has 15 handle. Nadaq in correction territory down -10% off the top. 10-year yield drops under 2% to 1.98%. Huge selloff in progress. Once the 12-month MA failed a couple days ago the wheels were set in motion. Keystone adds to the countertrend SSO trade which is a VST play looking for an upside move but it sure is not here to begin the day. There are one or more hedge funds liquidating.

Note Added 10:18 AM: A hedge fund or few went belly-up this morning. Markets stabilize. Dow down -150 and was down -370 at the lows. SPX is down 19 points to 1859. LOD is 1837.22. This is 11 points below the starting year number at 1848. The 10-year is at 2.06%. WTIC oil moves higher to 82.22.

Note Added 2:20 PM: The bears are taking no prisoners today pushing strongly lower. The RSI now squeezes out a slightly lower low and the MACD line keeps moving down so the 2-hour chart still needs one to three candlesticks for the bottom so that would be anytime between now and lunchtime tomorrow. Markets typically do not bottom on Wednesday's. If a Wednesday is strongly lower (today), than typically an even lower print occurs Thursday morning. So perhaps the bears will keep crushing stocks until the morning. You can see all the drops in the indexes today on Ebola news so that is a main driver of the negativity and also the hedge fund liquidations. The boat was fully loaded with everyone and his brother saying yields would move higher; why it's a 'no-brainer' and 'it's guaranteed'. Well, the boat was fully loaded with 95% of traders thinking Treasuries would be sold off with yields higher but the opposite occurs. These traders exposed had to run like madmen to the other side of the boat in a hurry, which rocked the boat, like the old soul and disco song Rock the Boat from 1974 laments. SPX LOD is 1820.66 so watch that number. The SPX is now down 28 points, -1.5%, for the year.

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