Stock chart patterns and technical analysis (TA) explained simply. Disclaimer: This blog and all its contents are for educational and entertainment purposes only. Do not trade or invest based on any information seen on this blog. Please read Terms of Service. The K E Stone blog sites (Keybot the Quant) are blacklisted by Google, so enjoy the ad-free experience, and only use the Donate button when supporting the sites.
The huge up day in the SPX yesterday results with the VIX dropping to 16.97 below the critical bull-bear dividing line at the 200-day MA at 17.02. Bulls win big below 17.02. Bears win big above 17.02. It's not rocket science. The VIX is currently trading at 16.666 about 3-1/2 hours before the opening bell on Wednesday morning. S&P futures pop +20 as volatility drops. 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 Sunday, 7/21/19: The above drama occurred about 6 weeks ago and volatility went straight lower during this subsequent period. Hence, the stock market catapults higher with the SPX printing new all-time record highs above 3K. The VIX is at 14.45 and the 200-day MA is at 17.31. The Keybot the Quant algorithm calls out 14.53 as a key bull-bear line in the sand. Thus, the stock market will fall apart if the VIX moves above 14.53. The wheels will fall off and stocks will be tumbling lower in earnest if the VIX moves above 17.31. The stock market is fine and will weather any near-term turbulence if the VIX remains below 14.53.
Keystone's proprietary trading algorithm,Keybot the Quant, flips to the bull side on Tuesday at lunch time at SPX 2788. The Fed promises more easy money so stocks rocket launch to the moon. The central bankers are the market.Watch the banks. More information is found at Keybot's site; Keybot the Quant
Keystone mentioned the SPX 2-hour chart late Friday during the bloodbath. The chart above was setting up with positive divergence and looked good for Monday but the session plays out with lots of sideways choppy slop. More negative trade news creates market sogginess. The new moon peaked at 6 AM EST yesterday and stocks are typically weak moving through the new moon each month another contributor to a lackluster session. The 2-hour chart above is bull candy. The RSI and stochstics are oversold agreeable to a bounce. The falling green wedge is a bullish pattern and prices typically retrace the wedges. The green lines show positive divergence across all chart indicators. The rocket ship is on the launch pad and all fueled up. Price violated the lower band so the middle band at 2779, and dropping, is on the table. The possie d should launch the SPX higher and S&P futures are up +10 about 90 minutes before the Tuesday, 6/4/19, opening bell. Despite the joy with the 2-hour time frame above, the daily chart still wants to see a lower low. Ditto the weekly. So there is likely lots of chop on tap. The 2-hour chart should bounce price for a day or two barring any negative news bites. The daily chart may then re-manifest itself and send price lower again for another lower low. The SPX daily chart, like the prior NDX chart, appears more conducive to bottoming 2 to 5 days ahead. That should create a several day rally and recovery say during the back half of June. This would jive with perceived optimism ahead of the G20 Summit when President's Trump and XI will negotiate a potential trade deal. The weekly chart is weak and wants to see lower lows in that time frame so G20 may be a bust, and negativity comes into strong play, say, from July forward. 92% of market participants expect the Federal Reserve to cut rates by September. Expectations for Fed rate cuts are pulled forward and at least one cut is expected this year. If the Fed does not provide the cut/s, the stock market will be unhappy. If the Fed does cut rates, it proves that they are simply news-reactive puppets, blowing in the wind, responding to market events, and not in any control. Once confidence is lost in the Fed and other corrupt global central bankers, it's over; all is lost. We are likely witnessing the final years of America's crony capitalism system. Traders expect a rate cut in the July-September period which may spook the Fed. If Chairman Powell tries to dial back rate cut expectations and turn more hawkish, this once-again flip-flopping stance by the Federal Reserve will tank the stock market. 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 8:04 AM EST: S&P futures are up +17. VIX 18.27. The key VIX 200-day MA is at 17.01 so bears are in full control of the stock market going forward unless the bulls can push the VIX below 17.01. When the VIX goes sub 17, that will probably be in conjunction with the daily chart bottoming in the days ahead and then rallying in mid to late June. Bulls have zero hope going forward unless they push the VIX below 17. Note Added Wednesday Morning, 6/5/19, at 6 AM EST: The bulls came to play yesterday enjoying the bull candy chart above sending stocks euphorically higher. The SPX gains 59 huge points, +2.1%, to 2803. The Dow Industrials climb 650 points intraday. The bears are running for their lives. The H&S neckline is back tested.Fed Chairman Powell promises easy money forever so the stock market catapults higher and America's wealthy class dances with glee. The VIX ends at 16.97; how do you like that? The VIX is trading for about 3 hours this morning thus far and teased toward the 200-day MA at 17.02 but retreats down to 16.70 sending S&P futures up +17.
The S&P 500 closes the Monday, 6/3/19, session at 2744 at the 150-day MA support at 2746. Price will bounce or die from this level. S&P futures are up +12 about 2 hours before the Tuesday opening bell so it looks like bounce. The 200-day MA at 2775 serves as overhead resistance; ditto the 2800 level which is the neckline of the H&S pattern failure. Price did come up for a quickie back kiss of the neckline the day after it failed but the door remains open for a more substantive back test of the 2800 level. The blue lines show a two-leg bear flag pattern. Typically, the middle consolidation flag, or zone, should be flatter and more extended, but it is close enough for government work. The first leg is 2952 to 2810 a 142 point drop. The sideways consolidation with an upward bias occurs and then price rolls over again. The second leg top is in that 2877-ish area so taking away 142 is a 2735 downside target for the two-leg bear pattern and that occurs yesterday with a LOD at 2729 satisfying the pattern. Price may want to chop sideways for a few days as the Fed plays central bank games and President Trump plays trade games. 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 Wednesday Morning, 6/5/19, at 6 AM EST: On Tuesday, the SPX gains 59 huge points, +2.1%, to 2803. The Dow Industrials climb 650 points intraday. The shorts are covering adding more rocket fuel for the upside. The H&S neckline is back tested.Fed Chairman Powell promises easy money forever so the stock market catapults higher and America's wealthy class, that owns large stock portfolios, dances with glee. One half of American's do not own a single share of stock. The VIX ends at 16.97.
The FAANG stocks face antitrust lawsuits and are beaten mercilessly today. FB is bludgeoned -7.5%. CEO Zuckerberg crawls under the desk but a big lump is in his way, oops, that is Sheryl Sandberg already hiding under the desk. Both hold each other while trembling. AAPL drops -1%. Traders that worship at the Warren Buffett and Charlie Munger altar bot Apple with both fists at the euphoric high at 215 and AAPL stock is now down -19.5% off the top in only 22 trading days. In fact, at the 170.27 LOD today, AAPL was down -20.8% off the top in a bear market. If you took $10K of your hard-earned money and bot AAPL on the Berkshire recommendation in late April, you now have $8K; you can thank the Oracle of Omaha. AMZN pukes -4.6%. CEO Bezos wipes a tear from his eye with a gold-monogrammed handkerchief worth more than the common American's car. NFLX drops -2% to lows not seen since January/February. The movies and shows are boring, the popcorn is cold and the candy bars are stale. GOOGL is taken to the shed out back behind the garage and beaten -6.1%. That's gonna leave a mark. Alphabet (Google) and Facebook perform the worst faceplants of the five FAANG stocks.XLK loses -1.8%. SOX +0.3%. XSD +1.4%. SMH -0.1%. XLC -3.1%. Chips held up. Since the tech giants were in collapse, the Nasdaq 100 Index was flushed lower. The NDX is now in a correction (down more than -10% off the top). There were four high prints in seven days when it topped out in late April and early May; 7851.97, 7851.85, 7851.03 and 7847.52. Thus, if 7852 is the high, a -10% correction is 7067 and lower which occurs today. At the closing price at 6978, the NDX is down -11.1% off the top and at the LOD today at 6937, the Nasdaq 100 is down -11.7% off the top only about -8% away from a bear market (-20% off the top). The gold circle shows the golden cross and why these patterns receive a bad rap. Early April, the golden cross says all systems go but then in early May it was all over but the crying. The red lines show the negative divergence top that was an easy call so once you saw that it always overrides the golden or death cross stuff. The orange circles show some juicy gaps that will need filled at some point forward and the one was filled today. The slope of the 150-day MA went negative in Q4 ushering in a cyclical bear market for the Nasdaq 100 but you can see from mid-January to mid May the 150-day MA squeezes out tiny upside gains which are a cyclical bull market signal. Alas, over the last couple weeks or so you can see the slope of the 150-day MA sloping negatively once again ushering in a cyclical bear market for the high-flying tech stocks. The falling wedge is a bullish pattern. The RSI and stochastics are oversold agreeable to bounces occurring in this daily time frame going forward. The histogram, stoch's and money flow are all possie d (green lines) wanting price to bounce but the RSI and MACD line are weak and bleak (red lines) wanting to see lower lows in price after any bounce occurs. Thus, one jog move, up-down, for the RSI to set up with possie d and one jog move, up-down for another lower low, for the MACD line to go possie d, would place the bottom in this time frame; say 2 to 5 days out which would be Thursday through Tuesday, 6/11/19. The lower band is violated so the middle band at 7412, and dropping is on the table. The H&S pattern is playing out with head at 7852 and neckline at 7290, so that is a difference of 562, so the lower target for the H&S is 6728 if the 7290 neck fails, and it did. Price has not yet back kissed the neck at 7290 so that remains in play. 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.
The H&S (head and shoulders) pattern is shown in red. Price tops-out at 2950, the neckline is at 2800, so the lower target is 2650 if the 2800 neckline fails, and it did. There are gaps below that will need filled at some point forward (orange circles). Price wants to use the 150-day MA at 2745 as support. Remember a week or two ago, Keystone told you to watch this level since the slope of the 150-day MA is a key metric in determining whether the ticker is in a cyclical bull or cyclical bear market pattern. The SPX remains in a cyclical bear pattern since Q4 with the 150-day MA sloping negative or sideways. The bulls are threatening to push the 150 higher which will signal a cyclical bull market ahead, however, price is knocking at the door to slip below the 150. By definition, price below the moving average will want to pull the MA down as well. Thus, this 2745 level is key. The 20-month MA is at 2739 so the 2739-2745 support is the last chance corral for the bulls to stop the selloff. Things will get very ugly below here. On the bull side, it would not be surprising to see a bounce and back test of the neck line where a bounce or die decision would be made. 20-week MA 2812 100-day MA 2797 10-month 2782 12-month 2779 50-week MA 2776 200-day MA 2776 150-day MA 2745 20-month MA 2739 S&P futures are own -9 about 3-1/2 hours before the opening bell in the United States. VIX 18.85. It is lights-out for the stock market if 2739-2745 fails. If it holds, price will seek a back test of the key 2776-2782 resistance level. The slope of the SPX 150-day MA remains flat or negative verifying a cyclical bear market. The SPX is below the critical 12-month MA at 2779 verifying a cyclical bear market. The NYA is below its critical 40-week MA verifying a cyclical bear market. The UPS 20-week is below the 50-week MA verifying a cyclical bear market. 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 8:21 PM EST: The SPX finishes the Monday session down 8 points, -0.3%, to .... wait for it...... wait a bit longer..... 2744.45. The 150-day MA is 2745.84.LOD 2728.81. The table is set. The S&P 500 makes an important bounce or die decision from the 150 pivot tomorrow. Who will win? That LOD number is very important going forward. Trading was choppy. The new moon peaked at 6 AM EST this morning which creates the negative bias today. Ramadan Ends tomorrow so there may be an increase in religious fanaticism and terrorism in the Middle East and around the globe this week.
Deutsche Bank sings a sad country song for the last 12 years. DB peaked at the 2007 stock market top and since then it is all over but the crying. The German government will always support Deutsche Bank as it becomes a further national embarrassment and disgrace. A couple hours ago, trading on Germany's DAX Index, price slips below the 6.00 level for the first time in history now printing at 5.90. The shame continues each day. DB peaked in 2007 at 122-ish and sinks to 6.7 a -95% crash in 12 years. 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: The lower chart is provided by CNBC and titled and annotated by Keystone.
Some of you are too young to remember the Enron debacle during the 2000-2003 market crash. That broad stock market collapse ended when the United States announced the war against Iraq. War is big money. In the 1990's, Enron was an energy company that began branching out buying many diversified businesses leading into the dotcom bubble top in 2000. Enron grew into a massive conglomerate and was not only a huge energy company but owned entertainment companies, tech stocks and all kinds of other goofy investments that they paid far too much money to acquire. The frenzy to own Enron stock took on a life on its own. It was one big party until it wasn't. The last fools to buy were looking around and there was no longer any other fools to sell to; ergo, they were the bag-holding fool. Enron went bankrupt. The US was thrown into a major recession and softpatch after the dotcom collapse. Former Chairman Greenspan at the Federal Reserve cut rates to help the economy in the early 2000's, which then caused the housing bubble in 2007-2009 (which to this day Greenspan will deny creating). When the bombs started dropping in Iraq in 2003, Keystone was buying with both fists. Stocks never looked back. War support machines such as HAL catapulted higher. NOC, LMY and other defense stocks rallied. RTN could not build missiles fast enough. Fast forward to the present day. SoftBank is an interesting company. CEO Masayoshi Son is a rock star with a cool name. He hobnobs with the world's rich and famous, including President Trump, buying up companies with its big cash hoard. SoftBank is investing heavy and all-in with cutting-edge technologies such as ride-sharing companies Uber, Grab and Didi. SoftBank is throwing millions at the We Company (WeWork). Also Slack. Masayoshi Son may be getting too hip and cool for his own good overpaying for a bunch of trash and garbage. SoftBank also owns AAPL, QCOM and Foxconn. How's that working out for them in May? SoftBank is developing into a huge conglomerate in many ways similar to Enron. Is it the new present-day Enron? Only time will tell. Chart-wise, the inverted H&S in late 2015 and early 2016 set the launch pad for the buying spree over the last 3+ years. The inverted H&S is text book with a perfect formation of the shoulders and neck line, then the breakout and back kiss just as 2017 began. The pattern targets 38-ish which was achieved during the summer of 2017. As SoftBank continues acquiring and perhaps overpaying for all these goofy companies, which some will proclaim as the Second Coming, price is chopping along sideways becoming more violent and volatile in its swings. Pets.com and Webvan were the future in the late 1990's but in a few short weeks they were bankrupt. The expansion pattern, or megaphone pattern if you prefer, keeps the upside move in price in check. The pattern hints that price needs to move to the bottom rail of the megaphone next. That would be down at 26-29 during the back half of this year. A -30% or more crash from current levels and perhaps -50% or more off the top would get investor's attention. The two gaps below are big enough to drive a truck through and will need filled at some point forward. SoftBank is currently trying to raise more funds for further investments but the reception is cooling on Wall Street. Masayoshi Son used to enjoy lavish Manhattan dinners since everyone wanted a piece of the pie but now a trip to McDonalds may be the order of the day as he shakes the sofa cushions for loose change. Shrimp and lobster is replaced with burger's and fries. If SoftBank is the new Enron, the megaphone pattern will play out with price in the low to mid 20's at year-end into 2020 and then lower next year. SoftBank collapses -4.5% today but recovers by the closing bell to down -2.6%. 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.
