Jack Steiman, On Healthy Selling (SwingTradeOnline.com)
Real selling finally kicked in on Monday, and how badly this market needed it as well. Day after and week after week those daily charts sitting on a high pole. At some point you know this is going to pull back and pull back hard, but timing it was nearly impossible as it was defying all logic what seemed like forever. True, it was inevitable that we'd sell, but if you didn't play at overbought you would have missed some great plays.
The selling was good on Monday in that it didn't really stop. There was no massive rally up into the close. No massive move higher that took away a lot of the unwinding this selling was able to accomplish. That was welcome news to me. Let it fall. Let the market correct hard and get these oscillators to levels where we can start to go higher again. In addition, a little selling will take away some of that 28% bull-bear spread we started to witness by the end of last week.
Bring in a little of that fear to get sentiment back in a more appropriate position. The consolidation period is officially upon us and it may sway back and forth. I would recommend that you relax and not get overly aggressive too fast. This market probably needs time before it'll be ready for some decent upside again. Winding down, once the process has started, normally takes some weeks. Back and forth with head fakes both ways. Monday seemed to be the beginning of that much needed pullback.
Leaders got annihilated Monday. In every sector but especially stocks that you almost never see get hit hard. Day after day, even when the market sells, they barely move lower. Stocks such as Apple (AAPL), Baidu (BIDU), Google (GOOG), Intuitive Surgical (ISRG), and others.
Today, they got smoked and there was no recovery, and to that I say, about time folks. These heavily weighted stocks are the biggest reason the market just wouldn't sell and basically stayed overbought for so long. Monday there was no mercy and yes, there was some damage done to them technically. Nothing bearish at this point but enough to make a move back higher with force not be on the near term agenda for these stocks and thus the market overall short term. These stocks alone are reason enough for you to understand it'll take time now. It wasn't only in tech, although they got hit the hardest, leaders were crushed everywhere, especially in the world of commodity stocks. These were really punished. Only a strong NY State Empire report, which showed a good jump in manufacturing there, saved these stocks from an even worse fate as the dollar was exploding until that report came out.
Rsi's on the daily charts that were once decently above a very overbought 70 reading are now in the upper 40's to near 50. Not bad at all. Stochastics, which were all up at the maximum reading of 100, are now in the upper 40's to near 50 as well. Quite a bit has taken place but more would definitely be better and healthier. In addition, once we've been this overbought for more than a month, when the rubber band snaps, you usually go down towards oversold. A complete release. You don't just usually go to 50 rsi and stochastics and then blast back up.
Those daily charts will usually go all the way to oversold and get there right when we get to important support over time. I'll be looking for this for entry back into more longs. The 60's, at the same time, will likely be forming some nice positive divergences on many of the oscillators, not just the Macd. Patience until it all comes together.
The critical areas of support from here are clear. We know the neckline breakout on the S&P 500 was 956. We now have the 50 day exponential moving average up at 953. They've basically met and it will move up to 956 in a few days. If that level were to break on a closing basis with some force, say at least 1%, then we know the market is in huge trouble. Until then, this is nothing more than noise as the market backtests the original breakout which is normal once we're so intensely overbought as we were. 1890 is the 50-day exponential moving average on the Nasdaq and this would come into play around the same time the S&P 500 were to challenge the 956 area. Although I hold a bullish bias, I can adjust in a moment's time. If I saw those critical levels taken out, I would not remain bullish. I would understand the ramifications of such an event.
Gary Dean, On Significant Downside Ahead (MarketsPath.com)
The overseas markets crumbled Sunday night and that set the tone for the day on Monday. The bulls wanted nothing to do with defending the tape and the "paint the tape POMO trade" was put on hold today. Volume was lackluster, but the breadth was terrible and showed some serious selling today.
Everybody is expecting this to be a pullback before we make a final wave up. It very well may play out that way, but it just seems a little too scripted for me.
I believe we will either continue much lower than anyone is expecting or we find support at lower levels and much higher than anyone is expecting. For the S&P 500 to make it up to the 1050ish and turn where most will be waiting to short or exit the long side seems just too easy. So I am expecting some type of unexpected curve ball in the coming weeks (to the downside).
I mentioned to subscribers Sunday night that the SPX is either forming a bullish symmetrical triangle or bearish head/shoulders and we would know fairly quickly which pattern is playing out. The money line was favoring the bullish triangle over the weekend from the newsletters, as it went of at 3:2 odds. But the bearish head/shoulders started getting some late attention before the futures opened and saw some late bets come in to push the odds down to 4:1 before the bell sounded for the future in the future pits.
The late bets paid off and as soon as the futures pits open, the head/shoulders pattern kicked it into a gear that hasn't been seen in many months and took the win without any trouble at all. Sorry, just a little horse racing talk to describe the battle.
Now that the head/shoulders pattern is the pattern in play, the target zone would be somewhere in the 967-961 area to complete the pattern. That is where I believe this leg of the decline will find some support.
Bottom line: The bearish head/shoulders pattern should have the SPX touching the 967-961 in the coming days.
Harry Boxer, On UltraShort ETFs to Watch (TheTechTrader.com)
Today I'm reviewing a few of the ultrashort ETFs, which are starting to emerge, though we need to follow through on the market to the downside to get these going.
The first one is Direxion Daily Large Cap Bear 3x (BGZ). The intraday, 1-minute chart shows a big gap up at the opening Monday when the indices gapped down, a little bit of a run, then basically sideways for most of the rest of the session. In the last hour the underlying technicals improved steadily across the board. This stock was choppy but it had a 5-way move to the high before backing off. A little bit higher in the aftermarket.
The 15-minute chart, which I think is significant, shows that the stock based out in the last few weeks after having come down steadily over the last few months from the low 40's just a few weeks ago to the mid 20's. Resistance remained around the 26.80 level, and on Monday that was gapped through, and then a bull flag was created.
Looking at the chart of the Direxion Daily Emerging Markets Bear 3x (EDZ), you can see that there was a big downtrend in force taking this stock from 100 down to high single digits.
Monday's intraday action was similar to the others, a big gap up, a pullback, then a sideways move for most of the session before a late surge again in price and volume along with the technicals. The 15-minute chart looks interesting on this stock as well. It's a pretty new issue, going back a couple of weeks, but the price gapped up through resistance and a nice bull flag formed for the rest of the session Monday, and it was slightly higher in the aftermarket as well.
The Direxion Daily Financial Bear 3x (FAZ) was one of the better-looking ultras on the 1-minute chart on Monday. After the big gap up and sideways consolidation, it broke out in the last hour and ran from about 28.05 up to 28.85, then backed off, but was higher in the aftermarket. Its 15-minute chart looks terrific. After the big down trend, it dropped from the 50's in early July down to the 24 range. The last couple of weeks it based out, but Monday it didn't quite break out because it didn't get above the Aug 11 -12 highs, but it did form a late bull flag and then rally above resistance near the close. So that's bullish.
The UltraShort Real Estate ProShares (SRS) portfolio position broke out of its head and shoulder type pattern on Friday, pulled back, and Monday it gapped up, formed a flag, and closed solidly at the end of the day, breaking out of the flag to the upside, although the technicals weren't as strong as some of the others.
The Direxion Daily Small Cap Bear 3x (TZA) daily chart had a tremendous drop. The last two weeks on the 15-minute chart shows that a nice base pattern was taken out with a big gap up Monday morning, and flagging took place the rest of the session. The stock did not break out but late in the session firmed up, then in the afterhours it was slightly higher near 17. A move across the 17 on Tuesday with any kind of thrust could break that one out as well.
Mike Paulenoff, On One More Loop to the Downside (MPTrader.com)
My work argues strongly that the correction from last Thursday's high at 1015.75 in the S&P 500, looking at the e-mini futures contract, is not complete just yet, and that we should expect one more loop to the downside after the current bounce off of 975.50 runs its course. At this juncture, the most likely target zone for completion of the recovery bounce is 989 to 992, followed by a decline that breaks 975.50 on the way to 965-960. A sustained climb above 993.50 will cause me to have to adjust my near-term outlook and scenario to reflect a more bullish than expected recovery action.
