Mike Paulenoff, On the S&P 500's Vulnerability (MPTrader.com)
Our 20-25 day cycle work on the S&P 500 shows that from Mar 2009 to the end of Dec 2009 the SPX made near-term lows just about every 20-22 days. However, after the Jan low, the next price low on Feb 5 occurred on the 25th day, which started a powerful advance that remains in progress as we speak -- and already has spanned 20 days without any sign of price weakness (yet).
If the year-long cycle work remains reliable, then sometime before this week is out, the SPX should pivot to the downside into a cycle-ending period of weakness. The shallower the decline into the cycle low, the more powerful the underlying trend. The minimum decline I will expect is 1115 to 1104, whereas an event-driven bout of weakness could press towards 1075/60.
The potential for a late-cycle decline is one important factor that is making us cautious for the next several sessions.
One of the more perturbing aspects of owning the SPX index or big names up near 1140 is the action in the VIX, which has plunged to retest its Jan low in sympathy with the climb in the SPX to test its Jan high. While the VIX could slink along the sub-19 area for an indefinite period of time now, its absolute level remains a warning signal that complacency or a lack of fear is the dominant emotion now -- and that usually is problematic for the bullish case.
That said, purely from a technical perspective, the VIX needs to climb above 18.60/80 to trigger "buy signals" (in the VIX). Near-term, let's notice that the current downleg in the VIX is accompanied by multiple RSI momentum non-confirmations since 2/19, which is warning me that the SPX is vulnerable to a nasty sell-off at just about any time now.
This does not mean that SPX longs have to bail, but it does mean that stops must be tightened significantly -- to the 1116.50 level (now at 1136.50).
Harry Boxer, On 4 Charts to Watch (TheTechTrader.com)
Today I'm going to talk about some stocks that had some significant technical moves Monday.
Kandi Technologies Corp. (KNDI) recovered with a bang on Monday after deteriorating dramatically in January, having dropped from nearly 7 down to just above 3. The stock bounced, pulled back, popped a little on Friday and Monday really took a nice move up to reach 5.89 before backing off to 5.57. Still up 87 cents or 18 percent, and the volume was the strongest we've seen in a couple months, so this stock could be headed higher.
First test up is around the 6.75 area, and the second level of resistance up around 7 3/4-8 would be my target going forward.
Nu Skin Enterprises (NUS) had a big day Monday breaking out of the cup and handle, a little mini-flag, exploding 2 on 2 million shares, the heaviest volume in many months. Right now long-term resistance up in the low 40's zone may be taken out Tuesday, and this stock could work its way higher with targets up around the mid 30's and the high 30's.
Origin Agritech (SEED) had a nice pop Monday, gave back some of it, but closed up 92 cents on 7 million shares and gapped up through a flag-type pattern above its 50-day moving average. That's a significant move. Let's see if we get a follow through. The next target is 13 and then 15.
Xyratex Ltd. (XRTX), which took out an entire consolidation in the last two months, started moving up last week, and then Monday gapped up and ran all the way up to the 18.47 range before backing off. Still, it was up 1.77 on the day on volume of more than 5 million shares, the biggest volume as far back as we can see. Bottom line is the stock looks higher, secondary target up around the mid 20's, short-term target is around 20.
Other stocks to view on Harry's charts today are China Marine Food Group (CMFO), China Precision Steel (CPSL), Emerson Radio Corp. (MSN), Questcor Pharmaceuticals (QCOR), UFP Technologies (UFPT).
Jack Steiman, On Grinding Action at Overbought (SwingTradeOnline.com)
With S&P 500 resistance at 1151 and with many index charts at 70 RSI's, the market is in need of unwinding of those daily charts to where the RSI's are at least in the lower 60's, if not somewhere in the 50's. It's not just that we're overbought, but again, when you add in major resistance 1% away, it makes the journey that much more difficult for sustained upside in the short-term. This doesn't mean we won't stay overbought a bit longer and trend up to or slightly above 1151 first. but don't expect the big blast from this point until we can unwind things to where new bull legs can get going.
I get asked about shorting a market when you know it's getting to a point where pullbacks naturally take place, and I say not a chance. You never short a market in a clearly defined uptrend because you can stay overbought a lot longer than most think possible, yours truly included. While it's not appropriate to fire out 10 new long plays because of the overbought conditions we're in at the moment, firing out shorts is the last thing I'd do knowing the trend is undeniably higher for at least the short-term.
1115 is now massive support on any move lower on the S&P 500. Traders know this and on any selling down, new buyers will want to come in and defend this level in a big way. The bulls took a long time to capture this level and barring the unforeseen, they will defend this level as it gets approached. I don't think we'll get all the way down there but it's good to understand where the bulls will come in hard if things start to sell off a bit harder than many think possible. Lots of computer generated orders sitting there and waiting if the market gets that low. When trends are higher, those who have missed the ride get anxious and want to participate and that alone can help keep things above critical support. Also, the bears know what levels the bulls will defend and if the trend is higher and the market has trouble falling, they'll stop shorting and in fact, will cover their shorts giving the market upside fuel.
Markets don't get this overbought unless they're extremely healthy. Weak markets sell the moment any time frame chart gets to 70 RSI. Healthy markets stay overbought and can get to levels of extremes such as we have now, so although this means some boredom likely short-term, it bodes very well for the weeks, if not many months to come. Hang in there as things get worked off in the days ahead, even if we grind to 1151 first.
Gary Dean and Jerome "Mel" Hickerson, On Bears Handing Bulls the Ball Again (MarketsPath.com)
Mel pointed out yesterday that it was the tightest range ever seen in the SPX. That is a pretty amazing stat when you see the EVER. So the pump on Friday went no where after the pre-market short covering. There was little to no real buying as the shorts covered all day Friday and we get the tightest range ever on the following Mutual Fund Monday. These is some funky markets we are seeing here. Was Monday a consolidation? Maybe, but with all cheering from the bulls over the weekend and how the SPX is heading to 1250-1300, why wouldn't they be jumping into the market the very next day?
For today, let's see how the markets or puppet masters react to any selling. The ES should find some buyers at the 1130-1125 area and is currently trading at 1133 as I type. If real buyers don't step in at those support levels, we may see the puppet masters having to come in again and save the ES at the 1115 level. With sell signals on almost every chart, don't assume anything here. The bulls have the ball, but I believe the bears fell asleep and handed them the ball again. They may wake up to find enough time to paddle themselves away from the waterfall just ahead.
Mel Hickerson: Since November, I have mentioned many times the similarities with late summer and early fall of 2007. Once again, let's take a look at the eerie similarities.
Notice how the periods both began with tight range trading, then a 52 week high followed by two quick multi-day plunges. During both periods, the VIX had nasty spikes during those plunges - you may recall that during each of our late January/February ugly moves downward, I kept bringing up the 2007 moves and reminding people that a new high could still be ahead sometime in March. Now we are making the climb back up towards the January 52 week high. If we continue to follow close to the 2007 pattern, we should see a mild pullback followed by a surge to new highs.
