RUT: Hourly Forming Head & Shoulders

The RUT bounced on Tuesday into resistance to start forming a Head and Shoulders Pattern on the Hourly Chart (Bearish). In order to confirm this pattern it will need to close and trade below 410. The downside target to complete the pattern would be 375.

So far the RUT did hold an equal low on the hourly chart and put in a lower high. Tomorrow we'll just have to see if the it can move up above the 432.50 area and hold it.

Some consolidation going on here, and it still has a hint of bullishness since it did close higher today. I'll be watching the 410 area and the 432.50 as my guides, a break below 410 or above 432.50 will be the next key breaks for me.

RUT Hourly Chart:

RUT: Lower High Forming

A lower high is forming on the daily charts to go with the lower low the RUT put in about 4 weeks ago. From a technical standpoint it confirms that the intermediate downtrend is still very much intact.

I'll be watching the price action carefully the next few days to see how the price reacts to the 20MA near the 400 area. If it can hold above 400 then it may chop between 400 and 470 for a while. As you can see that's been a consolidation area for the last few months.

RUT Daily Chart:

RUT: Still Watching the Hourly

The RUT did pull back to the 430 area on Friday and at the time of this posting the e-mini futures were down at 421.

On the hourly chart I also put up some fib levels to give us some pull back targets. The 23.6% is right at the 421 area so it may bounce here on Monday, if it continues to pull back then the 38.2% may support around 406, below that is the 50% at 394.

After 5 legs straight up I'm now preparing for a couple different scenarios.

Scenario One: Two legs down that would support on the 38.3% or 50% fib before moving back up to retest 430 area.

Scenario Two: One leg down and then a quick retest of the 435 area that would then form a Head and Shoulders Pattern (bearish pattern) which, if it confirmed, would have a downside target of about 385.

Scenario Three: One leg down that would support at 415 or higher and continue the move up to retest the 445 area and possibly form a double top.

Monday's close will give me the next puzzle pieces and I'll re-evaluate from there.

RUT Hourly Chart:

RUT: Looking at the Hourly

The RUT is now on it's fifth leg and is getting extremely over-extended from the 50MA on the 60 min chart.

The trend is still up and there are still no signs of a reversal so if the short term trend is still moving up then the bias is still UP.

My belief is that most short term trend moves are 3 to 5 legs.

After 5 legs, the probabilities of another leg(s) start to diminish. This is just a statement about probabilities but I am not saying that the trend is over yet. Until there is some signs of reversal and confirmation the trend is still up.

The price is now well above the 200MA on the hourly and is also above the 50, 20 and 10MA. If you look at the chart you'll see that the 8MA and 20MA are frequently retested so don't be surprised to see a pull back to the 430 area in the next day or two.

There is some overhead resistance around 455 and then some more at 470. Notice to the left that there is little price resistance to keep it from moving up there quickly.

RUT Hourly Chart:

RUT: Choppy Day Ends Just Above 50MA

The RUT had a very volatile day, but ended up positive and closed just above the 50MA on the daily chart.

The uptrend is still intact. Market is still trying to figure out which way to go.

RUT Daily Chart:

RUT: Pulling Back, But Still Holds Uptrend

The RUT had a mild pull back today, but is still holding on to the uptrend.

The 430 area "looks" like a solid resistance area, but we'll see how it holds if the RUT should decide to retest it again.

This latest rally has 4 micro legs up by my count so it may have enough steam to make an attempt for a 5th. After 5 straight legs up I tend to lessen the probabilities of a 6th.

A 38.2% fib pullback would put it back to 400 so that's the area I'm looking to support on the way down.

RUT Daily Chart:

RUT: Up to 430 Resistance Area

The RUT was up 8.40% today to the 430 resistance area it's been targeting for the last 2 weeks -- basically straight up. This is what happens in some cases when the rubber-band gets stretched in one direction.

The downtrend that accelerated in mid Feb when it broke 433 moved down for 15 days before doing an "about-face" and marching up in this current relief rally.

The bulls were pretty convincing today getting it all the way back up to 433 which was the "flood-gate" level that got the smack-down on that last move down.

Notice that the price moved up through all the downtrending moving averages, 8, 20 and 50 MAs. If 430 holds then my next upside target would be 450 and 470. There's now resistance between 450 and 470, so when it breaks 450 look for a quick move up to 470. The RUT moved up very quickly today from 420 to 433 for the same reason, very little price resistance on the daily chart.

I wouldn't be surprised to see the RUT trade in a range between 340 and 520 for the next few weeks. The bulls got this one today, but where there are quick moves up there are often quick moves down to counter. Keep on your toes.

RUT Daily Chart:

Take Risk, Avoid Danger: RUT Tight IC with a Twist

This idea is for educational purposes only and is not a recommendation.

In this volatile market one of the best things we have on our side is time. In these unprecedented times, the market is likely to create some large swings up and down with several unexpected legs moving further up or down then many would expect under normal conditions. This presents some wonderful low risk entries for traders who would like to play a long game of chess with the market.

In order to make money in the markets we must take risks and our objective here is to take risks but to do it with a defined risk and to put the probabilities on our side.

The Strategy:
Sell a deep in the money spread at least 3 months out to let the market move over time to our spread area.

The Product:
We're going to use the RUT which is a cash settled index so we don't run the risk of our short strike being assigned.

The Entry:
When the market gets overextended (in your opinion, based on your technicals) Sell a $10 wide spread deep in the money for a $8.50 credit or more. This makes the total risk on your trade $1.50.

Exit 1:
Exit Scenario one is to take your profits and run once you've hit a profit target, in many cases you'll be closing it out months before expiration.

Exit 2:
Exit Scenario two is to Sell the opposing Spread to create a Tight Iron Condor that would have build in profit if it closes out of your pay zone, but would produce much larger profits if it trades in that area the last week of expiry. In that case you would close out the entire Iron Condor for larger profits the last week of expiry.
If the price is way out of the range, let it expire as you already have built in profit that will settle after expiry.

Example:
I'll use a real world example of a trade I put on to better show how these work.

The market was moving lower and lower and hit a new low in the 350 area. The RUT had been down for about 17 straight days. With time on my side and my experience of how fast short covering rallies can move I TOOK SOME RISK, BUT AVOIDED DANGER by selling the following position.

March 5: Sell (1)RUT MAY 440/430 PUT Spread for $8.70 Credit, total risk $10 - $8.70 = $1.30 ($130)

March 19: I could by back this position today for $5.95 with a profit of $2.75

I could also sell the top side of this position to create a tight IC by selling the MAY 450/460 for $3.00. This would give me a total credit of $8.70 + $3.00 = $11.70 for a trade that only has a risk of $10.00, in other words I make $1.70 no matter where the prices closes in May. If it trades near those strikes the on expiry week the profit will be much higher.

The keys are to sell with plenty of time so the market has plenty of time to move in your desired direction and you MUST use a cash settled index to avoid assignment risk.

The reason I like this trade is that it has a low defined risk, vega is in your favor, delta is in your favor once it moves in your direction, takes up very little margin and has an extremely high probability of winning.

This idea is for educational purposes only and is not a recommendation.

SPX: Kissing the 50MA on the Daily

One thing I love about Moving Averages is the way they become magnets when the price action strays too far away from them. A good example of this can be seen on the SPX Daily Chart. First the price ran up to the 20MA and then kept on going up to the 50MA where it took a pause today.

A pull back would seem in order here, but we'll see what expiry Friday has on tap for the market tomorrow.

SPX Daily Chart:

RUT: Pattern Complete and Still Rising

The Reverse Head and Shoulders Pattern was completed today as it hit it's upside target of 408 with a little help from the Fed Announcement.

The current upside target is the downtrending 50MA and the horizontal resistance area around 430. This is the spot the RUT will likely pause for a pull back.

The price continues to move up, so until we see some reversal signs the bias is still up.

RUT Daily Chart:



RUT Hourly Chart:

RUT: Bulltards Are Back

One thing I love about the Russell 2000 is that it can climb up market walls that it shouldn't be able to climb up. What does that mean? It means that sometimes it just goes straight up without any pullbacks even when it technically "shouldn't." That's the beauty of the stock market and specifically what I love about the RUT.

Although the pull back on Monday seemed severe and produced a topping-type tail on the daily charts, it ignored the reversal candle and went up today anyway. One thing important about topping tail candles is that they need to confirm -- it did not confirm today.

The Reverse Head and Shoulders Pattern I've been watching is almost complete, it will reach it's target if it can climb to 408. Support levels below will now be 400, 395, 385 and 375.

The grand-daddy, short-term upside target is the 430 area which technically is getting very close now. 430 is just a few more uber-bullish days away. Since the move down from 425 to 405 was a quick and straight shot down, there will be very little resistance up to 425 on the way back up once it can clear 410.

The RUT is currently on a sprint with relatively few pull backs so be aware that once it reaches some of these key resistance levels up top it may take a significant breather before it tries to climb back up again.

What's really happening?
The debate has already started on whether this is a bear rally of a bear flag that was suppose to collapse today, etc., etc.

What's really happening is that the price is moving up and is continuing to move up. It's currently back above the rising 20MA on the hourly chart and that is bullish. Until the uptrend is broken my short-term bias is up because that's what the price is doing right NOW. A bullish pattern is playing out and if the RUT can squeeze out 5 more points tomorrow the target of 408 will be hit.

RUT Hourly Chart:



On the Daily Chart I see more of the evidence that the 430 area is starting to act like a magnet. Notice that this rally has blown past two topping-type candles already and today's action closed above yesterday's highs. As the RUT was falling over the prior six months, the strength of the move was characterized by bottoming tail candles getting blown through all the way down. In other words, the trend was MUCH stronger than the candles and candle patterns. The reverse is now being seen on the way up which shows the strength of this current rally.

RUT Daily Chart: (Note how close the 430 area is)

RUT: Hourly Update

The RUT climbed up to 400 then lost it's steam and quickly fell back to the 385 area. There's not much support at all before 375, so unless the market decides to get really bullish overnight then 375 would be the first downside target.

The neckline of the Reverse Head and Shoulders is also at 375 so it will be interesting to see if it holds there.

RUT Hourly Chart:

RUT Hourly

The RUT created a Reverse Head and Shoulders pattern on the hourly chart with a projected target of 408. Near that area is also the 38.2% fib which should also act as a magnet and resistance level. Above that is an additional resistance level of 413.

Above 413 there's not much resistance from seeing another fast move up to 430 and 440,450.

On the downside, a pull back should find some support at 387.50 and then 375.

RUT Hourly Chart:

RUT: B-Line to the 20MA

The RUT put in a rocket ship day with very few pull backs to close up 6.50% for the day.

Amazing.

Tomorrow may have to take off some of the froth and then we'll see if more buyers are ready to jump in again. If it rallies hard again tomorrow the upside target would be the 38.2% fib at 408.80.

To close above 400 tomorrow would show that the bulls have temporary control.

RUT Daily Chart:

RUT: Topping Tail

The RUT was up earlier in the session, pulled back most of the day, rallied at noon and then gave up advances the last 20 minutes of the session.

This left the RUT with a topping tail on the daily charts.

While this is generally a bearish signal, the RUT did close near yesterday's highs so in the broader context it was a decent follow through to yesterday's rally.

We can only wait now to see if we have further bullish follow through for the rest of the week.

RUT Daily Chart:

SPX: Bounce Underway?

The SPX took it's cue from the banks and put in a nice rally today that held through the close.

First upside target is 745 and there is not much resistance to keep it from getting there.

After 745 the goal for SPX would be to hold above 750 and attempt to retest 800. The 750 area will be key to watch, short term bullish above it and bearish if it can't hold it.

SPX Daily Chart:

Bank Index: Bullish Follow-Through

For the last few weeks I've been focused on the banking sector as it was getting very close to long term fibonacci support. Just like magic the 423.6% supported and the last two days have seen a nice bounce.

I put a new set of fibonacci levels so I can see the next probable target areas should this bounce continue. There are several topside targets starting with the downtrending 20 day moving average which is just overhead at 65.13.

The next area above the 20MA is at 75 where there is old support that can act as new resistance. Above the 20MA the downtrending 50MA has acted as resistance the last FOUR times it was tested. If this is a powerful relief rally it could blast through the 50MA and reach the 23.8% fib at 91.63.

Above 95, it's clear sailing up to the 112 area.

That should cover the upside targets for the next few weeks, and for the downside targets it would be a retest of the recent lows in the 46 area. Below 46 is uncharted territory so no downside targets as of yet, but the good news is it can only go down to zero and that would effectively mean our banking system has collapsed and we'd have more important things to worry about.

Despite the two up days, keep in mind that the Bank Index is still in a downtrend. This may only be a short term rally so keep your eyes on the charts.

S&P Bank Index:

Bank Index: Sympathy Bounce at the 423.6%

The Bank Index had a great day today while everything else fell apart. It may of had something to do with taking a pause at the 423.6% fib level after traveling 17 months and 281 points (85% from the 327 support) to get there.

$BIX closed up 10.73% to close at 54.89.

We'll have to see if there's any follow through tomorrow or if this was just a one day pause before collapsing again.

Bank Index Daily Chart:

RUT: Still Falling

The RUT closed lower today after breaking key support last week.

Next target below is 325 then 310... after that fib support at 267.

The rumored "relief bounce" is still just a rumor, no technical evidence to back it up yet.

RUT Daily Chart:

RUT: Broken Support

The momentum continued lower last week breaking key support.

The RUT is now down close to 60% from it's highs in 2007.

Lots of talk about a relief bounce, but no technical evidence to support that theory yet.

RUT Monthly Chart:

VIX: Volatility Under Control?

With the VIX closing at 50.17 today (only a 5.11% increase), it would seem that the general market mood is not quite as bearish as the price charts would indicate. I brought this up on the call 2 weeks ago and I'm making the same observation today.

Despite hitting new multi-year lows, the volatility index remains at the (now tame) 50 area. This is far away from the 70's and 80's we saw in October and November when the Bank Index as still up at 170 and fell down to 120. Remember, the Bank Index hit an ALL TIME LOW today of 49.02 which is more then a 50% drop from the November time frame when the VIX was hitting 80.

What does this all mean? I don't know.

What it suggests, is that the market has already priced in some of the bank failures and maybe much of the associated economic doom and gloom.

One thing we must remember, is that the stock market operates independently from the general economy. We see it all the time and we must remember that despite the most horrific economic news coming out day after day, the market can still put in a sustained bull rally that runs contrary to any logical reasoning. That's why it's more important then ever to watch our charts closely.

VIX: CBOE Volatility Index Weekly Chart:

S&P Bank Index: Down another 14.36 % Today

With the Bank Index in it's death spiral it's rapidly approaching the 423.6% fibonacci target... and it's getting closer to zero.

Normally a 14% drop in any index would be a big deal, but at this point it's just another day at the office.

The chart is not giving me any indications yet that the death spiral is slowing.

Maybe the 423% fib is the support target it's looking for and we might get a bounce?

The next support level I see below the fib would be a bounce off ZERO.

S&P Banking Index Weekly Chart:

RUT: 350 in the bag, do I hear 325?

As I posted yesterday, the RUT was poised and full of momentum to continue it's move down. Our first target from REALLY OLD price levels was 350 which it hit today, the next level would be the 325 area.

The further we move down this week, the better I like the probabilities of a relief bounce. I covered some of my open short positions today as I hit my RUT target and I don't want to be a pig. I am still long term bearish, but I will be patient now for a bounce or rally that will give me the opportunity for a low risk entry at a resistance level. That may take some time, but the wait will be worth the better probabilities.

I've posted a couple charts to take a look at some other potential downside targets/support areas. I had to use a monthly to go back far enough to fit the Fibonacci levels and 1994 price support areas.

Notice on the Monthly Chart how the 423% fib is at the same place as the 94 resistance level of 267. I sounds surreal to suggest that the RUT could hit 267, but I would have thought the same about 350 two months ago and we are there (350) today. It may support here, but there's really nothing to support until 267 with the exception of 300 where it supported for one month in 1996.

I'm not saying that we're going there, but since we're at 350 and we're STILL in a downtrend, then we need to start looking for the next targets.

RUT Monthly Chart:




RUT Daily Chart:

RUT: Peering Back to 2002 and 2003

Wow, had to bring up a 10 year chart just to find some support levels. Sad.

Today's price action was pretty weak despite the fact if close up a few points. It was certainly not the "short covering rally" the bulls were looking for and it fizzled the last half hour of the session. This left the daily chart looking drab.

I posted a weekly chart so you can see the next couple areas of support at 350 and 325.

We could certainly hold this area and bounce from here, but the charts may have more resolve and more of a reason to get a "sustained" bounce if they retest those 2002 and 2003 lows. For whatever reason, prices like to retest areas, and with the downward momentum AND being this close, we should not be surprised to see a retest of these areas.

Everyone may be on the lookout for a capitulation day coming up that would be created by some panic selling followed by a short covering rally. This may or may not happen, but this is the area it would likely happen. Trade well.

Trend is still down, but probably begging for another relief rally. It doesn't take very long at all for people to forget they're afraid and they let greed take over again. That's what makes our markets so wonderful to trade.


RUT Weekly Chart:

SPX: Looking Purely at the Technicals

The News was full of experts again today saying that we're bottoming here. I suppose their evidence was yesterday's New Low and the fact that today wasn't a New Low. Can you imagine being in a bull market and having the experts come on everyday calling a market top because yesterday was a New High and today we closed lower? It's never made sense to me why everyone is always trying to call bottoms and tops. I suppose it has to do with ego, but it's not a good way to try and make money.

Lets take a look at the daily chart to get an objective look of what's really happening here with the price action. It's not my job to call "bottoms," nor will making a bet on bottoms produce profits for me. I am more interested in trading with the prevailing trend rather then going against it.

The charts provided a rising wedge pattern (bearish pattern) that broke on Jan. 9th indicating a new move down was developing.

Last Friday the SPX broke and closed below the November low and support area at 750. Yesterday we put in a new low at 696.33.

What generally happens once a support area is broken is a retest of that level. If the bears win then the old support area becomes new resistance and the price falls further (As the banking index did this week), but if the bulls win then the price continues to move up over the support area again.

We should expect this move back up on the SPX to retest 750 as it's a normal pull back. The key will be to see how it reacts once it gets back to 750.

Patience is the key here as moves can take a long time to develop, especially as we retest old support and resistance areas like we are now. There are often some ugly battles fought at these lines.

Trend is still down until further evidence suggest otherwise. Go with the flow.

SPX (S&P 500): Daily Chart

Banks Again

Today was an interesting day.

As the broad markets enjoyed a mini rally (one that fell apart at the close), the S&P Bank Index closed at a NEW LOW.

After breaking another support level last week, it too got a little relief bounce, hit resistance and fell down to close at a new low.

This index continues to move lower as indicated by the trend.

It did pause at fib support near 54 which as this point in holding. A close below that level tomorrow would be pretty bearish.

S&P Banking Index: Daily Chart