SPX Weekly: Not Impressed

The SPX has been rising week after week in a bear market rally, but if you look at the 2 year weekly chart with the fibonacci levels you can see that it's still in the bottom 25% of the move that started in October of 2007.

A closer look shows that this move so far has been nothing more then a retrace of the brutal 4 week fall the market had in February and it took 2 months to do it.

While this move has helped to fuel the media that the market is recovering, the chart paints a pictures that's fair from showing any type of recover. Recover for me will be once the 20 MA on the weekly is pointing up and supporting. The 20MA is flat now which will likely create some choppy action the next few months and from there we'll just have to see where that 20MA decides to point our whether we get a long period of chop in this area.

SPX Weekly Chart:

RUT Hourly: Head and Shoulders Pattern Forming

The RUT is now working on building it's 9th leg of this rally and reached a resistance level today equal to the 470 area where a left shoulder was formed on the hourly charts.

The Daily Chart still looks VERY bullish as it bounced nicely off the uptrending 20MA and closed above the 50% level of yesterday's red daily bar.

The question now will be whether or not it has the strength to create yet another high to complete the 9th leg of this rally. One thing to keep in mind is that with this past years volatility, the market has been "over doing it" in each direction. Just when you think it can't go any further in one direction... it keeps on going. We saw this on the way down when it continued to ignore support levels over and over again.

Now that the market is retracing back up we're seeing some similar behavior. Therefore it's probably in your best interest to keep your positions sizes small and your time frame long enough to be right.

There is a high probability that we get a pull back on the RUT, but after today's price action there is no evidence yet on the daily chart to suggest that. It did briefly crack below the upward trendline yesterday, but marched back above it today and managed to get itself above the 8MA on the daily chart as well. Still bullish.

Just wanted to point out a possible head and shoulders pattern developing on the hour chart. It will need to close below 450 to break the neckline, and if the pattern completes the target would be 420. As you can see from the chart, the last pattern that confirmed was just the start of a larger move down.

RUT Hourly Chart:



RUT Daily Chart:

RUT: Nothing But Up!

The RUT created it's 7th consecutive high on the daily charts. Each previous pull back it was met with more and more aggressive buying.

This is the tricky part of trading in a bear market. Despite continued dismal data on current economic conditions the market has no problem completely ignoring it and moving higher and higher in the face of what seems logical. (Seems logical to fall right?)

To make consistent profits we need to trade what the charts are doing and not what we think they will do. Although there was some good resistance at 430, it didn't hold and we hit an intraday high of 476 today. This is where the MAs (Moving Averages) can really help to tell us what's really going on. If the 8MA and 20MA are pointing up, then that's what direction the market is heading. When a move is cooling off it will start to level off, but if it's pointing in one direction the probabilities are to trade in that direction.

An up trend can be characterized as strong when the price is staying above the 8MA.

It's at another area of resistance, but we'll have to see how it reacts tomorrow.

RUT Daily Chart:

VIX: Chart Shows No Worries Here...

According to the VIX chart the recession is over, rising unemployment is not an issue and sub-prime mess, AIG situation, continuing bank failures and Korean missles are no worries for the good ol' stock market.

The "Fear" Index closed below 37.50 for the first time since it floated above 37.50 in September of last year. Now, is there really no more fear in the markets, or should we learn a little something from this chart and look at what it's really telling us?
It's either telling us that all the doom and gloom is already baked into the prices which will allow the market to float up regardless of the dreary economic data OR that this has been another bout of irrationally exuberance (greed) jumping on a train that's about to smack into a wall.

The next few weeks will likely give us our answer, but in either case it's good to see that GREED is alive and well again in the markets because where there is greed, fear is just around the corner.

One thing that I constantly remind myself is that the economy and the stock market are often two very independent and illogical beasts that trade lock-step 50% of the time and opposite 50% of the time. The problem as traders is that no one sends out an memo to tell us which days, weeks and months they're going to be.

The most important thing we can gleam from that understanding is that there will be spurts of time where the market trends in either direction and that we are best to make sure we're on the right side of the trades regardless of what the news is saying.

$VIX: S&P 500 Volatility Index Weekly Chart

RUT: 5 Weeks Up, Bear Flag?

The RUT did put a string of 5 straight weeks of gains which is something it hasn't done since July of last year when it put together a six week rally that ended up being the current 52 week high before the market collapsed. That 6 week string turned out to be the mother of all bear flags as it dropped 50% from 750 down to 370 in the following 4 months.

This has been a nice relief rally and it may even continue for another week or two (I doubt it), but in the context of the weekly chart there is a strong possibility this is a bear flag just like the others that have all retraced 100%+ of those moves.

On the weekly chart it shows lower highs and lower lows. We'll keep an eye out on this rally, but so far it's another lower high which still supports the intermediate downtrend. I do respect that the current short-term uptrend, and until it breaks trend I am still short term bullish. Next weeks closing weekly bar will give us another hint as to where this chart may be headed, but notice what all the other bullish rallies set up to really be... nasty bear flags.

In a bear market, where there are lots of "white bars," there are generally some "big-ass red bars" ready to follow. (See chart for evidence)

Trade safe.

RUT Weekly Chart:

RUT: Hourly

The RUT broke 440 and grinded down to the 330 area, but still leaving some of the gap to be filled on the hourly chart for tomorrow.

A pull back is in progress and there should be some support at 429, but with the uptrendline now broken it's a tenative on whether it can hold or if it continues the move
down.

RUT Hourly Chart:

RUT: Uneventful Day, But Still Holding the Up Trend

The RUT session today created a small red body on the daily charts today, but is still holding the uptrend.

The hourly chart is looking a little weak, but it's been full of upside surprises the past few weeks so we'll just have to see what it has in store tomorrow.

A break below 440 will be a straight shot down to 430, so keep you eyes open for that one. It tested that area five times today and held. The sixth may not be so lucky.

RUT Daily Chart:

SPX: 23.8% Fib, Don't Get Too Excited Yet

It's been quite a rally the past 4 weeks, but when we pull out to look at the bigger picture on the daily charts, the SPX still hasn't even made it back up to a 23.8% retracement of the big move down yet. That means it's still in the bottom 25% of the chart which still must be viewed as weak.

The short term trend is up and we have to respect that, but also realize the intermediate trend is still down and there is a lot of overhead resistance ahead. If the market can hold up here it may be a great area to consolidate again if it can hold above 800.

SPX Daily Chart:

RUT: Consolidation

The Russell bounced hard off the 410 support area this morning and closed near the highs at 429.16.

The 432.50 area will be in focus tomorrow, as that's the resistance area it will need to clear and hold in order to give the bulls control. A break below 410 would had it back to the bears.

Head and Shoulders Pattern still forming but no confirmation yet.

RUT Hourly Chart: