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Tuesday, August 9, 2011

Intra-day: August 9, 2011


QE3 is so far looking more like QE1.9.  A promise to keep rates at current levels through mid-2013 is net positive for stocks, as it implies a stable interest rate environment -- thus, theoretically mitigating the risk of higher rates.

Of course, the Fed has no such power.  If rates get going to the upside, there's not a lot they can do.  The dollar traded off on the news, promptly becoming oversold.  DX has strong support just below these levels, with an internal TL at 73.82, the last low at 73.61, and combination TL and Fib support at 73.56.

A reversal as early as overnight or tomorrow morning is entirely possible.  If so, stocks' rally would no doubt be cut short.

Regarding stocks,  we came very close to our 2.618 harmonic target -- a bullish crab pattern that was supposed to kick in at 1098.86 (see original post below).   SPX rallied at 1101.54, a mere 3 points away.

We're also most of the way to an IHS target of 1185, seen here on the 5-minute chart. Two previous intra-day IHS patterns failed, so this one wasn't a gimme.

As far as additional upside, the EW picture is interesting.  I have believed for some time that the Jun 16 low of 1258 was wave 1 down and the Jul 7 high of 1356 was corrective wave 2.  If true, any bump up shouldn't exceed 1258.  Of course, if my wave 2 was really a truncated wave 5, then the upside could be greater -- possibly as high as 1295.

From a macro standpoint, nothing new to get excited about.  The Fed's statement underscores the crappy economic backdrop.  Lower oil prices might create some trickle down benefit; but those take time to reach the market.  And, in the meantime, consumers and businesses alike are certain to view the recent market action as all the reason they need to reign in spending.  I think most of the GDP estimates being discussed by TPTB are optimistic at best.

Last, gold made a nice reversal today.  Check out All That Glitters for additional discussion.

UPDATE:  12:50 PM  EDT

The IHS can't seem to seal the deal.  Like the failed IHS two days ago, the index is trying to rally, but there's a lot of divergence setting up on RSI and the histogram.

Why?  This rally was built solely on the expectation of Ben Bernanke riding in on his big, white Brinks truck at 2:15pm. 

Anything short of QE 2.5, and we should tank to 1100 or lower in a hurry.

More later.


The market's itching to make a comeback, but there's no obvious support that I can see at this level.  Nothing for the market to hang its hat on.

The best support looks to be around 1098.86.  This marks the 261.8 extension of the bullish crab pattern started at the Jun 16 low of 1258.07.   It also marks the 261.8 extension of a smaller crab started at 12pm on the 5th.

I'm tracking a small inverse H&S setting up on the 5-min chart that would complete at 1150.  It would suggest a rise to 1181 or so.

If the day goes by without any positive news from Jackson Hole, we could easily see a drop to those levels, setting up the powerful rebound everyone's looking for.

Rebound or not, the general direction is still down.  Most of us expect a rebound, because the daily technical picture looks a bit oversold.  But, keep the weekly and monthly charts in mind as well.


The weekly chart recently pierced the 200-period MA, falling 36 points below it at yesterday's low.  Many expected a bounce here, like in 2001 and 2008.

When it did so in 2001, it fell 144 points below the MA before backtesting it to 1315 for a 234-point gain over 9 weeks -- putting it above the MA again.  But, the next 13 weeks saw a 371-point decline to 944.

In 2008, the first pierce was for 23 points, followed immediately by a 126-point rally, then a 140-point decline, a 184-point rally, and finally a 240-point decline.  In all, the index crossed the SMA-200 five times.  The final backtest fell short of the MA and completed a decline of 910 points.

In other words, don't read too much into the idea that the MA may have beat back the bears.  Even in the short-run, we could have another 100 points to go before a serious backtest occurs (if playing by the 2001 rules.)

The big picture is clearly bearish.  The only two past incursions were the early stages of much bigger declines -- the 2001 and 2007 crashes.

Last, the monthly chart.  The last time SPX approached its 200-SMA in the midst of a decline, it plunged right through.  It was October 2008, and the 200-period MA was at 993.  SPX fell from 1167 to 840, a 323-point decline. 

It backtested, but couldn't break back through to the positive side the following month.  In fact, it took 10 months to break back on top after making a new low of 666.


  1. George H:

    As expected, no QE3. While there was a sense that the market might crash without mentioning of QE3, the market held 1100. Yes it dropped 50 points from the top. But it is still not a crash.

    This leads me to think the bounce that had been thoroughly sold in the past week is actually here.

    Thought? 1250-60 target?

  2. Hey George, wanted to move you over here as it's SPX related. We bounced about 4 points from our target of 1298.86 -- close enough for me. The first target I can see, if this gets rolling, is the IHS target of 1185. Further than that, I have to take a closer look tonight.