2nd consecutive near term target on the S&P 500 fulfilled

The 2nd "Bull Flag" continuation pattern target on the smaller degree 30 min timeframe, that coincided with the breakout of 1600 and major resistance on the Daily timeframe has been fulfilled.  A third flag was developing and in my experience three consecutive flag patterns is getting "over extended/overbought".   An X marks the spot where the third flag will have failed. 

Have the shorts/bears in the old open interest below 1600 finally been squeezed out of the market at 1671?  Are the Longs "saturated" yet?  Are the Bulls exhausted?  Time will tell...

Below is a look at the near term 30 min chart, left hand side, and notice the drawings of the recent patterns.  Right hand side is the Daily chart. 

(Click on chart to expand)

Speaking of signs of "overbought", and I am not one to rely on "technical indicators", but one indicator that has a history of overbought and oversold readings in the big picture is the NYSE Summation Index.  I had first learned about this indicator from Dave Fry, and a reading above 1000 considered "over bought".  It is now nearly pinning the needle or red lining it at +1200.   See chart below.

Those assets with relative weakness may take it on the chin with a correction in the S&P 500, and in that case I am looking forward to finding the "diamonds in the rough" of the hard assets and hard asset producers.   I see a correction of 5-20% in the US Equity market as ripe as ever for various reasons, including the weakness in Commodities and the most glaring "Price/Volume" divergence I have ever witnessed.  But what is "inevitable" is not always "imminent", however I am prepared.

I touched on the previous flag patterns in the S&P 500 with this post here:  http://scottpluschau.blogspot.com/2013/05/the-most-important-futures-chart-in.html

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Another day the AD lines are non-confirming the bullish price action in the S&P 500 and the Nasdaq

I have never seen this so often as I have in recent times.  The Nasdaq Composite Index was rallying late in the afternoon with the Advance Decline Line dragging and non confirming any new high for the entire day after the open.  There is only one explanation that I see, and that is Speculators using Algo type programs to buy the Index Futures. 

In the intraday charts below from Friday, the Nasdaq Composite Index is the left hand side, and the Advance Decline line is the right hand side. 

Notice in the white bubble the high in the AD line at the open, and the high in the Index at the close. They are disconnected, and it is divergence.  In fact the white bubble for the low of the day in the AD line was just prior to a breakout and surge in the price of the index to new highs.  The AD line is a leading indicator.

(Click on charts to expand)

Here is a look at the NYSE intraday on Friday.  Notice the white bubble for the highs near the open in the AD line, and the white bubble at the close on the NYSE Index.  The AD line was lagging or non-confirming the price action. 

The Weekly chart in the S&P 500 (right hand side below) is starting to look like it is heading up at a 90 degree angle, but it is surprising to see weak volume considering what looks like hysteria in price action.  The "blow-off" top is still a possibility.  The blow-off top is when a market sees a steep and rapid rise in price and volume, only to reverse and see a steep and rapid decline.  The pattern right now is nearly identical to Silver's rise in 2011 toward $50 an ounce. 

I almost feel that I am a spectator at a dare devil type event and the dare devil is speeding on a motorcycle toward the ramp, and I want to look the other way.  Except in the futures market you can profit in the burning flames and wreckage initiated by the dare devil.

The recent price action in the S&P 500 shows in the left hand side chart below a "Bull Flag" continuation pattern on the 30 minute chart, and the target using measured rule for that pattern is 1671.  The shorts below 1600 may be flushed good by that point. 

One futures contract that has frighteningly low volume on the Daily chart is the Russell 2000.  Notice the 50 period moving average in volume in in the lower sub graph has not been reached since the breakout of resistance on the Daily chart, and in fact the moving average in volume is actually beginning to roll over and head south.  Breakouts should be accompanied by above average volume historically speaking in order to increase the probabilities of sustaining the trend. 

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The most important futures chart in the World right now is the Nikkei 225

The Nikkei 225 is going on a parabolic move on the Daily chart in which the rally is so intense it appears to be going up now at a 90 degree angle.

It reminds me of the "Dot Com" days, and some of the charts I saw that imploded and/or cratered not much longer after this.

One recent example is the chart in Silver back in 2011 when it was approaching $50 it was going at a nearly 90 degree angle. 

Left hand side on the chart below is the Silver Daily chart in 2010-2011; right hand side is the Current Nikkei 225.   Pricing Patterns, Volume, Phase of Development, are similar because the underlying contract trades in an "auction".  The theories/principles of Auction Market's apply to all futures contracts in all time frames.

(Click on chart to expand)

What is important here is the S&P 500 seems to be following the Nikkei 225's lead with relentless demand, demand I believe is rampant speculators with Algo's.  But besides that fact there is relative weakness in just about every risk asset compared to the S&P 500.  I believe the entire financial universe is at the mercy of the "risk off" environment when it comes in the S&P 500.  I believe the S&P 500 is ripe for a 5-20% correction, for various reasons and what I feel are valid reasons.   Will you be prepared or ready to find the "Diamonds in the Rough" at that time?

Picking Tops is a deadly ego game, but if I was forced to pick one, and don't hold me to it, it is 1671 in the S&P 500 which is the "measured rule" of the most recent "bull flag" pattern on the 30 min chart. 

Notice on the left hand side where the first flag appeared, it coincided with the Breakout above 1600 on the Daily chart, right hand side chart.  Flag patterns are continuation patterns.  The first flag had its "measured rule" target fulfilled.  The most recent flag puts the target at 1671 using measured rule, which is taking the distance from the top of the flag pole/mast to the bottom of the flag pole/mast and adding it onto the breakout point.  Demand can shut off when the pattern is fullfilled as the losing side of the contract gets flushed out.  In regards to flags and measured rule, the saying is the flag flies at half mast.  I have seen three flags in a row before, so one more is certainly possible, but at that point I would say the term "over extended" or "over bought" would apply.

(Click on chart to expand)

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Another day with the Siren going off in the Nasdaq Composite Index

And the Siren I hear is of the "warning" kind.

Here is a look at the Nasdaq Composite Index Advancing Minus Declining Line in Issues for Monday May 13th, 2013.  While the Nasdaq Composite Index was up on the day, making new 52 week Highs, this indicator was NEGATIVE 176 Issues at its high point of the day which can be seen in the white bubble high on the chart below.

(Click on charts to expand)

The next chart below of the Nasdaq 100 futures shows the volume has not been above the 50 period moving average since the breakout of trendline resistance on the Daily chart.

I believe for many reasons it is the rampant speculator pumping the market higher, such as those who write "Algo's" on the Major US Equity Index Futures.  I do not believe it is the Long Term Investor who is involved, making these markets ripe for a 5-20% correction.

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There is another major pattern developing in Silver...

The last major pattern in Silver that was laid out in this blog was the Bearish "Unorthodox Head And Shoulders" pattern on the Daily chart.  The waterfall decline off of Silver was no surprise.  The link to that piece is here: http://scottpluschau.blogspot.com/2013/03/silver-is-coiling-for-big-move-platinum.html

The good news for the Bulls was the "Measured Rule" of that pattern was nailed, and supply can shut off temporarily when the measured rule is fulfilled.  See next chart below.

(Click on charts to expand)

Next chart below... What I see now in Silver, that deserves attention for "failure" or "confirmation" is the potential "Bear Flag" pattern on the Daily chart.  The "Measured Rule" of this pattern is around 17.00.

The textbook flag has increasing volume in the flag pole/mast and diminishing volume in the flag, and then an increase in volume on the break down.

I am prepared for whatever the COMEX throws my way. 

Twitter/Stocktwits/Linked In @ ScottPluschau

Email:  ScottPluschau@gmail.com

What was odd about yesterday's mini flash crash?

While the S&P 500 and US Treasury Notes saw a wicked reaction intraday, Gold and the US Dollar Index hardly paid any attention it seemed.  Notice in the chart below, where I highlighted in blue rectangles the violent price action and reversal, and compare them to what took place in Gold and the US Dollar Index around the same time yesterday.  The Gold and Dollar Index look as they would on any day, with normal fluctuations.  The futures are a zero sum game and in those few minutes, heavy volume went off in T. Notes, and the S&P 500, over 200,000 contracts traded for each one in less than ten minutes.  Which means there was a lot of money made and a lot of money lost. 

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Waterfall declines in Silver and Gold

The greatest chance for a waterfall decline is when a contract is riding a dowward sloping trendline in my experience.  This didn't take place with the first break in support in Silver, but the next break at that swing low was a gusher.  One thing that may have opened up the flood gates in Silver was the fact that it failed to follow through to the upside when the prior support level was initially taken back.  That was a major failed opportunity for a change in trend.

(Click on charts to expand)

Silver

Gold

The "Hard Asset" Model Portfolio premium service has no positions in the Precious Metals and I am welcoming the carnage here for the opportunity to invest for the Long Term.  Currently the Hard Assset Model Portfolio has 15% allocated, with 85% in cash.  It is liquid and ready to take advantage of what I see are signs of the inevitable.  Which will be bargains in Hard Assets, and the Producers of those Hard Assets with a US Equity market correction, or sustained Global "Risk Off" type environment.

The last trade to the long side in Gold in the "Swing/Position" trade model portfolio was exited at $1,666.  The path of least resistance has been lower since then.  The patterns in price and volume should not be ignored when trading in my strongest belief in regards to "Risk Management".  There is nothing more important in this business than "Risk Management" and chart analysis plays the most critical role in that with my methodology.

Sign up for for a premium service in May by sending me an email.  ScottPluschau@gmail.com.

Information can be found in the tabs at the top of the blog on the two model portfolios.

Previous metals posts on the blog that are worth the time to look back on are here: http://scottpluschau.blogspot.com/2013/04/gold-and-silver-patterns-had-measured.html
here:
http://scottpluschau.blogspot.com/2013/03/silver-is-coiling-for-big-move-platinum.html
and here: http://scottpluschau.blogspot.com/2013/03/precious-metals-morning-special-gold.html

Most blog posts are posted to my accounts at Linked In, Stocktwits, and Twitter @ ScottPluschau

The remaining lines of Defense for the Bears in the Russell 2000, Nasdaq 100, and S&P 500

Yesterday the S&P 500 mini futures had bullish price action and increasing volume for a change.  When it took back the extended backside of prior trendline support it was "Risk On".  If you day trade, and you ignore the key reference areas of the chart, you do so at your own peril.  I have highlighted this on the Hourly chart left hand side below.

(Click on chart to expand)

The right side chart above shows the S&P 500 is at the backside of trendline resistance on the Daily chart and one such scenario that is possible is a "blast off" busting through here.

I mentioned in the morning update to subscribers the most important contract to keep an eye on yesterday going into the trading session was the Russell 2000.

When it took back major overhead resistance, there are two things a trader can do, 1) go long, or 2) stay on the sideline.  Trading short is not an option.  There is minor resistance at the upper extreme of the Balance Area, but above there, the path of least resistance is higher.

Nasdaq 100 exploded through the extended trendline on the Hourly chart (see blue oval), and like the S&P it is at trendline resistance on the Daily.  Notice the previously failed breakdown on the Daily at the major trendline and the reaction since.

One last chart to look at that is practically unbelievable is the NYSE NHNL indicator which measures the new 52 week highs minus the new 52 week lows, and it is still lagging or unconfirming the highs. 

Here is the Nasdaq NHNL, which is also stunningly lagging and unconfirming.

There are key reference areas, and there are favorable trade locations in relation to the key reference areas to trade from.  But most important is risk management. 

The swing/position trade model portfolio has had one short in Equities in the past three months and it was in Emerging Markets, which was and is still showing relative weakness, however even that trade had to be exited (at a small profit).

Plenty of opportunities to short may still be coming, and they may be the greatest opportunities ever, but the bottom line is a trader can't fight the tape for long in this business.

Stocktwits and Twitter @ ScottPluschau
Email:  ScottPluschau@gmail.com

Nasdaq 100 reverses back to support.

In yesterday's post I mentioned the Nasdaq 100 had a potential change in trend coming on the Daily chart, and initially when the trendline broke it was downhill, but the Bulls were dip buying on the open of the day session and didn't stop for the most part pushing the Nasdaq 100 back up to the prior trendline support.  This was a major reversal and you can clearly see a big "wick" or bottoming tail on Friday's price action.

What I would want to see next week in order to trade long is if the Equity markets are able to follow through on Monday with this momentum.  Near term the NQ is still trading below the break of a significant multipoint trendline on the Hourly chart.  If early on Monday the market is weak, I will be favoring the short trade setups.

(Click on chart to expand)

Nasdaq Composite 52 week highs minus 52 week lows indicator went negative in the morning and closed just above zero.  Under the hood things are weakening still.

The key reference areas, trendlines, support and resistance levels, and developing patterns in the near term and bigger picture are shared each morning in the swing/position trade premium service.  A secondary focus in the updates for the month of May when the next subscription begins will be an education on Auction Market Theory.  Email for interest.

Stocktwits & Twitter @ ScottPluschau
Email: ScottPluschau@gmail.com

Gold and Silver patterns had "Measured Rule" fulfillment..

Gold futures developed a "Symmetrical Triangle" over a five day period that can be clearly seen on the 30 minute chart.  The breakdown point of the triangle was at approximately the 3/4 mark toward the apex, which is ripe for a sharp reaction in my experience.

The "Measured Rule" target was reached in a fraction of the time it took to form the pattern.

Gold is finding support at the major trendline on the Daily chart.  Some times the supply can shut off temporarily when the measured rule target is reached.  There is still potential for the flood gates to open up again below major trendline support.

(Click on chart to expand)

Silver lost support of a "Coil" on its Daily chart (right hand side below) and the "Measured Rule" of this pattern was fulfilled as well.

Silver is sitting on major trendline support now, which is a downward sloping trendline and this resembles a "Slide".  "Waterfall" like declines have the greatest probability when these types of trendlines break down with volume.  Will the supply shut off after the Coil measured rule was fulfilled?  Time will tell, but I am ready for any reaction beforehand.

These patterns were laid out to subscribers in the weekday morning updates to subscribers before these breakdowns in advance.  Stay in tune with the ever developing and changing patterns in price and volume each morning with the premium service. 

Risk management starts with knowing where there are increasing probabilities for an increase in supply and demand.  One can always re-enter a trade when the market does not meet expectations.  Email for more information on the premium services that are offered.

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Email: ScottPluschau@gmail.com