Thursday, August 15, 2013

SPY August 15 2013

SPY August 15 2013

The markets sold off on August 15, 2013, hitting levels they had not seen since July 11, 2013. SPY sold off hard right from the open and bottomed out about 40 minutes into the session. The rest of the session was basically sideways chop with a succession of bounces that were quickly sold off. The lows of the day were hit during the afternoon, and the close was near the lows of the day. The old uptrend channel is now history, the market is now simply choppy and indecisive with a downward short-term bias.

Overall, it was a big rinse. The Bears were in control, and 1700 now is a distant memory. After all the sideways action over the past two weeks that took us nowhere, it was clear that energy was building for a break one way or another. The outcome was downward, and there were some hints this might happen that we pointed to yesterday. Hopefully, longs lightened or terminated their positions before the big drop this morning, in which case they could watch today's sell-off with equanimity, play shorts if that's your thing, buy the dips after the first hour, and generally have a pretty good day watching the carnage and subsequent chop.

The danger is to think that there will be an immediate bounce-back after a day like this. That can happen, but the probabilities suggest at the very least a little consolidation in the futures in the 1650s region before the tone changes. The real congestion/support is in the 1630s, then in the 1610s. You want to buy into weakness, but patience is required if you want to make real coin on the bounce back up. Today's sell-off was a bit too orderly to be a real, panicky type of bottom. We keep saying this, but it's important: September is the weakest month of the year for stocks.

To the upside, 1666 on the futures is the key level. It was not breached after the drop today, challenged but never touched. A move above that which is not a feint that is immediately sold off is a potential signal to go long. Shorts would likely cover above there, and we would get some hot money along for the ride. A quick ride up to fill the gap is among the more likely outcomes.

To the downside, we watch, first, today's low at 1655.25, and second, a drop below 1650 in the futures. If selling develops momentum, more and more traders with big profits will start to believe this sell-off and prepare for paying their bills for the coming school year while they still have a little change in their pockets. The more time ES spends down in the 1650s, the more likely we see more downside. A rip back up at some point is likely, because that's been the pattern, but the probabilities say we get at least a quick, scary death ride lower first.

Tuesday, August 13, 2013

SPY August 13, 2013

SPY daily chart August 13 2013

More and more traders are noticing the daily dips and recoveries in the market and trading accordingly. Tuesday August 13 2013 was no exception, as the futures dipped to their usual spot in the low 1680 region and then recovered. The majority of the day, though, was occupied with sheer sideways chop, in the area marked out on the profile as having the spike in volume - the high volume node at the top. This area has drawn the market in for ages, and that trend shows no signs of ending.

This market is giving hope to everyone. Bears seem uncannily convinced that the market has to roll over, while Bulls have the past eight months of continual new highs to rely upon. The probabilities are slowly shifting over to the Bearish side, but just on the margin. The Bulls remain very much present. If you are daytrading, you should not be losing money this month during this sideways action.

Several have noticed that the market has been going sideways for the past week and also the past month. Actually, SPY hasn't gone anywhere since the late-May 2013 run higher after one of Fed Chairman Bernanke's virtuoso performances on Fed day. That May top didn't last more than a few minutes and was followed by a steep drop, but you can draw a line from that top to where we traded during most of today and it would be a horizontal line on your chart. The market may not have dropped permanently during that time, but it hasn't surged higher, either.

The continued failure to match the all-time highs of the first week of August isn't really concerning yet, but if it continues, that would be a good sign that the burden of proof has shifted to the Bulls. SPY now is in the very bottom of its uptrend channel, and if that breaks for good, it may be a sign that we are approaching the terminal phases of this Bull run. It's about due, of course. A dip to around the 1650 congestion area would be a good sign that the buyers are thinning out for now. We could also overshoot, and if true panic buying occurs for the first time this year, the 1500s are not out of the question. That might well just create a launching pad to new all-time highs this fall, though.

The head and shoulder pattern that tops at SPY 1709 is something we need to keep an eye on. It is one of the things keeping the Bears positive, but one good one-day run higher would take it out permanently. We just haven't seen one of those days in quite a while. Even the run a couple of weeks ago to the all-time high was lackluster. Market tempo has been tepid for weeks.

Standing back a bit, this remains a very good summer for the Bulls. "Sell in May and go away" was not a good plan at all. We haven't had the wild dips we had a few years ago, but on the other hand we haven't seen the crazy up days, either. It has become a dull market, with intraday moves that go nowhere, controlled by short-term traders scalping for their daily wages. A non-volatile summer is actually kind of welcome. That won't last forever, but it easily could continue through the end of the month. Just remember that September traditionally is the worst month of the year for stocks.