Wednesday, September 8, 2010

Update

You have to look closely here. The light red horizontal trendline is the $110.50 SPY resistance level. Price rising since 2 p.m. created the bear flag or what was a bearflag. The diagonal trendline shows the support of the bear flag, below that is a break of the flag which we have now. The red arrow is the continuing negative 1 min divergence in the SPY. and finally the thick red horizontal line represents the point in which 3C would be in a leading negative divergence as it crossed below that level. Compare prices to the far left of that line to prices at the far right of the line0they are obviously higher, now compare the yellow 3C indicator at the two relative points. This is a leading negative divergence so there has obviously been some trading by the market maker which is extremely common as they are also traders trading their own accounts as well as making a market.

While we may close higher today-again I warned this could happen in a false volatility move-"shaking the tree" the lower price moves down, the longer the wick will be on the daily candle. When you see the daily chart at the close, a long wick is extremely bearish, even on a close higher so this doesn't alarm me.

Watch the diagonal trendline, it's not uncommon for a rally to test that resistance (former support until prices broke below it at 3:10 p.m.

2 comments:

Mr Pink said...

Hi Brandt,

I know i've mentioned this subject before, but what are you thoughts on the following article:

http://www.zerohedge.com/article/retail-capitulation-stock-outflows-surge-just-under-10-billion-18th-consecutive-week-record-

How is it possible that $64billion has been pulled out of the market in the past 18 consecutive weeks and yet the markets are at roughly the same level they were 18 weeks ago?

If $64billion of stocks has been sold, who's on the other side of the trade to keep the stockmarket roughly at the same level despite all the selling?

I certainly don't think it's the average joe who's pumped in $64b in the past 18 weeks. Surely, the only party with big enough funds to be on the opposite side of this selling is the FED and other privately owned central banks with their respective governments complicit in the actions?

And if it is the FED that is in the market daily keeping it propped up with freshly printed cash (an activity that isn't audited), how does this affected our bearish outlook?

Surely this is different than the late 1930's in the fact that transactions are electronic and the FED can 'intervene' in the market, anonymously, instantly and with effectively unlimited funds when they feel necessary.

And if the FED are working so hard at keeping the market up for so long, why would they suddenly 'give up' and let the market fall?

Brandt said...

I read the article, I can not answer your question under the assumption that the Fed is buying securities the article talked about the outflow of money from mutual funds fo that's average Joe taking their money out from work 401k plans or investments they've made and putting it into other asset classes, likely treasuries and CD's, things of that nature.

When I show you breadth readings that's what we are talking about, the market advancing in a sickly trend, there's not wide breadth supporting the moves. This can be accomplished by manipulation very easy for smart money, but as the article referenced, only for a time because instead of building a market on a solid foundation it's more like a house of cards. You have to remember that they are pushing up the averages, which is price only, it is not accounting for the amount of money in the market, only the net price and we have seen this trend develop for awhile indicating a "thin" market where you can have the average itself advance, but the advance decline line can actually be negative meaning more stocks declined then advanced, but the market's are weighted by price. Just for sake of example so I don't have to list all 30 stocks, lets pretend the Dow was comprised of 10 stocks. Again, for the sake of example, lets assume they were MMM, IBM, AA, BAC, GE, PFE, INTC, CSCO MSFT and T. If MMM and IBM both gained 1% and the rest of the other 8 stocks declined 1%, you would have a negative breadth reading. You'd have one advance and 4 decliners. that's very thin breadth, BUT.... assuming that scenrio were true, the DOW 10 would still show a net gain for the day-even though only 2 stocks were up 1% and the other 8 were down 1%.

So you can see, the averages can advance even with 4 x as many stocks declining to ever 1 that advanced. The Dow-10 would be up for the day. So that's why you see what you see, but on the other side, if all 8 were to advance 1 % and MMM and IBM both closed lower 1%, you'd have very positive breadth, but still a net loss in our DOW 10.

Do the math and you'll see this is the case and it's why I watch all of the breadth readings. When the market gets thin, sooner or later it will fall.