Technicals meet fundaments, Again

If you’ve been a reader of our blog you know that for months our argument was to stay long/buy dip as long as the “big kahuna” March 2009 trend-line on the $SPY held.    We broke it on Monday and it’s been a free fall since then — but then it’s also coincided with a lot of negative fundamental news.

For traders who trade off charts, we’re actually very much on the non-religious/cultish side of the powers of technical analysis.  But once you see this “coincidence” of charts lining up with news happen a thousand times you have to become a believer.    There was fundamental bad news all the time for months (Japan nuclear disaster anyone?  Greece anyone?)  But we started going into 2008 type crash mode ONLY after we broke the trend-line.    Yet another point for chart-chompers.

For further reading on our mentions of the importance of the March 2009 trend-line from the last few months please see:

http://highchartpatterns.net/march-2009-trend-line-sirens-calling/

http://highchartpatterns.net/like-a-zombie-that-wont-go-down/

http://highchartpatterns.net/it-is-what-it-is/
http://highchartpatterns.net/time-to-re-assess/
http://highchartpatterns.net/two-bullish-scenarios-and-one-bearish-one/
http://highchartpatterns.net/technical-symphony/
http://highchartpatterns.net/i-promise-you-i-will-punch-you-in-the-nose/
http://highchartpatterns.net/countdown-to-trend-line/
http://highchartpatterns.net/multiple-bull-advantage/
As for our plan going foward please read from earlier today:  Now we wait
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Now we Wait

We wrote yesterday that “The bounce is no surprise — the big question is whether it’s sold or not as we re-visit the underside of the March 2009 trend-line and whether we can close the weekly bar over the trend-line.”     Yesterday the head-fake option of a daily break, but not weekly break of the 2009 trend-line was on the table.   Today, not so much, not unless we rally 5% before Friday close.  Possible, but not likely.
Everything we wrote on Monday in our “It is what it is” post still applies to today.   The trend-line is broken, and bulls have to accept that.   The remaining and last standing support now is the horizontal support which held today:

The last two days we’ve sensed real fear — gold and USD ripping at the same time is often a good indication.    Today it was even more palpable as the miners were being blown out while silver and gold futures were green (they reversed later).       Market is waiting for some type of intervention from Europe.     So what do traders like ourselves do now?

1) We wanted to buy the blood on the last-standing support on $SPY which we did yesterday and today (tweeted entries and exits).    That was the last support long on $SPY for a while and we’re done with that trade.

2) If we base around here and build on the 122.5 base with some upward momentum we will find new long set-ups and trade those next week.   If we base around here and do not build any type of upward momentum then we will switch to short alerts.

Either way after today there’s not that much to do but wait for direction.   So far the bulls are holding but it’s by a thread, and distance away from 122.5 will be needed to build any type of confidence.   That being said the first test of the underside of the 2009 trend-line and 200SMA will likely be shorted.   Lots of action for a normally quiet and boring August.

No positions, all cash.

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Headfake?

The weekly bar closes on Friday meaning bulls have 2 more days to close that bar over the trend-line on $SPY.  This would make it a head-fake on daily but just a test on weekly.   Next few days will tell the tale.

Position, long SPY.

It is what it is

We’ve written for months about the big kahuna, the March 2009 trend-line, and how we would stay bullish until market proved otherwise with a break.  Well guess what, it’s here.  We believe we’re at the most important inflection point since the March 2009 bottom.     Here are our thoughts:
1.  $SPY is  just a chart, like any other chart.  Leave emotions out of it.   We’ve been talking about the possiblity of the trend-line break in our last 5 posts and here it is.  Now we’ll re-asssess and trade accordingly. We won’t change the plan or make excuses to deny the possiblity of the end of the bull market.   It is what it is.
2.  As we wrote before today is day 1 of the break and head-fake is still an option on the table.    We want to see how the weekly bar closes on Friday.   The next few days will be absolutely pivotal.   A head-fake break down and a continued move up is definitely an option (and our most preferred one as we invariably make more money in bull markets).
3. We’re extremely oversold and way out of the Bollinger Band so a bounce is likely.   That’s not that important.  What is important is whether the bounce is sold (making it a dead cat bounce).

We look at this chart and at best we can be neutral due to the lack of close of the weekly bar but we cannot by any means feel bullish.  This is THE trend-line we were trading against for months and now that it’s broken we’re not going to change our story.  Sure we’d be happy to trade long for a bounce (especially $SPY 123, but if we bounce before that tomorrow we’d try to ride that too) but if you ask us our intermediate term opinion we’d say, neutral to bearish, at best, with a hold on judgement until weekly bar finishes on Friday.

A break is a break, and denial is a river in Egypt.

Time to re-assess

We have written for months that we would buy the dip until we broke the 2009 trend-line.   Well, today we broke the 2009 trend-line.  Our last support idea was a break of 2009 trend-line and overshoot to 50SMA weekly, which worked well for a small day-trade today.  However, the lack of buying on THE break of the big 2 year bull-market and 50SMA on weekly is without a doubt a red flag.     Today is day 1 of the break.   Head-fake is still an option and definitely on the table — the tale will be told not by just today’s action but by the next few days.
Our biggest focus now is whether dip-buying mentality has changed.  If today is any indication then yes, indeed, dip buying has changed dramatically.  But again, one day not enough to make a judgment and we’ll see how the rest of the week plays out.
For our trading we’re back to more defensive trading.     If this is just a head-fake then we’re fine with missing any bottom and playing it safe.   Our plan all along has been reversion to mean trades against the trend-line.  Today we lost that strategy edge and again, as per the plan, we’re stepping back.

Clean break of $IYT two year trend-line.   If it’s a head-fake, great, but we’ll wait and pay higher prices on long set-ups than buy the blood on a clear break.

Two bullish scenarios, one very bearish one

We wrote this AM that the 2009 trend-line was at 127.5 on the $SPY — look where we bounced, at 127.53 with $SPY (currently at 128.1).   We can think of two bullish scenarios and one bearish scenario:

1. We hold today’s low and distance ourselves ASAP from the trend-line test (currently at $SPY 128.1)
2. We break the trend-line, hit stops, reset, and bounce on the weekly 200SMA at 126.5

And the bearish scenario is to base on the trend-line, break down, and for the first time in 2 years, not bounce as the dip-buyer mentality finally changes.  Then we’d have to deal with the first important technical break-down of the year on the March 2009 trend-line failure.
We perform better in bull markets and thus are rooting for #1 or #2, however considering how close we are to a major inflection point we’ll be looking to have a plan in action also for #3.    We scalped the $SPY today for some dinky profits (i.e. small) and are happy to be on sidelines in this news tape.  Next time we’ll get involved is on any reversal of 126.5 or pay up for a bounce on any stocks that set-up long.

Technical Symphony

$SPY is wedged right now between the descending 50SMA (where it reversed today) and ascending 200SMA (where the selling paused).

As an added bonus we have the all-important 2009 trend-line just over 127 and then the weekly 50SMA at 126.50.    Inflection point indeed.  As per our post on Friday we’re looking for a break of the 2009 trend-line — ideally a head-fake through and then bounce on weekly 50SMA at 126.50 zone.