The Biggest Week of the Year is Coming!
Personally, I'm more confident the elections and Bernanke will be negatives for the market. A win for the Republicans is better than we currently have, but it means gridlock. In a strong economy gridlock is good because no one screws it up, but gridlock in this economy could be bad because nothing functional is going to get done, which is only a slight improvement over the Obama/Pelosi agenda.Next week should be entertaining to say the least. The market has bought the rumor all the way up and the markets are over bought. We might get sell the fact next week. Yes, I still think the next measured move is lower.
Bernanke is going to do more of the same next week. Is there a magic number that Wall Street will see as working? I doubt it. It's like the 3 bears. That amount is too big or that amount is too small. Is there an amount of QE2 that's just right? Or will the 3 bears just take out on the stock market?
$SPX 60 Minute: The market is still in this uptrend but resting right on the uptrend line. I still like one more little bounce in price and on the MACD and then failure. Below 1,160 is bearish.
$SPX Daily: Still looks like an ABC pattern with price being held down by the middle pitch fork line. Price could pop and drop next week.
IBM: Pushing higher and testing the prior uptrend line. Maybe another push higher to the trend line while the RSI makes a divergence and then price to fail, for a bearish indicator.
JNK: Still looks like 5 waves up from the August low. RSI is over bought with a little H&S top. Both MACD and RSI ripe for rolling over with a break down in price.
$VIX: Still no decisive break in either direction. MACD is telling us it should be a break higher.
$COMPQ: Index is testing it's prior highs and over bought. Next week should be very interesting.
$TRAN: Testing it's prior high and the MACD is trying to turn down.
XLF: Nothing new here, still stuck in a narrow trading area.
$USB: It looks a little ABC so far, and if the markets are ready for some corrective behavior, we should see bonds move higher.
Readers Choice: We have two reader questions this weekend.
I love reading your blog and seeing all of the technical analysis that you do. Its always great to see another persons perspective on the markets and what they are doing with their money. I was curious what you think about Linn Energy (NYSE:LINE). It pays a pretty good dividend and has been doing well for the past couple months. It seems to me that companies that are involved in real assets, such as the oil and natural gas business, are doing really well right now. While the service sectors, such as financial companies, are really struggling. I was curious what your thoughts are about that.
LINE: On the daily chart, we see a powerful move higher, which is confirmed by the number of times the RSI was over bought while price kept going higher. That's very bullish.
The weekly chart shows price moving higher in an up channel. Often the fifth wave will fail at the middle channel line, which ironically is just above while the RSI on the weekly is over bought. In the past, the weekly RSI has proceeded a price correction of some kind. If I owned this particular stock I would be tickled at the very bullish moon shot, but I would be in the process of developing my exit strategy. Nothing goes up for ever and we are over bought on longer time frames. I would probably use $30 as my exit price as that's the bottom uptrend line. That decision stems from the risk management side of the trade. While this stock could shoot up another 10-20%, that might be the end of it for some time and could easily correct that much or more.
I'm a regular reader of your content and I have to say I love your measured response to market moves and how they show up on charts. Had a question for you, if you could take out the time.
I had been long Trina Solar (ticker: TSL) and sold out around $30...to me it looks like we are putting in what could be a H&S pattern on the daily chart, and there are momentum divergences on both the daily and weekly charts as well.
Being near the last high makes me think we might correct some and head down a bit. Was wondering if it is a short play from here in your estimation and what you think of the chart in general.
TSL: Wow, this one has all kinds of technical data and potential patterns in play. First, the stock failed at key resistance. At that failure, it created an ending diagonal in blue and maybe building an H&S top in green. Bearish divergences in red on the RSI and MACD. If you look closely at the MACD it went dead sideways in the red circle. When the MACD goes sideways that's usually a sign of continuation. Given all the bearish data, I think this one goes lower. The good news is maybe it drops down to $19-20 and builds an inverse H&S. That's my take for now. So, the reader has the technical picture correct and yes it's a short candidate based on the technicals I use for trading. I like the idea of scaling into it to minimize risk.
I want to thank both readers for their questions and their positive comments.
My Watch List
CVX: I have a 1/3 short position going currently and in the money. The stock has made a broadening wedge top. I'll state it again, $82 is a great trigger for the short trade. That will take us below key support and the uptrend line . That will further turn down the RSI and MACD and pressure the lower BB. I like it so far and itching to add to my position with a break of $82.
LZ: Big consolidation with a strong move higher. Stock has reversed and below the lower BB testing he uptrend line. BBs are widening and we have solid divergences. We could get a little bounce back to the lower BB but the chart looks bearish.
UNP: Another consolidation followed by a big up move. Divergences in place but stock is still at a high. If it rolls over, it's should follow the chart on LZ
CSX: One more consolidation pattern with a solid move higher. The trigger is the break of the uptrend line at $60.
UTX: Here we have a wedge up into a fade trade at resistance failure. I have a fractional short position going currently and below the blue uptrend line at $73.50 is a solid trigger for more short side follow through. We could easily bounce higher one more time.
MMM: Another wedge type structure and failure just above the prior peak with solid divergences. Stock has broken down and trading below the lower BB. Friday was an inside day and this has more legs to the down side. We could easily get a little bounce to the or just inside the lower BB.
FLS: One more wedge up failing at the prior peak resistance. Stock has reversed quite hard. Has solid divergences in place. Trading below the 200 day MA and the lower BB. Have to be careful of a little bounce back to the lower BB.
PFCB: Stock has broken down from an ending diagonal and traded down to support and the uptrend line. Below both is the trigger for the short side trade.
PNRA: Stock has divergences and price has rolled over to the prior peak/support. The trigger for the short side is the support line.