$SPX 60 Minute: Was that a wave 3 gap down today? Something to keep an eye on. Price down looks super impulsive. However, the MACD is now below the low the MACD made on this time frame during the May 2010 bottom. I view that as a confirmation of market weakness, but we are due for a bounce. But given the selling pressure and market structure, at this point we have to view a bounce as correctional within this down draft for now. We have very solid resistance now in the 1,250 to 1,260 zone, and we could at some point get the classic back test of the resistance area.
$SPX Daily: Today I'm going to present the wave count the way the late Goran Zayer might have. He we'd have labelled this top as a wedge even though Wave E didn't make a new high, and he would have called that the bifurcation point. You could also view that as a truncated high for the market. With today's sell off we need to be thinking about price targets, which on this chart is the black line based on the pattern and the blue line based on price support. Even though we are very over sold and due for abounce, we could see this down draft expand. If the bulls are going to regain this market a strong push over the resistance line is needed.
On this daily chart we see the BBs are still widening with price well below the lower BB. This is where you see a little bounce to something inside the lower BB, but then a another leg down.
$SPX Weekly: Unless the market can rally hard tomorrow, the weekly chart will close beneath the uptrend line with the MACD now sliding lower. We have cluster support just 50 points below and given today's move, not that far off. Will price close the week out tomorrow this far below the weekly BB or does it rally back? That will be interest data!
IBM Daily: Price continues to slide and closed that gap today. Divergences in place on both the RSI and MACD. We are not that far from major trend support. Again, a declining IBM is bearish for the over all market.
JNK: The risk off indicator sitting right on major support!
AAPL Daily: Price broke down from a very small H&S top pattern. The only thing missing is follow through. The second little bearish indicator for AAPL is price pushing below the cluster support zone on the red box. With the MACD just beginning it's roll over, we should test that zone in the coming days or next couple weeks.
AAPL Weekly: We have divergences on the weekly RSI. Most interesting is the price behavior of the MACD. It traced out a wedge, then broke just below the bottom wedge line followed by a bounce to the apex or middle wedge line. If it's following some classic wedge behavior then the MACD should reverse and head sharply lower. That indicates price weakness is coming!
AAPL Monthly: If I owned AAPL, I would be in sell mode. I know it's the market favorite but we have divergences on the RSI and price on the monthly has 5 clear waves up on the monthly with the MACD trying to roll. If that 5 waves up is correct the pending correction could go all the way back to the prior 4th wave at $75ish, at least to the bottom trend line at $275ish. It seems like the risk/reward ratio has too much risk built into price.
The Risk Charts: Yesterday I said it was interesting to see the daily risk chart had not pushed into a new low with the market. Today that changed, which for me confirms the market's weakness. Both the daily and weekly charts are well below the lower BB, so we either get a bounce soon or we are in crash mode!
$VIX Weekly: Price jumped right to the down trend line and price support. Do we push higher or is this where the stock market has a little bounce?
$CPC Daily EMA 5: Now we have an extreme in price and the MACD. We should be much closer to some kind of near term bottom in the markets. A bounce may be coming, but I'm not trading that, in fact if we get the bounce, I'm looking at when to short it.
$RLX Daily: This is my favorite short opportunity....retail. The index has formed a broadening wedge top and the only thing missing is a fall in price below the bottom wedge line to confirm. Fundamentally, I think retail is the next dog, and technically we could get confirmation of that soon. I'm going to be keeping my eyes out for individual retailers to short or re-short soon.
UUP: Did we make a double bottom based on closing prices?
CMG: Price moved right down to the first black trend support line. I expect this to fail at some point in the near future based on the divergences in place, a weak stock market, and the MACD still heading lower but not below the zero line.
WYNN: Price has now declined to the bottom channel line. Below that and cluster support is the next stop.
From my Trading Desk: Today we bought UUP and shorted CMG. We also took a gain on closing a 2 month old short on TIF. Yes, I road a short squeeze, but since I've been through my share of those in the past 15 years, and I know I can be a cycle early when shorting, I held it waiting for things to correct. This leads me to discuss something brand new on my website:
Riding the short squeeze:
Rule #1: never discuss it with anyone. People tend to be too emotional and that can easily rub off on you, and since most people have no experience at being short they fear being short as some kind voodoo investing. So, when your being squeezed keep it to yourself and then move to the next rule to get back to the technicals.
Rule #2: when your short trade goes against you, you have to look at the next two time frames technically to confirm your view. In this case, I was trading the daily chart. The weekly chart suggested a top of some kind was near and I was really just one wave cycle early. Then riding the short squeeze needs to work within your trading results or the following rule:
Rule #3: if you have a solid batting average of trades, you can let a couple of trades last longer if you truly belive they fit rule #2. In my case, from 2003 to 2008 I've averaged 85-88% profitable trades. During the past couple years I'm probably around 70%. Therefore, if I bat for average and I'm profitable more often than not, I can be patient with the occasional short squeeze. Again, rule #2 has to be in force and/or the last rule also needs to apply.
Rule #4: your analysis leads you to believe a major top in the stock market is pending in the near future. A declining stock market like that of the past 10 days can easily bail you out. Ditto goes for sector analysis. I think the retail sector is making a major broadening top, and therefore do not mind holding a short within that industry.
All of the above is something I try to avoid as much as possible. I by no means expect to be right all of the time and in fact I'm not. When I realize I'm not I try to take that trade down usually for a small gain, but sometimes for a small loss. That's the preferred risk management style for me, which keeps my batting average up. However, from time to time I will ride the short squeeze and the above are my rules to riding the short squeeze. Shorting stocks or riding the squeeze is surely not for everyone!
Anything is possible tomorrow with pretty rampant fear short term and a big jobs report heading into a weekend. I might take tomorrow off and see how the markets finish the week. I'm still a touch more concerned about being on the wrong side of the next 300 points.
Happy Trading
J.D. Rosendahl, Rosey