Out of Control and Highly Emotional: Alternative Views

By
Scott Myles
– November 15, 2008Posted in: Intraday Commentary

This post by Unersaettlich has been promoted from StockTock Social.

At least two other views of the S&P chart seem at least as justifiable as what Tony C presented. One especially has existed significantly longer than the others and is far more straightforward. The attached chart shows all three approaches. In all of them, the S&P may have to work hard to get above current resistance from the 5-day and 20-day MA’s.

The top panel shows Tony C’s “expanding triangle” approach, which may indeed be correct. If subsequent S&P action is indeed “out of control,” $SPX will soon break trend lines, Fib levels, etc. that would confine prices in the other approaches. I may well have jinxed myself into suffering painful consequences from such events. I could not resist buying leveraged bear ETFs (including -3x ERY!) near their short-term bottoms occasioned by the S&P “recoveries” in the afternoons of Thursday and Friday. I agree with Tony and the rest of the world that these were the work of the PPT (and possibly other exogenous influences, given concurrent movements in commodities, currencies, etc.). If the S&P rises well above 1000 on this wave, I will have a nervous few days hoping for a huge drop to the other limb of the triangle just to get me back to nearly even.

The middle (dark blue) panel shows a rather clearly defined (in turquoise) channel, which looks (to me, anyway) to be as justified as the expanding triangle. It shows a consolidation in a trading range between the mid 800′s and upper 900′s that could continue for some time, being gleefully swing-traded by all us levered ETF weenies until something else happens.

The lower (dark red) panel is my preferred view. It shows the S&P bounded from above for weeks by the same well-defined power downtrend resistance line established along the tops of several hourly candles two months ago. Support runs along the 840ish bottoms (except for the PPT-engineered bear trap that served as a deep-fryer for a few zillion shorts and (now former) owners of margined bear ETFs). Much influence also comes from Fibs in between, especially the $1000ish 38.2% level and a number of short-term $1000ish tops and bottoms, and the other Fibs separated by almost exactly the psychologically significant amount of $50, as if $1000 weren’t psychological significance enough. The big downtrend line crosses the $1000 Fib almost exactly at the last top to reach that level. Under this scenario, that fat white downtrend has never been breached, and was tested only once in nearly two months. It is now just above the 20-day MA, possibly meaning the S&P might not reach 950 again for months or even years, to say nothing of visiting four-digit territory. Indeed, the pennant soon comes to a point, so if this is really the right scenario, the S&P could drop thru 800 next week, not to return for some time, unless the PPT has some major legerdemain on tap, which may need to be potent indeed, given the “bloody waterfall” plunges that occur after the mysterious rallies that come from nowhere. My, how impressed the G20 folks will be.

About Scott Myles