Proof of further downside in S&Ps.

The US equity markets has not been friendly for the bulls the past 2 1/2 months. If technical analysis has a story to tell, it is saying we are going further downward.

Besides the fact we are at 2010 lows, there are other signs of this downturn continuing.  The S&Ps (chart below) has been trading between what was 2010 lows (1036.50) & the 38.2 fib level (1105.61).  It can be viewed as consolidation.  Technical analysis believes once consolidation is broken at the trend it is going (in this case, downward), and then there is a fierce move at that direction (again, in this case, downward).  In addition, volume has been proving the case as well.  Up days are on low volume, with higher volume on down days.

A pattern similar to this has occurred once this year.  The market consolidated at the top, with big days down on high volume, and smaller days up on light volume, a sign of an exhausted market.  It also had a very tough time making new 2010 highs (on light volume).  If you exclude the flash crash, it made a big straight move downward to the former 2010 lows at 1036.50, before consolidating, and making the move downward the market has been in the past week.

To further prove the technical analysis point it is perfectly normal to see consolidation with a continuous move in the direction the trend is going, take a look at the chart below, 15-minute chart of SPs.  Consolidations are shared in a circle.  Each consolidation formed a bear flag (on light volume), in which once the flag is broken downward, it is followed by a move downward on higher volume.  This pattern occurred 8 times; 7 times the move lower came. A day trader would sell SPs at the break.


About Clair Wyant

I am a foreign exchange & stock/ETF trader in Boston, MA. This blog will be dedicated to my out look in the economy, the financial markets, with an emphasis in foreign exchange. When I am not working, I enjoy watching sports, participating in recreational sports leagues, travel & spend good times with my friends.
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6 Responses to Proof of further downside in S&Ps.

  1. Jim R says:

    If I read it right, the RSI did NOT go below 30 on both $SPX and Dow yet on dailys. That’s not oversold enough. Right? Meaning another flushout before bounce to 1020-1040max.

    • Clair Wyant says:

      I use S&P e-minis (ES_F), not the straight SPX/S&P 500. I also do not use RSI, as it has screwed me up on my trading before (different story for another time). I did add it to the cart, for discussion purposes. It appears it is below 30, so there is further proof of more consolidation before a move lower. I put the chart below.
      ES_F (S&P) w/ RSI added

  2. Jim R says:

    thx. Apparently it was plenty oversold then, proof today. I could tell early the computers were on buy programs to 1060, the June 29 gap. No chance to short, or reason. Top of the gap is around 1075. I’m using SPY (107.50)1080 looks likely. Some think improved initial claims tomorrow leaked, I don’t buy that. Gotta be 400K at least, one would think. Breakdown below 1040, I’ll be looking for SDS possibility.

  3. Jim R says:

    well, 51 is above 50, right? Ha. All day the algo HFTs had SPY certain to close above 1070. 1075 maybe even 1080 tomorrow, the Primary Dealers are moving it up ahead of earnings, like they always do. Less volume, even easier for them. Great week of trading long and short. Gotta be very nimble, like SDS $37-38 intraday, to hedge long positions. COP under $49 paying 4.5% was a steal. T @ $24 pre-dividend of 42 cents, ditto-6.7%yield, while the media obsesses over Verizon, T is the buy. WIW is my best pick to park money, pays 4%,4 cents a month, buy 12.25 or under. WFC-PJ (WFC-J) paying 7.5% buy under $26, Wells will survive, preferred. WCO is their trust preferred I loaded at $26, look now.
    Good luck.

  4. Jim R says:

    Computers look to be taking SPY to 108 & DIA to 102, both resistances, both tops of cups(& handles)on 10-day charts. Will look to short SPY breaking below 106, not here.

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