Financial News

I just wanted to say a few words about the general broad market (Dow, Nasdaq and S&P). I will keep it short, but felt it was important to mention for the simple reason that knowing the primary direction of the TIDE in my experience is very important for the individual trades and individual stocks. If you have the TIDE on your side then there are much better odds that the individual trades or setups will work out. Yes or course it is always a trader’s market and there is always a trade somewhere, but it does not hurt to have the 800 pound gorilla (broad market) as your body guard.

I have been following the S&P 500 closely during the last few months and all the other major indices. Anyway the bottom line is that all of the indices are OUTSTANDINGLY BULLISH! Even now as we are at the 52 week highs, I see bullish breakouts in the indices and powerful sustained trends UP in the major averages.

The reason why I am mentioning this is now is because if I have good knowledge about where the broad market is going then it raises my confidence level on individual trades, especially during broad market breakout periods! And even more so during statistically bullish seasonal week of Thanksgiving!

Perhaps you know this already so then it is just a double mention in your mind. But I cannot overemphasize enough how important movement in the broad market averages is to individual trades.

In my experience, there are occasionally sweet spots in the market. These occur when you have new 52 week high BREAKOUTS in the major indices. What the breakout to new 52 week highs in the broad markets does is start to light the fuel of a speculative frenzy. It is a time of excitment and relief all at the same time. The OTC BB market starts cooking as well. The Dow Jones Industrial Average has been trading in a sideways trading range for 2 FULL YEARS! This is an enormous amount of cause and I believe the breakout we are not witnessing will give us a good sustained run at a bare minimum right into the end of this year.

So we have the TIDE on our side.

Ok, so we have the backdrop for a speculative frenzy…

I cannot make you believe we are going to enter a very bullish upswing in the broad averages.. everyone has a different opinion. My only point is that knowing we are going to have a very bullish upswing in the broad market averages can add to your confidence in some of the individual trades I am about to mention here.

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The S & P 500 powered down with volume today.. Quite heavy volume too. A test of 1163 is starting to look like a very good possibility now and would at least open up the possiblity of that reverse head and shoulders pattern setup I mentioned in an earlier posting.

After looking more carefully at this index it appears that a sell signal was triggered on June 22nd 2005. The high for that day was 1219.59 which tested the high for the 17th of June which was 1219.55. Not only did the 22nd price bar test the June 17th price bar, it also finished with a close below the 17th price bar and on dramatically lighter volume.

The volume for the 22nd of June 2005 was 1.38 billion and the volume for the 17th of June was somewhere near 2.5 billion. The June 17th volume was skewed by quadruple witching.. so I am a bit perplexed as how to make a judgement on whether I can make a valid volume comparison given the quadruple witching skew. Either way it looks like a comfortable sell signal to me.

The other thing going on with the S & P as you may have heard me mention several times on other indices is a potential bearish monthly MACD cross coming up on this index. We do not have a negative or bearish crossover yet, but it is starting to look like this is the way it wants to go..

So as of this writing the bias to me is definitely bearish with the next possiblity and analysis being a run for and test of 1163. It will be interesting to see how the volume comparison is at that time and whether it means more selling or a bounce and reverse head and shoulders pattern.

For the S & P to avoid a bearish monthly MACD crossover, it is going to have to pull a rabit out of the hat going into the end of this year.

Thomas

P.S. An interesting side analysis here is the way this could play into the gold market. SOMETIMES the gold market moves inverse to a bearishly moving broad market as a hedge. An extra bearish broad market could further support some of the bullish gold clues I alluded to in my previous post on the Gold Market.

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I am still open to the possibility of a reverse head and shoulders pattern being created on the S & P 500 index.

Today we declined on big volume from the highs and makes me think my previous article of ’summer doldrums’ could be kicking into effect thereby delaying the big upwards breakout in the S & P 500.

The fact is that July and August can be horrible months to trade and a horrible time to get real momentum and adequate volume upwards in the market. Let’s face it, a lot of the big money is at the beach and body surfing on cape cod!

So here in this chart I just drew a brief sketch of a different possibility, a reverse head and shoulders pattern that could be in process right now. Further confirmation is needed however and the first sign will be a return to 1170 on the S & P to complete the creation of the right shoulder of this reverse head and shoulders pattern.

I am not saying that this WILL be a reverse head and shoulders pattern. Just open to the possibility of it being one given the probabilities of slow low volume lethargic summer trading…

Time will tell as they say.

I am still viewing this as an overall consolidation before break out to new highs down the road. This is the preferred scenario analysis for now.

Will update if new developments warrant on the S & P 500.

Out.

Tom

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The one thing I forgot to mention in my previous post regarding the S&P 500 breaking to new highs was that we cannot rule out a delay of the breakout due to ‘low volume summer trading’ ! The low volume factor was ignored however on June 17th. And it was a Friday at that! So at this point I do not know whether to ignore the factor of summer slow trading or open myself up to the possibility that it will not be a factor this time.

This does bring up a general point worth mentioning. Is it even worth trading or following the markets during the slow summer months? I suppose it depends on what you favorite flavor is. If you love to dabble in small stocks or the OTC BB market then the summer is probably definitely NOT a good time to be trading too much. The problem is that during slow summer months there can be so much whipsawing, minor ranges and lackluster volume that the only thing it really accomplishes for you if extra commission charges from your online trading firm.

But alas, there are alternatives. You could concentrate solely on trading QQQ’s or spyders on an intra-day basis and make your trades quick and light.

Anyway, the bottom line is that experience suggests to keep your trading very selective during the summer months or you are setting yourself up to be eaten for lunch!

P.S. Right now the S&P 500 is hovering like a bat right under longer term resistance… If the ’summer doldrums’ effect kicks in, the first sign will be a price break back down under the previous high volume swing mentioned previously! That could mean a bit more backing and filling will occur to weed out the weak hands before the big breakout!

P.P.S. As far as the occurence of the actual breakout, when it happens, we want to watch for long price spread and confirmed volume, then after that a low volume retest back to the new support area, but ahhhh… I am getting ahead of myself !

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