June 23rd 2013: A change in tone...

I skipped a few weeks there while $SPX was forming a box (ranges/consolidation/wedge/whatever_you_want_to_call_it).  It appears (to me) that we broke the box to the downside this week and thus it deserves some attention.  Perhaps more importantly, the tone of the market is changing.

On the positive side of the $SPX technical ledger:
- Monthly trend is still up
(that's about it)

On the negative side of the $SPX technical ledger:
- First red weekly impulse bar since December 2012
- Price closed below the weekly chandelier stop line for the first time since November 2012
- 5w EMA is below the 10w SMA for the first time since October 2012
- Weekly FORCE(2) is red (below zero)
- Weekly RSI(2) is below 10.
- Bullish price patterns are failing (ex. inverse head & shoulders)

So, that's what I see right now.  Where are we going?

There's basically 3 scenario's for every trade:
- Lower
- Flat
- Higher

Based on this week's technicals, my bias is that we trade lower after a brief oversold bounce.  If this is correct, I'll have a good chance of entering a short trade next week with an expected tag of 1608 (the bottom of the box that we just broke).  If the short works, the market should fall to 1549 at some point in July (a box length).

Flat seems like a low probability since volatility is increasing and we've broken the recent box (range).

Higher is possible given the market's tendency for false breaks and the persistent FED funny money liquidity injections as well as end of quarter mark-up.  If the market closes above 1608, then I'll have to give this possibility higher odds.  A close above 1608 would put the other side of the box back into play (1667.47).

Either way, there's about 60 pts of range to play in.  Good luck!

Here's the chart...

June 9th 2013: Don't play the slippery eel!

Here's a pattern that I'm seeing more and more of lately...

The market will form a defined top or bottom, traders will position their stops accordingly to control risk, programs will run them out, suck in bears and immediately reverse higher to squeeze the bears and force stopped bulls to play catch up.  I've seen this in bonds, emerging markets, US markets - it's everywhere.

My advice is don't play their game.

Now whenever the market pulls back hard, I always assume that the "left shoulder" will fail, i.e., the first hard pullback and I never buy it.  There's almost always a 2nd lower low.  It makes sense psychologically when you think about where traders will have their stops and how they might be positioned at certain key levels and, most importantly, where the programs will be hunting both longs and shorts.

If at all possible, think about where the programs might try to attack - NOT classical, textbook support and resistance stop levels.