Stock Market Analysis

Wednesday, October 07, 2015

Is This The Start of a Bull Leg?

Market ended higher in a highly technical session as the market come up against a strong technical resistance level.  The 2000 points level is not only a psychological resistance level (investors and traders tend to be very cautious around whole numbers, thus forming a psychological resistance) but also a technical resistance marking the top of the 2000 / 1875 sideways price channel. What this means is that there are plenty of reasons for traders watching these levels and formations to start taking profit.

This was why the morning session saw plenty of profit taking in expectation of the market turning around back down. However, with the SP-500 trading above the 30MA once again, there are also traders who are betting on this being a double bottom reversal, signified by the double bounce off the 1875 level. This was why the rest of the day turned around to become bullish inclined, closing the market higher.

Like I wrote in yesterday's report for paid subscribers:

"The real question is,is this going to be that market crash that I have predicted all these while as it really looks like a classic double bottom reversal marking the end of yet another intermediate correction. Indeed, I would agree that when taken in isolation without regards to the overall behavior of the market over the past few years, this does look like a textbook  ending of an intermediate correction, no questions about it. In fact, if this happened during the last two years, I would not hesitate to call it the end of an intermediate correction. However, technical analysis cannot be performed without regards to the overall framework of the market. It is exactly like how when making an assessment of a person's character that you cannot arrive at a conclusive picture just by looking at what that person is doing right now but also take into account what that person has done at least over the recent few years."

(Yes, I only publicly post my report every other day at best but paid subscribers get my reports DAILY for LIFE... sign up now! Only $99 for LIFE! And it takes only one winning trade to make that back and MORE, you know it!)

So, was the market REALLY bullish today?

Looking inside the action, we see alot of weakness. We see strong volume, non-committed bond yields movement and an actual move towards put options trading in the total equities put call ratio. Now, how is strong volume a bad thing? Well, contrary to popular belief, strong volume isn't a bullish thing at all. In fact, big volume surges that are not the result of a Quadruple Witching tend to signify reversals (read more about Quadruple Witching ) rather than a sign of continued strength. In fact, we should see a steadily declining volume if this is truly a reversal. Bond yields also barely moved today, definitely not how it behaves in a truly strong day. The most interesting thing is that total equities put call ratio not only not stay in the call options zone, it actually moved into the put options zone today as options traders seem to be preparing for something.

All in all, in a quiet day without heavy economic numbers, today's trading is highly technical in nature and continues to go against the current trend of worsening economic numbers. Within the framework of an intermediate neutral trend, I won't want to be the first to bet on a breakout to upside. In fact, I continue to stand by my forecast of a testing of the 30MA this week before anything conclusive can be made of the market behavior.

Market Crash Timer: ORANGE

For now, the market remains in short term bear trend within an intermediate and primary neutral trend.


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