The markets on Friday didn't give much love to anyone as any movement in one direction was quickly reversed to other. I have two scenarios that I've outlined: one where we immediately drop on Tuesday (likely a gap down) while the other makes a run for 850. Before I get to them though, I would like to review the big picture (see above charts).
Since the low back in November, a support line has been created from these points:
- 11/21 low (my birthday fyi in case anyone wants to give me a present next year ;-)
- 1/20,1/21 lows
- 1/23 low
- 2/2 low
- 2/5 low
- 2/10, 2/11 lows
This trendline was broken with a gap down below it on 2/12, but with a mere 30 min left the PPT decided that a crash before the house/senate votes was unacceptable, so the market rallied hard and closed just above the trendline.
On 2/13, with all of that move to support it, the market was able to get a slightly higher high but ended up closing BELOW the trendline.
Some more facts, we have four key pivots to watch: 850, 832, 820, and 812. Since the 832 pivot broke on 2/10, the market has retested it from below 7 times on the 15 min chart. One time it was able to hold above it for an incredible 45 minutes.
Lastly, the 60 min MACD is about to rollover. This should only increase selling.
From the above data points, I'm very much leaning toward scenario 1 (see above chart), which is:
With the first 60 mins of trading (a gap down), we find ourselves below the 812 pivot. In this scenario, we have started the meltdown. All seat belts should be fastened. We should be looking at 740 before the end of the week.
My alternate scenario (see chart below):
The 820 pivot holds within the first 30 minutes of trading. We then make a run at 850 on either Tuesday or Wednesday. The 850 pivot holds and we begin the meltdown.
Now the problem we all face in both of these scenarios is option expiration week (this coming Friday). The Market Makers hate to see a plunge with so little time value left. They may be throwing all they have at the market to keep it treading water at least until Friday pm.
Posts
Hi Rich, been following your posts for a few weeks now - thanks for your efforts. Just want to decipher your comment correctly: "The 850 pivot holds and we begin the meltdown." Do you mean SPX reaches and closes above 850 sometime midweek, then on a subsequent day SPX starts a decline to sub-800? Thanks. -Tom
ReplyDeleteTom,
ReplyDeleteThanks for visiting often. I doubt the market could close above 850. Instead, it might touch it, or get above it on an intraday basis. After it got there though, the meltdown would begin to sub-800. Enjoy the holiday!
Nice charts and analysis.
ReplyDeleteQuestion: Where is the empirical evidence that the PPT caused the big reversal on 2/12?
Marc,
ReplyDeleteI know the question was not addressed towards me but, Just consider the timing of when the news came out. In the last hour of trading when we were at a critical level that if broken would have lead to more selling. The Government is timing the market! Its not the first time either.
Marc,
ReplyDeletePedram already gave you a good answer (thanks Pedram). The only thing I would add is that when there is a politically sensitive topic on the table (in this case the vote on the stimulus package the following day) and there is no technical reason to create a short squeeze (in this case we were in a big range day and we would have normally closed at the low of the day), but in the final 30-60 min of the regular session a massive squeeze is created, then I point to the PPT since they're the ones that care that the market not melt down before the vote. It has happened before, but of course they would never admit to it.