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Market Recap: Still Expect a 2nd Leg Down

  TREND MOMENTUM COMMENT
Long-term 2 of 2 are BUY    
Intermediate 3 of 5 are SELL 5 of 5 are NEUTRAL SPY ST Model in BUY mode; Non-Stop in SELL mode.
Short-term   6 of 6 are NEUTRAL  
GANN DAY MOON:SOLAR CYCLE CONCLUSION
03/05-03/09 03/04 : 03/06   Next pivot date: 03/06

BULLISH 09/27 Market Recap: 9 POMO within 20 trading days means 14%+ up in 3 months.
4.1.0 S&P 500 Large Cap Index (Weekly): Cup with Handle, target 1428.
6.2.2b VIX Trading Signal (BB): Buy setup triggered on 02/24.
0.1.0 SPY Short-term Trading Signals: A few short-term long signal triggered on 02/23.
BEARISH 4.0.4 Dow Theory: Averages Must Confirm: BPSPX is way too overbought.
4.0.1 SPX Long-term Trading Signals: Weekly EMA(13) is way too high above weekly EMA(34).
4.1.0 S&P 500 Large Cap Index (Weekly): Price is now too high above MA(200).

SPY
SETUP
ENTRY
DATE
STOP
LOSS
INSTRUCTION: Mechanic signals, back test is HERE, signals are HERE
TRADING PLATFORM: SSO/SDS, UPRO/SPXU
Non-Stop 02/24 S N/A 02/23: Close long and sell short, can wait for a few days to avoid whipsaw.
ST Model *02/25 L 1.9*ATR(10)   
Short-term *UP? 02/18 High Trend is unconfirmed up. Hold/enter short unless stop loss being hit.

My Thoughts: The pullback since 02/22 will last awhile but the 02/18 high will be visited in 69 calendar days on average.

SHORT-TERM: DON'T EXPECT STRONG MONDAY, STILL EXPECT A 2ND LEG DOWN ONCE THE CURRENT REBOUND COMPLETES

Although the Friday's rebound was strong but I still believe there'll be a 2nd leg down once the rebound is over. However, if another 1%+ up the next Monday, considering that the next Tuesday is the first trading day of March which suppose to be very very (insert 100 very here) bullish, so in this case, no argue, chances would be pretty high that pullback was over, we'll see a new high.

Let's begin with why I believe there'll be a 2nd leg down:

The chart below basically says that since the March 2009 rally, all 2.5%+ pullbacks were 2 legged (down). Strictly speaking, there's no exceptions. The chart below below marks the "% Change" for every 1st leg down, should be clear that our current 1st leg down is within the normal range so it's reasonable to expect a 2nd leg down. (In case you wonder why the initial pullback size could justify a 2 legged pullback? Well, it's the law of inertia that is beyond discussion of this report)

2nd Leg Down Pattern
Larger Image

1st Leg Down Size
Larger Image

Another evidence was from Schaeffer. VIX rose 35%+ within 2 days, which looks bad thereafter since the March 2009 rally. The statistics from Schaeffer (blue table inside the chart below) also says the next week won't be pleasant.

VIX Spikes Over 35 Percent In 2 Days

So now the question is whether it is possible for the next Monday to rise huge (therefore potentially invalidates my expectation for the 2nd leg down)? All I can say now are it has 20% chances. Here's a simple statistics, since the March 2009, whenever SPX down 3 consecutive days (why 3 consecutive down days? See 02/24 Market Recap) then rebound 1%+ one day (that's Friday), buy at Friday's close then sell at Monday's close, looks like there's only 2 out of 10 chances for a green Monday.

Down Back Test
Larger Image

Last but not the least, I'd like your attention for three additional things:

0.1.0 SPY Short-term Trading Signals, if you paid attention to the exit conditions in the chart, then most long setups mentioned in the 02/23 Market Recap should have been closed by Friday.

SPY Short Term
Larger Image

The chart below is from Schaeffer.

Institutional Buying and Selling Trending chart from StockTiming, the next thing I'd watch closely is whether the distribution curve (red) clearly crosses above the accumulation curve (blue). If indeed in the following days, then according to the past, the pullback caused by such a crossover won't end within a day or two. This could again supports my expectation for a 2nd leg down.

Institutional Buying Selling

INTERMEDIATE-TERM: PULLBACK SINCE 02/22 COULD LAST 4 WEEKS ON AVERAGE, THE 02/18 HIGH WILL BE REVISITED THEREAFTER

See 02/23 Market Recap for more details.

SEASONALITY: FIRST TRADING DAY IN MARCH COULD BE VERY BULLISH

According to Stock Trader's Almanac, first trading day in March, Dow down 3 of last 4, -4.2% in 2009, 1996 - 2006 up 9 of 11.

Generally, I'd expect a very bullish March the 1st because according to the table below, ever since the March 2009 rally, the first trading day of the month is very very bullish. Also, for the March seasonality chart please refer to Seasonality - Month.

Bullish 1st Trading Day Of Month

HIGHLIGHTS OF THE OTHER ETFS IN MY PUBLIC CHART LIST

  SIGNAL COMMENT
QQQQ 01/28 S  
NDX Weekly UP  
IWM    
IWM Weekly UP  
CHINA    
CHINA Weekly UP No higher low yet but the rebound is so strong so could be in uptrend now.
EEM    
EEM Weekly DOWN  
XIU.TO 02/04 L  
XIU.TO Weekly UP  
TLT   Could be a channel breakout, trend may about to change.
TLT Weekly *?  
FXE    
FXE Weekly UP  
GLD    
GLD Weekly UP  
GDX 02/03 L  
GDX Weekly UP  
USO   Clear breakout on WTIC chart.
WTIC Weekly UP  
XLE 02/09 S  
XLE Weekly UP Too far above MA(200).
XLF 10/15 L  
XLF Weekly UP  
IYR    
IYR Weekly UP  
XLB 02/09 S  
XLB Weekly UP  
  1. Please make sure you understand how to use the table above. The purpose of this report is to provide info so contradictory signals are always presented.
  2. Conclusions can be confirmed endlessly, but trading wise, you have to take actions at certain risk level as soon as you feel the confirmation is enough. There's no way for me to adapt to different risk levels therefore no trading signals will be given in this report except the mechanical signals such as SPY ST Model.
  3. * = New update; Blue Text = Link to a chart in my public chart list.
  4. Trading signals in OTHER ETFs table are mechanical signals. See HERE for back test results. 08/31 L, for example, means Long on 08/31.
  5. UP = Intermediate-term uptrend. Set when I see at least one higher high and higher low on daily chart.
  6. DOWN = Intermediate-term downtrend. Set when I see at least one lower high and lower low on daily chart.

 

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