10/13/2014 6:41:26 AM
Good morning Traders,
As the futures set up this Monday morning, following Fridays large drop, we're seeing hammer type candles. This is bullish, but it's early and the markets will need to hold lows here to give investors the confidence to step in. Let's run through our charts.
Periodically these indicators can move opposite to expectations. The TRIN readings we've been seeing suggest to me that there's something underlying wrong with the market.
The barometer remains in Sell Mode, and shows the overall weakness in the market.
Bonds are getting extended. And I would expect that we're close to a top. If we are, then this would support stocks and a rally into year end. But we're not there yet. Let them reverse and take out previous lows.
On the longer term bearish side, check out this chart:
How the dollar handles this peak will say a lot about the future move. A consolidation here would be bullish for the dollar - but that's bearish for multinationals - so you'd expect more weakness in the Nasdaq.
The below indicator suggest that the individual is out of the market, which is usually what happens before the market rallies...
Also, our fear gage below, suggests that fear is at the point where the market should bounce at some point this week.
If the market rallies out of this weakness, then gold (below) will be suspect. Given the weakness in the market, I would expect that gold would have rallied more. If it breaks, look for a measured move lower.
I love looking at longer term indicators for perspective. This indicator shows you bull markets, bear markets and neutral markets (best for us traders). Where this indicator settles above or below zero gives us that info. So what we'd look for now is when the market bounces, if the indicator stays below zero, we WILL be in a bear market.
Our most profitable option trade of the year, oil continues to be weak. Getting close to a bounce and getting close to a buy.
Relatively speaking, we're seeing the strength in the dollar hit the tech index hard, and while we could see a mirrored move here, meaning a bounce and a right shoulder, the key will be follow through.
I'm all about symmetry in the market. And when you see two patterns, the rule of alternation tends to take over. So I don't expect the moves to match.
The below indicator is volatile, but what it shows is that tivk volatility or lack thereof can have predictive powers. Right now it's bullish...
And the final chart which looks back to show you the action of volatility going back to the last major sell off. The point of this chart is to show you that there is normal sine wave type movement to volatility, and periodically, trending movement. This trending movement is the most bearish and if this market is going to break down, this will give us some projections to the timing of the downside by the level of trending we see. Once the trending stops, the major bottom is likely in. So if volatility breaks here, look out below...
So, after digesting all 14 charts, we're at a point where we should see a bounce into expiration and that bounce will set up the next move. If the market sentiment remains bearish or grows in bearishness, then the markets are likely to rally into year end. However, if as the market bounces or stabilizes this week, the market sentiment turns very bullish, then we're setting up for a much larger move lower.
So as I often say, the next week will set up the next month or more of trading. So stay tuned...