Why We Think The Market Should Go Down Next Week

Discussion in 'Trading' started by ShadowTrader_08, Apr 16, 2009.

  1. ShadowTrader_08

    ShadowTrader_08 ET Sponsor

    The full version of this report with daily stock picks and real-time email alerts is available here for $20 per month

    The Big Picture</h1><br>Good Morning, Traders. There is so much valuable information on our plate that if we waste anymore space on this introductory paragraph, we might run out of space trying to point out the hot stuff, so let's just get right to it.

    There are numerous reasons why we believe the window period to initiate short positions begins this afternoon and ends Monday afternoon. Let's get right to the chart!

    <img src="http://assets.shadowtrader.net/charts/090417SPY.gif" width="560" border="5" height="650">

    Above is the daily chart of the S&P Dep Receipts (<B>SPY</b>). Recall that our target price has been 875 (red dotted line). Yesterday, the index came very close to touching that level by making a high of 870.35 which also touched the top trendline of the ascending wedge price pattern (top two magenta trendlines) that is a very powerful bearish set up if price breaks convincingly below the pattern's lower trendline.

    Notice also that the <B>SPY</B> has been in a bullish swing pattern where every touch of the upper trendline has been a higher high (orange circles). Yesterday was also a higher high, however today's trading action will tell us if this higher high forms what's known as a <i>swing high</i> on today's chart. Remember, a swing high is simply a high that has two lower highs on either side of it. This is important to note because every single top in any market or stock must exhibit this same pattern before it starts heading downward. The target for that move would be the blue shaded square at the lower band of the current main channel.

    We don't often allow ourselves to jump the gun into a position before the close of a price bar that supports our theory, but in this case if today's price has not broken above yesterday's and is looking weak going into the last couple of trading hours today, we may start to initiate some of our short positions in anticipation of a gap down on Monday. If however yesterdays high is overcome today, then 875 will be the next level of resistance and we will wait for Monday's trading to confirm a swing high.

    Beyond the technical aspects, we'd also like to focus just a little bit on the fundamentals that may drive such a move as described above. The market is in the heat of earnings season, but enough key companies such as <b>GS</B>, <b>JPM</b>, <B>WFC</B>, <B>JNJ</B>, <B>RIMM</B> and <B>INTC</b> have already reported to give the market a good enough feel of where things stand economically. In our opinion, there is not any scheduled information that is going to be released next week that is going to be enough of a catalyst to drive prices higher. In other words, we think the good news is baked in with all the heavy hitters already having reported. Take for example, the mighty <B>GOOG</b>. The company reported earnings after the bell yesterday. The market rallied in anticipation of the news late in the session yesterday and reached the swing high we referenced on the <B>SPY</b> chart above. Upon the earnings release after hours, <B>GOOG</B> gapped up to 410 before deflating back to its closing price of 388 within 30 minutes. Last night, headlines read "Google Profit Beats Expectations; Shares Flat". This illustrates perfectly that there is not much new money left to push stocks above the 30% increase we have seen since early March.

    This morning we get the last big bank out of the way as <B>C</B> reports earnings. Whatever the results, the scenario that is more likely to be taking place in the minds of traders around the world is not to initiate or add to long positions at this possible peak, but to tighten stops just below the ascending wedge on the chart above. Once these orders begin to trigger, a move lower could gain some serious momentum.

    Additionally, today is options expiry and historically these days tend to be bullish and are followed by a bearish week. So even though the market seems due for a correction after 6 consecutive weeks higher, it might not begin to roll over today. But pay close attention to how the market acts in the last couple of hours today. If it is sideways today and remains non-committal into the close, it will strengthen our theory that the bulls would need some major catalyst to happen next week in order to keep this party going.

    Our near term bias is switching to bearish now that we have touched 870. A failure to make a higher high today will confirm this for us. The best scenario would be a doji/inside day today which would indicate indecision and churning right in the sweet spot of the ascending wedge. This would increase odds of a gap down on Monday which we don't think the market would recover from.
  2. Pretty colors! :cool:
  3. I bought more calls today. Already more than doubled my money. Still waiting for stock_trad3r return.
  4. ShadowTrader_08

    ShadowTrader_08 ET Sponsor

    well, if you are ok with buying calls after 6 consecutive weeks up in the broad market, then more power to 'ya.

    for my money the higher odds here are sideways at best.

    Let's see how she plays out........

    If you have a different analysis that you can support with some technicals (or even fundamentals) please post here if you wish.

  5. rickf


    I agree 100pct we are due for a pullback, perhaps as early as next week. After the 30% rise in the past month, I daresaay it's a matter of time before profit-taking kicks in.

    Technically it looks like primed for a pullback and retest of the lows on the weekly SPX chart. But what do I know? :)
  6. ?....a quick and complete retracement of that rising wedge? :confused:
  7. stock_trad3r is the greatest contarian indicator on earth. He bought calls all the way to the bottom and disappeared. That is the best time to be buying.

    My technical opinion: I find the ETF volumes convincing of accumulation and probably explains why stock volume is low. The true accumulation is probably higher than traditional indicators.
  8. "Pi"

  9. Now if you had a Bloomberg terminal and were offering some unique perspectives from information you’ve gathered then some might just pay. There are just to many out there offering advise for FREE

    Now you realize soon as your prediction is shattered your toast.

    What you need to do is make sure you leave yourself some wiggle room.
    #10     Apr 17, 2009