Russell 2000 Futures at key levels

Fib convergences here...however, we are in a strong uptrend. Treasuries are still short, therefore, my interpretation is that further upside would be attracted to the next fib convergence levels and resistance levels. Action there will be key.

Oil Analysis

Interesting chart on Oil...78 to 79 was my target. We are here...maybe we get some selling or a pullback here - it certainly seems like a good place for it. But since everything revolves around the dollar and the dollar needs some emotional selling the upside targets shown on chart could come into play. If that were to occur then we could also see Gold and Silver targets met...as an aside, a pop in these commodities does not need to be confirmed by the equity or bond markets.

below is a larger chart...click on it for a sharper view.

Russell 2000 Chart Revisited

Divergence is still there...Black candle worked for only ONE red candle. Now we are over shooting upper trend line resistance. Amazing and crazy...looks like a trap.

Up/Down Volume for indexes

This chart shows up/down volume with my proprietary indicators for confirming the trend of the internals. As you can see its remaining a trend to the upside...with a few cracks.

TRIN Divergence on Indexes...

Next High looks like a good place for the market o make up its mind...

Russell 2000 is lagging and has not been able to take out its highs.

Triangles setting up on the shorter timed frame chart for a high restest...Up/Down volume on Russell showing cracks.

If this plays out...will post if it does...so stay tuned.

Transportations - Big Backtest

Market Observations - Fake Out Shake Out

Nice consolidation day after two days of short squeeze...so, what's next? Well, since most people are focused on how high this move will go...I suggest we look a little deeper.

Upside targets are so close here that we can almost spit on them (pardon the vernacular). Gold 1085, Silver 18, SP500 1085 to 1100, Dow 10,100. This up move has been a torture I know. I have learned a lot about how insane people can be in chasing things...how extreme government and special interest meddling can be...how whacked the concept of herding really is once it has started. Now it is nearly complete. And we will likely have good excuses for some sort of emotional reaction. Ok, Alcoa reported better than expected earnings. And the Initial Claims numbers + Wholesale Inventories might be just the ticket. However, from my perspective upside is the one spike reaction that is left...most likely occurring sometime between tomorrow and tuesday.

Why do I think this? Well, first its the posture of the VIX. A spike high will bring the VIX back to testing its down trend line and horizontal support. These will likely formidable support. Oil. Oil has vastly underperformed my expectations so far...it should have been able to break out of its pattern. I can not rule out a breakout...but so far...the action in oil is much too divergent from Gold, Silver and the Dollar to write off. The Russell 2000 index is substantially lagging the SPX...given the energy components and financials are the largest group in the index...this is a revealing condition. Distribution days are abundant on all equity indexes with uptrend lines directly above. Additionally, pullbacks recently have been getting larger at 39, 47 and 60 points. So, big cracks are showing. Then there's the Dollar itself. Supposedly, the dollar is dead, gone, buried...but it won't die. I think my alternate scenario will come to pass here as I indicated recently. A spike in inflation assets will be combined with a spike lower in the dollar...possibly into the 74.50's or 75's - but it does not have to go that far. Best would be to take out recent lows. Overall the chart of the dollar is looking pretty complete.

Again, I want to underline that the key to the market is the dollar. I have been working on several pieces chronicling China and JP Morgan. We should expect a currency move to drive the markets. China, is on life support - despite what the popular belief is. Not to mention Japan. A stress from an Asian financial system is something coming out of left field for most people...especially Peter Schiff or Marc Faber...but that is exactly what we are most likely going to get.

In any case, what I am looking for are elements that cause conditions for a swift reversal. A quick up/down reversal may not occur...and the market may want to drag this thing out...but I think everyone is too worn out for that...we should be watching for a reversal to occur just when everyone is analyzing targets for the up move.

If a quick reversal does not occur...fine - no damage done. But I think that it is appropriate to treat any spikes as high risk reversal possibilities...and err on the side of downside bets in those cases. If you ask, at this point, what people are expecting - I would think bears are looking for more torture and bulls are looking for continued upside. The only thing both camps are not looking for is a bullish move up and a bearish move down in the same time window. But that's what I am looking for.

Transports - Breakdown Around the Corner

Gaps on the ES contract

These make good target zones...to be aware of...

Market observations

Below are some great charts that I was discussing with Matt Fraily at breakpointtrades.com. I highly recommend that you sign up for the newsletter using the form on the side of my blog. Matt, run's a very high quality service and has some really good automated/mechanical systems that are not available anywhere else. We work together on a lot of them. There will be some great products coming from the site related to mechanical systems and proprietary indicators that will be out soon...it's definitely worth a look.

Clearly the dollar pattern is maturing nicely and being confirmed by the inverse indexes. These inverse indexes are the 1x unleveraged versions. They reflect the market patterns much better plus they do not lose 50% of their value due to manipulation and slippage.

The charts are very well commented...I will be posting more prior to the open

SPX does not show the same structure as the DOW

The SPX wave count is not as clear as the Dow...so I am preferring the Dow.

Vix never closed below that support shelf.

Transports have biggest volume day of the year...and its DOWN.

Baltic Dry Index breaks 200 day Moving Average.

Ken Heebner of CGM Funds must be hanging out with Faber

Ken likes Ford - he says there is a shortage of cars.

Ken likes Goldman Sachs - he says they are best of breed.

Cash for clunkers is done and a failure. Additionally, most car company CEO's have reported that results will be terrible to disastrous for September.

“We are going to see harsh reality in September. U.S. industry results are a disaster.”  

--Sergio Marchionne, the chief executive officer of Fiat and Chrysler

What both of Ken's statements have in common is good imagination...I think these money managers like to speak to hear their own voices. Apparently, that can get you clients?

Take a look at Ford...beautiful impulse wave - problem is the pattern is complete - there no volume at these levels. Not to mention no earnings visibility.

Take a look at GS...do they know what they will earn next year? Would you believe them?

It definitely feels like these guys are trying to set a trap...or they are just stupid.

Most likely its a combination of both.

The Dow is having issues

This rising wedge is not getting follow through for the dow (not the Nasdaq 100)...

Check this chart of the Dow...this may or may not get a test of the upper trendline...watch both of them as the dow is showing relative weakness. If it gets strength it mat try for the upper trendline...otherwise the lower trendline is calling. Also, watch for the stochastics to cross under 80.

SRS - Gets Huge Volume and Divergence

Just as expected...the potential reduction in money available to put a bid under the market...possibly coming from the recent money market exodus may be adding to the market's head winds...certainly the accumulation volume for the SRS is showing significant evidence that the market is ending it move.

SRS has moved from 273 to under 9...if that's not capitulation I do not know what capitulation is. There is a flag developing here that points to a small move lower in SRS and then a major rise.

SP500 Gap Zone

Looks up for one more slight push could be possible but not necessary, then hopefully the never ending P2 is done.

Russell 2000 top vs IWM top?

We have a little divergence...IWM has hit it upper resistance...but $RUT cash still has a ways to go...interesting...

We are close...but how close?

Some Possible Patterns

All of these charts show possible head and shoulders patterns with RSI testing 50. A failure of the RSI likely means a test of the HS neckline...

If overnight futures were to take us down as they did just after they reopened on the TF to below the 612 area for the cash index (RUT) then we may just be waking up to these patterns breaking down on the open. On the other hand, these trend lines themselves may be bounce points, so, if they are not broken we could get our next bounce there.

Again, we should hold the upper trend line on the wedge shown in my previous post and make an attempt up. I think a lot of this depends on what is happening with all that money market cash. If they are done reallocating it then I would say the probability of a significant pullback, if not top are greatly increased.

However, right now anything could happen and a blow off type scenario seems like the most painful way for the market to go...and given this market you can not take that for granted.

In any case, it does not seem like upside in the market is that substantial...and short and sweet would be most welcome.

Market Observations

As you can see from the rising wedge, we have broken out above the wedge and come back to support at the uptrend line. The first chart also indicates the 38% time projection of the entire 17 month bear market. If the market is going to rally, it need to do it SOON. If it break back below the trend line then we are looking very much like we got a throw over...and that may be it.

There are a couple of things going for this view...one of the things is that the Transports had the highest volume reversal of the entire rally and I believe the whole year. The SP Midcaps also had a pretty nasty high volume reversal. Bearfund ETF's had their second high volume up day today. There are a few other charts of note which I have included. I will add more commentary later.

Also, at the end of this post is the ISEE Put/Call ratio which demonstrates a fairly extreme optimism. ISEE was discussed on Kenny's blog...so, I thought I would include a chart. it hit 242 today.

Market Observations - Optimism and Fear

Below, I show a chart of the Russell 2000. This index has broken over the top its upper trend line in what looks like a parabolic throw over. At the same time VIX closed positive and has failed to close below support...this is a significant non-confirmation to the throw over prices that we are seeing in the indexes.

The fear and extreme optimism (92% bulls) are not painting a clean picture for the bulls. Clearly what is happening is that the bears are blowing up out of shorts and giving up and longs are over extending and pushing the cash reserves to near 0. This means there will be very few buyers when we start moving down...

I am looking for a this throw over to reach some sort of emotional extreme imminently. Clearly the diagonal that most have been watching is not playing out. The action today shortens the end of P2, in my opinion. Other patterns, including a diagonal, would likely last longer.

Keep in mind that this action is most definitely NOT bull market action. In bull markets, panic buying does not often occur...additionally, patterns allow for consolidation and testing. The only testing going on with this market is highs...this is representative of advanced countertrend type activity. Bears are at wits end and Bulls can't get in quick enough or risk missing the bull market.

I am imagining that this will also cause a spike in Gold and capitulation in the dollar...due to this impression, I have exited most of the dollar contracts that I bought when $DXY was 76.7.

Dollar update

The dollar needs to bounce solidly into and over the declining wedge. Its hanging around the lower wedge area as you can see, which coordinates with a 61.8% of wave 1. The dollar needs to get moving pronto. This setup points to a relatively big reversal in the dollar and likely the market soon or a continuation of the dollar decline and therefore a market rally.

.

I would not be surprised with a better test of the 2 - 4 line and then a large reversal. This would be in keeping with a potential for the market to test 1061 to 1069 tomorrow and then reverse.