My Market Blog

Looking at the downdraft in POTash, there is some fibonacci support here, but no clear fib nodes. The MACD is still pointing down hard, and we are below the 3x3 XMA. We coulkd retrace anytime back to the 3x3, and still be in a downward thrusting market. Its bad to get in the way of thrusting markets. None of the candles show any capitulation. It might be a good place to get a small starter position. Additional support on the daily chart is at fibonacci 85.66 and 75.70, and a phased buying program should look at those spots for future buys. Theses spots could also be used to position selling puts, with the intention of getting the stock if it goes that low. The main info on this chart seems to be that sharply dropping MACD that is still accelerating to the downside.



Moving to the weekly chart, we see a mixed chart. The MACD is hinting a new down trend, but not yet bearish. The green line can often bounce off the blue in a strong trend. On the other hand, we have broken below the blue weekly 21XMA on a closing basis. The XMA has turned down this week and remains below the 55XMA. The 21 XMA is still pointing down. This is long term bearish, and suggests the move up from December was a bear rally. There are no support points other than the fibs shown on the daily chart.



The monthly chart shows us an MACD that is turning down without crossing. We must wait until the end of the month to call it a clear signal, but it bears watching. It may be another long-term bearish sign,

Fundamentally, farmers have less free credit with which to buy ferts and seeds. Unlike auto makers, farmers either have credit in time or have to wait a full year for another planting/fertilizing opportunity. Since the US govt fiscal and banking plans are still causing contraction in credit, this suggests lower plantings and reduced global food production. This has been the "news" bringing down POT prices. But farmers can only delay fertilzing for a short period, so although this year may bad be for teh fertilizer business, reduced usage is longer term bullish for profits. Considering the fundamentals of the Potash business (the cost and time to bring on new production), when demand bounces profits should soar exponentially, likely with prices above 2008 record levels. the big question is "when to buy?". Fundamentally, probably not until fall harvests approach, or if there is any severe crop-damaging weather or bio-plagues that make reduced crops and higher food prices obvious to investors.

The market-lore says that: 1) The first five trading days tell you how the month of January will go and b) January tells you how the year will go. The fact that these are two different statements tells you that it is not always true. One can happen, the other can fail, and next year the prognosticators still can claim success and historical relevancy for one of them.

We nicely broke out of the triangle we have been watching on Dec 31. Being such a thin New Year's Eve market, I did not trust it. We had some nice follow-thru on Jan 1, and by Jan 6th we had moved reasonably close to the first target at COP. We had a nice mini-shooting star candle, and pulled back. We had a nice very tradeable intraday bounce off the 21XMA on Jan 8th. The 9th brought further selling and a break of the 21XMA blue line. Which brings us to today.

We now have support at the 864 fibonacci level. I did not show it,but there is actuallya fib node there which means multiple fib levels close together. These combine with the top of the old triangle to let us call it "very strong support" for today. As has been discussed here many times, breakouts of triangles often retest the edge before proceeding. The MACD is just turning down, but does not seem definitive. It has been coiling a bit, and the January high (vs December) did NOT give us a bearish divergence signal. The odds-on trade is to play for a bounce if we manage to revisit 865. But stops can be fairly tight, and any bounce should be sharp and quick. Note that every day, the descending triangle gives us a lower target for support. By Friday, support will be down to 850. If we get a bounce, upside targets will be at the blue line, red line, and probably a rally all the way to OP at 1017. (see prior blog postings).


The weekly chart gives us nice confirmation of our chart thesis. The weekly MACD is bullish, and any prompt rally off the triangle we just discussed will not move the needle on this indicator. We can also see a nice "reverse head and shoulders" formation on this chart, but neckline support is down at 825. I don't use this as a trade level, but it will be useful as a confirmation of a new bear trend if we go there. Between the triangle and the neck line, I will probably go flat or smaller and intraday.

I have not posted on the currency markets in a while. We had a textbook triangle form at the end of the long slide in the Euro. It went on for seven weeks, before breaking out decisively on Dec 11. Over the next six days, it rallied almost 17 cents, which is a completely unprecedented and HUGE move for a currency. This would be a profit of $22,000 per contract for anyone who traded it correctly. At the end of it this past Thursday, we had a not-quite textbook shooting star candle pattern, with significant downside follow thru. The question at this point is where do we go next(?). I will try to address that in the next few days, but I wanted to post this to give readers some idea of how much power we could see when the longer-running S&P triangle (10 weeks and counting) finally breaks out.

I am continuing to use the futures contract as a proxy for the S&P, for reqsons previously noted. And while drawing any kind of trend lines is imprecise, this triangle is continuing to give us a picture of what is going on in the market. After the strong rally brought on by the huge fed announcement (see previous post), the triangle has continued to constrain any advances. You can see that we have been marching right along the top edge of the triangle for almost a week. This indicates a market that wants to break out to the upside and is just waiting for the right time. Being so close to the end of the year, I suspect the trading elephants will continue to stand aside or gather inventory here, and save any push for their first quarter reporting period. They have no real incentive to mitigate this quarter, but the lower the base point on January 1st, the bigger next year's bonuses will be. It's also a lousy time to trade due to the reduced volumes and short days/weeks between now and January 2nd.

As a side note, the MACD is trying to turn down here, but with volumes so low we coud see an MACD fakeout in the next week that will get many traders short into the pending rally. Patience is the word.


Because we have been working off teh futures chart, it is helpful to just keep a cash chart in mind. We can see that on this chart, the top of the triangle is further away, and market technicians who do not look at the futures are probably a bit mystified as to why the rally stopped before the top of the triangle. Not much to add here, and previous upside targets remain valid.

The Federal Reserve today basically said that they will pump as much money into the banking system and US economy as is needed to fight deflation and economic collapse. The run on the dollar was predictable (more later in the week), and the stock market rallied strongly. Yet it stopped dead right at the top of the triangle. The talking heads will all be saying buybuybuy tonight and tomorrow, yet until we break out some ammo should be kept dry. This is one of those make-or-break points, where any rally can be bought. It is important to keep in mind that at triangle edges, there is often a minor pause or pullback before it breaks out, so be cautious about selling into any pullback. The FED is providing lots of fuel here, and has said they will continue to provide fuel as needed to stoke the fires. If we do break out, the first target is the base of the triangle at 1067, or about 18% higher than here. It could happen quickly.

The last post pointed out how the futures chart is more useful right now, so we will continue to use it for a while. After my morning posting on last Thursday, the market had a pullback through Friday and bounced nicely off the bottom edge of the triangle yet again. This is perfect traders action, and provides further validation to the triangle. We then proceeded to the top of the triangle and then consolidated for a few days. Today started off weak, but the market was pretty much up all day off the morning lows. Considering the news today, this market is clearly trying hard to go up. My expectation of an upside breakout is getting stronger, but we could also go on like this inside the triangle through the holidays and maybe up to Obamaguration Day.

Just as a little teaser for the future, IF we breakout to the upside, I have a target area between 1020 and 1069 on the S&P. This corresponds to a DOW between 9650 and 9800. This implies about a 20% rally from here, or a 30-35% rally off the bottom. WHEN we break out.

Take a look at my previous post aboiut the S&P for a bigger picture. And of course with my impeccable timing, the market had its biggest one day drop of almost 700 points on the same day that I posted it was headed up. But do not panic. The retracement was contained by the 50% retracement level, and that seems to be holding strongly. It does provide us with a better reference point for giving up our short term bullish view. Any significant penetration of Mondays low will be a sign that a rally is not in our future, although it could just indicate more sideways action as well as down.

You will also note that I redrew the triangle to be a downward sloping one, with the new pivot at the "^^" point. A downward slope is usually a bearish sign by itself, but since we broke the bottom and came back into the triangle, we have to downplay the importance of the downward slope unless we break the bottom again.



It is sometimes useful to look at the 24 hour markets, so here is a picture of the e-mini S&P 500. Drawing a traingle here becomes MUCH more useful. You will note that if we had drawn the lower edge on the futures chart back on Oct 27, the subsequent drop on Nov 12 bounced right off that line. On the cash chart, this was a penetration. Trendlines get stronger and more important the more they are validated. You should also note that Mondays big drop also bounced right off this lower triangle line, giving us four points on this lower line on the futures chart. This lends even more credence to the expectation that the Monday low will hold.

Just keep in mind that we are still in a triangle The textbook likes to see a false breakout followed by a reversal to the other direction. But the longer we stay in it, the more likely it is that the previous breakout to the downside will be repeated rather than reversed.

We broke the triangle we have been watching, and returned nicely into it. This is nearly always a sign of reversal in trend, so we are looking for the next move to be up out the top side of the triangle. We have moved slightly above the daily 21XMA, so next targets are at 907.80 or the red line at 975 or so. We had a textbook bullish divergence in the MACD, so will remain bullish on a trading basis until we see some bear signs or hit resistance targets.


The weekly MACD has not yet turned bullish, but is trying to. This bears watching, as any strong move into bullish territory will signal a larger retracement of the last year's bear market. Immediate targets on the weekly chart are at the blue line near 1050, but if we rally that far quickly, the MACD will be signalling a strong retracement in progress.

This triangle needs to hold here. If it breaks in any significant way, stocks could be in serious trouble. For the first time, I am getting very nervous. That might be the only bullish thing going on in the market, since I am almost famous for puking my stocks at the painful bottoms.

Not much to add, triangle still developing, but a bit weaker than I anticipated.