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Wednesday, August 19, 2009

Has a tradable decline begun?

The monthly chart below shows the S&P is flat but high flyer favorites have actually stealthfully retreated from their earlier peaks. RIMM, AMZN, GS all south of the boarder and APPL looks like it finished a bearish island reversal gap. I'll have to ask Brinkley on this observation on AAPL but the thing to note is that SPY was flat in contrast.

It will be important to see how prices on these stocks behave going forward. At best we are at an inflection point, and I will be taking note if rallies are capped and searching for clues that we are begining a tradable decline.

I mentioned yesterday in comments the following:

"I cannot ignore the IWM here...I will short the market around here, my exit will be the high on IWM for the day....a plunge of 40 points /ES is in the cards....before we head up again me thinks..."

followed by this comment:

  • Given the volume was low on today's rally

  • Given the /ES has crossed 990 on the 60min chart more than I care to count since late July

  • Given the diagonal made from the recent descending channel is very close by

I think we will give back the /ES points made in the last two rallies (+23, +15 = ~38 points ) within the recent downard channel.

This P&F smartly describes what I'm seeing. and shows 949.23 as the bearish Price Objective, but since I am bullish, I see the target as 990 - 30 points instead instead of 38.

If we breach 993 with volume, I will abandon this ST forcast.
Let's see what happens!"

A retest of the former January peak (about high 940s) makes sense to me, but I am more bullish and see us going down no further than 960.

I'll be looking to the "leaders" to see if their decline is greater in percentage terms than in any previous pullback during this uptrend and if sellers begin to take control, then rallies should be faded.

Important to observe at this point is how long stocks are in decline timewise. I believe it is still true SPY has not exceeded more than 2 consequtive days in decline at any point during this uptrend. When this pattern changes, the bear will more likely come out from behind the curtain and take center stage. Tuesday we had that chance, so that pattern remains intact.

I am short the market since Tuesday 3:25pm when /ES hit my estimated high target of 989.5 and my stop is set at 990.

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