What a big down day in the S&P 500 today…not only that but we cracked support!

As mentioned in my previous post, a descending triangle is a bearish formation. If you haven’t studied this pattern yet, make sure you do or read my previous post. Breaking support should lead us straight to 800 (red line) in the S&P but there is major support dating back to year 2003 at those levels. If we were to break those levels and even break below 760 (maroon line) then support won’t be seen till 500, which is a long ways down!

Hear me out…everyone who has called a bottom this past month is again wrong! I say it every time, but we’re still in a downtrend, the path of least resistance is clearly down. The fear indicator, VIX, was up 10% today…so fear is definitely in the markets. It may be fair to call a bottom at 800…but again, calling bottoms are for amateurs…here at Hedge Against Speculation, I won’t be able to call a bottom for you, but I could help you position yourself in the best trades possible by using technical analysis.

Note: I am still in EEV, I have a stop loss at $111.03…I will most likely be moving this safety net up as tomorrow progresses because we might find support at 800 as mentioned. Further, I didn’t indicate it in my chart, but the MACD is stepping up, this typically indicates a reversal. If we were to reverse at 800, you must keep in mind that the overall trend is down. We definitely won’t see a bull market like we did starting in 2001…with this credit crisis, companies will have a harder time borrowing money…which leads to less cash flow…which leads to slower growth.

Richard
richard[at]hedgeagainstspeculation.com

These past few days have been awesome to say the least, I’m trading well but life in general is just good. Anyways, I’m going to make this post short and sweet. I did make a quick gain shorting the emerging markets on Friday (EEV)…but I feel there is still much more downside in the markets. Keep a close eye on the markets this week…we have a descending triangle, a bearish formation that usually forms during a downtrend as a continuation pattern. Due to its shape, the pattern can also be referred to as a right-angle triangle. Here’s an example of this bearish formation:

   

As traders, we should be watching for a move below support. When the price breaks this lower support, it is a clear indication that downside momentum is likely to continue or become stronger. Descending triangles give technical traders the opportunity to make substantial profits over a brief period of time, so as intelligent traders we should be exploiting these opportunities by buying ETFs like SDS or QID…if you want to take on more risk, TWM or EEV are some other considerations. To give you an idea of where this lower support is, I will provide you with the S&P500 and Nasdaq charts:

One thing to notice though is that the Nasdaq looks more like a descending triangle than the S&P500, you should keep this in mind while trading this coming week…and please WAIT for confirmation before entering, do not get too greedy in this market environment. That’s all I got for now, feel free to leave your comments and happy trading to you all!

Richard
richard[at]hedgeagainstspeculation.com

  

I think it’s time for a post again folks! So…could we potentially head higher this week? POTENTIALLY yes, an inverted head and shoulders pattern is forming:

Following through to the upside and breaking the neckline at 1000 would confirm the inverted head and shoulders pattern. I posted this pattern before, but just as a recap take a look at this picture:

This pattern is a bullish one so a rally could happen. Remember, we must follow-through and break the neckline, without confirmation we will likely move lower. Even with confirmation, I expect the markets to turn as we hit the MA(50)…hence my light blue line. Now take a look at my red trend lines:

These lines indicate a rising wedge…this pattern is a bearish one that begins wide at the bottom and contracts as prices move higher and the trading range narrows. A downside break from a rising wedge pattern is a technical sell signal so even if we do move higher, we should be ready to sell. Here’s a clearer picture of this pattern:

The inverted head and shoulders pattern and rising wedge both lead to short-term upside in the markets but please remember that we remain in a primary downtrend. The path of least resistance is down, so a continuation of this trend is more likely to occur.

Richard
richard[at]hedgeagainstspeculation.com

As we all know by now, we live in economically turbulent times. In many ways this makes sense; bear markets like what we’re currently seeing in the United States and much of the rest of the world are often characterized by greater volatility, as there tends to be less volume, thus allowing the market to be pushed around more easily.

To understand trends more clearly, though, we can look at the US dollar. The credit crunch has caused many equities and commodities positions to be closed in exchange for US dollars, so that those dollars can be used to make debt payments. This has naturally lead to a rise in the value of the US dollar. As a result, understanding where the US dollar is headed can
help us understand how the credit crunch is faring, which in turn can help us understand when markets will return to stability.

With this in mind, let’s look at two charts: the daily chart and the 4 hour chart of Euro/US dollar (EURUSD). EURUSD is a good indicator of the US dollar, as it has plenty of volume and tends to trend well; when we see a reversal in its trend, we can expect an economic reversal of sorts as well.

The daily chart, pictured below, clearly shows that we’re in a bear market, and have been for some time. Prices are still below the moving averages, which suggest the bear trend is alive and well.

Now that we understand the larger trend, let’s take a look at the short-term trend. Below is the four hour chart, which we can use to understand short-term price movements more clearly.

The head and shoulders pattern is critical here. A break of the neckline could pave the way for a test of support at 1.2400 an 1.2350. In addition to serving as an indicator of the short-term macroeconomic trend, it also offers potential trading opportunities for traders of the US dollar and Euro ETFs on the US stock markets.

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Simit Patel is a currency and commodities trader. He is currently a
contributing analyst at InformedTrades.com, a site
dedicated to organizing high quality, freely distributed articles and
videos to help traders learn.