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5.26.13 Memorial Weekend Sunday

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Intro

Hope everyone is having great holiday weekend.  Much respect, love and memoration to men and women who served this country for our freedom.  Without them, we wouldn’t be able to trade the market freely and live in this blessed land with abundance.

I guess I couldn’t go more than one day without looking at my charts as I was just glancing through the indices this afternoon, something caught my eyes as I was observing and to ascertain what I can possibly expect just next several days.  Keep in mind, the analysis I am about to share with you today is the analysis for very short-term.  It could lead to something further but for now, let’s keep it simple and let’s do some work and see what we can expect next 2-3 days looking at the similar patterns of the recent past.

I always say that the market doesn’t have feelings, emotions nor patterns but humans do.  We humans are predictable and we are emotional being and because of that we can be analyzed and be predicted.  We are the ones trading the market (and because of that it will show in the chart) and so by looking at these similar patterns and repetitions, we can possibly forecast possible outcome in the near future.

Let’s get to it!

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$SMH: Market Vectors Semiconductor ETF

As you pay attention to the blue shaded boxes you can able to sense that once it starts to hang around beneath the blue shaded box or near the box for few days, it has been inevitable sign that 2-3 days bearish pullback is imminent. Currently, last two days, it has been hanging around below the blue shade box and possibly forming a bear pennant pattern here. It will be confirmed if it closes below $37.44.

$IYT: Dow Jones Transport ETF

$IYT is forming pretty similar pattern as it did back in March and April (it hung around beneath or near the blue shaded box and were not able to close above it, it was inevitable sign that the pull back was coming. Actually if you go to your hourly chart, you can see that it’s possibly forming a H&S reversal pattern here.  If closes below $112.90, I think we might see some fast selling pressure for few days here.  Currently, possibly forming a bearish pennant.

$XLF: Financial Select Sector ETF

Defined bullish/bearish continuation patterns established on this chart here.  On $XLF, we have more well defined continuation patterns as we can able to identify on this chart such as flags or pennant patterns and how well they have been played out here.  More importantly, take a closer look at those blue shaded boxes.  Just like $IYT and $SMH, the longer it hangs out beneath or near the boxes, the higher probability that it was going to get at least 2-3 days of bearish retracement.  Currently, it seems like we are forming bear flag as we did back in 2/21/12 – 2/22/12.

$IWM: Russell 2000 Index ETF

To be honest, I think $IWM carries more bullish sentiment (short-term) than all the charts I have discussed on this post because of how well it poised to hold with solid white candles last two days (And the fact that it closed at the highs of Thursdays candle).  It does kind of look like bearish pennant but if $IWM closes above the top of the pennant on Tuesday, it can completely nullify it and could continue higher.  But even if it goes higher and fails to make higher highs by breaking above the blue shaded box, we can expect 2-3 days of a bearish pullback like we did back in middle of April.

$MDY: Midcap SPDR Trust ETF

$MDY looks almost exactly identical to the above chart $IWM and has very very similar sentiment but there is one minor fact that could change the world.  Which is the fact that on Friday, after close, $MDY was NOT able to get up to Thursday’s close and it fell short by closing middle of the Thursday’s candle.  That makes a huge difference when we are forecasting just 2-3 days.  Like I’ve said on $IWM analysis that it looked more bullish because of the fact that it was holding up well and closed at the highs of Thursday’s candle, however, $MDY was not able to do that.   Yes, that is very minor detail but you would be surprised even on the minor detail, how much it will affect the probability of it’s possible outcome.  $MDY looks more poised to pull back for few days from this possible bearish pennant pattern here.

$QQQ: NASDAQ Composite Index ETF

Blue shaded box, holds and move sideways for few days beneath the box, 2-3 days of pullback imminent looking at the patterns here.  We’ve had phenomenal run on the NASDAQ and to be honest it’s probably not a bad thing to get several days of pull back for the bulls to have chance to rest. Looking at the patterns, it looks more poised for a pullback than any other charts we’ve discussed here so far.

$SPY: S&P 500 Index ETF

Big story of $SPY is that initially we broke above this uptrend channel but it is now right back inside of the channel here.  That sentiment alone can tell us much about current condition of this index.  First of all, we can’t ignore the fact that we have a shooting star “like” candle on Wednesday and on Thursday, it broke below and got back inside of this rising channel.  And on Friday, we pretty much stayed the same.  Many are expecting a bullish thrust as they like to say “holding up well” but there are certain characteristics you have to pay attention to before using terms like “holding up well” or “poise to go higher”. In this case, in my honest opinion, I think it is flagging as we can see on this chart.

Blue shaded box, falls below it, it holds for few days, and then 2-3 days of a pull back was imminent.  Patterns are where we can find it’s emotional and predictable behavior and current behavior is more tolerable to the idea of bearish flag than “holding up well”  theory.

$DIA: Dow Jones Industrial Average ETF

$DIA looks MOST bearish compare to all other indices we looked at previously on this post. And here are the reasons of why.

1. $DIA is completely respecting and bounded by this rising uptrend channel
2. Last Wednesday, we threw a shooting star “like” candle with much bearish forces at the top of it’s channel
   • Remember location location location for the candlestick analysis
   • Because we threw this shooting star candle right at the top of it’s channel, it carries higher potency
3. Consolidating (last two days) beneath the blue shaded box and the chart patterns (since last December) suggests, we are bear flagging here.
4. It will be better for $DIA to pullback from this level to the bottom of this channel than going back up and create possible double top at the top of it’s channel.

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Final Thoughts

Well I hope you enjoyed this memorial weekend special post here.  I do think we have high PROBABILITY of a pullback for about 2-3 days which I do think it’s won’t be a bad thing for this recent uptrend.  It’s always a good idea for the runner to slow down a bit to catch a breath and resume before the runner tires himself out (bulls).    But the given the fact of recent fashion of this “buying the dip” mentality bulls (I’ve been calling them “The Amazing Bulls”), it is possible that we can just blow right through the blue shaded boxes i’ve drawn on these charts and continue bullish.  However,  we don’t have any tangible evidences to argue that’s what’s going to happen this week and just continue higher.  But the fact is, as I have shown through these charts on this post that we DO have tangible evidences and patterns that could endorse and condone the possible pullback that could be on our way next 2-3 days.

Have a blessed weekend everyone!

-K