The following is an excerpt from the March 6, 2012 blog for Decision Point subscribers.
After weeks of advancing slowly, the market finally had a small short-term breakdown yesterday. Today, however was the 'real deal' breakdown we have been waiting for.
Looking at the 10-minute bar chart we see that price was down immediately on the open, following suit with European markets that had opened low earlier and were preparing to close down over 1.8%. Trading after that was mostly sideways, likely digesting the opening drop.
STOCKS: Based upon a 12/05/2011 Thrust/Trend Model BUY signal, our current intermediate-term market posture for the S&P 500 is bullish. The long-term component of the Trend Model is on a BUY signal as of 1/5/2012, so our long-term posture is bullish.
Finally on the daily chart we see movement that doesn't require a magnifying glass and the thumbnail to interpret. Today price dropped cleanly through the bottom of the ascending wedge, a bearish pattern that has been implying a breakdown for weeks. As we wrote yesterday, it is reasonable to look at the rising bottoms line drawn from the October low as the next likely place for the market to find support.
Today finally saw all of our indicators wake up and stop moving in slow-motion. In fact, when you look at the chart below of our ultra-short-term indicators, we have climactic behavior on the CVI and the Participation Index-Down that put both in oversold territory.
Short-term indicators, like the STVO and STO-B are looking somewhat oversold, emphasis on "somewhat", there is a lot of room for them to move lower.
Conclusion: With indicators exhibiting climactic behavior on a price reversal, we have to infer that this is likely an initiation to lower prices. This probably isn't the end of the correction. Ultra-short-term oversold conditions tell us to expect a bounce back before the correction finishes probably on what appears to be strong support along the rising bottoms line drawn from the October low.
DOLLAR: As of 2/3/2012 the US Dollar Index ETF (UUP) is on a Trend Model NEUTRAL signal.
After seeing a technical snapback toward the point of the previous breakout, the dollar resumed its climb, gapping up again as eyes apparently are back on Greece and a weak Euro.
GOLD: As of 1/27/2012 Gold is on a Trend Model BUY signal.
After forming a small reverse flag, gold took another big drop lower today.
The next clear line of support is best seen on the weekly chart for Gold, along a long-term rising bottoms line drawn from the low in October of 2008.
CRUDE OIL (USO): As of 10/27/2011 United States Oil Fund (USO) is on a Trend Model BUY signal.
USO gapped down today but was stopped at horizontal support at . The PMO which turned down last week is headed toward a negative crossover.
BONDS (TLT): As of 2/9/2012 The 20+ Year T-Bonds ETF (TLT) is on a Trend Model NEUTRAL signal.
While bonds were up 1.2% today, a look at the chart shows us that price still remains in the middle of a bearish descending triangle pattern. A noisy PMO isn't providing any insight.
