Death Cross Approacheth

After the 200 day moving average (DMA), which we bumped against, briefly broke above and then fell below (a False Break), the next widely watched technical indicator is the Death Cross when the 50 DMA crosses back over the 200 DMA. We are perilously close to that in a market with huge downside momentum. (Chart courtesy Doug Short.) A Death Cross confirms the change of trend to a wide swathe of investors. 

 

A second widely trumpeted technical pattern is a large head & shoulders between the first shoulder in January, the head in April and the second shoulder in June. The right shoulder slumped at 1131 from the left shoulder at 1150, and today poked below the neckline at the Sp1045-1041 level.  Goldman this morning was setting the bar at Sp1040, saying if we broke below the next stop would be Sp865, calculated as the delta from neckline to head (1040 to 1220) as the minimum level to fall, or 180 pts down to the Sp860 range.  If it fails to crush through, it turns a bearish setup into a bullish one. (Chart courtesy The Big Picture.) 

 
EWI put out a special STU tonight. They are in their element, as the next wave down appears to be unfolding, and the elliott waves tend to give much better guidance in an impulse (down or up) than in a correction. The market today unfolded under their prime count - and if you have followed this blog during the Hope Rally, you will immediately recognize the change: during the corrective rally, the alt counts tended to be realized, but now we should see the prime counts give better direction. 

They note how today was an intense selling day. their wave count has us in the 3rd wave down, the most intense, and downside volume should accelerate - as it is beginning to. A dead cat bounce is to be expected, but for bulls who try to pick a bottom, or play a possible failed head & shoulders with a pop back above the neckline, a word of caution: unless we have that bounce by the end of this week (eg the turn of the month & quarter), we might see the sort of falling off a cliff that characterized 2008. 

Comments

[Roger D.]

"An immediate downward extension is unfolding." STU

Yep, I think so.

[Dsquare]

NYSE composite already shows a bear cross. http://stockcharts.com/charts/gallery.html?$NYA

[Craig]

I see the possibility of an expanding triangle being formed from the May 25th low. Today's action could constitute the wave D rather nicely. If this proves true it dovetails optimally with a medium term inversion within Delta Cycle analysis. Admittedly, not all of my watched momentum indicators would seem to support this assessment.

[DG]

I see the possibility of an expanding triangle being formed from the May 25th low.

I see that possibility also. It could also be part of a larger 9-segment Symmetrical pattern.

An Expanding Triangle would be the more bullish scenario, while the Symmetrical would be more bearish.

[Chartist]

Exchpandering Triangle ya you bet ya.Another wishful thinker, breaks all rules of charting..

[Steven_737]

"Does anyone else here see a reason why the end of the day lows could be a trade-able bottom?"

Bird,

at this point I can only suggest
a 2.5 x ema(ATR(15),30) stop;
both initial stop below entry and trailing stop.

for SPX that translates to approximately:
9 SPX points on the 15 min chart
12 SPX points on the 30 min chart
17 SPX points on the hourly chart
39 SPX points on the half day chart

I now noticed that you bought MCD;
for MCD the stop translates to approximately:
0.48 $ on the 15 min chart
0.67 $ on the 30 min chart
0.90 $ on the hourly chart
2.04 $ on the half day chart

The 30m stop is close to the day low; thus if you did not have a signal to enter (and therefore a means to keep validating or invalidating the trade) you may chose today's low to take you out.
Alternatively watch the trade and trail on the 15 min chart.

By the way, shorts holding overnight would probably place their stops in the area of 67 ~ 67.30 on the hourly chart.

cheers :)

[Steven_737]

"The market today unfolded under their prime count - and if you have followed this blog during the Hope Rally, you will immediately recognize the change: during the corrective rally, the alt counts tended to be realized, but now we should see the prime counts give better direction."

Trading Algorithm Bifurcation.

Excellent observation.

:)

[JT]

Funny how everyone SEES a head and shoulders top formation, just like they did back in late June and early July of 2009. We all know how well that worked!

:)

[Michael]

Yelnick,

Going back over the last 30 years, what is the average decline 3 months out from a "Death Cross" signal?
6 months out? And 12 months out?

Thanks!

[Roger D.]

Get ready! Asia will lead us down with London taking the lead in Europe.

Barclays high yield ETF is telling us the decline has just started and the largest financial panic in history is about to start.

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/9a4023be-164e-4081-b0d8-1e5d8820a27f

[DG]

Another wishful thinker, breaks all rules of charting..

Then I guess you'll have no problem listing at least ONE rule it breaks, since you claim it breaks them all. There's actually NOTHING wrong with an Expanding Triangle here that's so egregious that I would rule it out.

In my experience, when people talk in vague terms like your post, it's because they don't know what they're talking about, so they couch their objections in hyperbole, hoping that no one will call them on it.

The main thing that would be wrong with an Expanding Triangle here is that wave-E would need to be much larger than wave-D in order to set up a C-Failure Flat, which is the most common pattern in which an Expanding Triagle plays out as wave-b.

[adg]

the biggest crash of the 21st century this week..

[Chartist]

If you think this whole drop is because of FatFinger and the Banks didn't have anyrhing to do with it.Listen up.

http://www.archive.org/details/MarketCrash-06May2010-SpPit

[Craig]

Another wishful thinker, breaks all rules of charting . .

Well, it is true, I have erred from a purist standpoint in that expanding triangles can truly occur only in a wave 4. Since my scenario is most obviously a wave 2 an apparent expanding triangle would actually be a complex correction--most likely a double three. In this wave 2 scenario the correction looks like it could turn out to be a Zigzag and Expanded Flat with an intervening X wave structure.

Again, this is only a possibility. But it sure will look like an expanding triangle if it is in fact born out.

[Roger D.]

The Nikkei 225

http://www.screencast.com/users/parisgnome/folders/Default/media/f8399581-fbbe-4c14-8bb9-a7ec2bb78364

Roger D.

[usdollar]

The largest panic in history will start late October, this is just a pre taste:).

[usdollar]

The big H&S will take us down to zero, but that is most likely not until March of 2012. One panic at the time:).

[Chartist]

http://www.masterforex-v.su/002_016.htm

I say you are making things up as the pattern you say is expanding is not.....I see no evidence of prices moving
away from each other.Hence you can draw a flat line across the bottom No EXPANDING LINE .

[DG]

Well, it is true, I have erred from a purist standpoint in that expanding triangles can truly occur only in a wave 4.

No, they can occur as B waves in C-Failure Flats or X waves in Complex Corrections, although they are rare in the latter. If it's an Expanding Triangle wave-B here, that means wave-C down won't make a new low and we will eventually make a new high before we break the low of the Triangle's wave-d.

The first five segments of an Expanding Diametric also take the form of an Expanding Triangle.

[Chartist]

You follow the LOSER Neely I see, know wonder!

[OracleLurker]

"The big H&S will take us down to zero, but that is most likely not until March of 2012. One panic at the time:)."

Oh right that whole Mayan calendar thing...

by the way, Carl Futia DIDN't Nail it again!!!
(I just can't help myself)

well at least i got into cash yesterday and that is where i'll stay until there are clear signs of capitulation.

[DG]

Chartist,

Any time you want to post a criticism of substance or a chart of your own making, rather than some generic attack or a personal criticism, feel free. Until then, I'll continue to think that you have no clue what you're talking about, hence your need to resort to banal generalities.

[Chartist]

Are you serious because you need help at chart school

Read John Murphy,Mcgee Edwards ect oyherwise Bugoff JERK.

[Steven_737]

:)

+++

[Steven_737]

ok

http://www.allempires.com/forum/uploads/2641/maya_cartoon.jpg

http://randomfunnypicture.com/wp2/wp-content/uploads/2009/12/truth-about-2012-mayan-calander.gif

:)

[Roger D.]

The ES

http://www.screencast.com/users/parisgnome/folders/Default/media/f724402b-c10a-49c7-be04-22851a2e5285

[DG]

Are you serious because you need help at chart school

Read John Murphy,Mcgee Edwards ect oyherwise Bugoff JERK.

I have read them, although I wonder if you have, since it's "Magee", not "McGee". They're OK, but their rules are not stringent enough for my liking.

Also, you seem to be a little bit unclear on the concept of a "public" message board. If you post a message, others can see it and respond. Hence, if you want me to "bug off", don't post things where I can see them and call you on the BS they contain. Very simple.

[MARK HOLSCHER]

HEY!!!!! DG, I UNDERSTAND WHAT YOU ARE SAYING TO RD AND THE CHARTIST. BUT I AM NOT GOING TO STAND UNDER YOUR COMMENT THAT PUT YOU IN THE BOX YOUR IN. INSTEAD I WOULD RATHER STAND ON THE TRUTH.
http://knol.google.com/k/mark-holscher/evolve/13nmdnwfdknux/90#

[Roger D.]

I don't think this gap down and then a counter rally back up is bullish. A failure in the late session will be bearish indeed.

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/1260c1a6-168b-4429-8d2d-f96954958459

[usdollar]

Mayan calender ends dec 21 11:11 am. March of 2012 is earlier. I think it is pretty straight forward with this H&S. Watch out for July 12. I thought Neely always was right.

[yelnick]

Michael, good question. Does the death cross give real guidance?

Here is one reference: http://www.tradersnarrative.com/golden-cross-bullish-technical-formation-963.html

Some other stats: Since 1950, the 50 DMA has been higher than the 200 DMA for about 68% of the time. When it's higher, the S&P 500 grows by 7.24% at an annualized rate. When it's lower, the S&P 500 grows by just 0.95% annualized.

Most comprehensive stats: http://www.thecrosshairstrader.com/2010/06/a-history-of-the-stock-markets-death-cross/

[nspolar]

Under the assumption the B top is in, I have a bit of a different count off the B top. It is in many ways more bearish than what has been proposed. The correctives as I have them labeled are downward sloping. Certainly not bullish.

http://img267.imageshack.us/img267/3341/100629indust.gif

I see a steady grind lower here in a 1 of C down, with the 1 likely being the extended wave of the C. No end in site until next year, probably Feb. Dow at that point should be a bit below 6000.

Following that we get a hell of a nice 2 then the fear driven 3, followed by the 4th and 5th, ending likely in Nov 2011.

Think about it folks. The way back down ain't gonna be easy, especially the first part. The B fought all the way up. Now the 1 of C has to reverse that and fight all the way down again.

So no big immediate crash scenario for me.

If I am correct we continue down into mid July, then romp up into early August, whilst staying within a tight banded trendline.

What will change my mind ... a break in trend of course.

It is a bit premature perhaps to even plot the trendlines, but it never hurts to anticipate a bit.

I am actually a LT term bull. I think this market in all liklihood is still in a secular bull market, and what we have in progress is a once in a life time cyclical iv correction, degree being at least one degree lower than that assumed by Prechter and Neely. I am not in the camp of a supercycle type of correction here, not even close.

If this view is correct this is not an opportunity to mess up. Any iv or 4 or IV is hard to play. Probably the hardest to play of all the corrective waves. But if this is a lower degree iv in progress (my top was in 2007), we still have a 5th wave to go, for this whole sequence that started back in 1974.

Crazy?

Maybe, but I've looked at the charts a gazillion times, and Prechter and Neely are off base. Their recent records support that. No one mentions Wolanchuk. He is bullish, and repeatedly has stated we are in the epicenter of an all time move ... in the end this should turn out so that all of these guys can hoot and howl and claim success. That is how this gig works for those types.

But even during epicenters, big moves have to at some point retrace most of their movement. So to a certain extent I think what is going on should be a bit contrary to what all the big predictors are peddling. But there should a bit in it for them as well. After all they have survived in their businesses for quite while.

Regardless of our differences in opinion, we all want to make mullah out of this. AND if my view has any merit, again what I happen to think is in progress ain't something that happens very often. None of us will ever live long enough to see it repeated. Per that view we should really go deep here, Dow ~ 2900 is my target, and my current lower trendline hits that target in Nov of 2011. My 2900 target however was determined via other methods, as was the time target.

But if this happens there will then be a literal rocket launch off the bottom. It would be almost unbelievable to catch something like this on both sides, in full. But possible.

I don't The Long Wave is quite over.

ns

[Account Deleted]

EUR/USD hour chart showing euros reversal attempt
http://niftychartsandpatterns.blogspot.com/2010/06/eurusd-hour-chart-reversal-attempt.html

[Roger D.]

The Euro looks to have finished a w2 abc and now has started w3 down. This will not be good for stocks as they will track the path of the currency.

Roger D.

[Roger D.]

This MCD count is scary.

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/f87d49e0-366d-4278-94af-3df6aa4346f9

[Sjaak Trekhaak]

Roger, if you move the last 2's on your chart a bit to the left and the last 1 a bit to the right it could be a count IMO ;-).

Sjaak T

[Roger D.]

Sjaak,

I think your right, I labeled that quickly. The most striking thing about the price action is MCD's complete inability to mount any significant rally. This market is in deep trouble and could get very dangerous,very soon.

Thanks

Roger D.

[Roberto Prechter]

I gotta go take a dump. Let me know if I missed anything

[Roberto Prechter]

Ahhh, That feels better!

Anyone got anything to report?

I'm looking forward to finally breaking even on my SPX short from earlier this year.

And I'm also happy to be one up on that loser Neely

[Sjaak Trekhaak]

a-b-c complete off the low of today in the ES chart?

Easy play with stop @ (ES) top of today

[Roberto Prechter]

Nah; more to go

[Mamma Boom Boom]

Today's action is quite bullish on all time frames.

[Roberto Prechter]

Datz right baby

[Sjaak Trekhaak]

"Today's action is quite bullish on all time frames."

How?

We moved up through 1040, yes ... but ... ;-).

[Roger D.]

Do these charts look bullish??

DAX 5 minute

http://www.screencast.com/users/parisgnome/folders/Default/media/a05b2634-045c-4339-80fc-0d6d9b4bec02

MCD 5 minute

http://www.screencast.com/users/parisgnome/folders/Default/media/95976353-5dc4-40ba-9993-57450fdcd2a4

Are they ready to fall big, I don't know,but these are certainly corrective patterns.

Roger D.

[Roberto Prechter]

Datz right baybeh

[upstart]

Waiting for the bounce to add shorts.

[Sjaak Trekhaak]

Roger, the close was also quite special in Europe. Europe went decisively down in the last minutes while the US indices climbed significantly. Found it a bit weird. Was thinking of institutional dumping before the close ... maybe

[Sjaak Trekhaak]

guessing we just had the bounce

[Roberto Prechter]

I just dropped my shorts and took a dump as well. Nothing weird 'bout it I do this everyday... sometimes twice a day