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Market Timing

Monday, 22 February 2016

Today, and over the last two months, the market (SPY) has formed an almost perfect "W" trading pattern  (Google "M and W" trading patterns for more info).  Some analysts call the M patterns double tops and W patterns double bottoms.

I agree with that at times, but not most of the time.  Most times, I have seen the market break out of the M&W pattern in the direction that it went in (i.e., if it formed the pattern on a down trend, it usually came out to the downside, and vice versa.)

Also, we have seen these patterns repeat themselves for months, in which case I look at them as pure "sideways trading patterns" or "consolidation patterns" (up and down over-and-over in a tight range, as the market did for the first 8 months of this year).  These are dangerous patterns and MIPS now has new algorithms to handle this or run to the sidelines and wait it out (i.e., minimize whipsaw).

But, now the SPY has formed a new W pattern and this time its anybody's guess.  See the graph immediately below. The W pattern hit the bottom of its pattern twice at exactly 181.1 (1811 on the S&P 500 index) and got kicked back up both times by the bulls; and recently it hit the top of the pattern at 195.0 (1950 on the S&P 500) for the 2nd time and got slapped back below a little by the bears (for now).  So far, this spells strong downside support at 181.1 and possibly strong upside resistance at 195.0.  Read on below ...


The next 2-3 trading days are crucial !!! 
From here, if the SPY moves above 195.0 with force (and/or stays above it for a few days), we can look for the SPY to rally up to the next strong resistant levels at 202 or even 212.  But, if it fails to break (and hold) above 195.0, we think the market (SPY) will drop back to test its support level at 181.1 (1811 on the S&P500).  Then, if it breaks below 181.1, there is no strong support until way, way down (like in a real "crash").  My guess is that we may have a small rally from here, followed by a break to the downside below 181.1 sometime in the next 3-6 months.  Follow MIPS, not me !

We are trusting MIPS to tell us what to do next, and I believe that MIPS will decide that shortly.
Stay tuned...
 

Posted by: Dr. G. Paul Distefano AT 08:54 pm   |  Permalink   |  Email
Monday, 08 February 2016

Please review our previous email below from 1/27/2016 (Beware the Bear !!!), or you may have trouble understanding this one. 

In the previous email, we included a:
   #1 daily graph,
   #2 weekly graph, and
   #3 monthly graph
in order to show how the SPY has been breaking all support to the downside starting at a high of 214.0 in 2015 (approx 2140 on the S&P 500). Today, the SPY broke to the downside through a very important support level at 187.0 that it had touched, and bounced back up from, 4 times in the last 8 trading days !!! 

Today's breakthrough started with force (S&P500 down 50 points), but the SPY bounced back up after touching the next very important support level at about 182.4 (not a good sign for the Bears).  In fact, this could be interpreted as a "one-day key reversal"; where the SPY could change direction and head back up from here for a while.  Read on...



Or, maybe the bears will get aggressive and charge ("test") the last strong support level at 181.1.  If the SPY does break below 181.1 with force (after 4 tries now) and stays below for a few days, this could be the start of the big drop we have been keeping you aware of.  This, of course, would not be pretty for most investors, but MIPS is on the verge of a going short now, and would quickly identify and short the big drop. If this does happen, the graph below shows what the SPY could look like over the next few weeks/months.



 
Stay tuned !!!
 

Posted by: Dr. G. Paul Distefano AT 10:46 pm   |  Permalink   |  Email

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