Pullback Over?

Time to show some charts. First, my favorite market leader, the SPXA50, the number of SPY stocks trading above their 50 day moving average:



As you can see, we’ve had a dip in the numbers, and haven’t reversed the trend yet. The dip wasn’t as low as they usually go, which means it was a weak pullback. But it was a pullback. Since we haven’t seen the trend change, I suspect there’s more down to go. So here’s the SPY chart, and my humble analysis



As you can see, the uptrend since November was broken (as we would expect from looking at the 3LB chart at the top). The downchannel which broke out of November’s upchannel is about ½ as wide, so the standard deviation on the downchannel is smaller. This means it’s easier to break out of the downchannel. I believe the algos are trendfollowers, so when the breakout happens, look out for significant pops to the upside. You can see a large down day, and we’re trading within that day’s range, so until we get out of the inside bar, we won’t know the direction of the market. Today looks like up to me, so today we may break out of that inside day trading. If we get out of the downchannel today, I suspect we will continue the November’s upchannel. If we don’t then look for a down day Friday.

A couple of things to note on this chart: the downchannel begins on the day of the highest high of the upchannel. Of course, you don’t know it’s a downchannel until the breakout happens and is confirmed by a second day. This downchannel is really short, only one day of real confirmation, with high volume as well, but the next day the volume was average, so no continued confirmation. Second, the Stochastics are oversold, and turning up. To me, I read this to mean the pullback’s over, and we will close above 138.40 today. If that happens, look for a move higher into the weekend, and a pop for Monday.

The last chart I want to present is AAPL.




Note it’s strong resemblance to the SPY. Could be that a) AAPL watchers play other stocks based on AAPL’s performance and b) AAPL is a very significant component of the marketplace. I use AAPL’s trend as a leading indicator of the SPY. Combined with a few others, like XOM and IBM, you watch those, and they will tell you the tells.

So after I posted this, I though you might like to see what the bots are doing. They are clearly trying to support the market by moving AAPL upward. There is a lot of non-bot pressure on AAPL downward, but look at what's happening:



For reference, look at the green line I drew on the volume, and you'll see what the trend was before the bots. Then suddenly at 13:09, the bots took over and started to control the tape. The first one at 13:11 or so tried to eat out all the sell orders, and was effective for 3 minutes. The next one at 13:33 tried the same thing and was successful until 13:39. Then another buy at 13:45 was unsuccessful. Again at 13:51, we see another attempt, which turned out to be successful and stop the fall at 621.

At 14:03, the bots tried another buy to push above the support line at 623 (in red) but was unsuccessful. I suspect another down leg as a result.

You'd think the bots would run out of money, right? Not so. They can borrow at 0% interest.