Down day, volume increases

q1101.pngThe stock market was lower today, as was gold and oil. Volume increased today on the sell-off. The chart on the left shows the broadening formation on the Nasdaq 100/QQQQ in the upper graph. Yesterday on the Fed rate cut prices were able to penetrate the upper resistance line, but today prices pulled back under the line and closed below the three day pivot (yellow dots). If prices should take out the lower support line a very bearish reversal could occur in this index. It would be especially bearish since an upper penetration would than have failed. I’m not forcasting this to happen, but should it happen, one should pay attention. The much more bearish scenario is the S&P 500/SPY in the lower graph. There is a potential head and shoulders reversal pattern setting up. If one doesn’t believe in head and shoulders formation, then the pattern can be an equally bearish 1-2-3 reversal should the red support line be taken out. There had been a series of higher highs and higher lows. The last (but still developing) swing point stopped well short of the previous swing point. If the previous low swing point (red horizontal line) is taken out, the reversal pattern will be complete. Also, there is a potential neckline drawn with the purple dashed line. I view the horizontal line as more significant. The short blue line mark the three swing points. If the rally resumes and the last swing point is taken out to the upside, the pattern is negated. With volume increasing on this down-move, it is quite possible the red line will be taken out in the next few days. If so the trend will be down on the daily time frame. Note how well the three day pivot has kept one on the correct side of this market through most of the up and down swings.
baltic1101.pngThe chart to the right is the Baltic Freight Shipping Index. I have had descriptions of this index periodically over the last couple of weeks. I have an article I will put up on this site soon. The index broke below the parabolic stop. The drop is long overdue as the up-trend has been persistent, exponential, parabolic, and in my opinion, unsustainable. The trend is obviously still up and strong, but some retracement should be expected. There have been small retracements as you can see on the chart, however, this retracement looks like it is a bit steeper. If a more meaningful correction develops, this could have more consequences than just the hot sector of dry shipping stocks. It could be a good indication that economic activity may slow in China, which could cause speculators to run for the exits, thus popping the China bubble.
The above chart is one of the non-tech bubble stocks. It is Crocs, a maker of silly looking shoes. This stock was under $12 in July, and yesterday during the euphoria traded over $75. Today the stock closed at $47.74. I’m sure there was negative news, and I would know what that news was if I hadn’t muted the volume on CNBC. I don’t normally post individual stocks here as I’m more interested in indexes and the overall market. But I wanted to show an obvious bubble and what happens when everyone runs for the exits at the same time. If my gut feeling is correct, there will be many more stock charts like this in the near future. When stocks go exponential and parabolic, it is difficult to expect a stop or indicator signal to get you out in a timely manner. It is more sensible in my opinion to sell on the way up, when everyone wants it, rather than wait for the unexpected pin to pop the bubble, and then have to try to exit with the masses. It can be frustrating to watch price keep going higher after you get out, but keep in mind that the risk rises in the melt-up phase. Just let someone else have that last bit of profit with the much higher risk. It should be enough to get a chunk out of the middle.

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