S&P 500
1946.16
-26.13 -1.34%
Dow Indu
16804.71
-238.19 -1.42%
Nasdaq
4422.81
-70.58 -1.60%
Crude Oil
90.68
-0.05 -0.06%
Gold
1218.35
+2.60 +0.21%
Euro
1.265300
+0.002860 +0.23%
US Dollar
85.682
-0.229 -0.29%
Weak

Why Today's Market Action is Important

No question about it, today's market action caught many people by surprise, but it's important to understand what happened and why it happened from a technical standpoint.

As many of you who have been following my videos already know, MarketClub's “Trade Triangle” technology has been neutral on the indexes since January 20. We have also been bearish on gold since the 22nd of January. So what is happening to the markets?

The recovery in the indexes from March of '09 was basically just that, a recovery. Our Fibonacci retracement indicator was spot-on and points to a potentially more negative down move in the future. All of the indices managed to recover back over 50% of the gains before this recent downturn.

Today, I want to share some significant levels to look for during the balance of February. If these levels are broken and taken out, it would indicate a much more serious problem for the equity markets.

Here are the levels on the indices: S&P 500 key level to watch 1,029.38, NASDAQ key level to watch 2,024.27, and Dow Jones at 9,678.95.

In the case of spot gold, the key level to watch this month is 1,044.20. If the gold market goes below that level, it will signify further retrenchment for this precious metal.

Make no mistake about it, today's action is not positive for the equity markets. However, providing the levels we mentioned above hold, then you could say we're in a broad trading range and we expect the lows to be tested. I, for one, am cynical that this is going to happen.

You may also want to take a look at my recent gold and crude oil videos. Cyclically these markets are right on target and acting the way we expected them to act.

All the best,
Adam Hewison
President, INO.com
Co-creator, MarketClub

Comments

  1. elkojohn says:

    As I watched the intra-day candles and saw that the Dow couldn't take out it's Friday high -- and then fell below the psychological 10,000, I began to think that Friday's Hammer Candle would be negated. Then it failed to regain 10,000, and I watched for the double bottom at today's low, but it couldn't hold. Wow, it was a cliff hanger -- better than the Super Bowl because I made some money (I lost on the Colts).

  2. Richard says:

    Adam,

    I expected the Dow to move to the upside on Monday because of the Hammer that was created at the end of last week's sell-off. To my surprise, the Dow fell today by 103 points.

    Did I misread the candlestick?

    Richard

    • Adam says:

      Richard,

      With candlestick charting you need more than one candlestick to create a hammer, hanging man or any of the other candlestick formations.

      Normally if the market had closed higher today in a strong way we would've confirmed the potential hammer bottom. The fact that it did not close higher indicates that the trend is still on the downside in the near term.

      Always look for a next day confirmation of single candlestick.

      All the best,

      Adam

  3. rich Broling says:

    i am 100% short, as for metals, it is very difficult to trade, i have watched it 45 years, when i started investing oil is just as tough. My theory is the bear market started in 2000, in the last ten years, it has never recovered. The indexes are changed since than, to conceal this fact. There are always shifts to the upside from time to time, but only for short periods, a couple of quarters like we have just experienced. Shorting the market is an excellent method to accumulate, as it is twice as fast going down than up. The powers that be has pitted regions, and now country's against country. This is evident in the massive increases in productivity in our country. Even the lowest jobs in society, now have cell phones, our location and jobs are constantly monitored. Years ago, i was asked to wear during my lunch period, which was my time, and breaks as well. I, refused out of hand, as it was no status symbol to me, to be tagged, like a dog. Looking forward, we see citizens in other country's demonstrating their distaste for their governments, global banking, world climate, trade issues, workers and human rights, etc. Therefore, i am pessimistic about the future and the stock market. Returns to investors aren't worth investment , as the management have devised numerous ways to cheat investors by taking the profits thru stock options, bonuses, freebees, use of company resources, golden parachutes etc. We even pay for their legal fees when they get caught. Wall street has always been a den of thieves and no change is expected by me. Greed is not good. To make matters worse, the ruling party is intent on destroying business, forcing regulations hourly, with no clue as to the result. So, is easy to see, the sh-- is ready to hit the fan on any given day, as it did today!

  4. Bill Brown says:

    I love it when my thoughts are confirmed by others. Thanks!

  5. Hengzhen says:

    Hello,Adam,I am a Chinese student,soon I will graduate.I am interesting in the market.I have try some trader,like gold usdvsjpy CL and so on .I find your blog tonight via Mishkin's BOOK,happy.You see ,I have lost my English several years .Be a friend,ok?
    Yestoday ,I went short USDvsJPY.

  6. Mike O says:

    This is a bit confusing?

    "However, providing the levels we mentioned above hold, [Here are the levels on the indices: S&P 500 key level to watch 1,029.38, NASDAQ key level to watch 2,024.27, and Dow Jones at 9,678.95.] then you could say we’re in a broad trading range and we expect the lows to be tested. I, for one, am cynical that this is going to happen."

    By indicating that these levels "hold" then why would you expect the markets to "retest" the lows? I assume that those lows would be the ones set back in March of 2009. Wouldn't you expect this to be the nadir of the downturn and that the trading range would now be defined between these key levels and the the top at S&P 500 1150?

    Are you cynical that these levels will not hold and are of the camp that we will retrace all of the 2009 move?, which would indicate that all fundamental and structural aspects to date since '07 and '08's debacle have been worthless?

    Not being condescending here just trying to clarify your position.

    Thx for a great site and the sharing of your experience and knowledge.

    Mike O

    • Adam says:

      Mike,

      Thank you for your feedback.

      We are waiting for our trade triangle technology to kick in and give a major sell signal on all the indices. Right now we are on the sidelines and have been for quite some time.

      It appears as though the market is not responding to positive news anymore and that once again investors and traders are becoming more pessimistic about the economy and the administration. In fact a recent survey by Bloomberg indicated that 77% of all investors were not happy with the way President Obama is handling the economy and the direction of the country.

      All the best,
      Adam

  7. Sean says:

    So you think we could get a collapse in gold and the s&p/dow at the same time?

    Cheers

    Sean

  8. GEOFF says:

    Like Rick, II'm a bit confused by your closing comment:

    " However, providing the levels we mentioned above hold, then you could say we’re in a broad trading range and we expect the lows to be tested. I, for one, am cynical that this is going to happen."

    This seems something of a dichotomy insofar as one would expect the lows to be tested if the levels you mention were breached. Also could you please clarify exactly what you are cynical about?

    Many thanks

    Geoff
    UK

    • Adam says:

      Geoff,

      To clarify:

      ” Make no mistake about it, today’s action is not positive for the equity markets. However, providing the levels we mentioned above hold, then you could say we’re in a broad trading range and we expect the lows to be tested. I, for one, am cynical that this is going to happen.”

      I think we will break support and move lower.

      All the best,
      Adam

  9. Bert says:

    I want to second Bob's appreciation for the videos, and add that the charting tools are doing a lot more for me as I've learned to trust and understand what I'm seeing.
    In January I bought some QID, Proshares ultrashort QQQ, around 18.50 to add a safety net under some short-term trading I was doing. The trades were a bit of give and take, but the QID has gained about 15%. Yet I've had some vague, worried comments on this from the brokerage, implying a hidden risk other than the obvious compounding loss on regular up-and-down cycles with this type leveraged ETF.
    Would you please comment on the risk of defaults with the swaps that I understand are used, or other potential surprises?
    Again, the charting features are a great asset; I'm hoping my computer will cope with the future improvements.
    Thanks, Bert

  10. Adam says:

    Rick,

    If the levels I mention in my blog are taken out, watch out below!!

    Every success ,

    Adam

  11. Rick says:

    Adam,

    Let me get this straight, you said that you are cynical that - the lows are going to be tested? Does that mean you are in the camp that feels the market won't actually crash until the 2nd half of the year? (This seems to be the growing consensus...personally, I'm not sure it's going to take that long.)

    Thanks, Rick

  12. bob emrich says:

    I have been watching your videos, and the one that really got me was the one where you explained why the market shouldn't really go much higher before a correction should take place. The dow at the time was around 10,300. As we now know, it went up four hundred more points, but I stayed out of the market. I bought several ETF bears the morning of the second day of the selloff: TZA, ERY and EDZ. I have added to the positions and would be surprised if this thing holds at 10k. Needless to say, I am way ahead.
    Thanks so much for your videos. They give me a lot more confidence than I would have on my own.

  13. John, Elko NV says:

    ''I, for one, am cynical that this is going to happen.''
    Please clarify which item/s you are cynical about.
    Thanks

    • Adam says:

      John,

      To clarify:

      " Make no mistake about it, today’s action is not positive for the equity markets. However, providing the levels we mentioned above hold, then you could say we’re in a broad trading range and we expect the lows to be tested. I, for one, am cynical that this is going to happen."

      I think we will break support and move lower.

      All the best,
      Adam

      • John, Elko NV says:

        Me too.

        Friday, the $SPX pierced the 200-EMA, not a good sign.
        I guess next week we will find out what that long-tailed Hammer Candle is all about.

        Adam, you have really helped me to go on Red Alert for the downside
        with your timely videos on the Dow, S&P & Nasdaq.

        I really appreciate this bc of all the hype on TV, et al, about things being so great,
        and all the talking head advice to buy on the ''dips.''
        Also, I am very suspicious of the gov't 9.7% unemployment rate after the upturn
        in new claims for unemployment.

        Happy trading (short ;-)

  14. Don says:

    Adam, the dollar rises, the stock market falls, gold, energy, and the commodities fall. I really would like to hear or read your take on the relationships of these markets. Which market leads which market consistantly? Is there a consistant leader or is the leadership conditional? I have followed the evolution of your website since 1997 or 1998. I have learned to respect your opinions. I would like to know your opinions on the questions above as I am sure others would also. I have searched the web for over 12 years and have not found another website that follows all of the various market as yours does. Because of that I would really like to hear your opinions on market relationships. Thank you for your contributions to learning.

    Don

    • Adam says:

      Don,

      Thank you for your feedback.

      Relationships between markets tend to come in and go out of fashion. In one moment the dollar could be going down and gold could be going up. In the next moment they can both be going down. The important element here is not to be so tied in to a mindset or a relationship that you think should exist but doesn't exist at that exact moment.

      I hope this makes sense of what is a very complex relationship between the markets. The one thing I have learned in all the years I've been trading, that its more about what's in the traders mind and how the relationship is perceived by the general trading populace than by any other hard and fast rules.

      All the best,
      Adam

  15. Ted says:

    where are the "push button" trades? I'm brand new and e-mailed a question this past weekend in about this matter plus another question and heard nothing back. So I'm blogging you, Adam...

  16. Marcus Boyd says:

    I went short the S&P Wed (RYTPX) If this keeps going I will add more.
    I bought SLV Jan 2011 10.00 calls that I will hold until Silver makes it's move. Lots of time.

    I like the new Options symbol structure. It makes a whole lot more sense than the old one. A lot easier to trade.

  17. Tom says:

    Adam,
    Not to change the subject but I was wondering when we could expect the new and improved charting features that you had mentioned about 6 months ago.
    Thanks Tom

  18. This makes Friday big, I am not willing to call Thursday's trading the end all to end all. But if the bulls don't defend these levels on Friday they could be in "real" trouble. And it's not likely they will going into the weekend. A weekend of likely Washington surprises. Can they [Washington] save the fiat currencies of the world?

  19. Joel says:

    Adam, GREAT Job. I can see that your looking at the 200Day to be tested. I'm not trading as soon ass I do I will Join.

    Keep Up The Great Work

    Cheers
    JT

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