Trend Reversal: Possible Crash Ahead

S&P 500 closed below 1220 support level yesterday and if we have a follow through down day today with a close lower than yesterday we are most likely headed to 1100 on the S&P. Everything else is breaking down as well. Silver was the most hard hit yesterday. Yesterday's decline occurred despite an up day for the Euro. 

On the ADX monthly chart we see a bearish inverted hammer beginning to print. Remember I wrote last week that we were right up against resistance and if we don't break out to the upside we wouldn't be going sideways. There is just too much bullishness given the fundamentals. All the charts below show the trend or range breakdowns in some cases, this is the usual occurrence when what ever the equity you are trading is below the 150dma, just timing it is difficult. 

Headed to 51.5

Barely hangin on, watch for the 132 break before short.

 Oil and Gold are the two healthiest charts. Watch for 164 for support but I doubt it will hold.

Silver is a disaster a close below 28 would be disastrous and will start a cascade of selling.

Having said all this we have to remember this is not a free market and the central banks in US and abroad can intervene (change the rules of the game so to speak) and we would have to adjust our line of thinking.

EUR USD PM's

TEST 120 if 132 breaks?

Time to prepare for further selling

In my previous posts I have been warning about the European debt crisis and their ineffective treatment of the cancer that is spreading daily will cross the ocean to us and today we get a warning. I have been writing about this since the middle of October.

In any case there is still time to take money off the table or go short. Lets look at the banks because they have been in trouble and the banking index chart looks uglier by the day and yet bullishness of the investors is at the highs of the range. This is an extremely bearish development.

 Bullishness is high, the MACD is crossing down and there is a long way to go downwards.

On the 6-month chart for the banking index we can see that the banking index is perched on important support at about 38 at its 50-day moving average. While this support could could yet generate another minor rally towards the resistance shown above, it is clear that we are now at a critical juncture and failure of the support would be expected to lead to a sharp drop.

Ditto for BPSPX, bullishness high end of range, MACD crossing over  we are right at support, we could get a one or two  move up followed by a major down leg to 1100. Asia will be down big overnight and the futures will plunge at the open. A close below 1220 would be extremely negative. 

SPX USD GDX PM update

DOW (white), SPX (yellow), NAZ (blue)

I hear a lot of talk on CNBS about how the precious metals miners will under-perform other stocks because of this or that reason. And while the actual price of gold and silver have gone up much more than any type of index you can clearly see by this 5 year monthly that the GDX which is a basket of large cap mining stocks has been a clear winner. Unless you ere in all cash and bought at the bottom in late Feb or 09 you'd have made no money in the Dow or SPX (tech is another story).

But in investing is much like rehabilitation, "we don't care where you have been or what you did in the past, we care where are you going". I am going to put the dollar chart next to show you the correlation of stock prices with lower dollar price. And as you can see we are in a sideways consolidation the longer this chart stays sideways, which ever trend line is broken we are going to have a powerful multi-month move. This is what you live for does not matter if its up or down. You play the trend.

The dollar has been treated as the safe place to park while the eurozone clears its mess, but that garbage heap is so huge it will take an act of God to clear. I don't think they will find a solution in europe because its hard for them to come together, no unity. So you will see these big up days and big down days and if yo are a trader yo love that because you sell on the big up days and you buy on the big down days, never holding (this isn't a buy and hold market and it hasn't been since August).

The SPX is barely hanging on above the recent break out over 1220, it tested the break out support line and if that broke we'd probably head to 1100. The MACD remains over bought and it seems to be rounding down. This is a very important week for the SPX, it needs to take out the recent high as the ADX  or we will surely break support.

This is 52 week ADX, trendline. You can see the left side of the chart shows a powerful uptrend that started in 09, and for most of 2011 we have been going sideways. This recent rally in stocks has pushed the ADX to a critical point. We either need to punch through this line or head back to the lower end of the sideways range and that my friends will begin the push towards 1100 on the SPX.

On to the PM's. Silver is trading right at its 50dma, the bull flag has now turned into a sideways channel and that's not good. A breakout above the upper band would be helpful but silver is difficult to chart due to its lack of liquidity and all the shenanigans at the CME. The COT's are favorable and that hasn't seemed to have mattered. Money supply (MI) is up 30% in the last couple of months and that does not seem to matter. If we get a massive program of QE out of Europe this will take off like a rocket if we don't, sideways to down action is expected. Again trading isnt a game of hope or "I wish this or that". Play the music sheet in front of you!

Gold looks great, It survived a big sell off last week got support at the upper band of the recent break out and is poised to go higher. Again all the same things that apply to silver apply to gold but gold is more difficult to manipulate.

I will have a follow up to the watchlist I put up last week later.