Danger Will Robinson: S&P hits 200 MA

Danger, Will Robinson!

Remember Robbie the Robot on TV's Lost in Space, perpetually warning Will Robinson of impending doom every week? Well, he's paying the market a visit tonight in the form of a double-barreled alert, so pay attention.

The Dow Monthly

Last night I looked at the huge pop in the market futures and decided we were in for a big relief rally today. And that's just what we got - until 10 AM when the ISM numbers came out and rained on the parade. After that, it was all over.  Up 100 points, then down 200, then back up again to finish barely down 11 points on the day. More than one person commented on what a strange day it was. And totally untradeable, for me at least. These sorts of violent intraday swings may be great for the day traders, but they do nothing for me as a swing trader besides making it impossible to choose decent entries or exits.

Dow monthy chart

But tonight, being the start of a new month, we look at the monthly Dow chart here, and it's not looking good. You can see the rising regression trend channel of July 2010. We exited that in June - that was a bearish setup. And stayed outside last month - that was the bearish trigger. And look at the indicators. They all peaked at overbought levels in May and are now headed back down, also bearish. May was also when we peeled away decisively from the upper Bollinger band.

The Dow has no monthly support until 11,555. Then there's slightly better support at 11,000. On the upside, there's resistance at 12,850 and 13,950. But I think we're much more likely to see 11K this month before we see 13K.

On the other hand, the short term picture is looking pretty good. Today's wide-range doji at the bottom of a seven session downtrend indicates at least the possibility of a reversal. And the daily indicators are all now quite oversold. And since this latest downtrend was apparently entirely motivated by the shameful antics in Washington over the debt ceiling, now that that issue is resolved, absent any new crisis the selling pressure should abate somewhat. Indeed, today's selling volume was lower than Friday's.

Crossing the 200 day MA

The picture over in S&P land is a bit different though. Today the S&P actually dipped below its 200 day moving average but managed to close back above it, just barely. With today's close of 1287 and the MA at 1285, a close below this number tomorrow will be very bearish. And that's not out of the question.

All three market futures are down by a quarter to a third of a percent at 1:50 AM EDT. And ES is also sitting right on its 200 day MA at 1274.93. Staying above this is bullish, a break below, bearish.

So once again we have a night that's too tough to call. The indicators are suggesting bullish, but we're right at the 200 MA crossroads so we need to see what the market does with that before putting on any bets. So I'm still standing aside, though if I had to guess, I'd say we could see further downside tomorrow (Tuesday).. Oddly enough though, I had my best trading day of the year today, up 1.71% on a day the Dow lost 0.1%. And that was welcome indeed because I've taken a lot of heat over the past week.

Is the next recession here?

And in case you haven't had enough doom and gloom yet, here's an article you must read from 247wallst.com:Ten Signs The Double-Dip Recession Has Begun. I have to admit, they make an excellent point that the next recession is not just imminent, but already here. All the more reason to exercise caution over the next few months.