Here – let’s take a look at the dominant short-term Fibonacci retracement levels currently in the S&P 500:

I started the Fibonacci Grid at the 2010 price high on April 26 at 1,219 and ended the grid with the July 1 low of 1,010.

From that, we see the respective 23.60% (a lesser-known number), 38.2%, 50%, and 61.8% retracement – all of which are standard in most charting platforms.

Does that help us make sense of the ping-pong?  Or at least, does it at least tell us where the walls are in the game?

Sort of – Fibonacci is not magic, but price does tend to react time to time from these levels.

Not to the penny, of course, but enough to give us a reference where we can monitor our lower timeframe charts, so we can see if there are any divergences or other signals that appear at one of the key price levels.

For now, the market is literally ping-ponging between the key 1,115 price and 1,090 level – both important Fibonacci retracements.

A pong above 1,120 likely pings the market to 1,140, just as a ping under 1,090 pongs the market to 1,060.

That was my attempt at ping-pong humor.

I suggest keeping these price levels handy in the week ahead.

(The chart above is also included in tonight’s Idealized Trades report for members).

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Let’s look closely at these two levels which have become almost exactly today’s high and low price.

Today underscores the importance of watching key daily moving averages in your intraday trading.

On the current down-swing, you can know in advance that there may very will be intraday support at either the 20 or 50 day EMA, which rest at 1,089 and 1,094 respectively.

You can set-up trade targets to play intraday swings to these levels, and then look to see if you can trade long for a potential bounce – particularly if you see little divergences or other buy-signals – which occurred at 11:00am CST.

So that takes care of short-term support, but what’s also quite interesting is that this morning’s pop-up gap paused and formed the intraday high at 1,115, which happens to be both the 200 day SMA (1,114) and the 50% Fibonacci Retracement (1,115).

That could have prevented you from rushing in to buy the market this morning until we cleared above 1,115  – which we did not.  No break, no buy.

On the down move, price found support at the 50 day EMA.

This is a great example of how intraday traders can use simple reference levels off the daily chart to enhance intraday trades.

So the market must either break above 1,115 – triggering a wave of “Popped Stops” and a short squeeze, or it must slice through support at the 1,090 level.

One of the two will happen now – it can’t stay between 1,115 and 1,100 forever!   Be prepared.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Let’s take a quick look at the formation of the bar and then look what happened the last time – June – when we saw this exact same pattern – it’s not bullish.

First, the daily chart for reference:

In this price purism chart of the SPY, I’m showing the three most recent “Engulfing” daily candle bars, both of which formed at key turns in the market swing.

The first was the insidious bull trap of June 21 that strongly warned of a major turn lower in prices -that occurred right on cue.

Recently, on July 20, we had a clean bullish engulfing candle that thwarted the down-swing in process, leading to the most recent swing higher in price.

Today, so far, we have a clean bearish engulfing bar.  The caveat is that the bar is NOT complete yet, so to make the signal official, we would need to see a close under $110.40.

Let’s now step inside the most recent bar and see the half-way point of the session, as of 11:20am CST:

A quick glance shows us how today’s bar gapped over the high of yesterday (barely) and then “engulfed” yesterday’s action fully, pushing solidly beneath yesterday’s low at the $110.50 level.

That’s how a Bearish Engulfing Candle forms.

To highlight the distance, I’ve emphasized the difference between yesterday’s high and today’s high, as well as yesterday’s low and today’s low.

If this signal plays out as anticipated, we could be seeing the confirmation of a turn lower in price.

To see what happened during June’s bull trap Bearish Engulfing candle, let’s step inside that bar:

I showed what happened the next day after the engulfing candle – so don’t include June 22nd’s info in the formation of the Bearish Engulfing Candle of June 21st.

We had a narrow range day (actually three doji candles in a row) prior to the bearish engulfing candle, which sent prices much lower on the downside resolution of the up-swing.

The main idea when stepping inside candles on the daily chart is to see how they formed on the intraday charts, which reveals a clearer picture of the supply/demand relationship between buyers and sellers.

Watch to see if today officially closes under yesterday’s low to complete the bearish engulfing candle, and if so, be on guard for lower prices ahead.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Let’s look at the daily and then intraday charts of Crude Oil to see the combining of two trendlines, and a new – important – price level to watch for clues.

First, the Daily Chart of $WTIC Crude Oil Index:

Without getting into too much detail, I wanted to call your attention to the dual trendline cross at the $79.50 level as highlighted by the red arrow.

The horizontal line represents short-term overhead resistance at the $80 index level, and then the rising line represents the “Polarity Principle” of price, in that how the same price trendline can be used both as support (on the way up) and resistance (on the way down).

The other main point to watch is the dual EMA convergence at the $77 index level – so far, it’s holding as support.

So, one of the two HAS to break – oil can remain between $77 and $80 forever.  Either the dual trendlines will break or the dual moving averages will break.

As traders, we have to be prepared for either outcome, though it sure seems like price ‘wants’ to break to the downside.

Let’s now zoom inside the intraday chart for a ‘price purism’ look at the trendlines:

Viewing TradeStation’s @CL crude oil continuous futures contract, we can peek inside the formation of these daily chart trendlines.

Price hit a brick wall at the $79.50 area and this week is turning down sharply – right on cue.

I’m showing a very short-term rising trendline that ends at the $77.00 level – and price broke under that level today.  As of this writing, price tested the $76.00 level but then recovered into noon CST back to $77.00, so this will be the short-term defining line for traders to watch.

Back above $77 and we could see a vicious bear trap, but as long as price remains under $77, the chart seems to indicate lower prices ahead.

Keep up each week with detailed analysis not just on crude oil, but the five major markets (stocks, bonds, gold, oil, and the Dollar Index) by becoming a member of the Weekly Inter-market reports.

Watch $77 very carefully for clues to a trap, which would send price higher as shorts rush to cover (“Popped Stops”) which would imply a positive breakout for stocks, or alternatively if the chart signal carries forward, be on guard for possible lower crude oil prices, which would likely correspond with lower stock prices.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Are market internals confirming the recent push higher?  Let’s take a look.

First, the S&P 500:

The quick answer is “No, not really,” as seen above in the Breadth, TICK Extremes, and VOLD.

All three have been tailing lower since their respective peaks on July 22nd.  Price has pushed to new swing highs, despite NOT being supported by healthy market internals.

As always, that’s a caution sign that internals are diverging and momentum is weakening – doesn’t imply immediate reversal, but it’s not bullish.

Look for a solid break under 1,105 or preferably under the known reference level of 1,100 to confirm a reversal and end to the upswing.

June showed us that markets can extend on deteriorating divergences, but the longer they do so without a meaningful correction, the higher the risk is for a mini-crash (like the 10 day down-streak from 1,130 to 1,010 in June).

There’s something interesting I wanted to point out in the NASDAQ market-specific internals - and it’s slightly bullish.  We’ll see how that signal plays out soon:

Using the same three metrics – Breadth, TICK, and VOLD – but this time using NASDAQ-specific internals, we see a similar picture to the S&P 500, with all three internals forming peaks on July 22nd (suggesting higher index prices were likely yet to come) and then trailed off as price rose as anticipated by the strength in internals.

That’s the formation of a classic divergence, or non-confirmation that is so common ahead of a market turn.

But look closely – price broke lower today in the NASDAQ but TICK did not push to new lows and VOLD – though negative – is higher than its reading yesterday.  That’s bullish, and worth noticing.

It’d make our job a lot easier if internals were all heading lower along with price, which would suggest lower prices yet to come, but so far that’s not quite the case, and this is a bullish non-confirm short-term in the NASDAQ.

Though we’re under the horizontal support line right now, look for any push back above 2,280 to be met with further buying.

Otherwise, this little push-up in internals could be a false signal, and then look for a move under 2,260 to confirm a downswing likely ahead … though I’d like to see that met with a decline in internals to new lows beneath those on July 27.

Keep a close watch on these levels going forward.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Let’s take a look at the current daily and weekly structure of gold prices, and note what level is most important to watch right now.

First, the daily chart:

I first called reader attention to the bearish chart formation in gold in my recent post:

“Gold’s Strange Top-Heavy Chart and Negative Divergences”

Gold is actually performing right as expected according to the negative divergences – so nothing is out of the ordinary yet.

I referred to it as “strange” because there is so much bullish sentiment in gold, but the objective evidence from the chart hinted otherwise.

Right now, we are testing the 50% short-term Fibonacci retracement at the $1,155 level, along with a minor prior price high from April and January 2010 at the $1,160 level.

Underneath price is the rising 200 day SMA which has been the initial target I’ve been highlighting as a likely place for price to travel if further downside action appeared – which appears to be the case.

The 200 day SMA currently rests at $1,145.

Let’s turn now to the weekly chart to note one more important level to watch in the event that sellers maintain the upper hand and continue to push prices under the key support at $1,160 level where we are now.

Interestingly enough, there is an intermediate term rising trendline connecting the 2009 and 2010 swing lows as drawn that terminates right where we are now at $1,160.

As such, that will be the “make or break” trendline to keep your eye on – a break under the trendline almost certainly sends price to test the 50 week EMA at the $1,120 area – though from a trend standpoint, the breaking of an intermediate trendline is a big deal.

Any move under the key level of $1,100 puts gold bulls in further jeopardy, though technically this current down-move is a retracement against a long-term uptrend.

I explain more of this as well as additional analysis/levels to watch in the Weekly Intermarket Reports.

Just like stocks at overhead resistance at 1,120, what happens here in gold is of utmost importance to determining the next likely pathway forward in price for these markets – both of which rest at “make or break” levels.

For reference, to those trading the GLD ETF, the daily chart level to watch that corresponds with $1,160 is $114 (we’re under that) and the 200 day SMA in GLD is $112.06 (likely target on a further down move).

On the weekly chart, the corresponding 50 week EMA in GLD is currently $109.77 – or $110 for easy reference.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Not only does the daily chart reveal a strong breakout, but the weekly chart shows a steady structure of higher prices in a comfortable uptrend that’s worth a glance.

Let’s take a look first at the daily chart breakout:

Ford (F) shares faced critical overhead resistance at the $12.00 per share level, which was wiped away last week with an initial close above resistance that led to a gap and “run” higher as we’re seeing continue today.

Shares touched the $13.00 level, though there really isn’t any major chart resistance until shares test the prior price high of 2010 at the $14.25 level.  We would call this “Open Air.”

For a bit of education, look at the “Three Push Pattern” and triple-swing positive momentum divergence that undercut (failed to confirm) the recent price low under $10.00 per share, which preceded the current rally we’re seeing.  It’s very important to watch momentum along with price.

Now that shares are in breakout mode, the question becomes “how high will it go?”

For a bit of perspective, let’s raise the frame to the weekly chart:

Ford also shows why I use moving averages so frequently as references.

Notice the nice pullback to the 20 and 200 moving average confluence in September 2009 that provided a good buy-in support level that preceded the continued rally.

Next, we see the 50 week EMA holding steady at $10.00 per share, which is where price formed the daily chart’s “Three Push” triple swing positive momentum divergence.

If anything, this convergence of the 50 week EMA on the weekly chart and “Three Push” divergence pattern on the daily chart show how to integrate dual timeframes into trading decisions.

What now?

Again, there are no obvious resistance levels (no moving averages, no trendlines, no prior price levels) until price tests the prior high at the $14.00 level, that is, if buyers can push above the “round number” $13.00 nominal level.

Study the chart of Ford (F) closer to see these examples and other insights you might pick up that you can use when similar situations repeat in other stocks.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Let’s take a look:

This morning’s update (July 26) shows the three key market internals – Breadth, TICK, and VOLD (Volume Difference of Breadth).

What’s the message?

We’re seeing a slow creep higher in price beyond the 1,100 “round number” resistance level and a push up to the confluence resistance at the 1,110 level – this morning’s intraday high so far.

Breadth and VOLD are registering lower highs than of the intraday burst higher on July 21, which did NOT breakout above 1,100.

With the exception of a TICK spike on the 23rd, TICK is also registering lower highs (extremes) than the past few days, and clearly down from its TICK high peak on July 20.

This is not the picture a rampant bull wants to see on a market breaking out from key resistance at 1,100.

I’ll let market internals speak for themselves, and at the moment, it would be better for bulls to see a pick-up in market internals on such an important ‘breakout’ from daily chart resistance.

We’ve seen in the past that markets can overextend on negative internal divergences, but the resolution or ’snap-back’ retracements can be harsh… like walking on thin ice.

Continue watching price and look for any sign of strength (a burst higher) in market internals – and unless we see that soon, be very cautious on the long side (trail stops closer, watch for any trendline breaks, etc).

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

As such, we can watch copper prices to see potential turns in the stock market.  The S&P 500 is stuck under resistance at 1,100, just as copper is stuck at resistance at $3.200.

However, we’ve seen strong bounce over the last few days in copper – could that forecast strength in stocks?  Let’s take a look at the resistance level to watch in copper prices and the JJC copper ETF to see if we can pick up any clues.

First, Copper Futures Prices (Daily chart):

As seen in the continuous futures contract of copper (@HG via TradeStation), Copper prices face confluence resistance at $3.2000.

Why?

The 200 day SMA rests currently at $3.2126, so we’ll need to keep a watch on that – a break above the 200 day moving average would be a bullish turn-around – so traders should watch that closely.

Also, the 50% Fibonacci retracement of the move down from the April high (along with stocks) is $3.2011 – right there with the 200 SMA and prior price high spike from late May.

Beyond the confluence resistance there, price seems to have broken upwards from a symmetrical triangle – notice the multi-day impulse move on the breakout (it’s bullish).

If the triangle pattern completes its upside target, we could see a move up to the 61.8% Fibonacci retracement at the $3.3000 level.

That’s the parameters on the daily chart – remember that stocks have their upside resistance levels too.

If you don’t have access to watch copper futures prices – or want to trade a potential move here without using futures – you can study the JJC copper ETF.

Let’s see the daily chart of the Copper ETF – symbol JJC (Daily):

I won’t go into as much detail, but the chart structure is similar, though the key level to watch is $43.00 per share in the JJC ETF.

That’s because the 200 day SMA rests at $43.22 and the 50% Fibonacci retracement lies at $43.06.

These will be the levels to watch for a potential upside break – $3.2000 in copper futures and $43.00 per share in JJC.

Either copper and stocks will fail to overcome resistance here and thus swing lower (continuing their downtrends), or the will likely break upwards together, sending both copper and stocks into an upward impulse above their resistance levels.

Either way – we should know the outcome soon – early next week that is.

Watch closely.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Check yesterday’s update for the specific levels to watch on the three US Equity indexes.

However, I wanted to zoom-in not just on the overhead resistance level in the S&P 500, but the lower support level as well – keep in mind that we are officially in a short-term trading range.

Let’s see the levels that on which intraday traders are hyper-focused and the parameters of the range – as well as two traps that frustrated traders recently.

The short-term resistance area in the S&P 500 is of course 1,100, but there is also a critical short-term support area at 1,040.

A failure by buyers to push price to a breakout above 1,100 leads to the expectation of a downward swing to take price lower to test the key support at 1,040.

However, a quick break above 1,100 likely sends the market in “Popped Stops” mode (there are bearish stop-losses above 1,100) to rally at least to test the “Bull Trap” high of 1,130 from mid-June.

The current two-month structure – a trading range – illustrates the frustrating nature of a market in a tight consolidation range, and the insidious traps that confuse short-term traders.

Bulls bought the breakout in mid-June only to see the market collapse back into the range, while bears shorted the breakdown in early July, only to see the market surge back inside the range – both instances resulted in losses for those who participated.

Markets have a lot of economic information to digest this weekend, so unless some major news event occurs to break the price upwards through 1,100, we would expect the market to remain in this two-month range between 1,100 and 1,040.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade