Thursday, April 30, 2009

A better count?

Well, one of the nice things about putting this out in a public forum is the opportunity to get other view points. I received a comment from Bob C. about a cleaner 5 wave count. Now that the structure appears complete, I was able to look back at everything and guess what. I did see a count that was a clean 5 wave count. So here it is.

Thanks Bob!

Bulls tried, but couldn't get it going...

So let's see, how does the joke go? How many failed breakout attempts does it take to make a bull say uncle? Well, yesterday was #1, and today was #2. Back to back. Whatever short squeeze they were looking for never materialized. Instead, they got batted down hard below a very key level: 876. You see, that was the high of the day at the last opex and the previous rally high. Yesterday poked above it, but closed beneath it. Today gapped above it, but closed beneath it. I think the party is over folks.

We should gap below our trendline tomorrow and never fill the gap unless of course the bulls don't want to take advantage of the price now and start exiting positions. It is key to not forget the number of leadership stocks/sectors (that I follow as I'm sure there are more) that were unable to ever break to new highs:

- sectors: healthcare, financials, and utilities
- leadership stocks: aapl, amzn, rimm, gs (and I think most if not all the major banks)

My eventual (hopeful) target for this wave B is the 786 retracement of this rally (SPX 714). I know I'm ambitious but I think it would give the most pain to the most people. Our first major bounce will likely come in the 780-800 region.

BTW, I did get short at ES 884 and added to my aapl puts. I'll start unloading the puts as we get to ES 820. Not a lot of time left on these, and I would like to salvage what I can out of them. The aapl puts should be huge winners but I'm doubtful on the rest.

Wednesday, April 29, 2009

Sell signal nearly confirmed....

Let me just say how disappointed I am in the bulls. They were able to push the ES to 879.25 after the Fed announcement. I put in a limit order shortly afterwards to short at 879. My price got touched w/o a fill. Then I had a dentist appointment. And while I was going through all the hassles of a cleaning, I thought well at least the bulls will push this back up to my 880/881 target before rolling over and I'll get filled. Did they? Nope. So I was left flat on the day. Very sad indeed.

Well, to the charts. On a 30 min timeframe, my trusty sell indicator gave off a signal. It would be more reliable if we had closed below 868, but we did get a piercing and a close of 869 is pretty close. When you put the signal in context of the following:
- no new high on xlf, aapl, gs
- a close below the previous intraday high
- 1-2 points from my exhaustion target
I think we have a case for the real 'B' wave to begin. Should we open below ES 860, then that should be all we need to push this baby down. A close below ES 842 will actually shift the overall market bias to bearish for the first time in this rally. I know a lot of people are thinking for a shallow retracement. I actually think we will bounce in the 780 zone but go down deeper. I think there are too many bears ready to become bulls at that zone and the market will make them pay twice. The bulls that had easy money will also pay hard as they give back most of their gains and think twice about the next rally, which will likely head to the 1000-1100 zone over the next several months.

As for my positions, I'm sitting on some real losers right now IWM 38/40 puts and aapl 115 puts. I'm pretty confident if this thing gets going that my aapl puts should be very nice winners (as I did add near today's high). I'm hoping that the down move will be swift enough to get me some green on my IWM 40 puts and maybe breakeven on my 38 puts. Well, that is the way the game is played.

Tuesday, April 28, 2009

Tomorrow is a fed day

With the FOMC statement coming out tomorrow at 11:15 PDT, we may have another rally to our exhaustion point. Now, don't ask me what the Fed could possibly say to make everyone happy. Interest rates on mortgages have pretty much drifted back to their pre-announcement levels after the Fed said they would be buying treasuries in an attempt to reduce mortgage rates. Looks like just one more failed policy.

Unless we breakdown right after the statement, which has happened in the past just not very frequently, we will likely close at the high of the day. If that happens, then I'll be adding to my puts at the end of the day.

Monday, April 27, 2009

Be open to a possible exhaustion move....

With the Nasdaq hitting another rally high and the SPX lagging, we are setting up for a possible exhaustion move. This is the last ditch effort that expends the remaining energies of the bulls and triggers a massive reversal. We ended the day with a nice hammer bar on the daily chart. If we gap down tomorrow, then we may likely sell off from there as that would be confirmation of the bearish candle. However, we have to leave open the idea that the bulls are going to push for marginal new highs with the Fed FOMC meeting this week. We have been contracting significantly and the history has shown a tendency for a volatility explosion the week of the Fed FOMC meeting. Of course, you know my expectation is for a downside breakout, but it may come after a final push to the SPX 884 area. This is where c=a*1.382 (an exhaustion ratio) on this last zigzag and where z=y*.618, and where w=(y+z)*.618. Until we get a daily close below SPX 834, we have to keep this option on the table.

Sunday, April 26, 2009

A crazy Friday, but where does it leave us...

No downside confirmation came in Friday much to my dismay. After taking a deeper look at the patterns of this bull rally since March 6th, I have to conclude that we are putting in a triple zigzag. There is just no bullish pattern to make of it. Now the market hasn't been able to get where it did on Friday without giving us some significant clues about what prices are important and whether or not we may be getting close to a reversal.

First: SPX 834 is VERY VERY important. Since the end of March, this area was tested 4x from below before breaking above it on a morning gap on 4/9. Since then, it has now been tested 3x from above. A daily close beneath this level would be a very low risk signal that the bull run is indeed over.

Second: Momentum is waning. The first upward trendline off of the low was broken on 3/30. This trendline was slightly greater than a 45 degree angle, which meant it was very bullish and had a lot of momentum. The 2nd trendline kept getting weaker and weaker as price kept moving through it for longer and longer periods of time (4/7-4/8, 4/14-4/16) but was finally broken this last Monday on 4/20. The 2nd trendline was just under a 45 degree angle showing that momentum was easing significantly. Although trading to a double top (if price action dies here) it would essentially be an underside test of the previous trendline.

Third: Financials are lagging. While financials led the market in the bounce, they have now drifted back. Much like the runner who sprints his first lap only to fall to the back of the pack on lap 8, the financials have yet to break above their 4/17 top unlike the Nasdaq and the Russel.

Fourth: Key stocks are lagging. Two of my favorite stocks to watch for signs of a turning point are aapl and gs. Where are they? Well, GS hasn't even been able to break above its 4/22 high let alone its 4/13 high. And aapl with its stellar earnings performance has been unable to break above its post earnings gap on 4/23 and traded down on Friday while the Nasdaq was hitting new rally highs.

Fifth: Volatility as measured by the 5 day Avg True Range (ATR) has been contracting significantly and is reaching the same levels reached when the market fell apart at the end of last year. The VIX has also been unable to get close to its low made on 4/17.

So with that said, I still favor a signficant move to the downside in the near future. Will it happen on Monday, maybe maybe not. We could still put in a true double top at SPX 876, which if reversed could definitely cause an avalanche since it would not only mean a double top but also match an exhaustion price target. Pay attention to SPX 834. I did reduce my short position to 1/3 w/ an avg cost of 866 (after a horrible Friday but that was due to personal/family reasons and not the market). I did open up put positions on AAPL May 115 puts w/ an avg price of 1.67.

BTW, as I write this the futures market is trading at 855. It wouldn't take much follow through to get us to 831.

Thursday, April 23, 2009

Getting Nervous, but still short

While we broke yesterday's low this morning, the bulls were willing and ready to take this market higher. So, while I'm still 100% short (and even added to some of my position at the close), I will be exiting my positions if we get above last Friday's high, and will likely add hedges with a move above yesterday's high. I believe if that were to happen, we could have a massive short squeeze, and I would rather not participate.

The key to the bear case remains Monday's low. Without a close below it, the market will continue to have an upwards bias. Seeing that tomorrow is Friday, we'll see if the bulls are willing to take their longs home over the weekend or if they take this opportunity to cash out.

I don't see any significant divergences that would give me any real confidence of a gap down tomorrow, but we didn't get any at today's low either, so we'll have to watch and see what the market gives us. A break of SPX 840 would give me a lot more confidence that this market is headed for a decent size correction.

Wednesday, April 22, 2009

The bull trap has been sprung...

I'm guessing all the weak hands for the bears covered today, probably somewhere near the highs. When it was all said and done, today was just a sophisticated bull trap. While the NDX hit marginal new highs, it was not confirmed on any other index. Sellers stepped right in and drove stock prices to the floor in the final hour of trading erasing today's gains for most of the indices. We have a had a series of higher highs and higher lows since March 6th. That will change this week as Monday's low loses ground (likely tomorrow) and the selling continues on Friday. With the market already overbought on all kinds of timeframes, a major trend change signal like this will create a selling panic for the bulls. I hope you are on the bear train as it is leaving the station.

I added to my IWM 40 puts at today's high giving me an effective .41 avg. cost. I also added to my ES shorts. Due to trade management (profit taking, etc.), my current avg. cost on the ES is 854.

Tuesday, April 21, 2009

So Far So Good...

Today's rally off of a new low did not come as a surprise. So far, the rally has been contained by the 60 min 34 SMA. A piercing is okay, but price should quickly retrace. We're currently at a 50% retracement on the SPX and a 61.8% retracement on the IWM, so we are definitely at a place where prices could turn back down. I'm looking at this first wave 'a' to finish in the 785-810 range.

I added some May IWM 40 puts near the close with an avg. cost of .45. Best to your trading. I also sold covered puts on half my IWM 38 position with the 36 strike yesterday at .22.

Monday, April 20, 2009

Wave B Has Started - Confirmed

With today's gap down, the selling didn't really let up until we hit the 835 zone. This is important because it is telling us that the psychology of the market has shifted from bull to bear. While we were certainly oversold at the close, I have yet to see any significant divergences show up that would concern me. Any bounce tomorrow should be contained by the 34 Hourly SMA until our first wave 'a of B' is over, which could occur anywhere but likely between 790-815.

Saturday, April 18, 2009

I'm Fully Short

A lot came together on Friday. The 8 SMA held early in the day and the indices went for a new high (which was predicted). The high came in at 875.67, which was in the 870 zone that was forecasted and less than the 880 number, which I added as the maximum if the ED scenario was right. It came in as a slight overthrow to the trendline, which is picture perfect. We got a nice reversal at the close.

One of the things about EW is that it can give you areas where resistance will be extra strong as opposed to just random support and resistance lines. The ending of the previous w4 is one of those areas. The previous w4 ended at 875.16. Friday's high was 875.67.

Now, these next pictures are some technical signals that I use that are highly accurate in identifying short term reversals. Since we got a short term reversal signal in an area where the larger wave 'A' should end, I'm taking it as a signal for wave 'B' to begin. Wave 'B' should, at a minimum, take us to 780, but certainly it could go a lot lower.

If we break Friday's high on Monday, then the market is much stronger than the picture I'm painting and we could go quite a bit higher from here. So, I'm short at ES 868 (stop above Friday's high) with IWM May 38 Puts at an average price of .54. Have a great weekend, and best of luck to your trading.

Thursday, April 16, 2009

With OpEx tomorrow, expect volatility

Okay, so far so good. We now have a clear A-B-C ending pattern. We now only need to wait for the official end of C. A close beneath the 8 SMA on the 60 min cash index should be our signal. Not to say that once we break it we won't attempt a retest of the highs, only that the highs should be in. At the close, it was sitting at 857.4. The futures are already trading at 858 area, which would be about 861 on the SPX, so we are getting very close. The MACD is showing major divergence now with all three high pivots of the ED. My prediction for tomorrow, a run at the highs, a marginal new high, double top, or complete failure, a close down and massive gap down on Monday. We'll see how it plays out.

Wednesday, April 15, 2009

Close, but not yet

Well, we traded down to our support line and bounced off it -- hard! We should know immediately if we are in wave B or in the final leg of our ED as the 855 resistance zone should hold any upside tomorrow. If it doesn't, then we will likely get our overthrow. Upside should be contained in the 870 zone, but it could go as high as 880 w/o changing the pattern.

Tuesday, April 14, 2009

We need some more downside confirmation

Well, we got a little selling today, but nothing to get too excited about. We're still in the area where we could push for one more high. Once we break the bottom trendline, we should reach our 780-800 zone shortly.

Monday, April 13, 2009

Odds are very very high that we drop like a rock

Well, late in the day we did get a push (although ever so lightly) through the top of the trend line, and it was quickly reversed. Apparently Goldman's 'beating' their earnings number isn't drawing in any more buyers as GS is down in AH. If this is done (if my labeling of the 5/60 min charts is correct) then tomorrow should see massive selling and a piercing of the bottom trendline no later than Wed. Our first 'a' wave should take us to at least the 780-800 range.

I did get my triggers for my IWM puts that were set at ES 850 & 860. So now I'm sitting on IWM 38 May puts w/ an avg. price of .59. I'll sell 1/4th has soon as we hit 1.25, and then I'll likely sell some Apr or May puts against my position for a little more insurance.

Best of luck!

Up to new highs

With the channel broken pre-US market on Friday, the market did indeed rally to test the 850 level as expected. On relatively light traffic, the market pushed to new rally highs. With the new high comes a new structure, which I show above.

At this points we have all the signs of a solid ED: ending wave of a larger tructure, occurs when the market has moved too far too fast, choppy waves. Our wave 5 could have ended Friday, but to make it a textbook perfect ED, I would like to see one more slight down move with one more up move that breaches the top line (even if briefly).

Once this is over, I would anticipate a very sharp selloff taking us to the 780 level for a wave 'a' of b. Once we get there, I'll analyze the wave structure to see what it is telling us about the possible future paths.

On a side note, I hope everyone was able to enjoy the Easter holiday. Of all the holidays (for Christians) this is the most important one as it is the resurrection of our Lord and Savior Jesus Christ. I enjoyed reflecting on this miracle and the impact it has on the human family!

Best to your trading.

Wednesday, April 8, 2009

We're at the top of the channel...

The futures broke key support in the overnight session and traded down to the 801 area before reversing and rocketing higher. That is until we opened. We sold off to key support once again, buyers came in and took us higher where we reversed and sold off to key support. Buyers once again and came in and closed the session close to the highs. So far during the Asia session, price has been able to eclipse the US session high. If me manage to break the channel and stay there to the upside, then that leaves open a possibility for another push at 850. If we fall down from here, then our next wave c should kick in and give us a nice push to 780.

Tuesday, April 7, 2009

Tight Range Today

Well, once the U.S. session opened, we spent the entire session in about a 12 point range. I can't say that happens very often. I guess this is why I think it is highly likely that we put in a minor wave 'a' with today's bottom as there just wasn't any follow through on the selling. We are at a key support line, so bouncing here but staying in the channel would not be a surprise. I went flat at the close (outside of some put positions) and am looking to re-short near the top of the channel. Of course, if we break today's lows in the overnight session, then we likely sell off hard tomorrow, and I will have missed some move, but I don't mind. When price isn't acting the way you think it should, I find it safer to step aside and take a break.

Monday, April 6, 2009

Decision Point

Looks like I didn't miss much while I was gone. By the time I got home Sunday night I was too tired to put up a post. So after looking over the charts plus today's action, unfortunately the market is keeping the next move close to the vest. One thing is for certain, we are near a turning point where the bullishness that we've experienced will turn back to bearishness (for a time). Tomorrow morning should be key.

Scenario #1: We push to a new marginal high. I'm looking at the 850 area on the SPX as the point of exhaustion. This can be seen in the above chart. Why am I not totally confident? Well, the up action today was very very choppy. It's hard to instill confidence when you just don't see a lot of impulsive action. We ended the day right near the top of the channel. If we don't blow through it by the first hour of the US session tomorrow, then that increases the odds that the bulls are exhausted and scenario #2 comes into play.

Scenario #2: We immediately drop and drop hard. In this scenario we have completed our first minor wave a and b and begin wave c tomorrow (see chart below).

Thursday, April 2, 2009

Possibly one more high...

Well today traded right up to our upside target. The structure of the advance leaves one more marginal high as a possibility tomorrow. I guess it will depend on if enough buyers get behind RIMM's earnings or not. Gold is at a critical point and could take out its major advance off of the quantitative easing announcement. That would be bad for the gold bulls and could put Gold on a road to the 600-700s in the future (which would be a great buying area).

Our indicators are looking ready to turn over on the hourly charts. We should be there soon.

I'll actually be gone this weekend, so I won't do another post until likely Sunday night.

Wow is all I can say

With the overnight futures probing the previous low, the bulls stepped in and really got the market going. A few pullbacks, another scare near the close, but this time the bulls stood firm and kept the market near its high on the close. Futures continue to rally this morning and it looks like there is more upside to come.

Now I may not have the degrees correct yet as that will come with more time. But what is clear that we need to put in at least another high before this rolls over. My minimum target would be c=a*1.382 which is at the 847 mark. We'll let the market dictate its high but I'll be watching for signs of a turn in that area.