Friday, May 29, 2009

Up we go...

Looks like the triangle scenario played out. After looking over the charts, here are some facts to consider:

intermediate wave a: 3/6-5/8 approximately 264 pts.
intermediate wave b: 5/8-5/28 approximately 52 pts.

If we use the standard target for a triangle (height to base added to the apex), then we get a target of 955. If we use .382*A, then we get a target of 987. Certainly there is also the 1012 target (.382 retracement of primary wave 1/A). Because the triangle took so long to play out it is hard to see how it could be anything but intermediate wave b. Because the moves off of a triangle are generally so quick, I believe that intermediate wave c would be equal to or less than intermediate wave b in terms of time. If we reverse before hitting those targets, then we likely subdivided intermediate wave a and wave b is to come.

I'll be off on vacation next week, so enjoy the market while I'm gone, and I'll pick things back up a week from Monday.

Thursday, May 28, 2009

The Buyer/Seller War Continues

While the morning appeared to hold a bearish tone, the bulls were able to reverse the direction and close the market near its highs. This is a difinitive sign of a major battle going on as the bulls and bears are only able to muster enough strength on their home turf (near the trendlines). So, this is what the price pattern means in elliott terms:

- ST bullish. The pattern is a 4th/B wave triangle, with a likely completed pattern at today's low. Tomorrow should see a break above the trendline and a marginal new high. With the 200 DMA closing fast (930), we're likely so see price only trade to a marginal new high before reversing. Triangles are completion moves. After they break in the direction of the original trend (in this case up), they will quickly reverse.

- Bearish. The pattern is a series of subdividing 1-2 (or A-B) price patterns. The continuation move would be a 3rd of 3rd of a 3rd, which would cause significant devastation.

Should we break higher, I will plan on waiting for a major reversal bar before adding to shorts. Should we break lower, then I'll plan on taking profits in my original 790-830 zone.

Wednesday, May 27, 2009

Looks like scenario 3 (BEARISH)

Price looked like it might consolidate under the zone for awhile, but upon the 3rd attempt (once in the overnight session and twice in today's session), the bears smacked the price down hard. The move looks very impulsive and went through the previous resistance with hardly a pause. I do expect some bounce/consolidation somewhere between today's low and the 875-880 zone before that area is breached, but you never know what the market is thinking. I will use any decent pullback to add to my short position.

Tuesday, May 26, 2009

Bulls controlled the day

While the market opened right near support, and a bounce was expected, an all out massive rally was not. The bulls put the foot on the gas and didn't let up until the gap from last Thursday was well and filled. Volume picked up, and we certainly have the possibility of a rally to new highs. However, the bulls are not out of the woods yet. Key resistance is sitting overhead in the spx 914-920 zone. Not only does this zone include multiple pivots over the last several weeks, but it also includes the 786 retracement off of the previous high. How price reacts at this price level will be key.

Here are some scenarios to be watching for:
- price breaks below 900 before testing 915 (very bearish)
- price consolidates near 915 (very bullish)
- price touches the 915 zone and gets slammed (very bearish)

If we do consolidate near 915, then I'll be exiting my short positions as the next move higher should at least be to the 940 area, where I might reconsider.

Friday, May 22, 2009

Looks like a bearish Tuesday

Today's price action couldn't have played out any better for the bears. Thursday's gap never got filled, price reversed hard at a near perfect 1:1 wave parity and at the 38.2% retracement zone, which I outlined as having very strong resistance. We sold off near the end of the day, and I fully expect a wave 3 continuation to the downside on Tuesday. What would make me re-evaluate, a fill of Thursday's gap.

Enjoy the holiday weekend, I know I will!

Thursday, May 21, 2009

Friday / Tuesday will be key

Today's move was just as I outlined it this morning: a clear impulsive move to the downside. However, the way the move ended does leave me with a big concern that should be resolved Friday / Tuesday. Tomorrow is a half trading day and Monday the U.S. markets are closed. With so little market participation, I would expect a choppy day tomorrow with possibly a bullish bias.

Here are my two scenarios and the type of price action I would expect to occur in each one:

The Bearish Case
- The first chart clearly shows an impulsive move to the downside. It is textbook Elliott Wave. We sliced through a decent support area, and these areas will now act as resistance on any bounce.
- The move off of today's low (1 min chart) was littered with overlapping price movement.
- We are long overdue for a pullback. We have not even gotten close to the 38.2% retracement.

Should this be the future for the market, then my best scenario would be for today's gap to not be filled tomorrow. However, with expected light volume, certainly it is a possibility. If it does, the market should quickly reverse. If it doesn't reverse, then the bullish case is likely playing out.

Now, because buyers are making a strong stand in the SPX 875-880 zone, they will be the fuel for a very very powerful wave 3 of C, and the market should have no problem finding SPX 830 on the same day or the following. Yes, we could really have a 50 point move in one day.

The Bullish Case
- With today's low coming in higher than the previous low, it shows that the buyers overwhelmed the sellers in a key zone. Although the price action was impulsive, it was really the c leg of an a-b-c (3-3-5) flat.
- Friday's action should be very strong, fill today's gap, and close near the highs. Significant follow through should occur Tuesday with a new rally high.

Wednesday, May 20, 2009

Follow through today will confirm the down move

Well certainly I got it wrong in my last post as futures gapped up and moved to a higher high; however, the push was still in my upper zone of a wave B pullback, so I added to my positions near the highs. I now have 100% of my put postions and 75% of my QID/FAZ position. Since I was preparing myself for a possible push to 943, I wanted to leave some room to average in. Looks like to my benefit, we did finally put in a wave b high as the market dropped and took out the prior day's lows.

This wave c should be impulsive. The first part of this wave should also be impulsive and take out the prior wave a low before ending. If it does not, then this move down may be weaker than I am expecting. We should be taking out those lows by tomorrow if not today.

Tuesday, May 19, 2009

Looking good...

The bulls tried to push the market higher on low volume and got the flattened at the end of the day when the sellers arrived. So far the move as everything I wanted to see:

- impulsive structure
- ending in the key resistance zone
- volume to the downside

I would actually be surprised tomorrow if we don't have an acceleration gap to the downside doesn't get filled. If this is truly an impulsive move, the market should be taking out the wave A lows by Thursday and pushing hard by Friday. My target for this first wave completion is the 790-830 zone. I know its a wide zone, so I'll start taking profits at 830. If we get some nice divergence and weakness near 790, then I'll actually go long for a short bounce. I don't expect it to be more than that.

I only added about 1/4th of my position in the morning and was adding heavily near the highs. I got to about 75-80% of my position, as things weren't clear until after the fact. If we get a gap down tomorrow, then I'll add on any bounce. If we go straight down, then I'll be happy with where I'm at.

Monday, May 18, 2009

Tues/Wed should be key for a reversal

Sorry for not putting up a post for Friday. I took off a little early to do some camping with my sons, so I decided to just pick it up today. Well, Friday had some volatility in the morning, but the rest of the day was spent to the downside. I guess there were more calls that needed to expire worthless than puts ;-). Buyers came in strong in the 876 zone, which was my initial downside target for the completion of this first wave a. Although today's numbers look great on paper, the reality is that not much happened outside of the first hour and the last 15 minutes. It was definitely not the impulsive moves the bulls are used to pulling. We ended the day right at the 61.8% retracment level. Watch the hourly sma for the first sign that our wave c has kicked in. Target for wave c is the 790-810 zone. It should be our first real impulsive move to the downside since the low was put in at the beginning of March. My plan for tomorrow includes adding to my QID position, buying FAZ, selling June QID puts, buying july aapl 110, gs 115, xlf 12, iwm 46, and spy 86 puts. I'll be buying half my position in the first hour tomorrow and the 2nd half on a reversal signal or near the end of the day.

Thursday, May 14, 2009

Expect more upside and volatility tomorrow

Tomorrow is opex and I would expect a range consolidation day with a slightly upwards bias. I'll be looking to add to short positions starting at SPX 900 with the hopes that we might rally as far as 920, but I think that might be too wishful. Recognition that the party is over has set in with the big players, and they will be looking to DISTRIBUTE to the retail investors as much as possible.

All my favorites are candidates: Jun/July puts on GS, AAPL, XLF. QID, FAZ, SRS, etc. should all be easy winners. I'll be taking profits from 830-800. I'll likely keep some of the houses money on some puts in case we totally break down.

I've also had some requests for my expectation of the timing and path for the rest of primary wave 2/B, so I've included it here. Best to your trading!

Wednesday, May 13, 2009

Follow through, it has been a long long time

The bears finally did it. They followed through. They certainly left me hanging there yesterday with a close right on the support line. But with today's opening gap below yesterday's close, that's all we needed to see that our primary wave A is very much likely over.

Now the question, how low will we go before a pullback. I think we may reverse tomorrow, and here is why:
- There was a lot of buying near today's low. So much that we never were able to pierce the low put in before 11am PDT.
- We are coming up on wave parity at SPX 880 with an exhaustion target at 868.
- Opex weeks have generally been bullish.

I would not be initiating any long positions, however, in an attempt to catch a bounce. Instead, look for a bounce to be an opportunity to load up. 2x/3x inverse funds and June/July puts is what I'll be using. My June xlf puts are already doing nicely along with my IWM June puts. I'll be looking at GS and AAPL puts too along with adding big time to my current QID position. I don't think a bounce will get much higher than SPX 915-920.

Tuesday, May 12, 2009

A marginal new high coming?

Well, we got a little follow through at the open, but the bears are out of shape and couldn't hold the price down. The bulls came in the afternoon and took the market back. Until we get some meaningful follow through it is hard to believe a top is in place. We did, however, break the channel for awhile. At least that means the bulls are not in total control. With option expiration on Friday and the 200 daily MA overhead, I'm still looking for a slight push higher before I think wave A will be finally over. A daily close below today's low, however, should be enough to put the bears in control.

Monday, May 11, 2009

Not Much to Say

We got another down day today, but nothing to get too excited about, at least not yet. The action has yet to look impulsive, but if we got a significant follow through day tomorrow, then we may be on to something. The Q's look like they are back testing their broken trendline, some follow through below today's low should really get gravity going.

Friday, May 8, 2009

Looks like the 200 MA Is Our Target

I figured we get there. I just thought it would be part of our C wave of primary wave 2/B. But it seems to be apparent that the market wants to get there. A move below yesterday's low will likely leave any bulls going for this target trapped, so it is a possibility. However, it seems that no matter what happens during the day morning session, the market likes to push higher on lower volume and then stick it to the bears the last 15 minutes. We're very close. I have to be the over hanging supply at SPX 943 is HUGE. Looks like it will coincide nicely with the MA creating the perfect storm for stocks to move significantly lower.

For now I'm not updating the count. The moves are getting incredibly messy. Once we break key support, I'll provide the count. Until then, I fully expect 943 to be hit intraday next week (but it doesn't mean I'm long!)

Thursday, May 7, 2009

Cautiously Optimistic

So here's the good and the bad about today.

The bad:
- Technically our wave 5 of the ED was too large making the wave 3 the smallest wave. Obviously an EW no no. However, the spirit of an ED end did live out in today's price action: a very sharp reversal. So, right now I'm chocking it up to the market being a little rusty on its EW rules ;-).
- Although price looks impulsive (so far), we need substantial follow through to validate the pattern.
- I wasn't around this morning to short the top.

The good:
- Price closed below key support #1.
- After a clear overthrow of the upper trendline, price closed solidly below the upper trendline (actually both of them).
- The Nasdaq is leading the decline. Since the Nasdaq lead the rally, they should also lead the decline.
- My xlf puts are making nice money ;-).
- My last QID purchase (34.98) looks like it will turn into a nice winner.

As for price action, I have a few different bearish scenarios. Both show immediate downward prices. We should get a lower close tomorrow. However, if we close above the upper trendline tomorrow, then all bets are off. We may test it, but prices should immediately reverse down.

Wednesday, May 6, 2009

Almost there...

Looks like we are in a situation of sell the news. The bank stress tests will be released tomorrow along with a load of stocks. The impulsive nature of the last rallies has ended. I've outlined key support areas to watch. I expect the SPX to rollover at 924 or earlier. The Nasdaq likely already rolled over. When this goes, it should start with some fireworks. I did add some xlf june puts at the close. Hopefully this will make up for my may put losses ;-). That's the way the game is played.

Tuesday, May 5, 2009

One more small leg...

I had such high hopes with this morning's sell off; however, the market had other things in mind. With the sell off contained, the market once again staged a late day come back.

With that in mind, here is my best count. In this case, we have one more high to put in. Likely it will be a throw over of the top trendline. I would say a great place to turn would be the 910-915 zone on the SPX. The top will be less than 940. The turn should be no later than this coming Monday and may coincide with the bank stress test announcements on Thursday. The turn could obviously come as early as tomorrow.

My next best count is that we ended in a simple a-b-c for the final leg and we will drop below today's lows within the first 60 min of tomorrow's session. I don't see this as the best wave structure, but certainly a possibility. Until we break the bottom trendline, we could just have some follow through from yesterday. If the selling stops in the 890 zone, then we will likely reverse higher.

Monday, May 4, 2009

A New Count?

Well, the market went up. I did cover around 880 and have started selling of my May puts. If we are in a massive wave 3, then we should gap up tomorrow and keep on going. The problem is, I have a hard time getting over the wave patterns. There are too many choppy waves for my liking. So, I decided to revisit my original thought of a triple zigzag. The impulsive count really only worked with immediate downside action this morning. And since an ED doesn't extend, that throws that count out. Plus if this really was a massive wave 3 of 5, then wave 3 would end up being the smallest wave, which is another no no.

So here is what I have. A triple zigzag. We're currently in the last leg of the zigzag. The only confirmation I would have right now for this count is for price to drop below the last wave Bs (SPX 866 & 847), and then below 826. We do have some significant Fib relationships at 907 & 911, so if we drop immediately tomorrow, then that would be a very encouraging sign. If the bullish count is correct, then we should have another significant up day tomorrow. I won't be adding any short positions until 866 gets taken out.

Best to your trading.

Saturday, May 2, 2009

It's Crunch Time

Well folks, after days of contracting range (the 5 day ATR is now sitting at 19.9) and has been in this area since 4/17, I think the market is ready for some major range expansion. With that in mind, we are ready for some 3 of 3rd waves, which, of course, are always very powerful moves. So, I've decided to put together some short term charts (I know I haven't done this for quite a while). Both of these pictures would fit nicely into the range expansion puzzle.

Scenario #1 - Bearish. This of course is my personal favorite as I am majorly short with options that expire in just two weeks. Without some downside confirmation, I'll be exiting all of these positions no later than Tuesday. In this scenario, we now hit a wave 3 of c. Because we will be breaking a major trendline in this scenario, it should be very powerful. I would expect it to take us instantly (in 1-2 days) to the 800-830 area.

Scenario #2 - Bullish. Under this scenario, the market has actually been winding up in an incredibly tight spring getting ready to blow sky high. This would be a 1-2, 1-2, 1-2, 1-2, 1-2 scenario. The odds of this happening are extremely remote, but we have to leave it on the table. The fuel for this explosion would be of course the short sellers. This should take us to the 940 area in 1-2 days, and would probably not end until 1000-1100. There are all kinds of problems with this scenario, but until we get a bearish confirmation, we need to be aware of the possibility.