Thursday, April 29, 2010

Primary count in major jeoprady

Well, once again the dip buyers come through putting in strength all day long. If this is a wave 2, we've pretty much reached the maximum here. No reversal tomorrow morning means that we had a wave 4/B/X flat correction (3-3-5) at Monday's low, and we are currently in wave 3 or 4 of 5 (depending on potential subdivisions). If wave 3 ended at today's high, then I would look for a wave 4 to complete anywhere between 1200/1202. A move much lower than that, and we should be in the primary count with a wave 3 down.

Wednesday, April 28, 2010

No change in outlook

Today's price action appears to have progressed our wave 2 (I decided to move it up one degree of trend), so that our wave b of 2 is either over or nearly so, and c of 2 is either already on or about to be. Should we go to new lows from here, then I would change the labeling to be a 5th wave extention as there is nothing in the indicators to show that we have reached an appropriate wave 2 high. My best target for a wave 2 high will be in the 1200/1205 area as there is quite a bit of resistance in that area.

Tuesday, April 27, 2010

Test given...bulls fail

I laid it out for the bulls, and they couldn't deliver. After looking at the 3 wave upward patterns out of our triangle coupled with today's price action, there is nothing left for me to label except a really weird ED. Although the relationships are not standard between 1:3:5 and 2:4, no rules were broken and everything had the look of 3 wave moves, so with that I've stuck a fork in it and called it done.

Now, let's move on to the meat of what today's price action is telling us: mainly that the market is ready for a move down. Is it the big one or just another 'correction' on the way to dow 30,000 as the media will be more than happy to tell you.

So here is what I have:

- If the down move ended right now or first thing tomorrow morning, then we have a clear wave 1 ending with divergence on the hourly chart, which is perfect. When ever wave 1 does end, we should find the end of wave 2 somewhere around the hourly 34 SMA. So I will be looking to add to my current short position around there whenever that happens.
- We need to get to 1172 to confirm a weekly reversal. Once confirmed, we should see multiple weeks of selling with no confirmed reversal to the upside. The best case is for this to occur during our wave 3. Likely wave 3 will subdivide so my degrees of trend may change.
- For this to show the likes of a serious move and the potential of P3, we need a monthly reversal. This would be confirmed with a move to 1077.

Monday, April 26, 2010

Key test tomorrow...

Well, it wasn't surprising to see a pullback since we did have a 5 wave pattern that appeared to be complete. It is worthy to note, however, that the market closed negative for only the 2nd time since the February low. We'll see if it will dictate the trend for the rest of the week tomorrow and Wednesday as the tendency is for the market to put the high/low for the week on either Monday or Tuesday. Too much downside tomorrow will bring in the sellers, but morning weakness followed by afternoon strength would be the 'expected'. Let's see what the market delivers.

Key support tomorrow for the bulls comes in at 1205/1208. Last ditch support comes in at 1200, but if the market gets down there without an intraday reversal, then I'll play my position with the bears on Wednesday.

Sunday, April 25, 2010

Weekend Analysis

As I was going through the charts this weekend, there is a serious disconnect showing up in the charts and my labeling. How it will resolve itself will certainly be one for the history books, but one thing is for certain: bears must be patient in waiting for just the right time to take their next shot. That shot, may be right around the corner (read next 1-2 wks), or it may not come for 4+ months. Why the dispartity? Well, let's walk through the charts.

This first chart is the daily chart since the February low. Without regard to what has been occuring on the intraday charts, this chart has all the makings of an impulse move. With that said, I will give it my primary count and how I will use that count in explaining an opportunity that could be huge on the downside should price confirm the signal. What this chart tells me is that we are currently in a 5th wave and have met the minimum requirements for EW (a higher high than the 3rd wave high). Now, a popular way to look for 5th wave targets is to compare them to their 1st wave counterparts when the 3rd wave has extended, which it has done in this case. This gives us a 5th wave target of 1225 (using 1.382 extention of the 4th wave retracement), 1237 (5=1*.786), and 1251 (5=1). Since it is not common for the 5th wave to extend when the 3rd wave extended, we will leave our analysis there. Comparing wave 5 to wave 1 in terms of time, we have a time ratio of the 5th wave ending on 4/30, which is conveniently the end of the month.

This 2nd chart is the hourly and it is showing the bearish potential with a drop below 1188 on Monday as we clearly have a zigzag at this point in the charts. I expect the market to push us to at least the 1227 area in a 3rd wave, so keep that in the back of your mind as we see Monday's price action. All things point bullish, so if something else happens, then that is not good.

This 3rd chart shows how potentially vulnerable the market could be Monday with a potential 5 waves on the 15 min chart. A continuation upwards would immediately tell us that the wave pattern is subdividing and the bullish stance for the week should stand.

This 4th chart is a weekly chart from the March 2009 low. Now here's the real rub. The weekly RSI(5) is now at its highest point since the March 2009 low. This means one of two scenarios:

- Long-term Bearish: We are in the final stages of a C wave with a pending reversal coming (and based on the other charts in the next 1-2 weeks)
- Long-term Bullish: We are in a 3rd of 3rd wave right now and don't expect any significant pullback for another 4-6 months.

Price will confirm the scenario. The ATR is still in sell mode, but we have yet to have a solid weekly reversal signal. That is currently sitting at a touch of 1173; however, if we got a move below 1189, I'll be looking for building an immediate short position.

Thursday, April 22, 2010

More upside coming...

The market players let the market really drop in the opening hours after an AH test of the highs was once again rejected. But as I stated in yesterday's post, the big players came in right at key support and stopped the fall in its tracks. The rest of the day was spent on another run up towards the weekly highs. I guess tomorrow we'll see if the market can break out of this weekly range (which is basically the same range as last week) or if it is going to rollover bigtime. Based on what I'm seeing during the globex market we could be in wave 4 territory tonight. Wave 4 support comes in at 1202/1204 with our wave 1 high at 1198.5, so the bulls need to definitely stay above that number.

Any break of today's low should send the market's down hard for several weeks. If the bulls are going to take back control, then we need to see a drop in volatility as that has been the hallmark of this bull run.

It is interesting to note that when we got our ATR sell signal back in January the market played in the same range for another 4 days before finally rolling over. Tomorrow is day #4 since we got this signal. A repeat??

Wednesday, April 21, 2010

Bulls are still in control...

Well in spite of the lack of upside progress, so far there is nothing to concern the bulls in the downward price action. The big test should come tomorrow in what appears will be a gap down. There are plenty of wave parity ratios below that will likely find some buyers. They are 1197 (c=a*.786), 1194 (c=a and should come in at the channel trendline), and finally 1189 (c=a*1.382, which also comes in at the .786 retracement of the current wave high and our key support area). If price gets through there, then we should really see some selling.

As for my calls, I will be selling them on a break of today's highs, but I will look to hedge in the 1189/1194 areas just in case. The bearish count is my alternate, but it's always a possibility. If we break 1188, then I'll be looking to add to my calls.

Morning Post

Sorry I didn't put up anything last night. By the time I got to even look at the charts it was nearly 11pm, and I was exhausted. As the markets are about to open, my essential read on the charts is that so far we are tracing out an impulsive move. This impulsive move has a near term target of 1225. A failure to reach it could be very bearish based on a number technical indicators that turned bearish on the last drop and the divergences that would be confirmed with an early reversal. I would expect the gap to not be filled before we reach that target, but if it is, be careful of another whipsaw to the upside that occur as soon as the gap is filled.

Without a reversal today, I'll be closing my FAZ calls, which is too bad because the trade looked so good, but that is how it goes.

Monday, April 19, 2010

Corrective or impulsive?

Well, while I got a lower low, it appears to either be a 5th or C wave. On the hourly chart, price from the top to the bottom reflects one complete wave as price was never able to close above the hourly 8 SMA. We also got classic divergence on the last wave signaling it as the end of a larger wave structure. While I did get stopped out of my ES short (as I was trailing based on a subdivision), my option trade I decided to keep on based on the hourly price action. My stop on the 1/2 position of May options (FAZ 14 May Calls) is now Friday's high or a time stop on end of day Wednesday (if we haven't moved below today's low), whichever comes first. Should we get a reversal tomorrow on the 15 min, I may opt to be aggressive here and add another 1/4 position to my May calls depending on my mood. Either way, I'll be looking for an opportunity to restablish my ES short.

Sunday, April 18, 2010

Weekend Analysis

Well I finally have a few minutes to put together my thoughts on the price action from the previous week. To start out I'd like to say that the price action so far has all the makings of the start of something bearish; however, we have yet to have a confirmed weekly reversal. So, the first thing I'll be looking for on Monday is a confirmation of the price action potential that started last week.

The news that GS is getting fined $1B certainly rattled the markets, but this is another good time to say that the market is going where it is going regardless of the news. If the market is truly ready to sell, then we'll see price confirmation tomorrow. If it isn't, then the news will be shrugged off, and the market will make new highs. Price action is the most reliable indicator of the market's 'mood', and like all good scientists, good traders need to see confirmation of their hypothesis.

Now, first piece of evidence is the 10 day ATR signal flashed a strong sell at the end of Friday as seen in the above chart. Last time this gave us a sell signal, the market quickly reversed and went back to buy. I'll be watching for continued volatility tomorrow and at least above average for the whole week.

The second piece of evidence was a daily reversal signal that occurred Friday and triggered my initial short position when the market touched 1196. My current stop is Friday's high, but as soon as we get below 1190 on the cash index, I'll move my stop to the previous hourly high. That is currently 1197 should the market open below 1190 tomorrow.

Now, what I want now is a weekly reversal signal. That won't occur until the market touches 1175 (I increased it by a point as the 15 SMA on the weekly ATR(10) chart is now at ~33, so that gives me an 11 pt move from last week's low (1186) to confirm a weekly reversal. If all goes well, that will occur tomorrow with tomorrow's high being the high for week. Once we get below 1190, I'll be looking at adding another 1/4 to my short position with the rest coming should we touch 1175.

After studying the daily chart, I've modified my intraday charts to fit the best label on the daily chart as I always believe that the larger time frames trump all other counts, so it is best to see how the intraday charts can be labeled to support the daily charts, etc. So here they are: 15 min, 60 min, and daily.

Have a great week!

Thursday, April 15, 2010

I'm calling the ED dead... price has refused to collapse and we did get to 1213 and change at today's high. If price were to collapse from here, then in the end that is how I would label it, but I'm not expecting any exciting moves with tomorrow being options expiration day. Support for the wave 4 move should come in the 1203/1205 area. Technically though it could go down all the way to 1200 and be a valid wave 4. A touch of 1196 tomorrow would be bearish, so I'll watch what we do any down move. My game plan hasn't changed from yesterday.

Wednesday, April 14, 2010

ED is still alive...barely

While price action today exceeded my ED target, as long price never exceeds 1213, it is technically in play. And, since the SPX closed at 1210, that pretty much means we need to go down from here. Should we exceed 1213, then that means we are in another subdivision of this larger bull move.

With that in mind, I have now moved up support to 1199 and key support to 1189. That means I'll be initiating an aggressive short position should price do the following:

- Touch 1196: initiate 1/4 position
- Touch 1186: add 1/4 position
- Touch 1179: add 1/2 position on the first hourly pullback (noted as RSI(5) exceeding 70).

Initial target remains 1080.

Of course, if this bull has more to go, then price will stay comfortably above these levels.

Tuesday, April 13, 2010

A possible ED forming...

...well today's price action went too low for a normal wave 4 but not low enough for a normal wave 2, so that means a change of plans for what I was thinking. While the price action appears impulsive on the low level charts, price isn't moving high enough to give a perfect green light to a strong impulsive structure. Instead, an ED would fit nicely based on where we are in this wave structure off of the Feb low.

Here is my plan (assuming we move to a new high tomorrow morning):

- take a 1/4 short position on a touch of 1185
- add 1/4 position on a touch of 1165
- add the remaining 1/2 position on the next hourly pullback defined as RSI(5) hitting 70

I'll use a trailing stop on my positions based on hourly / daily pivots with an initial target of 1115/1120.

If we aren't in an ED, then the market should move substantially higher without ever giving me a sell signal.

Monday, April 12, 2010

Will earnings deflate the bull?

With this morning's pop, we were able to take the ED right off the table. Based on the price action since the 4/8 low, we should be in a miniscule wave 4 (using my current degree of trend); however, price can't break 1191 for this to still be a 4th wave, so if it does, then that brings up two scenarios:

- Another subdivision with a wave 2 correction that ends somewhere in the neighborhood of 1180/1185
- The beginning of a substantial move down to at least the 1150/1155 area with much much more potential.

I'm looking to go short on any bounce after a touch of 1166. Why 1166 you might ask? Well, we have not been able to take out a weekly low since the Feb low. I like to use 1/3rd of the 10 period ATR to determine if a low has been substantially broken. Since the previous weekly low was 1175 and the 10 week ATR is currently at 27 that would equate to 9 pts. Keeping this going, we have not been able to substantially take out a monthly low since the March 2009 low. If we can touch 1087 that would be the 1st, so keep that in the back of your mind, as if this really breaks down, then I'll be looking to really add on positions on any daily bounce.

Saturday, April 10, 2010

Weekend Update

Well, from the looks of the price action on Friday, it appears that we have a 5th wave ED. Now, we have all the ingredients for a decent if not major market pullback:

- the 10 day ATR is just primed to give us a sell signal
- the technical indicators are in overbought mode on all time frames
- we've lost the initial uptrend channel and started a new one with a flatter slope
- the apperance of completed patterns

And so here's the lesson, if the market does not pull back at this point, it will likely melt up. I'm not talking about a 10 or so point pullback, I'm talking more in the neighborhood of a 100 points, then the market will once again extend much higher. As in all things of this magnitude, we take them one week and one day at a time.

Here's what I'm looking for to confirm that the market is going to respect the technical inidicators:

- I need to see a daily close near the lows with a range greater than 12 pts
- I need to see a daily bar's range be entirely below 1187
- I need to see the market touch 1065 to get really excited about an extended pullback.

I'll start initiating short positions as each of these requirements gets checked. Until then, the bulls have the trend, and we should just let them tire themselves out.

Thursday, April 8, 2010

The bulls look like they still have it...

Well, after what looked like a ripe moment for a daily reversal this morning stalled for the bears and eventually was fully taken back by the bulls, this move off the highs isn't looking too good for a bearish pattern. If anything, the pattern would have to be a leading diagonal, but right now the move up has tested the 786 retracement, and so far, is looking quite impulsive. So unless price collapses tomorrow, it appears that the bulls will have the court for quite some time.

Until the bears can muster a daily reversal, it will be onwards and upwards without regards to the divergences, extreme readings, etc.

On a personal note, I just picked up a nice consulting project, so my trading is now going to be limited to about 1-1.5 hrs in the morning and my nightly commentaries will definitely be in the night ;-).

Wednesday, April 7, 2010

Corrective or impulsive?

This is really quite simple. Either we blow out the lows tomorrow in a 3rd of 3rd or we test the rally highs. The reason I went short was due to the market spending 60 min below a key level (the weekly low). Should we gap down tomorrow, look for the market to hold first at 1173, and if not then 1165. If 1165 doesn't hold tomorrow, then look for the wheels to really come off the bus next week (although even then 1154 should hold for this week's low). If I'm wrong, then my stop will be taken out tomorrow, and we move on once again.

Afternoon update...

Just thought I would put up a quick post - I went aggressively short when the hourly closed below 1182. I have a hard stop at 1190 and a soft stop if the hourly closes above 1185.

Tuesday, April 6, 2010

Here we are...

I went over the charts several times, and this is what I have:

- the looks of an ED shaping up; however, an ED should not be forming at this stage if this is a standard impulsive pattern. So, that leaves me with an ED in the C leg of the move or another 1-2, 1-2, 1-2 price pattern showing up with a big breakout coming.
- the hourly chart is showing that we could be in wave 5 with a move below the 34 SMA (currently at 1179) confirming its end. Will it be another subdivision or will we finally start another leg down that could be more meaningful?
- the 10 day ATR has once again fallen to sleep showing us the continued contraction in volatility (signs of some kind of market top)

But until price confirms an hourly reversal (one complete hourly bar that starts and ends below 1182 and a daily reversal (one complete day below 1182), it is just another day in the office for the bulls.

Monday, April 5, 2010

Wave 3 up it was...

Ok, so we got our micro wave 3 gap this morning. Price has already begun to stall a bit, and it appears that we are in the 5th wave of our 3rd wave. Once it ends, I would expect a pullback between 9-11 pts before completing another 5 waves. Absolute support for our wave 4, when it occurs should be at 1182. Should price break lower than that, then our thrust out of the triangle should be complete.

BTW, my trusty 10 day ATR sell signal lasted a whole 1 day before it went back to buy mode. I'll let you know when another sell signal comes up.

Thursday, April 1, 2010

Maybe the jobs report?

Well, the market once again put us right in the middle. It could just as easily shoot up from here as melt down from here. While the news doesn't drive the market (in my opinion), but I do believe it triggers what the market is ready to do anyway. For example, let's say the market is ready to sell off. The jobs report comes out on Friday with a +200k job creation. The market sells off anyway. The media will report that the market went down as most of the jobs were seen as temporary hiring from the census. Or instead, the number is +20k. Then the market sells off and the media says the market sold off due to a disappointing jobs number.

Now, lets say the market is not ready to sell off. Well, the +200k number comes out and the media reports that the market is up on outstanding job growth. If the number is +20k, the media reports the market shrugs off disappointing jobs number as recession is ending.

Anyway, you get the picture. It is not possible to predict the market's reaction to the news. Sometimes, the wave patterns give you the clues ahead of time. This time it has not. We will either gap up on Monday in a wave 3 or we will gap down on Monday in a wave 3. The reality is that the market did not confirm anything perfect.

Why? Here are the technical bullish reasons:

(1) the market did not break the new supporting trendline
(2) the market found support at the .786 retracement
(3) the market rallied strongly into the close

Now the bearish reasons:

(1) the market was rejected at a double top
(2) Technology and the russel significantly underperformed the SPX
(3) the market is overbought on all long time frames with divergences on the daily chart

You see, it is a coin flip. Myself, well I guess I should have gone flat at the close but being the aggressive trader I am, I left my puts on the table knowing that I can take a chop on the chin on Monday, but it was only a 1/4 position, so the pain won't be all that bad. However, if we drop on Monday, then I have a solid place from where I can add to my short position as our weekly reversal will be here.

Morning Update

Just thought I would throw a chart up and let you know what I'm thinking. I'm going to take a 1/4 short position on the close of the 1st 15 min bar that has its high and low below 1173.50 in the ES with a stop at the high of the day. I'll add on another 1/4 position on the first 60 min bar.