Friday, February 27, 2009


[yesterday] Its the third day of this new trend and we need to watch weakness set in here or strength to continue. [...] This will be a great test for the market to determine the strength of the double bottom here.

Well we had major weakness set in yesterday right off the open. We approached the top as a wedge on lower volume before we started selling off. After we hit the 762 we saw a minor rally just to reattempt the 762 - any longs should have closed out here or at least moved up their stop loss as this trade was going against us.

The bulls needed to hold the 762 range and that did not occur, you can see the hesitation towards the afternoon around the 762 - I was looking at the 1 min bars and you could see them consolidating at the bottom with wide ranges and narrow closes - it was setting up for a big move - but I have to be honest I assumed it was a move up as the bulls were waiting patiently on the sidelines. It seems there was only one bull left.

Looking at my review, of course I can justify this move based on what I said - but I have to be honest, I was a believer of the double bottom at least towards the 800/820 range where we would make a decision.

Today & Mid Term & Long Term
Bears took advantange of the weakness and continued to sell into this rally - if you look at my comments on the special update I was warning about this, reason enough to quote it in here because it perfectly applies to yesterdays trade action.

[yesterday] "The dangerous thing with good news is that you will have hopeful buyers step in that do not want to miss the bottom but then institutions and hedge funds selling into those moves as a way to close out large positions. Who will win here? Not the small guy.

The primary trend is down, so any up move will face extreme pressures. We really need significant changes in the market place itself to give the big guys confidence that 1) they should keep their position and 2) buy more. I do not see this type of change occur anywhere here."

Pre-market we are already at the 741 range, it seems the last 2 days was a mix of short covering, some hopeful assumption of the double bottom and a completly normal technical retracement after strong down moves. We barely retraced towards the 787 range which represents our 23% - this is extremely bearish and unfortunately confirms what we have been saying, the November lows will only provide short term support but will be broken FAST.

Now being a bear don't beat yourself up if you are not short, yes we have know this to be a possibility but again we needed to wait for our signs. It seems we got what we were waiting for and the primary trend has resumed again, unfortunately for many longs.

[Jan 21] We will be creating new lows in the next 8-12 weeks and should find it around the 620-640 range

From a timing perspective we could be there as soon as 2 weeks, considering that our double bottom only seems to have been a 2 days event we could see those numbers a lot sooner but I am still sticking to my original calls of 8-12 weeks which puts this number anywhere in mid march towards beginning of april.

So what does this mean for us long term? You may remember I had warned about the possibility of us setting up for one of my primary final targets by summer - something I did not expect would occur till much later this year. The way we trade around the mid 600 ranges will give us great signs of whether or not this will occur. Of course I will be posting more detailed reviews of this once we get closer and let everyone know what to look for.

Thursday, February 26, 2009

Giving in to the markets

While this week is quite difficult for me to focus on the market, yesterday was important enough for me to convince me otherwise. I had posted a special update at the end of yesterday - days like this do not come very often and give us amazing chances. We had a down day yesterday but nevertheless it was quite bullish. We were able to maintain a new uptrend off the lows that should give us a nice direction for the next few days.

Looking at premarket data we can already see that we have tested the highs of yesterday. We should continue on testing the upper ranges with a potential of breaking the high of yesterday right in the morning or attempting to trade towards this range as an ascending triangle with a break towards mid day around 11:45-12:15. Yesterdays close should provide support on retracements from the upper ranges. The bulls had 2 great days here stepping in with volume and committment.

Its the third day of this new trend and we need to watch weakness set in here or strength to continue. Seeing the last 2 days it is my feel that we will reattempt the 800 range before we see new lows. The following question remains - are we going to break the 800, you remember I had stressed over and over again that once we break below the 800 we should NOT break it again on the upside. This will be a great test for the market to determine the strength of the double bottom here. It is definitly looking like we have a chance here. One of the things we can say with confidence here is that we know what will occur and we know how the market should behave and trade to give us signs of the next move to come. After all, this could be a simple retracement after we had dropped significantly off the January highs - the 23% retracement is right at our door step at 787, with the 38% at 817 which falls perfectly inline with the 800/820 range that has been so important for us.

How to trade this?
We know our trend now so we can take long positions with a bit more confidence, on the short side we can use our yesterdays top and of course the 787 as great entries for short retracements down. Yesterdays close should provide great support with very good protection, long off the 763-765 range with stop loss of 760.

Wednesday, February 25, 2009

Special: A Traders Dream

Well after seeing the morning setup I decided to give the market a bit more attention today regardless. Today was what I would call a traders dream. We have had perfect setups, incredible signs and amazing protection in many trades today.
I had mentioned in the comments that we were setting up for something we have seen many times, significant low point in the market, rally driven by fundamentals, 38% retracement the next day and a great trend line. We hit the 754 range which represented a great entry for long with great protection of 2-3 points (752). We overshot very slightly (my stop loss was literally a few cents away).
The steep trendline from the previous day provided resistance all the way towards the end of the day. Mid day we had the chance for a descending triangle here, pennant or W formation, all 3 of those pattners gave you a great entry even if you missed out on the first sell off in the morning hours. We broke out at 13:35 just as we had assumed and yet again used the previous trendline as resistance with the lower trendline as support completing the W formation as a double top.
You could have also used a gann fan here but sometimes manual trendlines are more precise. We overshot the upper line towards the afternoon and retraced back down closing above the important 762 mark and at the bottom of our new uptrend.
To top it off all trendlines and fibs gave us perfect time signals for entry and exits here. I did 2 long trades today and was tempted to go short at the end of the day however one of my trade rules is no new position after 3:00 so I had to let this one run away but a drop here was to be expected.
I wish the market would give us days like today more often.

No updates this week

Guys, really sorry but I had some important personal issues that came up that I need to address this week. I will check in here and there so post comments =)

Watch the 800 this week.

Tuesday, February 24, 2009


Ok, let me try to look at yesterday and figure out what happened there. First off let me say this, one of the main goals we set ourselves in our analysis here is removing surprises. We want to be ready for any move the market is making, determine what signs we need and wait for them to show themselves. We have had quite a downturn since we last saw 860 over 2 weeks ago - are we surprised to be at the lows of november now? No we are not, while others are running for the hills trying to figure out what happened we are sitting here knowing that those moves are normal and were expected.

Yesterday however I was very surprised, the way we had traded is something I would not have expected. On Friday I said we had a potential to turn very negative towards the 741 low, we did not break, yesterday my anticipation was a upward bias and we broke hard to the downside. Not rallying off the key support ranges of 741 is a very negative sign. As you remember I had said that my feel is we will break our November lows before we see any bounce - unfortunately we are right at the door steps of this important low and the market is not looking like it will rally. While yesterdays break was occuring on relativly low volume I am still concerned for a break here.

"Be greedy when others are fearful, be fearful when others are greedy"

Our trade channel as wideneded quite a bit, and we experienced quite a significant drop. Looking at our bolinger bands we continue to widen our range and are getting into areas we have only seen a few times in the past 2 years. On the daily our RSI is below the 30 line, while I do not use RSI on the daily as trade signals it is still an indicator to use for reference. MACD divergence is quite high on the negative side - you remember when I referred to our MACD as zero as an important trend change sign - the same can be applied here as we are on the edge of the channel here.

What do I expect today? Well it is quite difficult, but we should see a wide range today, none of this narrow range we had seen so many times this year. The first scenario here is a break of the 741 in the early morning hours with a rally followed right when we hit 735-736 - if we are not to rally here we will hit my next target I had posted last week of 724-726, this range will hold and we should see at least 30 points off this range.

The other less likly scenario is a rally of course with the upward bias I was hinting at yesterday but being so close to key support the market needs to reattempt this range to make a real decision, we arrived at the 741 range yesterday late afternoon after being heavily oversold - now that we had a night to sleep over it we need to reattempt this range.

Of course my wednesday change of trend call is out the window now as we have changed the way I assumed we would trade.

How to trade this?
STAY OUT - trust me. I had mentioned yesterday I went long and still hold this position, I definitly did not follow my trade book on this one and unfortunately have to say I am hopeful of this position - hopeful should be a word never associated with any existing position you hold, because more then 50% of the time it will end up being a looser, a big one.

Monday, February 23, 2009


Shorter post today guys.

Previous Trade Day
Friday setup as a strong day towards the downside, we gap opened down and held the 764 in the morning, as you can see in the comments I had posted this is not the bottom for the day with a top out at the 772 - we topped at 774 before we turned down to create new lows.

I have to admit I expected further downturns into hte 740 range and we found our low in the 754 range before we rallied and filled the gap. Looking at the GAP open and the close we were fairly sideways for the day which is to be expected for options expirations.

We should continue on retracing as we have had quite a few down days the past week, with a top that should occur in the 799-802 range by Wednesday this week. Here we will make a decision to either reattempt the 820 range or break to revisit the 741 range with a break into the 720's.

How to trade this?
Remaining on the sidelines is the best thing to do until we determine if this is a simple retracement or a possible setup with strength to break out - it seems pretty obvious that new highs or rallies will be sold into, wednesday will let us know if we have a chance at further highs or continue on the down side. You keep on hearing me on the 800 range, once we break it on the downside it is very unlikly that we will get back above this number again so this presents a great trade for us.

Of course if we can get back into the 770 range I feel we can take this chance and go long with a decent 768 protection. Other then that I would try to stay out to see what the market is going to do.

Thursday, February 19, 2009

Continuation ...

Well, lets first address what we have been waiting for this week and lets go back to previous days comments.

[tuesday] I see a change of trend on Thursday around 2:45-3:15 so watch it there for a possible short term bottom - if this call holds true you can see that we have quite a few days of down moves.

[wednesday] 764/774 = now this is something we have to watch with care here, many are saying its the retest of our previous lows to form our double bottom. You know I do not believe this to be the case and we should blow right through it to create new lows but we need to be mindful of support. This could provide a bit of a stronger bottom. It is possible that this will be the final target for my change of trend call on Thursday afternoon.

We created a new 52 week low on the DOW at 15:42, while this is off by almost half hour I still feel it was an important enough point to consider, not a trend change but a significant enough low, especially considering we had made this call well ahead of time. On the S&P we reached 777.03 at 15:42 as well, off by 3 points from my target range.

What support did we see of this important range? Especially when combining with a new 52-week low on the DOW? - none, even the 5 point jump was sold off right away. This is not how a double bottom would behave.

[tuesday] Keep in mind probability of longer term change of trend calls are not accurate enough to use trade signals by itself so don't go short blindly with an exit order on thursday afternoon

Well it seems I should not have listened to myself here and just gone short to stick it out to my target. Just kidding guys, trade wise we have had quite a difficult few days. We have know the entire week what we are setting up for, however, every day we are presented with almost impossible trade ranges. Even if you had a perfect entry either on Tuesday or Wednesday you were able to gain only a small point range that could easily be eaten up if held overnight with a big GAP open the next day - so its hard to take this big risk and keep a position into the close.

I have to admit I am very surprised at the moves the past 3 days, this is something I will have to come back to in a few weeks with a different mindset to determine why this was occuring. We have had a HUGE GAP open on tuesday, that GAP range alone had more points then our entire trade range we have had this week. Considering we are at the major lows of the market place, broken down trend, lowest DOW close - all we saw was calm and collected moves. As we discussed in the comments yesterday this could be the market waiting for some sign of outside intervention, but it still does not justify the moves towards new lows. Remember the strength and moves around the 800-840 range in our Jan 19th week - we saw none of that this week.

Now, there is a slight chance that this sideways trend is a setup for quite a big drop to come on the very short term, meaning most likly today - I do not believe this to be the case but we have to take into account why this is occuring right here.

Well, here we are again on a Friday with a weekend ahead and just having closed as bearish as we can the day before. Now being short I would not feel comfortable keeping it over the weekend so expect some short covering, and on the long side there could be some bargain hunters playing the double bottom play.

If we do end up with a day on the stronger side we have a chance at the 800 range I was hinting at Wednesday, on the downside of course we have the next levels at 764 and 741, I do not feel we will go lower even if we have a massive sell off.

I apologize for not giving more direction today, this is one of those days where I need to watch the open and the first hour of trading before I can make a call at what should be occuring.

Another one

Yet another day that had me quite surprised. Considering where we are market wise seeing a sideways day (though with decent volume) is quite odd. Now on the other hand, as you can see when we dropped to 790 on tuesday after the gap we were heavily oversold, we are now at 790 still but were able to distribute properly. We know sideways day generally mean continuation of the previous trend which in this case is down.

Well as mentioned on Tuesday before the open I forsee a change of trend today. My most likly point is still in the 2:45-3:15 range. We also have the potential to have a change much earlier in the day around 11:45. This time around its much harder to identify the time window so watch the comments for updates.

Now you ask which way will we turn? - believe it or not its hard to say, as you remember from previous change of trend calls price does not always matter, here its one of those were its regardless of price or direction. There is a chance we will see a rally in the morning hours, if that is the case my top would be around the 800 or 809 range, if we are to decline further my bottom this afternoon would be around our previous low points. So its hard to make this call now but it will materialize.

How to trade?
Well it has been a bit frustrating I am sure. I promised new ranges, new trade opportunities and we had our break, yet no trade chances. Narrow trade ranges and really untradable patterns. Look at yesterday afternoon (comments from previous day), I had called the change right before it happened, then all we get is 3 bars and more sideways, we normally trade after confirmations if we are unsure of direction, this was one of those that left us without any trade yet again.

So for today, we will have a great trade chance unfortunately we do not know the exact time yet or direction but we will see a change of trend today. Get ready, watch comments and go into today knowing that this trend will give you a few days of gains.

Wednesday, February 18, 2009

Call me crazy?

No need to say more. We broke major resistance (EDIT: I meant support, sorry about confusion) with a huge gap open on extremely high volume yet again - there was no looking back. I had mentioned the 790 number in the past a few times and considering where we were I anticipated it being a short term bottom but would have assumed a break considering the large gap we had on the open. I had mentioned that once we break the 800 on the downside we should not see it again with the only exception of seeing it as resistance - this occured yesterday and gave you some great signs of where the market will head. The morning played out again as I expected but the afternoon - had me puzzled.

Now if you would have told me 3 weeks ago that our breakout day would look like it did yesterday I would have called you crazy - but you would have been correct - a 30+ point gap open with a trade range of 10 points on extremely high break out volume. Something I have not seen ever. On decision days normally you see gaps and strong moves, and if you do not see strong moves you see a sideways type action but on much lower volume. Gap to trade range ratio of 4:1 on this volume - quite surprised and something for me to consider and look back too once we play this out till thursday.

Well we got our break - but for the readers that have been following me for a while we have seen something similar before, we broke a major market point in afterhours and did not give it a decisive break/test during normal trade hours. You know how I like to see this type of trade action especially around our 804 range during open market hours. What does this mean for us? There is a slight chance, and I mean very minor that we could revisit the 811 and possibly 820 range - this would go against what I have been stressing over and over again that we will not see the 800 again but the market must follow rules and it may have skipped an important step here. I do not feel this will occur because I believe that once the first 7XX is in, it will be very difficult to get back above this range. Only way for us to attempt this is before a break of 785, a break here and this chance should be gone.

So how will we continue today? Not an easy call I have to admit, but a very likly scenario yet again is another 3+% down day. With a potential for more. On the bullish side we could be setting up for an intraday test in the 809-822 range but sell off quite a bit after reaching those peaks. If we are to see a break of 800 on the upside watch my comments for price and time targets.

I just wanted to reiterate what I had said yesterday, in my long term update and many times before - once we break this number the market will behave very different, not like you have seen the past few months when we traded in this 800-900 range. Be careful please and do not take hope into what occured the past few months when you hold your positions. Risk management now becomes more important then ever.

Support and Resistance
We are entering new ranges so let me recap what our numbers could look like.

820-822 = will not exceed this top

809-811 = if we are to get a rally before we break the 785 range we could potentially come back here

799-803 = pretty much the border line of border lines.

790 = bottom yesterday which should only provide short term support as it will be broken

764/774 = now this is something we have to watch with care here, many are saying its the retest of our previous lows to form our double bottom. You know I do not believe this to be the case and we should blow right through it to create new lows but we need to be mindful of support. This could provide a bit of a stronger bottom. It is possible that this will be the final target for my change of trend call on Thursday afternoon.

741 = our previous low point. if we are to reach it expect it to overshoot by a few points and bounce of the 837-838 range

724-726 = this in my opinion will be the first real stop for us and I do not feel we will break this number in the next 2 weeks. So lets see if that holds up.

How to trade this?
Yesterday setup to be a great day for traders, ended up being a wash due to this narrow trade range. While I am confident of the lows knowing our administration I am not going to hold overnight. I entered a short during the morning hours and ended up closing out break even for the day. At 3:00 I turned off the system as it only gave me a short time window with big risk, we did not make a move during the day after this gap so I was not going to risk chasing it in the last hour. While this turned out to be a great short it was barely even 10 points worth of gains with quite a bit of risk. Maybe I am trying to justify my non-trading here a little because I was a bit frustrated with yesterday. (sorry for the rant)

Considering this narrow range I feel we have a chance to get back to the 800 one last time. This again could give shorts a great entry but keep in mind what I said today about the 800 break, we have to assume a bit more risk now.

Am I going to say it again? "I would remain on the sidelines?" - well I am tempted to advise to stay out today, we do not have clear enough signals and while we are in new ranges, the market is not going to run away from us. So be careful and good luck.

Tuesday, February 17, 2009

Keep on trying ...

Previous Trade Day
The morning hours setup just as predicted. We did get our continuation, topped out at our predicted 840 range during morning hours including retracement. Here is where the bulls needed to continue on the upside and failed. As I had mentioned previously any attempts we have had on the upside has been weak and on much weaker volume compared to previous down moves. You all know what I think about weekends, and I keep on stating the dangers and risks, the market pretty much fell over in the last 4 minutes of trading.

So summary, DOW closed at the second lowest point ever during this recession, S&P on the trendline and failed the previous day reveral candle.

Looking at pre-market we are at our lows already. We have been waiting and waiting and I have been trying to anticipate a market move out of our range and on every decisions, whether it was up or down we have been brought back into it - no more. Finally here ....

I have said last week that the trend change is in even before our confirmation, while we did have a big move off the lows on thursday, you could sense in my frustrating review that this was yet again another jump without any strength behind it.

One of the things we have not talked about yet is what will happen once we enter this new range. We are now entering trade ranges we have not seen in a while and are only 60 points away from our previous bottom, so I would be using this as my first target. I think many will be surprised at the strength of the down moves, bringing back memories of october 2008. The market has gotten used to bad news and narrow range with recoveries giving you a chance to get out of bad trades - this should not occur anymore and many will be struck by surprise.

I see a change of trend on Thursday around 2:45-3:15 so watch it there for a possible short term bottom - if this call holds true you can see that we have quite a few days of down moves.

How to trade this?
Well, time has come, now how to properly trade this, keep in mind we have to follow our trade rules, no trade in the first 15 minutes, your finger will be itching in the morning and I urge you to wait yet again until we are into the market for at least 15 min. We are going to be fairly oversold once we open due to our after hours action so I would be a bit careful, on the other hand a break of 804 is sign enough regardless of time but has more potential of quick 4-5 point snaps that will minimize your protective abilities. I had traded with that mindset on thursday and lost quite a bit of money as I had aggressive positions with much wider stop losses then I liked due to the snaps to be expected. I normally would say remain on the sidelines - not today. I feel we have a great chance of 30+ points on the downside today.

Keep in mind probability of longer term change of trend calls are not accurate enough to use trade signals by itself so don't go short blindly with an exit order on thursday afternoon =).

Friday, February 13, 2009

Someone opened the magic drawer ....

well I have been sitting out all week as I was waiting for all the signs to be put into place - I said that its important to see how the market is behaving at certain points and this information can be worth more then trading the ranges we have seen in the past 3 days. On Tuesday we had our big drop after the bailout plan was announced - a down move of this strength was to be expected as the market has been holding out for this information for quite some time now just to hear disappointing direction once the big plan was revealed.

While we neared oversold conditions at the end of the day we used wednesday to remain perfectly sideway to distribute and absorb buying pressures - I was getting more excited after seeing the market retracing 23% only. Additionally I made the reference to the DOW yesterday as another piece of information to confirm our direction - you could see how confident I was in those calls.

Everything was in place for our final confirmation yesterday and we started with a text book setup on the open. GAP open down - We failed an attempt at a rally/gap fill in the morning hours, we dropped into support at 811 and retraced 23%. We continued to drop towards the afternoon and around 2:30 had our decision. Head and shoulder pattern on the intraday, volume, the DOW strongly breaking major support. As we were approaching the low of the day we were unable to rally, confirmed the head/shoulder reversal and time, price, volume all came into play at one point to confirm everything we have been waiting for the past few weeks and past few days and we finally dropped to close the day 4+% down exactly as I had posted in my comment yesterday (previous day conversation).

Wait - this is not how it ended? - what happened? Well, we could all see what occured yesterday. Timing was impecable , it was clearly visible we were setting up for our big down move I keep on describing with all confirmations in place. It seems they have some pretty smart folks in the new administration that understand how the markets work and were seeing exactly the same thing we were yesterday - they knew what was occuring and had no choice but pick up the red phone at 3:00, call the boss and say "Boss, its time to open up your magic drawer and pull out one of the 25 envelopes we have prepared for you." - "Can I pick any?" - "yeap, any, you and me know that it won't make a difference but lets just do it anyways - for your enjoyment we made funny labels for each of them so pick them based on which you think is the funniest" Each envelope contains one page with the following information:

1. [Random Plan Name that we feel will help]
2. Available in 500, 600, 700 Billion or 1 Trillion
3. Two sentence summary
4. "Only to be used in emergencies"

Yesterday envelope's plan was called "Mortgages: pay your own, your neighbors, your neighbors red headed aunt and your neighbor's red headed aunt's hair dressers"

[yesterday] Technically we are still in an uptrend but the market needs to make a stand here - bulls need to step in and match volume on the stronger side - however without outside intervention that takes the market by surprise I doubt this is possible.

No need to say more ....

Yeah technically we had a great reversal yesterday, look at the extremely bullish hammer candle stick on the daily, extremely strong volume, v-bottom like recovery, close above our weak up trend line - don't get too excited though, even with all of this it was only a 38% retracement off our peaks.

We are entering very dangerous market times. The market is kept in this range longer and longer. This can turn out to be quite negative overall. Its like a bungy cord that you keep on pulling and twisting - at one point its going to snap back violently or break all together dropping whatever was attached to it. The longer we remain in this formation we are in the more dramatic the moves will be - unfortunately this is looking more and more like a very strong move to the downside.

I am quite frustrated with yesterday and for today - no review, I refuse to give in and forecast a market that quite frankly is unpredictable.

ok ok, maybe just a little bit - the bulls need a follow through today and continue with a 3+% day on strong volume if they want to maintain any type of uptrend. While this move is quite bullish we did not break Wednesdays top. This needs to occur today on strong volume and we need to see a test at the 850 range. If this is too occur the most likly scenario is trading towards 840-842 in the morning as part of the continuation, retrace slightly to the 831 range and rally into resistance at 850.

A break of the 831 range on the downside will bring is back to 820-821 where we will make our decision.

Thursday, February 12, 2009

Bulls out of lives ....

The marketed traded fairly sideways yesterday on decent volume. We were unable to even try to reach the 38% retracement. Considering we are so close to this major support line we should have seen more strength. I said I am confident of our direction even without confirmation - yesterday was a great sign for us that further declines are very likly. You remember what has happened in the past 2 weeks whenever we got close to key support ranges that were in the 800-820 range - we rallied fairly quickly. This did not occur yesterday even after we have found ourselves in quite an oversold condition.

If you look at my numbers again yesterday you can clearly see why I am so confident.

834 = this is something the market should break towards the upside, if this is to remain the top we can see a break of our uptrend line by this week

We broke this range on the upside however it was rather weak and we only topped out 4 points above.

842 = yet again a key resistance number we have seen in the past. This should be the top today and could provide the last peak before heading down.

We did not even reach this point after a break of the 834 - that is a very bearish sign showing even stronger weakness. The 838 yesterday may be the top I was hinting at.

We should see further declines in the market place and our premarket is already fairly close to yesterdays bottom ranges. Technically we are still in an uptrend but the market needs to make a stand here - bulls need to step in and match volume on the stronger side - however without outside intervention that takes the market by surprise I doubt this is possible. The past few weeks the market has been immune to bad news. It is my feeling that this immunity has come to an end and bad news will yet again lead the market lower.

We have to be a bit cautious with the 820 range here that we did not give a real test too yesterday. We could see some support on this range. Now, this is something I normally do not do but I am going to include the DOW today as another trade confirmation - the 7800 level on the dow is a substantial support point - the market has only closed ONCE below this point so it is much more important today then the S&P equivalent (around 820 for us). If this will get broken and I feel it will today or tomorrow (unless the bulls have a major rally from here) we are guaranteed to revisit the november lows.

How to trade this?
Do not chase it. Trust me my fingers are itching as much as yours, however the market will retrace - even if it does not, the information it will give us at those key support ranges are worth more then a few % you can gain on a trade. This break will bring us back into new fresh ranges with many amazing chances to make money. So do not chase it - even if it does not retrace back to the 820/7800 levels we know our trend finally and its not the same 100 point range for a 4 month time frame. Considering how important our 820/7800 range is, we should see another test on the upside after we have established a new leg down.

Wednesday, February 11, 2009

Back in town ...

Well I arrived back home again in Miami. Definitly loving the weather over the cold UK rain and snow. Slowly getting back into it and wanted to give a little bit of an update.

So where are we now? The market has been very disappointed by the bailout as it lacked any type of direction or detail needed. Hearing Obama on TV is very scary. There is only a small percentage of people in the US that really understand the severity of what we are going through. I remember when I had talked about my long term target of 400 12+ months ago - I was laughed at. However, Obama is painting a picture that is much more severe and graphic for the normal consumer to even understand.

- "catastrophe"
- "tanking economy"
- "worst recesssion"
- "unreversable downfall"
- "worst crisis in our generation"
- "[insert strong graphic word here] since the Great depression"

Those are just some of the words used by our new president. I understand this is also a lot of politics, trying to paint a bad picture to put pressure on congress to allow him to do the things he feels are needed, showing a bad picture so once the economy recovers by the end of his term he can take credit for it. I think he is walking a very fine line between using the proper words to his political advantage and causing damage and fear to the average consumer that does not have a full understanding of economics. All we hear now is that it will get worse, a lot worse - people have to understand after bad comes good - that is being removed now. Yes it will be difficult but everyone else is having the same problems. This is not like Japan in the 90's (a reference our leaders like to take to get their plans approved) - its a world crisis of credit, debit and liquidity - it will turn around. The average consumer needs to hear that and they don't.

Ok enough of my rant - I am not trying to turn this into a political debate, our new leaders are having one of the most difficult challenges ahead of them, I do not wish to be in their shoes and I give them credit for trying what they feel is best for everyone.

Back to the markets - we have had a severe drop yesterday on one of the largest volume days thus far. Yesterday goes into the top 15 days in terms of volume we have had in the past 2+ years so it is definitly a strong sign to where we are going. I am going to state, even before our confirmation, that our trend decision is in and we will be moving towards the downside - a scenario I had described earlier. From here on out we have 2 scenarios, either a break of our very important (and very weak) up trend line that the bulls have worked very hard on, or some distribution and retracements after such a strong down move yesterday. The market has failed to break key resistance areas at the 20 and 50 moving averages and that of course is very bearish. Volume has lacked on any of the upside attempts and only became apparent on strong moves either at the bottom or towards the downside.

In terms of trading - we know our direction now, its Wednesday today - the middle of the week. I would recommend staying on the sidelines yet again with the only exception of entering a short at specific key retracements if volume and time work out. At this point the most simple things work best so I am just going to state the Fibs that I feel will come into play.

834 = this is something the market should break towards the upside, if this is to remain the top we can see a break of our uptrend line by this week

842 = yet again a key resistance number we have seen in the past. This should be the top today and could provide the last peak before heading down.

848-850 = this would represent the 50% retracement off the past 2 days. Reaching this could be a bit bullish as I would not expect more then 38%.

So watch those numbers again, volume and time. Being on the sidelines is the best thing to do at this point. I did not trade at all yesterday but was watching the market with my fingers itching - we do not gamble, we want to get our trend in and then get in on moves that have great protection and follow technicals.

Thursday, February 5, 2009

On the right side again ...

Well I am gloating a bit, yesterday worked out to perfection. I had hinted at the volume being low this week and alos mentioned that the close on Tuesday in the upper ranges with a break of my 837-838 target was something to be taken into consideration. It was clear before yesterday that this was setting up for a fake up move.

I had called the top of by 9 minutes (10:36) and anyone who went short there had a great run down - even if you went short within my 10:45-11:00 window you still had a pretty close to perfect entry.

I had mentioned the importance of time yesterday, not price. We got all our confirmations I mentioned, low volume as we jumped up in price and even lower volume as we created new highs giving the 20dma a test pretty much at my target time. Text book example of a suckers rally. Price, time and volume - those indicators by itself can be sometimes the most powerful ones.

Special Note
Well I will be traveling the next few days so you won't see me online or replying to comments. Good luck everyone and stay put.

I foresee a change of trend on Tuesday next week but will confirm this weekend with more precise details on time. From where we are now we could be setting up to give the 800 a final run down where I feel we will break to the downside and reach the 790 price target by Friday or Monday. We do not have a confirmation for this move yet so stay put but considering I am not available the next 2 days I wanted to give you a heads up on what I feel will occur - as I cannot watch today or Friday I am unable to give confirmations for those moves so look for confirmations and stay light on your trades.

Good luck.

Wednesday, February 4, 2009

On the wrong side ...

We continue to remain on very low volume in a narrow range pattern. I was a bit surprised at the trade action in the late afternoon to be honest, something I did not expect and needs to be addressed. I said that my feel for a top out should be around the 837-838 mark and we stopped right there just before 3:00. Here is where I thought we would keep it for the day but we ended up jumping one last step towards the 842 and closed at 838. While we reversed this last jump quickly we still managed to close in the upper ranges.

We can clearly see that we are spot on with our narrow ranges and low volume but the bearish tone is definitly not in the market. We were able to create a slow up channel off the monday lows, something I felt would occur on the downside if any.

Well the market got a bit ahead of itself yesterday so watch for the top out to occur around the 10:45-11:00 mark. This would be inline with a 1:1 ratio of our drops from wednesday last week. Volume here is the key and I can see us giving the 842 one last test - time is important here so do not chase it. If volume picks up while we are approaching 842 - something that should not occur watch for a break to setup for a suckers rally with a potential of 846-847. It is very unlikly to breakout on the upside from here on out so do not be fooled by this rally if it is to occur.

How to trade this?
Well, if you have to dabble in the markets today use this as a short entry window but keep in mind that its a medium probability and medium risk trade. Its not as safe as I would like so try to perfect the entry and lower your capital on the trade so its easier to get rid of it. This is one of those trades that you either hit perfectly or walk away from.

Tuesday, February 3, 2009

Follow the quote of the week ...

Short post today. Busy on planning my trip back home (been away for 3 months).

Nothing much changed. We gapped lower and were able to fill the gap closing perfectly sideways. We did not get any commitments on the upside and remained on very low volume just as I described would occur.

We should remain on lower volume and should not exceed 837-838 on the upside. While this may look like a good short we need to wait it out. We should continue seeing indecision with narrow ranges and open/close prices that remain fairly even.

Wait it out and use this time to read up on strategies and other technicals.

"If you don't know where you're going, don't speed up."

Monday, February 2, 2009

Getting ready

I spent quite a bit of time this weekend on a more detailed analysis of the possible outcome we may see out of this turn. So review both of the posts and use them as a guide for this week. The markets are waiting anxiously on the "next" big plan which in my opinion will be one of the key drivers leading this quarter.

This week I see the market remaining in a sideways low volume pattern until this "big plan" is resolved or turn lower giving up hope until there is a reason to believe otherwise. I do not see us trading much towards the upside unless we see outside interventions.

What are some of the signs to look for? V-Bottoms where you can see strong turns towards the downside with fast reversals - watch the daily candlestick patterns carefully this week. Whatever will happen, do not chase, better to sit out on a few points and wait for the retracements then getting caught in one of those whiplash trades where probability and risk are non manageable.

If this is the turn to the downside wait it out until we have made a decision in the 718 to 767-770 range. Sit and wait, let the market decide this week what we will do and then get ready for some good trading for the rest of the quarter.

Good luck everyone. I may be posting less this week due to personal travels so review my weekend posts whenever you are in doubt if I am not here for more detailed guidance.

Sunday, February 1, 2009

Weekend Special: The other side

Quite a few of you had asked me for more justification on the bearish scenario I had described. I do admit I lacked the proper technical justifications with clear examples and descriptions as to why we are going down and how far it will be.

- My long term bearish outlook

Before we go into our current market conditions lets review what elliot wave theory means when applied to a major bear market. If you do not know what elliot wave theory is look it up on google first to get a better idea. Here is a basic explanation:

Wave 1: while wave 1 is occuring no one expects it to be the first cycle of a major down turn, news and information is still very positive, price targets are still favoring bulls, as prices drop volume does not increase enough to set of alarming indicators.

Wave 2: Corrective of wave 1, with a 61.8% fib retracement, investors may seem bullish again as we are retesting the upper ranges on the retracement.

Wave 3: very bearish sentiment, prices drop quickly with little and short lived retracements, usually strongest wave exceeding wave 1 with a ratio of at least 1.61:1 (up to 2.61:1 possible)

Wave 4: corrective of wave 3 with smaller retracement compared to corrective wave 2, should not exceed 38.2% fib levels, usually sideways trend pattern, difficult to identify start and end of the wave

Wave 5: here is where many technicals differ, some say this is the strongest wave, others say it is weaker then wave 3.

So having this quick recap lets apply some of those theories on our current recession. Let me show you the waves first. Use the graph as a comparison.

Wave 1: during wave 1 many were still very bullish on the market. Look at commodities and technology 12 month price targets. All were still up sky high with forward P/E's of 25+. People were still buying into the "cheap" financials.

Wave 2: we retraced exactly 61%, many investors were very positive and kept their initial long term price targets.

Wave 3: our big crash, huge volume, we had no retracements to speak off while this wave was occuring and dropped substiantially in a short time frame. Very bearish sentiment.

Wave 4 (potentially current wave): retraced 25% thus far (my jan target of 945 I had posted in December). As you can see above its normally a sideways type pattern and hard to detect. We have been trading rather sideways and you can see in my forecasts I am unsure if we are already at the end of this wave or we still have a chance to get to the 38% retracement which is the 1000 mark I keep on hinting at.

Wave 5: So the question becomes can we get away with a black eye or will we get our legs broken. One thing we have to our possible advantage is the wave 1 to wave 3 ratio is normally 1.61:1 or only slightly more (on rare occasions up to 2.6:1), our ratio currently is 2.2:1 leaning towards the strong side (wave 1: 1575 - 1257 = 318, wave 3: 1440 - 741 = 699). This could give us a chance to have the final wave shorter as wave 3. So the question is will this be 640 or 480 as the final bottom?

Now you can understand why I have been so bearish since summer 2008 (went 100% cash at white dot). To take this further, apply this pattern to the dot com crash as an example and take a look at wave 5 there.

There is a possibility that my wave count for wave 3 and 4 is incorrect - in elliot wave theory wave 4 is the most difficult to count correctly from start to finsih and only becomes clear once wave 5 is confirmed. My bullish scenario (updated 2 days ago) ignores the trade action in november when we created the low. I said:

"* we have the exception of our Nov capitulation that created the low. How can we justify this key difference? - we were coming off one of the steepest down turns with VIX at levels never seen before and a fairly quick reversal leading to a rally from 740 towards 900 in just 5 days on extremely high volume. Is that enough to ignore or remove from this analysis? You be the judge."

This same can be applied here. If that is the case here it means we are currently ending wave 3 - this could have occured 2 weeks ago at the 804 low or the more likly scenario can occur next week when we dip into 700's as the market is waiting for Obama to create the new "savior" plan. I do believe on our next visit at the 800 we are breaking it to the downside. If this is to mark the end of wave 3 it should not drop below 765-770 and needs to break back above 800 within less then 2 days. If we are to break below the 765 and AND break the low of 741 it seems the count has been correct as this would indicate the start of wave 5.

My incorrect count here is very possible and would be inline with the wave 1 to wave 2 count and my bullish rally towards the 1000 mark as the corrective wave 4. What do you guys think?

So after all this review we do have to be more careful yet again on the break of the 800. I know it may be confusing and difficult to try to make out where we will head from here - I am in the same boat but I am confident now more then ever that we have covered everything to be ready for the next move. Next weekwill be deciding for all of us and will confirm our wave counts and of course the resulting trade action. Are we entering wave 4 or entering wave 5?