Tuesday, March 31, 2009

Got one more sign for our trend ...

Yesterday
Odd trade day, as some of you may know my trade rules I try not to trade in the first 15 min or last hour. So if you look at the tradable time of yesterday the range was very narrow. Now this is all normal and we have seen that before but it should not have occured yesterday - meaning the bears did not get any follow through. While we were down quite a bit yesterday I for one look at yesterday as a very bullish day - I even want to say it gave me an additional confirmation that our highs may not yet be in.

Everyone keeps on referring to "this is priced in" - a failed automaker (or two for that matter) were not priced in yet the market held up fairly well and was able to prevent a big sell off - under normal circumstances I would have expected a 5+% down day but we held the range off the open. Very bullish.

Today
We are still very close to our important 800-804 resistance here so a test before heading down further to finsih the retracement is very likly. At the same time follow through from yesterday to get closer to our major ranges at 769-771 and of course our 741 (with a stop at 748-749). The open today will be very important and will determine our scenario. If you can watch the 5-min bars in the first 45 min - indecision here and we should remain rather flat and close the day sideways - if we get a test at the upper resistance we have a great chance at a short here to bring us down to our major support in the next few days. If we do end up trading down our low should not exceed 769-771 today so that gives us a good long for 10-15 points.

Monday, March 30, 2009

Retracement start or move towards my 400 target?

Ok a lot has happened this weekend. The automaker news over the weekend, the big G20 meeting this week - many have anticipated that any type of negotiations and combined global efforts will fail and it will just end up being a sit and talk type of meeting. It will be quite a strong week for sure with big ranges.

I had made some statements on Friday regarding many of the sectors unable to make new highs. Take a look at some of the crowd favorites, AAPL, POT, MSFT, etc. Those have continued rallying as outside money was flowing back into the markets. However on the flipside many other of the key drivers have failed to make new highs, most of them peaked out Monday last week and traded either sideways for the remainder or with a slight down trend.

Now for our mid term and long term views. Is this the start of the retracement into the mid 700's or the start to our major targets to 480? I for one am still unsure about the moves at least on the short term - long term wise you know there is nothing stopping us from the 480. Keep in mind we are going from one extreme to the next, many traders were extremely bullish the past 2 weeks, can this be reversed this quickly?

We have held up surprisingly well last week after we broke though the 800 however did not manage to follow through to break the upper range of 824-828. This range was a key range that needed to be broken to ensure we can remain above the 800.

We were just shy of our major range at the 838 range which could very well represent the top here - if this turns out to be the top, something I did not think was the case last week, we have to be ready for our major leg down (wave 5) as wave 4 was just completed. You all know that this leg down will bring us quite low and most likly mark the low for the year. If this is the move - we want to be in on it. We do not have the proper confirmations yet for this move - so be careful, first is the break of the 741 on the downside, the last and final comfirmation is the 709-716 range that will give us the last and final confirmation (we will not be creating a double bottom at the 666 but expect support).

I had said last week that at this point the chance of seeing 900 before sub 750 is very likly, with earnings coming up any type of surprise could spur more buying. Even the GM news is not all that bad if you are a bull - chapter 11 allows the automaker to restructure and have a better way to negotiate terms with creditors and contracts that are incurring long term debt. On the flip side, this could cause a ripple effect if the many companies that depend on GM will see no business or write offs over the next 3 months.

How to trade this?
Our futures are already pointing quite low, at this time we are trading below 800 already. We have quite a large GAP at the open so we have to be careful if we want to trade this move. One of my trade rules is no trades in the first 15 min (unless you are exiting due to large GAP in an equity). Within the first 15 min we should see whether or not we will continue on the downside today (very likly) or try to recover some of the GAP (very unlikly).

We still have the luxuary of the 800 range right here giving us great protection. It is very possible that we will be giving the 800-804 a test here if we maintain the current level for futures. If that is to occur we have a great short here that could be a great entry towards the 750 range. On the other hand it is also very likly to have no retracement and just sell off without stopping.

Friday, March 27, 2009

Small update .. too much work

Sorry guys, no detailed update today. We are slowly stalling here, many of the other sectors have topped out and not able to make new highs. Some of the crowd favorites (look at aapl) are still rallying however the major industries and equities that normally lead the rally have been unable to make new tops besides the Monday top this week.

NASDAQ positive for the year !!!! Any weakness finds new buyers right away without any retracements of any kind. Remember my upper ranges from yesterday. Suckers rally in the making here, so watch for topping on lower volume. Momentum indicator on the daily dropping while making new highs. Strong sign of reversal.

Good luck, I will try to provide comments if I am available today - if not, remember Fridays and weekends, expect some selling, also the comment provided a few days ago on accumulation of institutions fading - that means they may get ready to take some major profits here.

Mid term wise I see the chance of 900 before we get back beloe 750 so trade with caution and limit trades to small time frames. I would not try to setup for a long term position quite yet. Bears will get their chance, so will the bulls if we do end up seeing higher ranges.

Thursday, March 26, 2009

What a day ....

Yesterday
Well yesterday was quite a scary day if you are holding. First anyone who went long off the 800 had to make a big decision yesterday, stop loss out after breaking 800 or stay with it for a wider risk margin. On the flip side if you were short what did you make of that rally at the end there? Did you cover into the close after seeing the increased buying?

I am sticking primarily to small trades at the moment, nothing more then 3-4 hours therefore minimizing risk and give you a bit of extra gains. I would not try to trade this otherwise here.

So lets talk about some of the technicals, we had strong volume yesterday and created a second spinning top. I for one look at yesterday very bullish - why you say? All the volume came in at the last rally that broke back well above the 800, even taking out 808 and closing fairly close to the 817. I was quite wrong on the 795, I had seen this type of setup in the past and really would have expected further drops after a break of 795 regardless of possible 50dma support.

Now this was also a perfect bear trap, first run the stops of the longs, then make the bears think they can scale back in, rally and you have just taken out both. Bulls are now more committed and will assume a wider risk margin going forward, bears will now just say "ok lets wait until we hit major resistance again".

Today
The chances of creating another spinning top are quite slim so expect today to make a bit of a move and close 20 pts away from our most recent close. While we are still overbought, the market got the lower boundary retest out of the way now so it could create new highs from here. I had said that I feel the 820-828 range should represent the upper ranges and it seems I may have been wrong, our next level of course is quite important and will require a lot of work.

There are 2 numbers that could come into play, 839-842 or 846-848. This range represents a major point - some of you may remember my posts related to Elliot Wave (yeah I know I know). There are many non-believers out there in relation to that, regardless thus far we have been able to apply this theory on the long term. If we apply it here and properly recount our waves this range would mark the end of corrective wave 4 (re-read my beginning of march special for wave counts). On the bullish side, if my January wave count is correct this range is a mere first stop for a 3 wave correction bringing us above the 900 range. How it works out remains to be seen but I wanted to re-emphasize to navigate with caution through these waters. Due to our extreme ranges at the moment you really want to make sure you are on the right side.

The only way I can see us trading towards the downside is through fundamentals. If that is to occur we should break yesterdays intraday low to start the retracement we have been talking about. A move towards the downside should give us at least 3 days of continuation so if that is to occur you may have a decent trend to trade (that still requires protection heh).

Wednesday, March 25, 2009

Who really needs to sell?

Yesterday
Well yesterday worked out great yet again based on the scenarios we had provided. We had retraced towards the 808 range as anticipated, held it twice and then setup for a suckers rally to fail, both high and low were on target with price and time. However, the definition of a suckers rally normally means breaking into new highs before falling over, we did not quite see that yesterday. We had sold off into the close but still managed a close above the important 800 range.

Now someone had asked about the big players. Let me take a minute and explain something else here that will give you even more information on the past 2 weeks. Out of all the market participants who are the ones that really are pressured to sell? .... You? me? Day Traders whether bear or bull? .... nope its institutions that have huge inventories of equities that need to be sold. As you know you cannot just push the sell button so you do not have a choice but to slowly exit out whatever it is you are holding. Now all of that makes sense and we knew that, however those institutions are out there having to compete with day traders, swing traders, the MANY bears, and other personal type investors. So if all of those groups are selling the institutions are not getting a great deal on their positions.

So what do they do? What would work best for them? - If they were the only one in the market that is trying to sell - now then it would be the best case scenario for them. So to be able to get into a situation like this what do you need to do? First you need to get rid of the bears, what better way to do this then shake them out and show even the most committed bears that they are wrong. One could say this is exactly what happened here - bring them over the last mental boundary where any bear would say this is it. Bears are now split into 2 groups of bears, the sucker bears that were now converted into bulls, and the real bears that have no choice now but to remain on the sidelines and stay light after such a big beat this month.

But this is not enough, you need new bulls as well. So what do you do? The many investors that have been in cash waiting on the sidelines have seen the most extreme rally this recession - its time to put your money back in because this is the bottom. Just take a look at CNBC and read what analysts are saying. For some reason, magically, everything is better, and a hint of news that is not horrendous is wrapped in a nice package and presented as a great move into the right direction.

So now that those institutions are in a position where they are the only ones with a desire to sell what happens next? Even the strongest bears are taking it easy at the moment and are waiting for major comfirmations before going in short strong. Many have scaled out and taken the loss so they need some more time to build up the position again. Overall the institutions got exactly what they wanted now. All I know is I want to be on the train once they make the decisions "ok here is where I will start pushing the sell button". I do not think that train starts at 825, I think we have a bit more room to go on the upside.

Ok enough of this for now, sometimes I have a tendancy to just go on without stopping.

Today
While we sold off pretty hard into the close yesterday we are still above the 800 line. Similar to yesterday we have a few scenarios yet again. But lets talk about some numbers first.

798-802 this right here needs to hold for the bulls, if we overshoot it needs to reverse quickly. A break of this range and I am confident we are going to see the 779-780 range again.

808 the turning point I had mentioned yesterday

817-818 this could be the top from here if we are unable to rally

824-828 again upper ranges at the moment. While we had this range approached yesterday it could be considered a double top and mere test of the previous close. So it did not quite get to what I was looking for personally (though it was off by less then half a point lol)

Scenario wise its a bit more difficult, we had our indecision yesterday on low volume. We have to watch fundamental news very carefully at the moment, the bulls are a bit scared and any piece of bad news could throw them off guard and cause a bit of a sell off. So watch fundamentals carefully, on the flip side any good news should confirm the bulls position but not be the reason for another rally. Again I still feel this is our current upper range here at the 800-820 range and we will need to retrace down unless we can continue sideways above the 800 for another 2 days.

Lets hope I will get my computer back up and running today =)

Monday, March 23, 2009

1014 on the S&P !!! Say what?

Yesterday
Not much more to say, broke 785 pre-market, opened up, tried to do a small retracement and of course saw the perfect GAP example I explained previously. GAP open up, retrace down slightly, mark low of the day and just keep on rallying. Rallied towards 800 as expected. Here is where I would have said "ok enough is enough" but not yesterday. What I had assumed would require 2 weeks to occur happened in a 4 hour time frame.

While I had to take a VERY painful loss on my short I had no choice. I really did not believe in this rally, but at this point too many signs have occured. Maybe we were reading it correctly over the weekend, the FEDs wanted to give this market the needed nudge to bring it across the 800 range.

Regarding the 800 remark in the comments, let me restate it here to make it clear [queue up the sound of a broken record] - there is trading above 800 and there is trading below 800, its that simple - of course include margin of error for a few points but you get the point. 800 is one of those ranges that give amazing protection. We have spent a long time around this point to make it that important for the markets, we know that, investors and traders know that, and the feds knew as well so it seemed.

Whether the details for the plan mean good things for us on the short, mid or long term, the market gave its first answer. Considering that since the announcement in February when we were trading around 860 we are now only 40 points away from that point after the details the market wanted had been provided.

Lets do some charts


green = Inverse head and shoulder pattern
blue = plan was first announced, plan details now available .... only 40 points away

Here is where it gets interesting ...

blue = (I changed my RSI top value to 60) Highest RSI since May 2008
green = 10 and 20 dma racing to meet the 50dma for a cross (extremely bullish), strong breakout on 50dma, take a look at the last time that happened - something looks familiar
white = highest momentum value in our recession

Looking at the title of my post today - "1014 on the S&P" - I am not joking, it could very well be in our cards here but we need to give it some more time first before we can confirm such a big move.

Today
Well it becomes a bit more difficult now to forecast what we are going to do. I still believe that the 800-820 range is as far as we can go on the upside at least short term wise. I do not expect us to continue on the upside here. There are quite a few scenarios ahead of us we have to account for.

Continuation - this of course as mentioned is very unlikly and would mean that we would have a very small retracement before 11:15, mark it as the low and slowly trade higher into the high 820 range with a close above yesterday. If we retrace beyond 808 on the downside this scenario becomes almost impossible.

Sideways - this is the most likly scenario today with the market trading in a narrow range between 817 and 800, 795 is possible but should reverse quickly above the 800 range again.

Major retracement start - if we end up retracing down today and close below the 800 we have to be cautious. From a technical perspective this of course is very possible and very likly but as you can see, the market and technicals do not get along too well at the moment.

We have to watch volume carefully today yet again, while we had incredible gains yesterday volume was a bit on the low side considering we broke a major resistance point and rallied this strong.

There is one more possible scenario in the cards today, a suckers rally, very unlikly but if it is to occur a present for all of us. If that is to occur we should rally off the 804-808 range, break 820, top out anywhere from 824-828 and break down hard around the 1:45-2:15 time frame to start a major retracement that could lead us all the way back to 760 and below. Of course expect me to provide intraday updates today for the various plays that could occur.

Even out the playing field?

I have spent quite a bit of time this weekend reviewing the past 2 weeks and tried to determine how this may play into the remainder of the month. Give those 2 a read first before you continue. While they are rather long they provide quite a bit of guidance on how to navigate through the waters here.

1. What is going on? (2 week review)

2. What to expect now? (forecast)

Based on technicals we have a narrow boundary that gives us more signs, 780-785 on the upper ranges, a break here and we will retest the 800 range. On the lower side we have the 862-863, a break here will bring us back to 741 (with a small stop at either 752 or 745).

However, as mentioned on Sunday we have to be ready yet again at outside influences, in this case the details of the toxic asset plan. While bulls and bears may differ on what it means for us short, mid and long term the market generally gives us a better answer – and the signs are pretty obvious at this point. Asian markets are trading at 2 months highs, futures at 784 at the time I am writing this. We will know the final answer at 8:45 AM eastern when the final details are being released.

I had mentioned that in the past 2 years any major outside influence has normally resulted in a major market bottom being formed. This time around it’s a bit different as we were in the process of creating a top, whether it was the final top or a mid term top is yet to be seen. Now the one thing to consider which is rather important is the first reaction the market had towards the lack of details presented by the administration that occurred back in February.

[Mar 2 – Special: Review of Reviews]
“The consumer needs to see that the administration has a handle on this crisis and has all the right people in place to ensure that America as a nation will emerge stronger once this crisis is over. Thus far I have to be honest I am a bit disappointed and if we are keeping score its crisis 1 : administration 0. Lets see if we can even out the playing field in the next 2 months to come.”

After this disappointment back in February the market gave us a clear response – 860 to 666. Will the details being provided today give the market the confidence back? Will this be the excuse to say “its not all that bad?”. Well if it is, get ready for a second month of strong gains.

From a trade perspective, I am still short and need to see a break of 800 first before I give up and accept defeat. A break of the 800 will give us great protection on the long side and of course a primary target of 870-880 with further potentials.

Saturday, March 21, 2009

Special: What to expect now?

Let me start of with a great quote from a major analyst commenting on current market enviornments.

"You’re forced to make predictions, but they’re just random nonsense.”

I have provided quite a detailed update on the past 2 weeks to review what has occured. Now what do we make of it going forward? There are a few things to consider. On the short term side for the next week or so the chances of our retracement toward the mid 700 ranges are fairly high. So lets review that at first.


The first is a violation of the head and shoulder scenario that will be very easy to detect. You can see here very clearly that we have a very narrow range ahead of us to know if the head and shoulder will give us a reversal to the upside or a failure to the downside. I will be describing the upside scenario further down.


We have a great crossover on the stochastics here right on the upper most range giving you strong signs of downturns. Of course be careful with technical indicators at the moment but it is very likly to support a down move from here.

Unfortunately, our mid term decision range is fairly wide at the moment, a break of the 709-716 range will validate that the primary trend is continuing, that also means we have a very high probability of taking out the 666 low, while there is some support there it should be short lived. On the upside of course the 800 range.

Retracement wise, we need to hold 741 for the bulls. If we do end up seeing violations of this range, which is very possible, we need to see reversals fairly quickly, the further down we go the stronger the reversal moves have to be. Worst case scenario is a break towards the 724 range that needs to see a reversal above 741 within 2-3 days (preferrably less). Remaining sideways after a break of 741 will make continuation to the downside much more likly.

Depending on how we end up rallying off the support, we should see a test and break of the 800 range within a 2-3 week time frame after the retracement bottom. This would be inline with a continuation towards the 870-880 as the next major target (with a stop at the 840-842 of course) and possibilities of 900+ top by May. Of course it is also very possible that this rally will fail well before reaching 800. I will be providing more details of course once if the retracement has completed.
The above would be a completion of the bullish wedge formation giving us quite a few gains on the upside. I made a blue circle right around the 710 range which is my confirmation to continue lower.

As you can see all of those forecasts make one large assumption - a move towards the downside in the next week. I have promised myself and you guys to be more objective and play both sides. However, I fail to see how the market can make any moves above the 800-820 range from where we are today.

So lets play being a bull for a week yet again. If we are to turn towards the upside we should see a test at the 800 range by mid week most likly wednesday. As many of my longer term readers remember I have emphasized the importance of 800 over and over again (at the expense of sounding like a broken record). The bulls need a lot of work to get this important resistance taken out. A retracement towards the mid 700 range actually works in the bulls favor. If we will not see a major retracement now and work towards 800 starting monday it should still require a minimum of 2 more tests before I can see a break happen here. Each retracement of this test should be smaller in size to form an ascending triangle.

The only other way I can see a break occuring is through outside interventions yet again that would violate our technicals. Its hard to play if you do not know the rules and this is one of those cases. Playing by the rules going forward we should not see a break of 800 for the short term - but again, anything can happen - who knows how many more trillion we can throw at this to gain another 10% on the market.

To close the post with the opening quote - "You’re forced to make predictions, but they’re just random nonsense.”

Special: What is going on???

Ok, in the past 2 weeks we have seen some major changes and quite an extreme trade range. Lets review what has happened in a bit more detail and try to determine what all this means for the next few months.

Before we start, as always re-read my beginning of march review to get a better understanding of my current long term views. Special: Review of Reviews

[Mar 16 - Wedge Breakout - what next?]
"Scenario 1 - fake wedge and contination
This is a very unlikly scenario meaning that we would continue on the upside without a major retracement and a final stopping point in the 795-805 range. Again this is very unlikly to occur but would be inline with major bottoming pattners. While the retracement is to be expected it should be small and cannot drop below the 751 range, if it does it must stop at 745 and reverse back above 751 in less then 2-3 hours. Time wise this should be occuring within 2 days max (preferrably less)."


Ok the breakout started just as anticipated but we knew exactly what to look for to determine if this was a fake breakout or not. We retraced towards 749.87 and rallied from there to continue on the upside. Not only did we get the exact retracement I was describing for a false breakout (751), but also managed to be perfectly inline with my time target of 2 days (preferrably less). Addtionally we managed to hit the resulting upper range price targets I described if this was a fake. We topped out at 803.25 right at my targets of 795-805. This was the first major bearish sign that the bulls took out.

[Mar 17 - Wedge Breakout - what next? (Comments)]
As I was out of town I was posting comments for the next day under the previous days post.

"also pay attention to the 3 day head and shoulder here"



After hitting the false breakout signs we were looking for on the wedge, we built another bearish pattner for a chance to break down. I had posted in the comments to carefully look for the 3 day head and shoulder reversal pattern. This was yet again a great sign as the false breakout was visible within a very narrow point range - look at right shoulder, we did not even test the neckline here and went straight for a break of the shoulder line.

3 Day Abolsute Chaos and violations
Well, let me first quote some comments and forecasts I had posted and then lets analyse what the heck is going on here. Wednesday, Thursday and Friday will probably be a 3 day time frame that we will be talking about for many months to come - it may even be one of those market turning points that will be entered into history books. Why you ask? Well, because quite frankly it is that significant ...

[Mar 18 - Double bear failures]
"If we are to continue on the upside we need to see a real test at the 7400/780 from here. [...] Bulls need to absorb sellers and remove the overbought conditions to have a chance at a clean break, if we are to break this range today it should fail due to being too heavily overbought "

[Mar 19 - Short Term Top?]
"We have had many bear rallies in the past 2 years, what makes this one different, if there is any difference at all? Looking at our past peaks we have seen very similar behavior, as we increased in price after a major downturn our volume was below average and continued dropping the higher we went. As we started dropping after the top volume started to increase slightly before it came towards a tipping point and accelerated. However we have seen quite a bit of volume yesterday, a lot more then any of our previous tops - of course we had outside intervention but volume needs to be monitored very closely the next few days and especially once we reach our retracement points."

[Mar 20 - Consolidation]
"Option expiration today - so it "should" be a sideways day. However, we are really moving in uncharted waters here so anything is possible."

"We should be giving the 771 a test here today - it is very likly to hold this range here if this is the setup for a base for new highs. If we end up breaking the 771 I am confident we will see our 50% retracement and head back to 741-751 range. However caution is required here."

The fed manipulation has really thrown quite a curveball at this topping formation. I mean this is something that has never occured in the last 2 year time frame. EVERY move of the feds had been perfectly coordinated whenever the market was either close to capitulation or in the process of capitulating. Looking back at every major bottom in the past 2 years all of those bottoms were driven by outside intervention. This is the first time we have seen siginficant outside intervention when the market was going through a "normal" and healthy process to form a major top or setting up for a major rally.

Why did they choose to step in here and disturb the market? The bulls had the upper hand and the market was in perfect harmony to continue on the upside. We failed 2 major bearish patterns and even more importantly were breaking out of an even more siginifcant LONG term bullish pattern. See below.


As you can see this has the looks of a VERY bullish lowering wedge. On wedges the normal type of breakout normally occurs in the last 20-30%. We were on the edge of a breakout here, a breakout that could lead us easily back into the 1000+ range of the S&P. Did the feds try to give the market a nudge to make sure we are guaranteed to break out? Or did they know something we did not know - and they knew that this could have been the last rally before our major breakdown towards my first real bottom targets in the 400 range?

Lets add another one? Yes bullish yet again ....


Yes you can see this correctly, a major inverse head and shoulder pattern. Even without the outside intervention we had a great chance here to create the same pattern if we would have held at the 780 range as I had originally anticipated. Bullish yet again even without the FEDs interfering.

Lets take a closer look at Friday first. I had stated that the market was setting up to create a base here to continue higher and take out the major resistance of 800. All the sign where there and we had an even better chance to create this base here with our option expiration. How many days have you see where the option expiration friday breaks down hard? Not many at all.

I had posted a picture during the trade day on Friday showing 3 distinct down trends with different accelerations. The first and second trend were both perfectly inline to support the base building, distribute, consolidate, absorb buyers and sellers and even out the game to allow the bulls to keep the upper hand. However, as we entered a 3rd acceleration it was clear the bulls had to be careful. I had hinted at a small 10 point bounce and stated that this could be the bulls last chance to create new highs on the short term. Well we rallied exactly 10 points and here had the chance to continue higher or sideways to ensure that this 3rd acceleration was a violation for the base, however we sold off and closed towards the lows of the days. Did the feds maybe thing they could have used this option expiration friday to their advantage to prevent a sell off?

It does not end here. What else occured here that is very different from any of our previous tops?


While we only dropped "marginally" off our 800 range the VIX had extreme increases towards the upside, increases we have ONLY ever seen when a major bottom has been formed not when we are topping out or in the process of formaing a strong top. Why is this occuring? Quite frankly traders and investors have no idea what to make of the past 3 days - uncharted waters - so everyone is seeking protection whether its bull or bear.

So in summary, we are in historic times I believe, and at a turning point that will define the remainder of the year for this market. As you know I have very strong beliefs that we will be seeing the first 400 range in september this year to make the low of the year. My call at the 480 still holds true and will represent a major market bottom.

[Mar 2 - Special: Review of Reviews]
If you did not read my March long term update (I had asked above heh), let me just give it a quick summary.

You can see that I was anticipating the bottom in the 620-640 range (bottomed out at 666 3 weeks ahead of target which is acceptable), then see a 8-12 week rally towards the 741 with a break to "kiss the 800 one last time", it occured in 1.5 weeks. I had further stated that after this rally we would be moving towards my primary bottom target of 400 within a 4 months time frame.

Let me quote a very specific and very important statement I made:

"If we maintain our current acceleration which I feel will not occur I need to sit back down on the drawing board to re-evaluate our price and time targets."

As you can see we hit the price targets thus far based on my forecast but time wise we had violated my first bottom and seen a major time violation on the rally to follow. Is it possible that this same time violation can be applied to my 480 range described for September? If that is the case this number could be here in less then 8 weeks .... yes less then 8 weeks for a significant October crash like drop. On the other hand it is also possible that the time target was indeed correct for the May time frame but the price was wrong - if this is to occur get ready for 1000 ranges on the S&P.

I had given some more feedback in the comments a few days ago and I normally do not make those type of statements here as they add no value and have the potential of labeling me like a "dooms sayer" - so here it goes. I strongly believe our 400 range will not be the final bottom of this market, and we will see the final bottom a lot further down. Whether this is true or not remains to be seen, and quite frankly it is not important for us at this point, not even this year. There are many more signs that have to occur before I can confirm such a statement, signs that will not be occuring for at least another 12 months.

What are the next steps?
It is quite easy from here as the decision should come in towards our retracement points at 741. Here is where the market will make a decision for the direction we will take. I will be posting more details on Monday as to what the possible scenarios are and what we need to look for. For now just take in what has occured in the past 2 weeks and apply your own due diligence. Keep in mind my goal is to provide you with the information I am using for my trade strategies, you may believe them or not, but at least you can take my analysis and include them for your own.

And feedback of course is welcome and I would love to hear what you think about what has occured here.

Friday, March 20, 2009

Watch for small bounce ...


3 accelerations of the down trend. Should be getting a small retracement here of 10 points. Important to see how it retraces, lots of sell volume here.


Consolidation?

Yesterday
We gave back some of the gains as anticipated and for the first time broke the up channel. Of course this break can either be a small violation (unlikly) or the setup to form a base here in a 30 point range below the 800 range for a break of the 800. As this rally is quite a bit different then any previous rallies we have to be a bit careful - of course all indicators are screaming top but we did not have this type of outside interference before in any of our other rallies.

Its quite odd to see VIX shot up this much on such a small drop, almost sideways like. Additionally volume was quite strong yesterday as well. The most likly scenario is people taking some profits, adding hedges and of course protecting themselves for the two major scenarios we have described - 100+ points on either side.

It further goes to show the indecision in the market place as no one knows what to make of the feds interference on wednesday. You may remember a few weeks ago I said "bad unless prooven otherwise" - thus far we have not seen the proof that things are getting better.

Today
Option expiration today - so it "should" be a sideways day. However, we are really moving in uncharted waters here so anything is possible. Many have held on to great gains on financials and may be looking for a way to take profits - or addition of hedges if you are convinced of further up turns.

We should be giving the 771 a test here today - it is very likly to hold this range here if this is the setup for a base for new highs. If we end up breaking the 771 I am confident we will see our 50% retracement and head back to 741-751 range. However caution is required here.

How to trade this?
We are not at a point yet where we can clearly define the direction.

To quote schismatic in the comments yesterday: "Next week will be tell...man, it seems like I say that every week to myself" - trust me I am in the same boat. However you may remember my long term forecast I had posted beginning of the month. I said that March will give us MANY clues for what is to come for the remainder of the year - I still feel very strong about this statement and as you can see we are setting up for a rather large move here. Patience is everything and properly identifying the signs and making the right calls based on this is everything.

Thursday, March 19, 2009

Short Term Top?

Yesterday
Can someone say WOW? 803 high. 50dma and 50% retracement of our major top at 945. First the fast break of the 780 range with committment and continuation towards the 800 range. I was honestly expecting a bit more strength behind it after the first push but you could clearly see prices topping at the 800 range with volume decreasing quite a bit as we continued higher.

Overall yesterday we saw extremely high volume on important breakout ranges. At this point I am more including towards the bullish side on the mid term, however short term wise we can now expect a bit of a retracement.

Today
We should consolidate today and give back some of the gains from the past 1.5 weeks. We should start a 3-4 day retracement at this point that could bring us back to major support at 741, though I have to be honest I expect this to halt before and possibly turn at the 751.

Mid Term
Looking at it from my long term review, its quite funny to see how fast we have moved here.

[Mar 2 - Special: Review of Reviews]
What comes next?Well after the mid term lows are in I feel the market will find new bulls and new excuses to go long – yes I said excuses. I do see us trading back towards the 741 range with a possibility of kissing the 800 one last time before we say good bye for the long term [...]

Of course I was expecting those ranges to be reached in a much longer time frame. 1.5 weeks compared to my time target of 8-12 weeks. Additionally my long term review had very different assumptions on the bottom (620-640) and different time windows for a rally so it cannot really be applied but its quite funny that at least this held true if the 666 ended up being the bottom. Of course this really will give us great clues of our time and price targets. So wait for weekend update.

We have had many bear rallies in the past 2 years, what makes this one different, if there is any difference at all? Looking at our past peaks we have seen very similar behavior, as we increased in price after a major downturn our volume was below average and continued dropping the higher we went. As we started dropping after the top volume started to increase slightly before it came towards a tipping point and accelerated. However we have seen quite a bit of volume yesterday, a lot more then any of our previous tops - of course we had outside intervention but volume needs to be monitored very closely the next few days and especially once we reach our retracement points. Many have been short well below this range and have averaged down - now possibly above the 750 range. I honestly expect many to cover instead of being hopeful that we can continue on the downside. Of course the upside carries a lot of risk now so do not expect it to turn much higher then yesterday.

Our final decision will be made at our retracement point within the next week, either turn to the bullish side to reach 880 and possibly more or turn towards the downside. At this point the downside has 2 scenarios, one of course the double bottom test and the secondary with a break to create a new low either in the low 600 range or high 500.

Wednesday, March 18, 2009

Double bear failures?

Yesterday
wow, I am quite stumped, being very bearish on the overall market I am very surprised we have failed two major bearish patterns thus far. While volume was not all that strong, however it was not light enough to call this a suckers rally.

[yesterday]
This is a very unlikly scenario meaning that we would continue on the upside without a major retracement and a final stopping point in the 795-805 range. Again this is very unlikly to occur but would be inline with major bottoming pattners. While the retracement is to be expected it should be small and cannot drop below the 751 range, if it does it must stop at 745 and reverse back above 751 in less then 2-3 hours. Time wise this should be occuring within 2 days max (preferrably less).

While it was very unlikly to fail such a strong bearish wedge it goes to show the current market sentiment. Not only did we fail the wedge it seems but also a 3 day head and shoulder pattern.

Why is this occuring you may ask? From a fundamental perspective we are getting quite a bit of good news, not great, but better then the extreme negative outlooks. This plays very well into many investors and traders that feel a bottom may have been reached, additionally many are looking at another 150/1200 points on the upside giving longer term investors a chance to lower cost on positions to be able to move those once we reach the top. Additionally many have been waiting on the sidelines and are starting to chase the up run, you could clearly see that yesterday where buying occured before reaching major retracement points - impatient traders willing to assume a bit more risk to get in on the long side.

Now the other thing to consider is the many that went short at the 740 range (me included). We are reaching points where many shorts are being pressured quite a bit. On long term swing positions it is acceptable to have quite a bit more risk assumed in positions but many continue covering - what you saw towards the end of the day yesterday was classic short covering. As we continued higher all day instead of profit taking you saw buying to cover shorts.

The question to ask, for many of the shorts, where is the point of accepting defeat? I believe we are near this point and many have assumed the 780 levels as the last point before completly exiting positions.

We have broken the 774.50 range and closed fairly high towards the last major resistance point here. 7400-7450 and 780 both are very strong resistance lines that require a lot of momentum to be broken, we are right on the edge of this point.

Today
If we are to continue on the upside we need to see a real test at the 7400/780 from here. Now it is quite easy from here to determine if this run will continue on the upside. The most likly scenario is an ascending triangle formation that should be built today with a retracement towards the 759-761 range. Even the 751 range is acceptable now for a valid uptrend so bears be careful - this would indicate a double bottom formation ahead of a major resistance point. Bulls need to absorb sellers and remove the overbought conditions to have a chance at a clean break, if we are to break this range today it should fail due to being too heavily overbought - so watch for potential sideways or slow trend down towards thew 751 targets.

The other scenario towards the downside is quite unlikly today, if we are to continue on the downside a strong day is needed on high volume, even if we fall 2-3% today we are still with a good chance at a 780 break on the upside so be careful here and watch turn arounds carefully. If your trading software supports it take a look at time & sales at SPY and filter by larger orders (above 10K shares), this will give you great signs today to see what major players are doing and can give you confirmations - again even a down day today can be bullish so you need to be able to distinguish between a bearish down day and bullish down day (yeah sounds silly sorry).

Note
schismatic, thanks =). chaugner is my online handle for lots of things, first initial last name (Chris Haugner). Blog wise I normally only visit http://www.gannfann.typepad.com/ (Patrick is the owner). He definitly knows his stuff and has very similar views to what you see here. A few readers here are also on his blog as well. So if you are in doubt here, give his blog a read to confirm. With 50 new trading blogs coming up every day its quite difficult to find the ones that actually add value and know what they are talking about.

EDIT: How to trade this?
As much as I like to give advise it is very difficult for me to make a statement here. Even now I am still not a believer of this rally. It is very difficult to make a decision for entry and exit when you do not believe in the current trend. Better to stay on the sidelines until you are on the same side as the market is. I am getting closer to this bullish trend but need to see a few more things happen before I can say again that we are on the right side.

Monday, March 16, 2009

Wedge Breakout - what next?

Ok as I am leaving tonight I wanted to give a quick update for today and the days to come. First off today represented the first breakout of the wedge we had been building up now for 1+ week. You can see the strong 60 min breakout bars. We topped out as expected right between my target price range (770-779) with a top right in the middle at 774.50. This is the same range I was hinting at last week after we had broken then 741.

While I am happy that my calls are working out here I am still steaming from thursday last week - I know that you cannot win them all and its normal to be off every once in a while but I was totally unprepared. Normally I go into a trade day or trade range with many scenarios, this time I only had one and my reaction towards an unforeseen scenario lacked dicipline and precision - I think I am more upset at that then being off for one day. Unfortunately this off day has also cost me a lot of money, again something that adds to the frustration. Ok enough of the rant here, it happens and there is a saying - if it does not kill you it only makes you stronger.

Now from here on out we actually have 3 scenarios, each with quite a few implications. The bears had been caught in a bear trap all last week and now the bulls are on the edge of possibly ending up with that same fate. From a technical side I had advised that whenever a strong bearish rising wedge is created the breakout occurs fast and strong with at least 50% retracement. Now it seems we have found our top and broke below the wedge trendlines.

Scenario 1 - fake wedge and contination
This is a very unlikly scenario meaning that we would continue on the upside without a major retracement and a final stopping point in the 795-805 range. Again this is very unlikly to occur but would be inline with major bottoming pattners. While the retracement is to be expected it should be small and cannot drop below the 751 range, if it does it must stop at 745 and reverse back above 751 in less then 2-3 hours. Time wise this should be occuring within 2 days max (preferrably less).

Scenario 2 - normal wedge retracement
This is the most likly scenario with us seeing quite a strong down move that must occur in 2 days brining us back to major support in the 731 range, possibly 724. By day 5 we should have reversed and made up most of the retracement range. If it does exceed 724 I will be posting more details when it occurs as I need to see it for myself to determine what is occuring.

If this is how our wedge completes the 666 represents a major mid term bottom and we are setting up for our high 700 and 800 ranges in the mid term.

Scenario 3 - fake wedge retracement
This is something that may seem very odd to many of you. If our retracements end up on the slow side, meaning that we would retrace towards the 50% targets but require at least 3 or more days we are in for a rough ride. If by Friday we are still below the 741 range it is very possible that our 666 was not the final mid term low. Keep in mind if this is to occur we should see a very fast and sharp decline after the 50% retracement has been broken.

So the next 2-3 days are important yet again as they will give us more precise clues. From where we are today we can make the following assumptions:

1. A major bottom has been formed at the 666 range giving us a minimum of 8 weeks on the upside
2. The major down trend requires a break of the 709-716 before we can assume that its resuming *
3. Retracement scenarios described above

* while a break above 741 gave us signs of short term uptrend, for us to resume on the downside we need to see a break of the 709-716 range. So be careful and do not be fooled by a break of 741 thinking we will continue to drop. It is important to understand those retracements and support/resistance numbers when comparing to long, mid and short term trends.

Topping out ....

Note: I will be traveling again and will not be able to post updates today and tomorrow. I should be back on Wednesday morning. I will try to check in here and there. Good luck.

Previous Trade Day
Well Friday worked out as another sideways day that hit the targets we were looking for. We formed the top in the first 40 minutes of trading, then retraced towards our targets and had the turn around I had mentioned in the comments.

Today
We are in the process of finalizing the current up run and pattern that could occur in the 770-779 range. This should occur either today or tomorrow. As we have built quite a large rising wedge we have to be ready for a stronger retracement, most likly a full 50%. Whenever you build wedges, especially one this strong you have to deal with quite a retracement. This could potentially bring us back into the 709-716 range.

The other scenario of course is a stall way before, if we do end up with a GAP open to the upside we have to be careful as the GAP open could represent the top of the day.

Mid Term
As you can see I have missed the mid term bottom, as much as I want to believe that our bottom is not in, I have to admit when I am wrong. While this bottom is within an acceptable margin towards my forecasts I am still a bit frustrated. It seems I have done the mistake of being too bearish and focusing too much on one side of the trade and not carefully reviewing all data in front of us.

While we have quite a retracement ahead of us for the next 5-7 trade days the 709-716 range should hold. It is very possible to bottom out slightly before then around the 724 but we have to wait first to see how high we will top out in the wedge.

Once this point is reached we can make our calls for the top and duration of this rally, we do have a potential to run this well into the 800's by end of May. Best case scenario is anywhere in the 850-880 range.

Friday, March 13, 2009

Let me try to be a bull for a day ...

Yesterday
I had spent quite a bit of time last night analysing the past 2 weeks and taking a non-objective approach (yes you read that correctly). Meaning, if I were a believer in the bull what are my justifications for the change of trend and the bottom being in.

Unfortunately this is a view I should have had a bit earlier. Of course hindsight is 20/20, but something that was in front of us and could have been used as an important sign to include in our strategies.

[Mar 10 - Daily Review]
The next step is to continously remain above key ranges with close prices above the 710 range. If we see 3 days in a row with a continued upward trend, even if it is minor, we may have to re-evaluate the mid/long term outlooks.

Check

[March 2009 - Special: Review of Reviews]
Well after the mid term lows are in I feel the market will find new bulls and new excuses to go long – yes I said excuses. I do see us trading back towards the 741 range [...]

Check

[yesterday day end review]
There seemed to have been a non-existance of normal sense and following of rules when it comes to market behavior and price action. This is the type of behavior that normally is only present when major market bottoms have been hit or you experience a capitulation type sell off event.

Check

My bottom call had been for the 620-640 range as stated in January for the mid to end march time frame. Our low thus far has been 666, off by 26 points, with the time target off by less then 2 weeks.

Last year when I had made the long term calls of 764 as the bottom for october and our low was set at 741, a difference of 23 points and off on my time target by 3 weeks.

Yes we did see below average volume the past 2 days during our crazed buying event but that is explainable as the bears covered Friday last week and Monday and the bulls stepped in to set their mark with the bears waiting it out.

I had stated on Tuesday that the technical overbought indicators gave false signals, again another sign of violation that only occurs during bottoming events. MACD on the daily was 0, a sign of either a new trend establishing or continuation. VIX broke the down trend line on the ascending triangle it had established for 2 months and is now moving lower as the market rises (we also violated the double bottom formation on the ascending triangle).


Now looking at the 60 min chart, take a look at the MACD. We bottomed on the MACD on feb 3rd, as we continued to drop in price to our low on Feb 6th the MACD failed to create a new low, a typical reversal sign - same applies to momentum indicator. On that same day (feb 6th) we had a steep drop in momentum while prices only dropped marginally, as prices continued to drop momentum rose sharply - the last sign of a bottom being formed right in front of our eyes.

So after looking at all the data that has been right in front of us we can see that it seems an important bottom has been formed in the market. I added a picture and marked the signs just so its easier to understand.

Today
We have 2 scenarios today, with the most likly scenario of course a retracement as we have passed the important 741 range. Pre-market we are already trading quite a bit higher so expect the top of the day to be marked in the first 30 minutes of trading and then retrace back down towards 745, possibly 741.

The other very likly scenario is continuation in the morning, slight retracement of less then 10 points and either sideways action from there or slight uptrend to close above the open price of the day.

I do not think we will continue with strength on the upside as we are heavily overbought on the short term.

How to trade this?
Even with all the signs of front of me I am not a believer of this rally, I am not sure if you are, but as a result I would recommend sitting it out until we can see more sense back in the market place.

I still hold some of my short from yesterday though had to stop out of most of the position, unfortunately with a bit of a loss. I did not think we were going to be able to get to this level in such a short time frame but it makes sense and can be justified.

Thursday, March 12, 2009

Sunny and blue skies ... really?

What a day, almost a 40 point range into one direction only without any type of retracement. If you would have told me this morning that this is how the day would end I would have never believed you.

We retested yesterdays top, which I had thought yesterday should mark the end of this rally. A mere retracement of 4 points and we continued rallying breaking pretty much every resistance point on the way up. Not even the important 738 held the market up here, 741 no stop, 745 none, 752 is where we finally said "ok lets halt here for a moment".

There seemed to have been a non-existance of normal sense and following of rules when it comes to market behavior and price action. This is the type of behavior that normally is only present when major market bottoms have been hit or you experience a capitulation type sell off event.

When we had hit the bottom in November 2008 I was convinced of the moves to come before they occured and here it seems they are occuring in front of my eyes and I am still questioning the action we are seeing.

[Mar 10 - Daily Review]
If we see 3 days in a row with a continued upward trend, even if it is minor, we may have to re-evaluate the mid/long term outlooks.

Today marked the 3rd day of signs of a continued upward trend. It seems all of the confirmations for a new trend have come into place. I have to admit even now it is quite difficult for me to understand that this is the basis for a new trend and that our mid term bottom has been marked. The bulls made their stand here, regardless of the low volume yet again.

I am going to be spending some more time tonight for a more detailed review tomorrow. While I would love to tell you that a reversal is incoming, what happened today cannot be ignored and requires some more detailed review.

Continuation?

Yesterday
I posted my daily review again yesterday. As the title said, the market had me fooled, it was setting up perfectly for what I anticipated, however, I did not see the breakdown towards the 710 I was hinting at and the market traded lower a bit too slow. When looking at volume and downtrend angle it was not doing what it should have done - so as a result, yet again, when the market does not do what you think its going to do change your strategy.

Today
Well, we had our indecision and strong signs of weakness for the bulls yesterday. The chances of the bulls seeing their day today are fairly slim as the decision was required yesterday.

Today yet again becomes a bit more difficult to forecast. We closed at the 721 range just shy of the 724 I said we needed to close above for us to see the rally continue. We are still very close to our major targets ranging from 731-741. Quite a wide range and also difficult to trade, especially today.

In favor of the bulls, we did not get to test the 709-710 range yesterday, something that we needed to test and possibly break before we can continue on the downside.

As the decision ranges are fairly narrow we can make some assumptions and wait for signs to tell us where we will turn. 710 as the bottom and downtrend signal, 731-741 as the top end of the range. Considering MACD is at 0 we will have a wide range of gains to follow after the decision is made - 778-780 on the upside and of course our mid term bottom target at 620-640 on downside. So wait for those signs to manifest itself as a decision for our direction.

How to trade this?
We do actually have some great trades ahead of us here. 710 range for the longs with decent protection. From a long side you get 2 tries here, 709-712 and 701-704. This however is not something I would fade into as the downside risk is too large. If you do end up going long make sure your stops are tight.

On the short side, 731-741. If we are to reach this range I would still consider a fade on the short, though if at all possible, try to add some hedge while fading into the position to minimize losses if we do end up turning higher with a break of 741.

If we end up reaching those ranges look for my comments again for more precise guidance. The past few days I have been more active in the comments due to the difficulties of the current enviornment.

Wednesday, March 11, 2009

Market fooled me a bit ...

Well lets first review what we said before the day started.

I do not expect today to move sideways or with little volume. We will either see a sell off leading us back into the low 700 range with the 709/716 being reattempted as resistance or a strong continuation day that requires a close above 724 with an intraday test at the mid 730 range.

It is my anticipation that the low or high of the day will be set in the 10:50-11:10 time frames today, so watch this for a turn around either to the upside or a hard break lower.

It seems we were setting up with a scenario I had anticipated, time wise of course the window was off more then just an acceptable margin but the top was set in the morning trade. This was one of my primary failure signs for the new uptrend. We continued to go through support and turned support ranges into resistance (724). Everything was setting up for further drops, however, I had warned about the small chance of a strong turnaround and it occured 15 minutes later. The chances of this occuring were quite slim but it needed to be stated to be included in analysis for whatever positions we were holding. We rallied quite strong and attempted to retest the upper range just to fall short a few points.

We closed at 721 which is an acceptable margin when looking at the 724, but still a close below a strong resistance/support point. On the other hand, closing at 721 could also be considered sideways, especially with the lighter volume (lightest in 5 trade days and below average), something I felt would not happen here.

Additionally I made the statement that I feel the top is in at the 731. There still is a very good chance of this being the case.

  • we lacked volume and fell short of re-testing the top range
  • spinning top daily candle stick, after strong up candle showing weakness when strength was needed by the bulls.
  • Daily MACD divergence at 0, you know how much I love this indicator. This is a 50/50 sign under normal conditions but the market still favors the bear at the moment
  • While VIX broke the lower trendline it did hold the double bottom (02-26 low). When looking at ascending triangles many times it will break the lower trendline and use the previous bottom as a base to form a double bottom before breakout out on the upside.
  • top of the day 731 represents the 23% retracement level off our major 945 peak that I had missed in the review.

    So we are not quite out of the woods yet, especially being so close to the 738-741 major support. Additionally we will have to absorb the possible regulatory changes that will be discussed tomorrow.
  • Follow through?

    Yesterday
    I had made quite a large review post yesterday. After all this crazyness its important sometimes to re-evluate the big picture and remain objective. While we had a STRONG move yesterday keep in mind the amount of short interest in many of the equities at the moment. Did we find new buyers yesterday, did we halt our acceleration, or did we bottom out?

    I do not think we found many new buyers and I still believe we did not find our mid term bottom here but today will tell the story.

    Today
    Well, we have quite a few scenarios for today. If this is the base for a new short trend we should see a break of the 730 range and a test at the 738-741.

    [Mar 4 - Hesitation or hopeless]
    However on the technical side, we have now cleanly broken away from the 741/7450 range, however have not given it a proper test as resistance. Major support points are normally always re-attempted as resistance.

    I had made this post with the anticipation of the 700 holding which as you can see did not quite occur as we moved a lot closer to my bottom targets and further away from the 700 range. Here at the mid 730 range is where we will make our decision.

    If we are to give this a test it needs to occur today, I do not expect today to move sideways or with little volume. We will either see a sell off leading us back into the low 700 range with the 709/716 being reattempted as resistance or a strong continuation day that requires a close above 724 with an intraday test at the mid 730 range.

    I will try to post more updates during the day yet again but it is my anticipation that the low or high of the day will be set in the 10:50-11:10 time frames today, so watch this for a turn around either to the upside or a hard break lower.

    Tuesday, March 10, 2009

    Daily Review

    On a day like today let me spend more time right away to provide more information as to direction and what to make out of all of this. I tried my best today to provide as much input as possible during the trade day so we can make the proper decisions going into the close.

    First the question of the current trend. I had outlined what needed to occur to remain in our down trend and it seemed that we hit all targets. First at 709 which represented the widened trend line, then at 716 as another attempt to widen the channel yet again. Both of those numbers were also inline with current resistance lines established earlier. I had stated in the comments that a breakdown needs to occur within a specific time window to remain in the trend, and while indicators showed extreme overbought conditions they gave false signals for entries or holding of positions (shorts). We saw the bulls and bears battle it out at my time targets after 2:12. You could see the increased volume and strong moves between the 714 and 708 range trying to find the decision. It is very important to be able to know when and when not to use technical indictors and quite frankly there is no easy answer to know when that time is.

    Now why did we rally so strongly today? It is quite ironic, very ironic to be honest. Back in november 2008 once we formed the low I stated before confirmation that our bottom is in.

    [Nov 2008 - is this the bottom?]
    Well the market got exactly what it needed. The promise of new leadership and the bailout of Citi over the weekend will give the market the confidence back - yes some will look at the Citi bailout with a negative view but I think rationale is out the window again - I said 2 days ago that investors need an excuse to go long, an excuse to buy - this is it.

    What inspired our rally today? Citi yet again, unbelievable. Fast forward in time to my long term review.

    [March 2009 - Special: Review of Reviews]
    Well after the mid term lows are in I feel the market will find new bulls and new excuses to go long – yes I said excuses. I do see us trading back towards the 741 range with a possibility of kissing the 800 one last time before we say good bye for the long term but we need a lot of commitment from the bulls to make this happen so stalling here before those targets is very possible.

    Is this the reason to inspire a major rally? (I am stating it here as a question because quite frankly if this is the reason - I would be very surprised)

    I had re-stated again today that I feel very strongly that our bottom for this cycle is not yet in. My bottom targets started at the 640 range and we fell 26 points short. Is this margin acceptable especially considering it was posted 2 months previously? Was I right on the bottom call? was I right on the call that our bottom is not yet in for this cycle? I could easily sit here and copy and paste comments from various posts making me come out to be a winner, but I have to admit that todays rally has me quite puzzled and I would be lying if I knew the answers to those questions with the normal confidence levels.

    The market was waiting for a regulatory change on the accounting rules, something I had posted very early this morning before Bernankes speech.

    While it makes sense from one perspective to manipulate the markets as we have dropped quite a bit we are "only" at 676. The feds know how much worse its going to get and this is one of the policies they may want to hold on to, there are only a few aces left, this is one of them. They have to decide if its time now.

    It seems they decided against it just as we had assumed. I would have expected the result to be quite a bad blow towards the overall market. When weighing in Citi's rumors and the promise of our leadership stepping it up to even out the playing field I would have put much more emphasis on the FEDs stepping in and the market not rallying off pure rumors.

    Now lets look more carefully at today, while volume was well above average it did not show us a proper bottoming type volume break out signs. Price wise yes we did see an incredibly strong move, volume wise I need to see more to be totally convinced. As I am writing this at 4:30 our futures are already pointing back at the 715 - of course an acceptable margin but I would have liked to see some more follow through or holding of the price even after hours. We will have to see how we hold up overnight.

    Now retracement wise - our top at the 878 range towards fridays close, today represents a mere retracement of 23% (716) - even a retracement of 38% (746) is totally acceptable for a major down trend. Close the range a bit and look at our next top at the 780 range to our low on Friday, we fell short just a few points of the 50% mark (724). Those are important points that still need to be broken or at least tested to give us further clues.

    So from here what trend are we in at the moment? Did we just put on the brakes, something I was hinting at last week where I wanted to see holding at the 700 range, or did we bottom out? Well there is no easy answer but we can make conclusions after seeing today.

    Even now we are only at 720 and we are still within our time window for the mid term bottom (anywhere from mid march towards end of march). I had jokingly said that its the first step as part of a 3 step process. The first step is in by breaking out of the channel and closing in the breakout range, what is the next step? First we need to analyse tomorrows retracements that could bring us back towards 716/709, even getting to 700 is acceptable but the further away we go from the 716 target on the downside the faster we need to reverse to bring us back above 716. This will give us great clues depending on how we trade there. The other scenario is continuation right away to hit the 724 (50% retracement) target I referred to in my comments. I did not think the market had the strength left to hit this today - and we fell short half way there though managed to close at this half way mark.

    The next step is to continously remain above key ranges with close prices above the 710 range. If we see 3 days in a row with a continued upward trend, even if it is minor, we may have to re-evaluate the mid/long term outlooks. Keep in mind the moves of today are still inline with our overall long term outlook we had posted last week. The market cannot just go down and down and the forecast was made with the assumption of the acceleration (break of 800) not continuing once we reach 700 - so nothing has changed for us here, we are still "miles" away from major resistance points and only had one day thus far "out of the ordinary".

    Why do we even need to know a trend to trade? Well first off we don't, we have many great and easily protected trades at our door step now that some of the crazyness is done with. However, knowing the current trend is important as it allows you to properly protect yourself in your positions, especially when holding overnight. Additionally many here also trade longer term positions so knowing where we are trend wise is very important to readjust long term price and time targets. If you ask me what I feel the current trend is? My call is still that we are in a downtrend until I see a break of the 738 (yet again a number I had hinted at a while ago).

    In summary. After today, am I still a strong bear? Yes I am, though I am a bear that is looking over his shoulder a bit more carefully now.

    More info on todays comments.


    Review the comments of today. Wanted to post this picture to make it easier to identify a breakout or widening of the channel.


    Say yes to the crowd?

    Yesterday
    After the morning rally the market continued lower without many attempts at the upside to close at a new 52 week low. It seems almost that the market has slowed down just a little bit the past few days. Considering how fast we have dropped it was assumed that it cannot go on forever, however, we have not been able to setup a rally off this extreme down turn and continue trading lower in a narrow trade channel. VIX staying extremely close, past 3 days pretty much the same range with the close getting narrower and narrower.

    Today
    Ok since we are talking about policies and it was brought up in the comments yesterday. So everyone knows we are talking about marked to market accounting rules - again looking it up on google if you do not know what it is.

    Now applying a change here, we are talking about a major change, one that would make financials rally like never before. Its probably as large of a rocket or larger then what the Feds did back in October/november last year.

    While it makes sense from one perspective to manipulate the markets as we have dropped quite a bit we are "only" at 676. The feds know how much worse its going to get and this is one of the policies they may want to hold on to, there are only a few aces left, this is one of them. They have to decide if its time now. We are seeing a lot of outside pressure coming into the market place almost forcing them to say yes to policies - and quite frankly, look at the markets from 945 to 676 in less then a quarter, I can understand why there is so much pressure. On top of it, we did not hold the 700 range which again is quite negative so there may not be much of a choice but to inspire a rally here. As we are approaching 50+% numbers we have immense pressure on 401K's. All the average investors have seen are down days after down days - and every day your account is getting smaller and smaller - they need to see some sign of relief because otherwise why not take out the money?

    Back to the markets, premarket we are already close to yesterdays highs, keep in mind at 8:30 we have Bernanke speak so we have some more information to absorb before the open. Watch futures carefully. If we do end up breaking yesterdays high, there is a chance to see 709 and 716 respectivly so be careful. If that is to occur we have to watch the action carefully as this could be a breakout of the trade channel we have established off the mid 800 range.

    I still feel very strongly that our current low of 666 is not yet the final bottom in this cycle, but we have to be careful and watch trade action carefully.

    How to trade this?
    Well yet again a large GAP open today, re-read our GAP analysis from last week and watch today carefully to analyse if the low of the day could be established in the early morning hours. If we are to reach the 700 range the 709 represents the best short there with great protection.

    Other then that, again, stay light, and be patient.

    Monday, March 9, 2009

    Its time ...

    Previous Day
    "In summary, as you can see today is quite difficult to forecast - its anyones game."

    Well, the bears were waiting and waiting to see how deep the rabbit hole goes. First some big short covering in the morning due to jobs report, it was not as horrible as everyone thought so bears assumed we would rally - however the lack of buyers played yet again in the bears favor and dropped the market to new lows. As it was clear the market went as far down as it could on Friday bears covered into the close being afraid of what the weekend may hold.

    Today
    Time is up for the markets and the mid term bottom could be formed as early as wednesday. From here on out we have to be ready for the run up and it will present itself very clearly. This will not be a "is this the bottom?" type of trade, you will know once it occurs.

    We continue having pressure on the downside and VIX has narrowed to an extremely close range. From here on out we could be seeing a breakout either to the upside (meaning significant drops or wide ranges) or a break of the ascending triangle. Of course VIX is not the only indicator but I think it will let us know when the time has come.

    How will we continue the next 2 days? Yet again its a difficult call, we lack any type of positive news in the market place that could push us higher and we are too far away from major support ranges - while the 700 represents a significant retracement point the market was not able to hold this range last week. I had discussed this in my long term forecast and mentioned that this is quite negative, regardless of the rally that is about to come.

    If I was able to tell you how the next 2-3 days will play out I would be lying, because quite frankly its difficult to take it from here and know where we will trade. I will be posting updates in the comments as I see the market move.

    How to trade?
    Last week was a very light week for me in terms of trading, I would recommend to continue staying very light until we get our signs, no need to risk money at this point when you have guaranteed gains to be had after the bottom is in. Due to uncertainty it will be difficult to see how to trade to find the proper bottom and get in long. I will most likly fade into the drops once we see ourselves below 660 but depending on how we trade and how sellers/buyers are behaving I may wait. Fear should be setting in as we drop lower. Of course we can have an upward bias from here as well as traders and investors recover from the huge drop off the 800 range we have seen.

    I apologize for not giving more precise guidance from here but as you can see its quite difficult to determine the direction and trade action here.

    Thursday, March 5, 2009

    Tipping over?

    Yesterday
    While yesterday worked out just as predicted it did not give us any great trade opportunities.

    [yesterday]
    Of course there is the possibility for a short term double bottom here around 692 but it should be short lived - if we do end up getting some bulls to step in here the best chance I see is the 710 range. We have gone through the proper distribution the past 2 days and a 38% retracement off last thursdays peaks to be able to continue on the down path. If we do end up breaking the 692 I can see us trading towards the 679 range before we find a stop (expect it to halt at 686 first). Keep in mind that this would represent a significant drop.

    Well we did have some bulls left but stalled out at 704 before reaching our targets . From here on out it was just down and down. There were no signs of a double bottom, not even a tiny rally there and we dropped to create new lows and halted half way to my target just as predicted. After hitting the 684 range we continued sideways before we made our decisions and dropped to my final low of the day target at 679 (actual 677.93). While its good that we were not caught by surprise it is frustrating not to make any money of this range - so time for a new trade lesson.

    Trade Lesson
    GAP's, we see them now pretty much on a daily basis and there is a bit of a different pattern that emerges from what I had used in the past. Previously GAPs were attributed primarily to market over raction and the probability of either a fill or reverse GAP open were fairly high. However, it seems in the recent months half of our days will gap and make trading difficult due to narrower intraday ranges and many of the gains (or losses) occuring in a non-tradable window. To make matters worse, if you do end up getting in a position, even with a good entry, its impossible to hold overnight as the GAP itself can eat up all of your profits if it goes in the wrong direction.

    Yesterday was a perfect example of how we could have had a great short entry. Many times the GAP open combined with the first move (first hour) in the opposite direction of the GAP represents either the low of high of the day. While this is a pattern that existed before it seems much more applicable now.

    For example GAP open down, some attempts at recovery, hit the high and trend lower. The opposite on a GAP open up, some sell off and hit the bottom to continue higher. When you combine this with the current overall trend and the previous day or two moves (down, up, sideways) you can make this work even better - not always but as another sign.

    Lets try to analyse yesterday, we had a big GAP open down, attempted a rally and stalled exactly at 50% of the fill. How could we have determined that a fill would not occur? Take a look at the 5-min bars off the open. You see small open/close on top of wide ranges - thats indecision and hesitation. This was a great sign that it was going to be difficult to get a full fill here due to this hesitation and we could have used this as a perfect entry at the 50% level with a stop loss at the 62% level.

    Of course, if we would have had a full fill it would have been a much easier trade but I have seen those half fill gaps run away from me too many times so I wanted to spend some time to determine how we could have made this a great entry. Of course one way to work with GAPs is to fade into the fill attempt at different levels but this leaves you with a much wider risk margin, a risk that quite fankly I am not willing to accept. (look up fade on google for more info but its pretty much buying/shorting against the trend with the assumption of reversal)

    This week alone we had 3 days with partial fills with each of those attempts being the respective high or low of the day. I will be spending some more time on trying to perfect this a bit more so we can properly analyse the signs after we have a GAP to improve probability and ensure we have better protection then a fade. Enough is enough, too many times did we miss a great trade. As I do not see an end to GAPs at the moment due to the crazy overnight activity spured by world markets we need to ensure we can use this to our advantage. This is definitly something that differs quite a bit from what I had experienced before.

    Today
    Well jobs report again, an important piece of fundamental information that will drive the markets on the short term. I think regardless of expectations, the job report will spur some buying at least into mid next week. At this point we have priced in the worst job report possible so if we see any sign of relief or even hit the expected numbers we should see some bulls step in. We have a lot of talk about bottoming processes now on many news sites, not sure where they are getting their information from (maybe they were reading this here lol) but this talk is what will bring back some confidence for buyers for the last fake rally before hitting our mid term lows.

    Of course if we end up turning down from here, which is very possible we should be seeing VIX on the edge of the breakout. If VIX is to break out, which can occur today we should have a 3 days window where the bottom is formed. It is possible, and I would love to say that my original time frames holds true but we have seen too much continuation of the trend acceleration I have been talking about. When the market does not do what you think it should do, change your strategy. It is less likly to be honest today as we have friday but something to be considered.

    In summary, as you can see today is quite difficult to forecast - its anyones game. I may post some more details after the report and after seeing the first 15 min to make a better call where we will go.

    How to trade?
    We missed the short, no need to chase, especially since we do not know where it will turn. Patience, Patience, our move will come soon.

    Wednesday, March 4, 2009

    Did we top out already?

    Yesterday
    We had quite a week thus far. Strong down day on Monday bottoming in the 700 range, break of the 700 range Tuesday and a nice recovery yesterday with a break of the 710 resistance. While I was able to catch our break into 600's before it occured (comments) I should have include it in my pre-market review.

    We have know since Monday that we will be testing our last major support level before our final leg down and that we would be stopping here for a bit. We did sell off quite a bit during the afternoon after having hit 724, but at this point I take what I can get. The 725 represented the 38% retracement off last week thursdays peak so we have to determine if this may have been the top already.

    We have stabilized on the VIX however are close towards the lower end of the VIX trendline. (Draw a trendline for each of the lows Jan 2, Jan 28, Feb 13, Feb 26). Analysing VIX from a technical perspective we are creating an ascending triangle, which of course could mean a break of that range to the upside meaning the market would drop significantly. Considering that we are close to our target, a break into the 600 range towards our mid 600 target would be inline with a break of the VIX towards the upside.

    Today
    Unfortunately our pre-market data has already broken our support and is trading quite a bit lower already. We have been waiting patiently for our short entry at the 736 range and it looks like that we may not even get a chance here.

    Of course there is the possibility for a short term double bottom here around 692 but it should be short lived - if we do end up getting some bulls to step in here the best chance I see is the 710 range. We have gone through the proper distribution the past 2 days and a 38% retracement off last thursdays peaks to be able to continue on the down path. If we do end up breaking the 692 I can see us trading towards the 679 range before we find a stop (expect it to halt at 686 first). Keep in mind that this would represent a significant drop.

    Seeing what has happened this week you can see the continued weakness in the market and the total lack of buyers. Any retracements at this point have been minimal as we continue lower. When looking out our Feb 2nd (870 top) towards this weeks low we did not even retrace 23%, which is quite a bearish sign and I have to admit a bit surprising. I know that it can be justified with the pressure we had built up for many months around the 800 range, once we broke free we saw months of pressure being relieved, but its definitly not something I would consider "normal" behaviour - but then again those are not normal times, maybe we needed this yet again as another reminder.

    How to trade this?
    It looks like we missed our chance at a short entry, which unfortunately also means we have to be careful not to chase it here. Looks like we will be sitting this one out unless the market turns around to get back towards 710 - watch out that we do not overshoot towards the 715.

    Today we should see quite a wide day in terms of ranges so be careful.

    Hesitation or hopeless?

    EDIT: My 100th post !!!!

    Yesterday
    Well it turned out as quite a day, not much from a trade perspective but the importance of yesterday was significant. I had mentioned that the 700 range should hold, or rather needs to hold here but after seeing the weakness in the morning I realized we will be in for a rough ride. Normally I do not post as much as yesterday intraday but someone said, when the market does not do what you think it is going to do, change your strategy.

    This is what occured yesterday, one I was still with my 50% long I had held overnight and assumed the market would see the mid 710's before breaking down. This did not occur and I described in that comments that a breakout is imminent that could be either way. The market fooled me and showed me a fake breakout - but as always we need to wait for confirmations, I was ready to add more to my long position after the first breakout, my 15min pattern seemed to have been broken and it was ready to move up, however I did not see much continuation there and the market showed us what it really wanted to do and reversed the break out just to fall over.

    I had warned about this before it occured as I saw major hesitation and too much selling - we broke the 700 towards the downside and remained there most of the day thereafter. If you follow the comments you can see that after the first drop the market was not quite done yet - we broke the first low by a few points before we found a bottom. While I am glad that my call for the low and the 2-3 hours under 700 worked out we were not able to hold on to our gains after our rally in the afternoon.

    Closing below 700, while only a few points away is very bearish, yes yesterday could be considered a sideways day, something we were expecting but a close below 700 is quite bad.

    If you have caught up on my long term review you can see I already moved up my low of the year target to September, if we do not manage to hold out a bit more here and break down hard this week we may have to move this target yet again and bring it closer. This month will give us great signs of how the rest of the year will play out as we have just broken major support and are nearing a major retracement.

    Today
    While we have been able to hold without further "major" drops off the 700 range you can see that the market is itching to go lower. I am still a believer that at least for the next day or two we should try to remain above the 700. I even dare to say that the rest of the week will stay above that line. Its a bit of a contradiction as we had closed at 696 yesterday.

    Now why am I so strong on this 700 range - first, you can sense a bit of hope in my calls to remain above this range as I am fully aware of the consequences if the market is given an opportunity to break down - I feel the market will take this chance. However on the technical side, we have now cleanly broken away from the 741/7450 range, however have not given it a proper test as resistance. Major support points are normally always re-attempted as resistance. I feel here we may not see this due to the significance of the double bottom that did not occur, kind of like "why would you trade towards a range that gave the market a major failure?" - its an emotional thing again thats why I had hinted that the best case scenario this week would be the mid 730 range.

    How to trade this?
    Well you know how to, remain on the sidelines today until the market finds direction.

    Tuesday, March 3, 2009

    Holding or fallout?

    Yesterday
    Well there was no looking back after we gap opened yesterday and we continued our decline and had our first 699 number on the S&P. We hit my targets at the 704-707 range but failed any attempts at a rally. I did go long here yesterday and stopped out with half my position at the 702 range but kept the other 50%.

    While we had large sell volume I was surprised to see quite a bit of larger buying into this weakness. Ultimately we closed very bearish but those large buys yesterday in the afternoon made me feel a little better. Especially the buy transactions into the close made me a bit more confident about holding my position, something I normally do not do.

    Today
    We talked about round numbers on the market and it is my feel that we will hold this range here. We should be seeing more of the 700 before we get into the 6XX range. I made a special post yesterday that I had prepared over the weekend taking many of my long term calls and applying what we have learned to our long term views. It is the first time I am trying to be this precise on a long term perspective but I believe strongly into what I posted yesterday.

    The market is getting ahead of itself a little here, we accelerated after the break of the 800 but should now find a holding point at least on the short term. This holding will most likly be visible as sideways action with little attempts on the upside but also hesitation to break lower.

    I do not think we will break into the 600's this week, if we do we will see the mid 600 range targets fairly fast and it would confirm the acceleration towards the downside I was talking about - again something I do not feel will occur. We went from 800/7800 as major support and dropped 100/1000 points, keep in mind those ranges now are quite a bit more percentage wise as it used to be when we traded in the upper ranges.

    How to trade this?
    Unless you have a position I would stay out of the markets at this point. If we do have a chance at the 741 this week of course we can take this as a short but I doubt we will see this. My best bet would be trading towards the 736 range by sometime mid week.