Monday, May 11, 2009

New Week

I hope everyone had a great weekend. Of course as always I did some charting and as a result came to some new conclusions for our long term targets. As always, a great idea to re-read my current long term outlooks here.

I will try to post some charts some time this week to make it easier to understand where I am coming from. First off let me re-state a few statements I have made last week.

1) the line in the sand of 912. We have exceeded this line in terms of close price and have managed to close the weekly at 929. I had mentioned on Friday that a close at the high is the most likely scenario and we closed one point off the high.

2) Upper bollinger band ranges - another major concern of mine was the continuation on the upper ranges of the bollinger after having seen a breach on the 2.5 deviation upper line. This is something that "should" not have occurred but gives us great clues going forward.

3) Topping range at 930 - I still believe that last week marked a significant high at the 930 range. I know many are "waiting" for the 945 and the 950 range (200dma), however it is my feel that we will not be able to reach this range. Why is that you may ask? Because quite frankly EVERYONE is waiting for this range. The same way I had waited patiently for the 640 range off our low it never occurred - the same can be applied here.

It is quite surprising to see many blogs talking about much higher numbers now. 1000 range, some even talk about higher ranges - blogs that used to be very bearish. Additionally they make mention of "the dip buyers will not let it drop", "the dip buyers will not give this up so easily". Just so you know - its not the dip buyers that allowed this market to get this high - they came in and pushed it higher as a consequence of funds staying with their current inventories. Bears are scared, bulls are happy and mutual funds are opening bottles of champagne because they cannot believe they got this lucky to be here.

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

Now, I do have to admit that my long term forecasts for the year may have changed slightly. I am still a strong believer of the 480 range, a range we will visit but the probabilities of this occurring during my fore casted time windows of September/October is getting smaller. Instead a new pattern has come into play for me. As you remember I had talked about the accelerations occurring in the market place since the beginning of the year, those became apparent during our drops in February and March and of course during our major rally off the March lows. It is my feel that this acceleration will come to a stop very soon leaving the next leg down with quite a bit less momentum. My most likely scenario at this point is to create a higher major low in the low 700 (716 to be exact) range by the September time frame, followed by another leg up that can either break the high we are creating now or stall slightly below.

As I did not have enough time this weekend I will be creating another major update some time this week to put the proper justifications in that post and describe what needs to occur for this new pattern to become valid.

Just on another side note - financials caused this mess we are in, any rally that is lead by financials is a bear market rally and will be sold off.

Sentiment is seeing a major change at the moment - a change that may leave many with new conclusions that will ultimately be painful for their trade strategies. This rally has questioned many traders and investors, fundamentally and technically. Its normal for human nature to try to make conclusions based on this occurring but I am strong on my view points, yes I have questioned myself and had crazy thoughts in my head about where we will head - but this is precisely what we need to try to avoid. Do you have the same beliefs today as you had them in January 2009? I do - I made some slight adjustments and am cautious about a new major pattern developing but my primary target is still 480 by September this year. This pattern has until the end of this month to prove itself, depending on how we close out the month I may have to make adjustments to leave the low of the year for another time target, however nothing changes in terms of the direction for the next 3 months - all signs are pointing down - how low? we will know by the end of this month =)

Good trading everyone. And sorry for no charts but I will make a larger post some time this week with proper justifications.

26 comments:

  1. this is really good, thank you for doing this chris! ....just for my own understanding, you mention primary target of 480 by Sept and youve also mentioned earlier that the most likely scenario is by 716 by Sept followed by another leg up...does this mean we will see big movements in the Sept?
    Thank you

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  2. ok it may sound a bit confusing. My primary target is still 480 by september but the probabilities for this are dropping day after day. Another pattern is coming into play that is increasing in liklyhood with a target of 716 by September (instead of 480). Depending on how this month play out we will know which is more likely to be in play.

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  3. Got it! thank you for explaining it :-)...i probably read it too quickly first time. i missed the chance to go short last friday so will probably look for an opportunity today or tomorrow, would appreciate your thoughts if you see any patterns emerging. thanks again.

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  4. Chris, great post. I posted similar information on your blog over the weekend. Too many people are waiting for 940 to unload the gains. I got in this morning and staying short for a while.

    Interestingly, even the Next trend over the weekend said it would cover, if the SPX closes above 933. He has his line in the sand at 933 + some points. I assume it is on a weekly close.

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  5. Samamehta, thanks for this. Plse can i ask what might seem a overly simple question....when someone says they have gone long and then they "Cover"....or they have gone short and then they "Cover"...does this just mean that they are closing their long or short position??...apologies in advance ...just learning.

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  6. I am new too. Sorts: you cover
    Longs; ? sell?

    Xtrend has been bearish. Over the wekend, it said that it would cover, if SPX ( on a weekly basis) crosses 933+ few points.

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  7. There's a ton of penny stocks that continue to breakout despite the pullback today. Been riding some of these rockets, along with a sizable FAZ hedge I purchased EOD on friday.

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  8. got burnt with penny stocks...learnt my lesson...theyre just pumped then dumped. stay clear of them.

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  9. Bulls are fighting. may be for the whole week. What do you think Chris? how does the tape look to you?

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  10. Adam, you can get burnt doing anything in this market. By penny stocks I don't mean stocks under a dollar but usually between $1.50-$5. Most of my best wins have been made flipping those. If you recognize the breakout patterns and get in right before the volume hits they can be quite effective. You just need to have the discipline to dump them on a parabolic move. The depressed commodity names have been cash cows for the last 3-4 weeks. Of course this game will come to an end soon, but worthwhile until it stops working I say. I never put huge positions on one particular equity, but rather build a little basket of pending breakout plays.

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  11. should be a sideways week. Doing some day trading and keeping my original SDS position. Anything from 890 on the lower side to 930 on the upper ranges. Do not think we see anything outside of this range.

    FYI my current SDS position has a nice drawdown on it (-26% since I started accumulating without counting the gains made from hedges so it should be around 18-19%).

    Probably one of the worst positions I have built in a while but I know it will come to me. I will be adding more to this position once we see a turn (break of 880). By then drawdown should be much more acceptable in the <10% range ready for the final target. Worst case scenario is an exit at 85, best case 105.

    Either way its a winning position.

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  12. FYI. I have been working on fine tuning my trade journal. I had used it in the past but kind of stopped using it, resulting in poor performance yet again, so going back to what has worked for me in the past.

    May post it up by the end of this week with trades so you can see why discipline is the most important (not knowing how to read patterns and being good at forecasting, all that is nothing compared to proper discipline).

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  13. Interesting read on CNBC

    http://www.cnbc.com/id/30684535

    Seems I am not the only one who has taken in some less bearish scenarios that could be developing.

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  14. It makes sense to add position below 880. iT IS TOUGH TO pick the top. or get in at 950.

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  15. Tuesady call from the other blog:

    the system will stay long for Tuesday provided the eem closes below 31.31.

    Will go to 1.75x.

    eem at 31 now

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  16. Just got back. Thanks for the response schismatic.

    Thanks chris and sam. Chris, do you think we might see another gap open tomorrow?

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  17. end of day sell off? What happened here? lol

    Too good to be true to be quite honest.

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  18. or I am too wounded of a bear to accept it ...

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  19. just as a quick FYI (and I am sorry for giving bids and pieces here without a clear big post). Looking for the month to close at 871. If that were to occur, well, I will be putting on my "sep 480 S&P" hat.

    Who knows, we should make a bunch of T-Shorts (yes t-shorts and not shirts) labeled "S&P 500 September 2009 = 480"

    ok taking it a bit too far and getting excited over one single down day here. Its option expiration week, always bigger moves.

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  20. Do you guys have any opinions about hsu.to and hsd.to? They're double leverage funds like sds but traded on TSE. I don't have that much US cash so I can't trade large positions with SDS etc. The only problem with HSU and HSD, I don't see a lot of volume and the tracking might be off. Any thoughts?

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  21. Chris, what does your TA say about the high for the month? do you still think we have seen it at 930? or you think there is an outside chance to see 933, 940, 950, or 954? As you know, x-trend would change its mind around and is hedging.

    Ryan, soory no information on HSU or HSD

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  22. Sam, as mentioned I do feel we have seen the high last week. I am not going to try to call the top again as I have been wrong before too many times but during option expiration week you normally see trading in existing ranges - and I cannot see how we can continue rallying at this point. Even CNBC is talking left and right about taking profits and retracing down. If we do end up seeing a new high, it will be marginal as the 200dma will be around 940 next week - only a few points off our high thus far.

    FYI I am going through all my watch lists and checking options chains on all of my stocks. If we do see 920+ again this week (which i think we may) I will be adding quite a few Sep/Oct options to my long term positions.

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  23. Ryan, I can take a look at them tomorrow but have not heard or seen them before.

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  24. Thanks for the quick response guys and thanks for taking a look at those for me Chris. I'm sure if you guys trade on the NYSE, SDS and SSO is far superior. However, since almost all my cash is in Canadian dollars, the only really option I have is if I want to trade a double leverage S&P500 etf hedged, my only options that's on the TSE are HSD (
    HORIZONS BETAPRO S&P 500 Bear) and HSU (HORIZONS BETAPRO S&P 500 Bull)

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  25. Thanks Chris, would you buy the index option or individual stocks? If the the stocks, would you share those with us?

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  26. Of course, I meant the names of the stocks.

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