Tuesday, July 28, 2009

The Big 3

As I am still in short positions that I had initiated quite a while ago I am doing my best to try to properly manage an exit. As always I spend a lot of time yesterday going over charts again and as you know there are 3 key areas I always watch. XLF, IYR and the EURUSD. All 3 of those charts are not giving me confirmations for this upside move we have been seeing. Pretty much the only reason I have left to stay in those shorts and not totally capitulate.

XLF - not confirmed
XLF has not yet confirmed the SPX move on the upside and has a bit of room left to go before even reaching key resistance. Break here of course and the market has much more upside.

IYR - not confirmed
Same as XLF, this sector has not yet confirmed the SPX moves. Almost at key resistance that needs to be broken.

The mother of all charts. This here is the most important for the direction we will be facing over the next few weeks and possibly months. 6 days of consolidation at the top here. The trendline is a longer term almost one year trendline that has not yet seen a decisive close above. We attempt to penetrate during the day but are unable to get 3 closes above this trendline. If we manage to break this on the upside we have the other 3 peaks to deal with but this could turn out as a slow grind higher for the markets as the tape buys up the dips and EURUSD attempts to test the previous tops.

I do not know what to expect of the markets at this point. I have to be honest - we could be consolidating here for a much stronger move higher into the 1014 range which represents key resistance. One could expect such a move even in such overbought conditions. We have now had 11 days of not being able to retest the previous intraday low. I am not sure when that has occured the last time but its been a while. I have to admit, my bearish views are coming back full force BUT those are not affecting my current strategy - I am still 100% committed to exit my short exposure in the next few days. I will continue to scale out as I have done over the past few days. I know this may not be the smartest idea in terms of getting the best out of your position but lets face it - the bearish side has not done so well. Yesterday the VIX increase was a key indication that investors are not looking to take profits but instead buy protection with the anticipation of further price increases. This makes a lot of sense with the current sentiment and supports more upside during this earnings season and the remainder of summer.


  1. Top o' the morning to you Chris; let's see what the day unfolds. Steve

  2. just an FYI. We have a VERY strong short term signal we can use for trading here. A close of SPX below 978 by 10:45 will lead to more downside for the remainder of the week. So watch this very carefully. Expect the morning dip to get bought to kill the GAP by 50%-68%.

  3. sorry meant 61.8% not 68%.

    We are currently right at this point and have tested a 61.8% GAP fill. Fell short of a quarter point. Lets see if this was it. Otherwise we can expect quite an up day.

  4. well we did a full GAP fill here instead of a partial fill as I had expected. This really is incredible. Buy up the morning dip until exactly 10:00 for a FULL GAP fill just to see the drop I was expecting.

    I had a mental stop at 982, high of the day was 982.35 - I was about to close out the majority of my short positions. Literally - less then one minute away. I consider this "getting lucky" - when my trades work well because I get lucky, I have to admit, its gambling and not trading.

    Going to say it again - this mornings action is incredible, buy the morning dip, make it appear that its going higher, then come out with negative consumer confidence data right after having breached a key pivot point for the bears. Nuts.

    Lets see if we can keep SPX below 978 by 10:45. I assume the market will play another trick with us and close it right at 979 by 10:45 just to screw with me a bit more =)

  5. i thought you retired?

  6. oh don't get me wrong - I am. But as mentioned I still have quite a few shorts that are underwater that I refuse to give up without one last fight. I have already scaled out quite a bit and know I will most likely not have a chance to break even but at least have a chance to minimize losses.

    As mentioned in my summary above ...

    "I have to admit, my bearish views are coming back full force BUT those are not affecting my current strategy - I am still 100% committed to exit my short exposure in the next few days."

    This still holds true, regardless of the picture I am seeing here.

  7. So it took 12 DAYS !!!!!!!!!!!!!!

    12 days of upside before SPX was able to retest the previous intraday low. Incredible.

  8. Now what...? hahaa...

  9. Think the 970 will hold? Keeps me thinking because even people like yourself, Chris, are still looking for short exits. And then the dip buyers... so how can this market fall...?

  10. 964-965 is my level for possible dip buying here. I want to see the action around 2:30 today and volume at 3:15. Based on that I think we can make a call for the remainder of the week and possibly make some calls for what to expect for OPEX (if I dare hold my shorts till then).

    Keep in mind ... all we have done today is drop barely 11 pts.

    12 days of upside and for the first time we have seen the intraday setup remove the previous days gains.

    The bears are looking for a close below 965 - however, I really think we have quite a bit more downside for the next few days and weeks. Take a look at the EURUSD. We are currently at support here for EURUSD - IF and I really mean IF that breaks on the downside there is quite a bit of room to fall.

    I am not buying the bear case yet - This here is a good setup for the bulls still as we can remove some of the overbought conditions on mid and longer term charts. So be careful if you are short (yeah me).

    I have not yet made any changes to positions and will wait for the 965 before I either lighten up or add some hedges. Today will be quite a day that gives us great signs for whats to come.

  11. I would say 956 by tomorrow and then a rally and may be drop to 927-935 by Friday. May be then an attack on 1020.

  12. time to watch paint dry now. From here on out I expect a slow 2.5 hour grind up back to 976-978. We should hit this by around 1:30 and then do some more moves around the VWAP. 2:30 is key for price today. A breach above 978 at 2:30 and we should recover most of the losses for the day. At the same time 3:15 is key for volume - if we get above average volume compared to the past 3 days and manage to stay below the VWAP we have the 964-965 in play for tomorrow during the early hours of trading.

    Thats my current plan and forecast based on what I am seeing here. Still in all shorts without hedges. I was willing to close out at 982 today - and will do so again if we get there.

  13. I will close out tomorrow early. especially the option becasue of time decay. we should see final low around august 5.

  14. Chris, I'm curious as to why you think those time frames are important? The 1:30, 2:30, 3:15...?

  15. time frame of 1:30 was not important in terms of direction. It was just a forecast of when 976 should be reached for the first time (well it did it 3 minutes early - I try to be more accurate next time hah).

    The next hour we should continue to have computers trade around the VWAP. At 2:30 it becomes important as many investors (not computers) will make decisions on what to do with their positions. So I expect the next hour to be narrow around the VWAP line. At 2:30 we should see some price action come into play that will decide what real money is doing.

    So we have 30-45 minutes of real money making some decisions on price, then at 3:15 everyone follows the herd so to speak. Thats why both of the above time windows are VERY important for our direction for the remainder of the week. We have had the first "change" in the market today by retesting and breaking the previous days low.

    Now its up to the market to decide what to make with this change. Thats why I stressed the importance of today and those 2 time windows.

  16. and thats also why both time frames carry different significance. 2:30 is the price decision. 3:15 is the volume decision to see if the 2:30 decides direction.

    Sorry to sound so confusing ... it makes sense as you can see =)

  17. No, it makes perfect sense. But I guess as an extension to my question...is 2:30 always the time when "many investers (not computers) will make decisions on what to do with their positions"? Is this "common knowledge" (for the lack of a better word) in the market?

  18. no not always and its not really a common knowledge type of thing - I guess based on my experience when the market is at key turning points I have seen the above occur MANY times.

    Today it played in very nicely as we created the low of the day in the morning hours, grind back up during mid day and then decide in the afternoon if the Low will win or the high.

    As you can see we are already rallying now before that is occurring and just now touched 978 already - so the market does what it wants and those time windows do not always work out.

    We are currently above the VWAP - to be honest a bit too much above this level so the chances of a rally into the close is VERY high at this point. It seems the decision for price may be occurring here right now. If we stay above 978 until 3:15 volume "should" step in and bring the market back up.

    So lets watch and see what happens ...

  19. looks like the market was reading this .....

    covered more shorts here ... will most likely cover the rest before the close and take my long needed market vacation.

  20. I think you have your answer

  21. covered all positions with losses. Time for this bear market rally to be over and drop BIG !!!

  22. and time for me to take a vacation =) ... finally