Opening gap right at support. Gap is not large enough to qualify for a stepping day so we may get a full fill here. Most likly is a 50%-70% fill and trend lower from there.
Other scenario is a sell off towards last weeks low and find support there. Lower volume this week and monthly close. Remember what I said last week - a monthly close anywhere from 990-1100 brings us a nice monthly doji - big range to come.
Monday, August 31, 2009
Friday, August 28, 2009
Woah is all I can say
Yesterday & Position Updates
What a day. I was quite surprised to have no real response pre-market from the slew of information we have had. Well as the market opened the response was clear. We dropped quite strong on good volume and it seemed the market was finally ready to complete the three spinners with a nice reversal day. We bounced off the support from the friday breakout open price that seemed perfectly acceptable. No real volume stepped in and we slowly grinded higher. I expected a small retracement to continue the sell offs we had seen during this entire week off any rally. It had all the making for a stepping day lower ....
My maximum painpoint was the 61-72% retracement, by the time this was hit something else occured that screwed up the rest of my day. The dollar took a HUGE turn, I mean HUGE. My EURUSD short position had nice gains build up and this had been the fastest way I have ever seen open profits disappear. The positioned ended up getting stopped out pretty close to the top (in the reds of course). There was really not much more to do for me - I had missed a chance to hedge at the bottom as I expected further downside.
I closed out my ES position at the close with a nice 18 point loss - keep in mind I have held this position for over 4 weeks so a close on that is quite significant. I also lightened up on some of my September puts as time decay is starting to get me. Combine that with a big loss on my FX EURUSD it had all the making for a bear cleanup day. Considering I was up a very large amount at the morning drop and then to close the day pretty big in the reds is quite frustrating.
Why did I close out my core ES position? Well to be honest, my scenario did not play out so I had no choice but to exit the position, I made the mistake of not closing out on the breakout and was waiting for signs of a failed breakout with a reversal - rather not make 2 big mistakes in a row. Yes I expect further downside but risks for another 20-30 push up just increased by a large amount thanks to yesterdays recovery. Regardless of volume the FX world has really questioned the downside yesterday with a new high on the EURUSD above last week Friday. This is something I could not ignore.
Today
Well no real indication yet from our Globex crowd. Very narrow range overnight probably due to the long weekend in some regions. For today I would not expect much of a move either way, if there is a move it should be to the upside but contained within existing ranges. I would not be surprised to see a close at Mondays high today.
How to hedge
It seems the topic of hedging keeps coming up not only here, but also on other blogs, even Slopeofhope is talking about creating a new rule. As some of you know I have been talking about making a "how to hedge" post and it seems its long overdue. Yesterday was a prime example of how my hedging rules that I have created have bit me in the arse. One of my adjustments has been to not hedge on stepping days (trend days) - well yesterday had all the making of a trend day ... until it all faltered. So I need to rethink this strategy just a bit more.
6:43AM: Just another random thought. During this entire rally we have respected the upper range for every run up. Looking at what happened to some of likes such as AIG and even XLF and IYR before we had an almost parabolic run for the peaks and exceeded any resistance line while moving higher. If we are to see a real top, I mean one that is just filled with excuberance, I think we may see a break of this range. I will most likly hedge myself today off the open as I rather see my entire account balanced unchanged over the next few days instead of incurring more losses. We will have to see.
What a day. I was quite surprised to have no real response pre-market from the slew of information we have had. Well as the market opened the response was clear. We dropped quite strong on good volume and it seemed the market was finally ready to complete the three spinners with a nice reversal day. We bounced off the support from the friday breakout open price that seemed perfectly acceptable. No real volume stepped in and we slowly grinded higher. I expected a small retracement to continue the sell offs we had seen during this entire week off any rally. It had all the making for a stepping day lower ....
My maximum painpoint was the 61-72% retracement, by the time this was hit something else occured that screwed up the rest of my day. The dollar took a HUGE turn, I mean HUGE. My EURUSD short position had nice gains build up and this had been the fastest way I have ever seen open profits disappear. The positioned ended up getting stopped out pretty close to the top (in the reds of course). There was really not much more to do for me - I had missed a chance to hedge at the bottom as I expected further downside.
I closed out my ES position at the close with a nice 18 point loss - keep in mind I have held this position for over 4 weeks so a close on that is quite significant. I also lightened up on some of my September puts as time decay is starting to get me. Combine that with a big loss on my FX EURUSD it had all the making for a bear cleanup day. Considering I was up a very large amount at the morning drop and then to close the day pretty big in the reds is quite frustrating.
Why did I close out my core ES position? Well to be honest, my scenario did not play out so I had no choice but to exit the position, I made the mistake of not closing out on the breakout and was waiting for signs of a failed breakout with a reversal - rather not make 2 big mistakes in a row. Yes I expect further downside but risks for another 20-30 push up just increased by a large amount thanks to yesterdays recovery. Regardless of volume the FX world has really questioned the downside yesterday with a new high on the EURUSD above last week Friday. This is something I could not ignore.
Today
Well no real indication yet from our Globex crowd. Very narrow range overnight probably due to the long weekend in some regions. For today I would not expect much of a move either way, if there is a move it should be to the upside but contained within existing ranges. I would not be surprised to see a close at Mondays high today.
How to hedge
It seems the topic of hedging keeps coming up not only here, but also on other blogs, even Slopeofhope is talking about creating a new rule. As some of you know I have been talking about making a "how to hedge" post and it seems its long overdue. Yesterday was a prime example of how my hedging rules that I have created have bit me in the arse. One of my adjustments has been to not hedge on stepping days (trend days) - well yesterday had all the making of a trend day ... until it all faltered. So I need to rethink this strategy just a bit more.
6:43AM: Just another random thought. During this entire rally we have respected the upper range for every run up. Looking at what happened to some of likes such as AIG and even XLF and IYR before we had an almost parabolic run for the peaks and exceeded any resistance line while moving higher. If we are to see a real top, I mean one that is just filled with excuberance, I think we may see a break of this range. I will most likly hedge myself today off the open as I rather see my entire account balanced unchanged over the next few days instead of incurring more losses. We will have to see.
Thursday, August 27, 2009
Breakout or breakdown?
Yesterday
We continue seeing overall weakness and indecision. It appears we are forming either a descending triangle or a penant. The penant would make a breakout to the upside more likely while the descending triangle would support a breakdown. On the daily chart everyone is calling for our 3 spinners here at the top. Which one will win? I am not sure.
Today
I have to admit I see no edge for either bull or bear today. We have a LOT of information to absorb pre-market today so my call would be for a very large GAP outside of our existing 3 day range with a stepping day. I think we have a 3+% day in the making with 60% of the range done by the GAP today.
For Bulls & Bears: No edge for either side and news will drive the market today. I think by the end of this week we will be able to justify the breakout/breakdown technically regardless of news, but I think the news events today will be ultimately responsible for this move. Many are saying news does not affect markets and is already priced in - yes that is definitly possible but the times we are in at the moment are driven primarily by emotions.
8:30AM will be the time to watch futures. I would expect a minimum of 10 points to either side within the first 2-3 minutes. Wait until this move has completed if you want to play either side. I am still positioned very bearish but may decide to hedge myself here pre-market.
3:08AM: Ok another thought on consolidation versus breakout. We had been consolidating around the 1014 range for 3 weeks previously and broke out but only by a mere 25 points. To top it off we have only been trading around this 25 point breakout peak for minutes over the past 3 days and all closes we have had were only 10 points away from our previous consolidation zone. The chances of another consolidations right after a supposed break of a major resistance level are quite slim. IF the last 3 weeks had been a consolidation for a break higher we should have had at least two strong higher closes like we had on every other previous breakout in the past.
We continue seeing overall weakness and indecision. It appears we are forming either a descending triangle or a penant. The penant would make a breakout to the upside more likely while the descending triangle would support a breakdown. On the daily chart everyone is calling for our 3 spinners here at the top. Which one will win? I am not sure.
Today
I have to admit I see no edge for either bull or bear today. We have a LOT of information to absorb pre-market today so my call would be for a very large GAP outside of our existing 3 day range with a stepping day. I think we have a 3+% day in the making with 60% of the range done by the GAP today.
For Bulls & Bears: No edge for either side and news will drive the market today. I think by the end of this week we will be able to justify the breakout/breakdown technically regardless of news, but I think the news events today will be ultimately responsible for this move. Many are saying news does not affect markets and is already priced in - yes that is definitly possible but the times we are in at the moment are driven primarily by emotions.
8:30AM will be the time to watch futures. I would expect a minimum of 10 points to either side within the first 2-3 minutes. Wait until this move has completed if you want to play either side. I am still positioned very bearish but may decide to hedge myself here pre-market.
3:08AM: Ok another thought on consolidation versus breakout. We had been consolidating around the 1014 range for 3 weeks previously and broke out but only by a mere 25 points. To top it off we have only been trading around this 25 point breakout peak for minutes over the past 3 days and all closes we have had were only 10 points away from our previous consolidation zone. The chances of another consolidations right after a supposed break of a major resistance level are quite slim. IF the last 3 weeks had been a consolidation for a break higher we should have had at least two strong higher closes like we had on every other previous breakout in the past.
Wednesday, August 26, 2009
Spinning Top or consolidation?
Yesterday
I had added a post earlier for yesterdays review.
Monthly Close
Today will be an important day and a decision time for the market to see if the monthly chart can continue to set new highs going forward. The current monthly open is around 1000 spx for the month. We have one week left and a close anywhere from 980-1010 will bring us another monthly spinner again. As you remember I use this pattern quite heavily as an indication for the month to come. The last spinner we had was in June and it gave us an amazing trade range for July. I dare to say that the market will close the month with another spinner yet again. This pattern will have a high probability to give us yet again a large range for the month to follow. Can it be another amazing up month? Or will it be the strongest down month we have had, one that I was expecting in July that did not materlize.
Today
The easiest scenario for today would be a gap down with a stepping day lower. The GAP should be a minimum of 6 points and NOT be filled with the high of the day being set in the first 5 minutes of cash hours trading. We should continue to grind lower and possibly close the day below 1008 SPX.
For the bulls: While the bulls are still in control in terms of price we have seen weakness during our rallies that were sold off which had been very different from previous market jumps that were heavily protected by removing short term overbought conditions through time and not price. Lucky for the bulls we have been able to keep the market up and close prices above 1020 really show the price strength the market is currently experiencing. A sell off towards the lower 1000 SPX range would be an easy place to add new longs with good protection at the important emotional round number.
For the bears: I dare to say its time to take a risk here being a bear. While bears are unable to cause serious profit taking or more selling bulls appear to be loosing a bit of control to drive prices. However, this is to be expected at key resistance levels and we are still above the important FIB levels. From a risk reward perspective here is a good place to scale into a longer term short position with minimal risk on the upside. Taking the high of yesterday with a buffer of 4 points will give a great stop for any short positions.
Position Update
I have added more puts again yesterday at 10:01 and am currently exposed almost 40% on the short side. This is quite a large exposure for me at this point but we have great protection for those positions. If we GAP down today based on my above scenario I will be added another 10% of very long term puts with a stop 4 pts above yesterdays high. This will bring my exposure to almost 50% on the short side. I am confident that at the minimum we will get a pull back to the 980 levels even if september will set a new high on SPX.
I had added a post earlier for yesterdays review.
Monthly Close
Today will be an important day and a decision time for the market to see if the monthly chart can continue to set new highs going forward. The current monthly open is around 1000 spx for the month. We have one week left and a close anywhere from 980-1010 will bring us another monthly spinner again. As you remember I use this pattern quite heavily as an indication for the month to come. The last spinner we had was in June and it gave us an amazing trade range for July. I dare to say that the market will close the month with another spinner yet again. This pattern will have a high probability to give us yet again a large range for the month to follow. Can it be another amazing up month? Or will it be the strongest down month we have had, one that I was expecting in July that did not materlize.
Today
The easiest scenario for today would be a gap down with a stepping day lower. The GAP should be a minimum of 6 points and NOT be filled with the high of the day being set in the first 5 minutes of cash hours trading. We should continue to grind lower and possibly close the day below 1008 SPX.
For the bulls: While the bulls are still in control in terms of price we have seen weakness during our rallies that were sold off which had been very different from previous market jumps that were heavily protected by removing short term overbought conditions through time and not price. Lucky for the bulls we have been able to keep the market up and close prices above 1020 really show the price strength the market is currently experiencing. A sell off towards the lower 1000 SPX range would be an easy place to add new longs with good protection at the important emotional round number.
For the bears: I dare to say its time to take a risk here being a bear. While bears are unable to cause serious profit taking or more selling bulls appear to be loosing a bit of control to drive prices. However, this is to be expected at key resistance levels and we are still above the important FIB levels. From a risk reward perspective here is a good place to scale into a longer term short position with minimal risk on the upside. Taking the high of yesterday with a buffer of 4 points will give a great stop for any short positions.
Position Update
I have added more puts again yesterday at 10:01 and am currently exposed almost 40% on the short side. This is quite a large exposure for me at this point but we have great protection for those positions. If we GAP down today based on my above scenario I will be added another 10% of very long term puts with a stop 4 pts above yesterdays high. This will bring my exposure to almost 50% on the short side. I am confident that at the minimum we will get a pull back to the 980 levels even if september will set a new high on SPX.
Reversal?
What a day, while we closed in the greens yesterday was a good day for the bears. We opened yet again with another GAP up and rallied strong at 10:00 thanks to our amazing consumer numbers. Similar to Monday gains could not be held and were sold off not only after the morning peak but also during the mid day. This marks day number two of changed market sentiment. I was rooting for yesterday not to close red believe it or not - let me explain why. Here is the daily chart of our last 5 days.
We had our 3 strong up days and 2 spinners this monday and yesterday. Wait .... what happened? Something does not look right about the monday candle. Oh yeah I forgot. This is the chart of the last 5 days we had at our last MAJOR top. Emm yes, this is exactly how it looked like during Jan 5th. We all know what happened after that. I am not saying this is a top here, but looking at the market unable to hold on to gains after the best possible consumer data is quite odd.
We had our 3 strong up days and 2 spinners this monday and yesterday. Wait .... what happened? Something does not look right about the monday candle. Oh yeah I forgot. This is the chart of the last 5 days we had at our last MAJOR top. Emm yes, this is exactly how it looked like during Jan 5th. We all know what happened after that. I am not saying this is a top here, but looking at the market unable to hold on to gains after the best possible consumer data is quite odd.
The other thing I wanted to talk about is sentiment. Many readers here are following the same blogs, one in specific is slope of hope. One of their readers is called mikevadon. He himself is a blogger, however, this week something drastically changed with him. I am not sure what happened but you all know what I am talking about. He has turned into a major bull from one day to the next and is running through slope almost mocking everyone who is bearish. I honestly think he is secretly short and will use the last few days as an example of showing us how tops are made by converting every bear into a bull - even after we have rallied for 50+%. Who knows but this is just one example of the current tension between bloggers. Whenever we are at tops or bottoms traders and investors are filled with either absolute fear or absolute greed.
Ok I am running a bit late for work - will post more updates shortly.
Tuesday, August 25, 2009
More upside?
Yesterday
Ok as futures were moving higher fueled by other markets we opened with an exhaustion gap. It was quite an odd open and you could immediately see the hesitation to bring the market higher. We broke the overnight high and made a marginal new high. Here is where it got interesting and we slowly grinded lower. It seems no bulls were left and during the mid day we reversed lower quite strong. As you remember in the past the tape was primarily driven around the VWAP between 10:30 and 2:30 and yesterday we actually had some selling that was not bought back into the close.
HOWEVER, yesterday was not a victory for the bears as many sites claim. After a strong up move with new highs and severe overbought conditions all we got was a sideways day with a flat close but the majority of the day spent in the green area.
Today
Looking back at EURUSD we can see that this divergence paid off to prevent us from moving higher. As I am looking at it now we already broke key support at EURUSD while futures are rather flat. If this is any indication of things to come we can at least expect a move lower today towards the 1014 SPX range.
The question remains whether we burn off the overbought conditions through time by trading sideways or in a narrow range with a slight down trend or through a sell off. Based on the action yesterday I would expect further profit taking from existing longs.
For the bulls: Just like yesterday the bulls have strong support on their side now around the 1012 range that has been the consolidation zone for our move higher. A test on this range will surely bring in dip buyers to add to positions or initiate new positions in our new 4 digit trade zone.
For the bears: The bears yet again have a difficult range to deal with as we broke out of our consolidation zone into new highs. The marginal high at 1035 is only 20 points away from the three week consolition and important 38.2% FIB levels. If this new zone will be confirmed by closing at least 3 days above this range bears need to deal with higher prices to come. On the positive side yesterday showed a bit of a change in the tape as sellers came in mid day to take the market lower. Something we had not seen in a while.
Positions
I am still in my spy sep 100/oct 95/dec 85 puts and my ES position at 1012. Current exposure is still limited to around 30%. I actually had an up day for my account yesterday thanks to my forex position that offset the burn off the options and the marginal losses on ES. I am still not ready to commit more capital even as many other bears are screaming top.
Final Word
I will post more updates as the night and other markets progress. It seems the overnight moves for US markets are quite large so I will post another small note in the morning.
Ok as futures were moving higher fueled by other markets we opened with an exhaustion gap. It was quite an odd open and you could immediately see the hesitation to bring the market higher. We broke the overnight high and made a marginal new high. Here is where it got interesting and we slowly grinded lower. It seems no bulls were left and during the mid day we reversed lower quite strong. As you remember in the past the tape was primarily driven around the VWAP between 10:30 and 2:30 and yesterday we actually had some selling that was not bought back into the close.
HOWEVER, yesterday was not a victory for the bears as many sites claim. After a strong up move with new highs and severe overbought conditions all we got was a sideways day with a flat close but the majority of the day spent in the green area.
Today
Looking back at EURUSD we can see that this divergence paid off to prevent us from moving higher. As I am looking at it now we already broke key support at EURUSD while futures are rather flat. If this is any indication of things to come we can at least expect a move lower today towards the 1014 SPX range.
The question remains whether we burn off the overbought conditions through time by trading sideways or in a narrow range with a slight down trend or through a sell off. Based on the action yesterday I would expect further profit taking from existing longs.
For the bulls: Just like yesterday the bulls have strong support on their side now around the 1012 range that has been the consolidation zone for our move higher. A test on this range will surely bring in dip buyers to add to positions or initiate new positions in our new 4 digit trade zone.
For the bears: The bears yet again have a difficult range to deal with as we broke out of our consolidation zone into new highs. The marginal high at 1035 is only 20 points away from the three week consolition and important 38.2% FIB levels. If this new zone will be confirmed by closing at least 3 days above this range bears need to deal with higher prices to come. On the positive side yesterday showed a bit of a change in the tape as sellers came in mid day to take the market lower. Something we had not seen in a while.
Positions
I am still in my spy sep 100/oct 95/dec 85 puts and my ES position at 1012. Current exposure is still limited to around 30%. I actually had an up day for my account yesterday thanks to my forex position that offset the burn off the options and the marginal losses on ES. I am still not ready to commit more capital even as many other bears are screaming top.
Final Word
I will post more updates as the night and other markets progress. It seems the overnight moves for US markets are quite large so I will post another small note in the morning.
Monday, August 24, 2009
Bright and early
Well as I am back in the UK at the moment you can get my updates in the early morning =) I had made a large update over the weekend - lots of venting in there but the middle section has a bigger picture view that is quite important for us.
Previous Trade Day & Week
I wanted to re-emphasize again what happened last week. From a charting perspective Friday and the resulting weekly close has really baffled me. I went back through many charts over the weekend and I have to admit - its not something I had seen before at least with this type of setup. Looking at the weekly candles, we hit major resistance three weeks ago, then had a narrow sideways candle and a large engulfing breakout candle. I am not sure what to make of it yet and this will definitely be something that will result in a long term direction of some type. By the end of this year I am confident we can go back to this specific setup and try to figure out exactly what it meant. The interesting aspect of this pattern is the swift break through a major resistance level without any type of pullback - in addition to those 3 weekly candles being right on top of this rallies trend line. Only time will tell.
Today
At the risk of sounding like a broken record - we are quite overbought again. The last time we were at such an overbought level was the breakout through 930 and we all know what happened then - we continued rallying without any significant pullback. Will this time be the same? Futures are already up 6 points, though its interesting to see that the dollar is not supporting this move. Yes they are not directly related but an important enough divergence to mention. Believe it or not volume overnight has been quite strong and other world markets are tracking the US markets gains from Friday.
Today it could be dry or it could rain. Resistance levels on the upper ranges are really difficult to identify at the moment as we are in a valid breakout mode. We could use the overnight high as a guide @ 1033 SPX, however, I would not put that much attention on this number today. On the lower end of course the important 1012-1014 levels that appear as a valid target for a pullback to retest the breakout range and rally higher. The market now has enough of a buffer to absorb a strong sell off into the 1000SPX range and hold this as support.
For the bulls: Bulls have the advantage at the moment and can drive price direction quite easily. Lower end targets at key support @ 1000 are easily protected due to new retail dip buying and short covering of bears that saw the breakout last week.
For the bears: Well, as a bear one has no choice to continue to remain on the sidelines as this market has no desire to move lower. At this point bears are royally screwed as all patterns and scenarios point up, even if we have a stronger retracement coming. Even a sell off with a lower high cannot be considered a real confirmation for the bearish trend to resume.
Special Note
It seems that tension is growing among bloggers. We are seeing quite a large amount of blogorama and many blogs now trying to accept the fact that we are moving higher without stopping. It seems most reviews I am seeing are pointing to upper range targets without any blog considering a strong pullback. We are at the doorstep of the GS 1050 range, and of course the other magnets @ 1100 and 1200. I have to admit, everything is pointing at those ranges and with the current bullish sentiment not just among retailers but also institutions I see no reason to "believe" otherwise. The reason I am mentioning this is the sentiment - during important turning points you see both ends of the spectrum going at each others throat and generally a very one sided view by many analysts. Kind of "well, its going up because that's what it has done over the past 5 months" - can it continue? Oh yes it can, look at any bull market, regardless of how long or short it may have been. Just one direction.
This will be an important week (like every other week) but I will be watching this one here VERY closely.
Previous Trade Day & Week
I wanted to re-emphasize again what happened last week. From a charting perspective Friday and the resulting weekly close has really baffled me. I went back through many charts over the weekend and I have to admit - its not something I had seen before at least with this type of setup. Looking at the weekly candles, we hit major resistance three weeks ago, then had a narrow sideways candle and a large engulfing breakout candle. I am not sure what to make of it yet and this will definitely be something that will result in a long term direction of some type. By the end of this year I am confident we can go back to this specific setup and try to figure out exactly what it meant. The interesting aspect of this pattern is the swift break through a major resistance level without any type of pullback - in addition to those 3 weekly candles being right on top of this rallies trend line. Only time will tell.
Today
At the risk of sounding like a broken record - we are quite overbought again. The last time we were at such an overbought level was the breakout through 930 and we all know what happened then - we continued rallying without any significant pullback. Will this time be the same? Futures are already up 6 points, though its interesting to see that the dollar is not supporting this move. Yes they are not directly related but an important enough divergence to mention. Believe it or not volume overnight has been quite strong and other world markets are tracking the US markets gains from Friday.
Today it could be dry or it could rain. Resistance levels on the upper ranges are really difficult to identify at the moment as we are in a valid breakout mode. We could use the overnight high as a guide @ 1033 SPX, however, I would not put that much attention on this number today. On the lower end of course the important 1012-1014 levels that appear as a valid target for a pullback to retest the breakout range and rally higher. The market now has enough of a buffer to absorb a strong sell off into the 1000SPX range and hold this as support.
For the bulls: Bulls have the advantage at the moment and can drive price direction quite easily. Lower end targets at key support @ 1000 are easily protected due to new retail dip buying and short covering of bears that saw the breakout last week.
For the bears: Well, as a bear one has no choice to continue to remain on the sidelines as this market has no desire to move lower. At this point bears are royally screwed as all patterns and scenarios point up, even if we have a stronger retracement coming. Even a sell off with a lower high cannot be considered a real confirmation for the bearish trend to resume.
Special Note
It seems that tension is growing among bloggers. We are seeing quite a large amount of blogorama and many blogs now trying to accept the fact that we are moving higher without stopping. It seems most reviews I am seeing are pointing to upper range targets without any blog considering a strong pullback. We are at the doorstep of the GS 1050 range, and of course the other magnets @ 1100 and 1200. I have to admit, everything is pointing at those ranges and with the current bullish sentiment not just among retailers but also institutions I see no reason to "believe" otherwise. The reason I am mentioning this is the sentiment - during important turning points you see both ends of the spectrum going at each others throat and generally a very one sided view by many analysts. Kind of "well, its going up because that's what it has done over the past 5 months" - can it continue? Oh yes it can, look at any bull market, regardless of how long or short it may have been. Just one direction.
This will be an important week (like every other week) but I will be watching this one here VERY closely.
Sunday, August 23, 2009
RSS Update
I changed settings on the blog just now so everyone following me on a reader will now see the full post including images.
Thanks Steve for pushing me to do this =)
Thanks Steve for pushing me to do this =)
Saturday, August 22, 2009
Long Update
Ok lets try to figure out what happened after the disaster of last week. While everything played out as we had anticipated I personally lacked the proper follow through on my own strategy we had outlined.
Missed Opportunity
On Monday August 10th we had anticipated the following moves:
Move 1 = this move would be corrective of nature and bring us back to the 965-980 levels on SPX. This should resolve itself by the end of this week and possibly range into early next week.
Move 2 (OPEX week) = this move here should reattempt the upper ranges we have printed on the market. Due to open interest it is my feel that we may see the 4 digits again.
This was the Monday right after I had initiated new short positions when we had exceeded 1012 for the only time during cash hours. I have to admit that I am kicking myself a little bit for having anticipated such a move but failed to properly profit from this.
After we had tested the 980 range twice I had assumed we would finally break this range to retest the 965 range. Bulls appeared weak and we had finally seen a sentiment change in the market with sell offs not being bought back into the close. I should have used this change to scale into my long hedge here but I was blinded by my primary short position that finally showed some nice gains that I wanted to continue to build upon.
Personal Note
Last week has been pretty devastating to my account. As you know I have been purely IT focused for the last 5 weeks as I started to short the 940 range. Luckily I managed to walk away with some black eyes initially but the month of august has broken my legs and ribs. Same as before, whenever I focus on IT positions my account balance shows amazing losses that keep on building up a lot faster then I could have imagined. I am currently seeing my account at the largest draw down level I have ever experienced, too much for a smart trader to continue upon. It will take a LOT of work and patience for me to recover the last 5 months losses and my assumption is that this rally will probably take me the next 12 months (or longer) to recover from. I have to be honest with myself here and my stubbornness to continuously look for bearish patterns is the cause for me being totally blinded by this market.
Yes we can all agree that this rally has been something we have never seen before. ANY other rally, even a start or a new bull market has been accompanied with proper retracements and a way that even bears that follow a proper trade plan or system can profit from. While this sounds kind of odd but yes even a bear can make money in a bull market – however, this leg here in the past 5 months has losses written all over it. I am not the only one and you can see bears either giving up, coming clean, or being forced to close accounts – some even as far as wiping out entire accounts.
What comes next?
So, as I am able to keep a clear head lets focus on the market and try to figure out what comes next. Lets take a look at the big picture perspective again.
When looking at long term trend lines the last 2 months have broken major resistance levels. The first important one was the 2008 peak trend (yellow circle) which has shown the biggest retracements the bear have had during this rally. Mid July is when the market decided a break was needed and we broke through this line with strength. It was very interesting to see that the market continually tested this range through June and July and waited until we had reached key support at 880 before we finally broke through.
This week has probably been the biggest break yet as we exceeded the 38.20% FIB levels, not only on an intraday basis but also on a closing weekly basis. It took only 3 weeks to break through this level (blue circle) which shows amazing strength. Forget about the daily charts for a second but looking at it from a weekly perspective the next goal is quite obvious. Of course we are pretty close to the 1050 range which represents the lower line of our entire 2007 bear. The next target is the 50% FIB levels and the test of our 2007 bear upper trend line around 1100 SPX. As you can see we have 3 major levels converge – 50% fib, upper trendline of the rally and the big important bear line from 2007.
Even if we reverse next week and close below the 38.20% FIB levels we will not have a clean bearish confirmation until 880 is taken out. So as you can see, the bears got the shaft on Friday. It is quite amazing that a single day can be so significant to a market place. I dare to say that Friday was the day that will haunt bears for the rest of this year and possibly next year – whatever bear is left out there.
Now being a bear of course you are exposed on the short side at least to some degree. The only positive thing we have now is the upper trend line of our rally that has not yet been exceeded. This line should provide some resistance and gives bears a chance to minimize exposure as we potentially retrace slightly during the next month.
Closure
While we are talking about the big picture I have to admit I am ashamed at the way I have traded this year. We had obvious signs that we had identified and I had talked about. First of course our long term review with time targets back from March that clearly stated that this rally will at least last till May/June time frame. To top it off my continuous preaching about the 800 line - the amount of times I had mentioned “there is trading above 800 and below – never around” sounds like an eerie reminder of total failure to accept the market and not ones point of view.
Additionally I had challenged my own view on the major Elliot Wave counts back in March with the possibility of 666 being the end of either wave 3 or wave 5. All signs were clear once we broke 880 that the 666 levels were the end of the first major cycle.
And to top if of my post from mid march 1014 SPX say what? where I had clearly identified the possibility of 1014 – back then we were still trading below 800.
In all – total disaster for me when I had all the signs in front of me.
So what am I really saying?
To be honest I am not sure where the market will head next. This Friday has put my entire views in a very fragile state. We have a VERY wide range of confirmations needed before we can make any calls for direction for the remainder of the year and into next year. The first major targets are of course the 1045-1050 levels and then on to the 1095-1108 levels. Believe it or not those targets are valid until we break 880 on the lower side. For the bear case, well, to be quite honest long term views – we are screwed. Even if we get to 880 we cannot confirm a move lower until this key support is broken and let’s be honest – who would not be a buyer if we get down there? I know I would be regardless of how bad the picture may look.
So even if we have a strong reversal here in terms of price and find ourselves back at the 965 levels I have kept on referring to – from a chart perspective it will only be a retracement to go higher. Yes of course when looking on the daily charts if we reverse back below the important FIB levels we have a better case but the weekly chart will ALWAYS be there to remind us that the market can move higher.
I will be legging out of my IT positions within the next two weeks and will focus again on short term trading as I had done many times during this rally with success. When looking at my track record on the short term perspective I have to admit I can nail time and price fairly accurate, even on the long term perspective that is true but I have totally failed to profit from this, quite the contrary my correct long term views have incurred more losses then I could have ever imagined. Yes hindsight is 20/20 - we all know that. But as a trader you have to be objective and trust in your own analysis.
Missed Opportunity
On Monday August 10th we had anticipated the following moves:
Move 1 = this move would be corrective of nature and bring us back to the 965-980 levels on SPX. This should resolve itself by the end of this week and possibly range into early next week.
Move 2 (OPEX week) = this move here should reattempt the upper ranges we have printed on the market. Due to open interest it is my feel that we may see the 4 digits again.
This was the Monday right after I had initiated new short positions when we had exceeded 1012 for the only time during cash hours. I have to admit that I am kicking myself a little bit for having anticipated such a move but failed to properly profit from this.
After we had tested the 980 range twice I had assumed we would finally break this range to retest the 965 range. Bulls appeared weak and we had finally seen a sentiment change in the market with sell offs not being bought back into the close. I should have used this change to scale into my long hedge here but I was blinded by my primary short position that finally showed some nice gains that I wanted to continue to build upon.
Personal Note
Last week has been pretty devastating to my account. As you know I have been purely IT focused for the last 5 weeks as I started to short the 940 range. Luckily I managed to walk away with some black eyes initially but the month of august has broken my legs and ribs. Same as before, whenever I focus on IT positions my account balance shows amazing losses that keep on building up a lot faster then I could have imagined. I am currently seeing my account at the largest draw down level I have ever experienced, too much for a smart trader to continue upon. It will take a LOT of work and patience for me to recover the last 5 months losses and my assumption is that this rally will probably take me the next 12 months (or longer) to recover from. I have to be honest with myself here and my stubbornness to continuously look for bearish patterns is the cause for me being totally blinded by this market.
Yes we can all agree that this rally has been something we have never seen before. ANY other rally, even a start or a new bull market has been accompanied with proper retracements and a way that even bears that follow a proper trade plan or system can profit from. While this sounds kind of odd but yes even a bear can make money in a bull market – however, this leg here in the past 5 months has losses written all over it. I am not the only one and you can see bears either giving up, coming clean, or being forced to close accounts – some even as far as wiping out entire accounts.
What comes next?
So, as I am able to keep a clear head lets focus on the market and try to figure out what comes next. Lets take a look at the big picture perspective again.
When looking at long term trend lines the last 2 months have broken major resistance levels. The first important one was the 2008 peak trend (yellow circle) which has shown the biggest retracements the bear have had during this rally. Mid July is when the market decided a break was needed and we broke through this line with strength. It was very interesting to see that the market continually tested this range through June and July and waited until we had reached key support at 880 before we finally broke through.
This week has probably been the biggest break yet as we exceeded the 38.20% FIB levels, not only on an intraday basis but also on a closing weekly basis. It took only 3 weeks to break through this level (blue circle) which shows amazing strength. Forget about the daily charts for a second but looking at it from a weekly perspective the next goal is quite obvious. Of course we are pretty close to the 1050 range which represents the lower line of our entire 2007 bear. The next target is the 50% FIB levels and the test of our 2007 bear upper trend line around 1100 SPX. As you can see we have 3 major levels converge – 50% fib, upper trendline of the rally and the big important bear line from 2007.
Even if we reverse next week and close below the 38.20% FIB levels we will not have a clean bearish confirmation until 880 is taken out. So as you can see, the bears got the shaft on Friday. It is quite amazing that a single day can be so significant to a market place. I dare to say that Friday was the day that will haunt bears for the rest of this year and possibly next year – whatever bear is left out there.
Now being a bear of course you are exposed on the short side at least to some degree. The only positive thing we have now is the upper trend line of our rally that has not yet been exceeded. This line should provide some resistance and gives bears a chance to minimize exposure as we potentially retrace slightly during the next month.
Closure
While we are talking about the big picture I have to admit I am ashamed at the way I have traded this year. We had obvious signs that we had identified and I had talked about. First of course our long term review with time targets back from March that clearly stated that this rally will at least last till May/June time frame. To top it off my continuous preaching about the 800 line - the amount of times I had mentioned “there is trading above 800 and below – never around” sounds like an eerie reminder of total failure to accept the market and not ones point of view.
Additionally I had challenged my own view on the major Elliot Wave counts back in March with the possibility of 666 being the end of either wave 3 or wave 5. All signs were clear once we broke 880 that the 666 levels were the end of the first major cycle.
And to top if of my post from mid march 1014 SPX say what? where I had clearly identified the possibility of 1014 – back then we were still trading below 800.
In all – total disaster for me when I had all the signs in front of me.
So what am I really saying?
To be honest I am not sure where the market will head next. This Friday has put my entire views in a very fragile state. We have a VERY wide range of confirmations needed before we can make any calls for direction for the remainder of the year and into next year. The first major targets are of course the 1045-1050 levels and then on to the 1095-1108 levels. Believe it or not those targets are valid until we break 880 on the lower side. For the bear case, well, to be quite honest long term views – we are screwed. Even if we get to 880 we cannot confirm a move lower until this key support is broken and let’s be honest – who would not be a buyer if we get down there? I know I would be regardless of how bad the picture may look.
So even if we have a strong reversal here in terms of price and find ourselves back at the 965 levels I have kept on referring to – from a chart perspective it will only be a retracement to go higher. Yes of course when looking on the daily charts if we reverse back below the important FIB levels we have a better case but the weekly chart will ALWAYS be there to remind us that the market can move higher.
I will be legging out of my IT positions within the next two weeks and will focus again on short term trading as I had done many times during this rally with success. When looking at my track record on the short term perspective I have to admit I can nail time and price fairly accurate, even on the long term perspective that is true but I have totally failed to profit from this, quite the contrary my correct long term views have incurred more losses then I could have ever imagined. Yes hindsight is 20/20 - we all know that. But as a trader you have to be objective and trust in your own analysis.
Thursday, August 20, 2009
So now what?
Quick update - Well, we hit all price targets we were looking for, and the move happened as we had anticipated. So now its pretty easy - just want and let the market show us. We are stuck at key resistance here and will have to make a move. Market is short term overbought so another push up will be hard to maintain so something has to give - however overnight we are already pushing way above yesterdays high.
Looking at the daily chart, we have been talking about the bollinger bands a few days ago and they keep on getting narrower and narrower. Whatever trend will break out will be quite large. I do have to admit, at this point a trend to the upside for a target of at least 1045 (possibly 1073-1074) is very likely.
I am still short and will be making a decision today around those positions. Not quite sure yet but its looking more and more that I may have to cover early next week.
Looking at the daily chart, we have been talking about the bollinger bands a few days ago and they keep on getting narrower and narrower. Whatever trend will break out will be quite large. I do have to admit, at this point a trend to the upside for a target of at least 1045 (possibly 1073-1074) is very likely.
I am still short and will be making a decision today around those positions. Not quite sure yet but its looking more and more that I may have to cover early next week.
Wednesday, August 19, 2009
Such a tease
As you know we have been obsessed with the dollar for quite a while now and this is the same chart we have been watching for months. As you can see the dollar has become quite a tease here. Still hugging the lower trend line (yellow circles) BUT as you can see, after every move of a touch of the lower trendline has become smaller and smaller - of course the trend line is quite steep as well so you have to consider a breakout into a weaker up trend.
At the same time look at the 50 day moving average (dark blue lines) - SAME thing here with the EURUSD not able to close below. As you can see we are about to turn lower here as the new highs made were contained by the long term trendline off the previous peaks.
To me this chart looks VERY bearish about ready to tip over. As you can see once this chart turns we have a multi month, maybe even a year of trend to follow. You can imagine what this means for equities.
From here I expect a nice move lower after having retest the previous top or last peak and find support back at the 200 day moving average. Timing wise this could play out nicely with equities finding support at 780-820 to move higher before turning to retest and possibly break the march lows.
GAP Down
Interesting to see a GAP down of this size and reverse right away. As mentioned in the past usually a GAP of this size ends up setting the high of the day within the first 15 around the open price. This did not occur today so it makes trading this quite a bit more difficult. Based on the strength here its very probable the low for the day has been made at the open and we continue higher as a stepping day (quite odd but has to be considered).
Other scenario is a GAP fill and then close between open and previous close but remain in a tighter range. If we fill the GAP and see any green today expect more follow through and at least 995-998 range test today.
As you can see - too many scenarios to take any trade, however, we have enough clues now to figure out how to position ourselves and how we want to play this. Any moves higher is a nice chance for me to add more puts =)
Other scenario is a GAP fill and then close between open and previous close but remain in a tighter range. If we fill the GAP and see any green today expect more follow through and at least 995-998 range test today.
As you can see - too many scenarios to take any trade, however, we have enough clues now to figure out how to position ourselves and how we want to play this. Any moves higher is a nice chance for me to add more puts =)
Tuesday, August 18, 2009
Position Update & Celebration
Position Update
Ok, before I head off and leave the market alone wanted to update what I am doing position wise.
I am currently exposed around 25% via futures with my ES position short from 1012 (1016 SPX). We have only exceeded 1012 on futures ONCE during cash hours in past 2 weeks (which is when I initiated the position) so I am feeling very positive about this position for the longer term. This position will only be closed out when we exceed 1012 during cash hours - no hard stop in place, if we break 1012 will get out on pull back or through break even hedge.
Longer term. As I will have some time this weekend I am going to post another update for the longer term here. As a result of what we are currently going through I am increaseing my short exposure slightly and will start to leg into longer term puts. I have added my first very small chunk today via:
FYS XG - S&P Dep Receipts [SPY] Dec 85 Put
SWG VQ - S&P Dep Receipts [SPY] Oct 95 Put
I will be adding more as we go higher with a final target of 1008. I have 3 other limit orders ready at 994 SPX, 998 SPX and one last at 1008 SPX.
Full position will represent a 10% exposure via options (which is quite large for me so I am pretty committed).
Celebration
Quite ironic - Today marks ONE YEAR of blogging for me. I started this blog last year on August 18th and its been a fun ride. As we all know the last 5 months have not been pretty and many have given up on the markets and minimized their trading activities. This becomes quite apparent on the traffic decrease I am seeing. Lets hope this one year anniversary will mark a turning day for us and we can finally enjoy trading again and of course make some money.
I see good things for all of us for the remainder of the year - whether its upside or downside, the past 5 months have been amazing for my trading skills and I am looking forward to apply this new found strength.
Talk to you all soon and good luck everyone.
Ok, before I head off and leave the market alone wanted to update what I am doing position wise.
I am currently exposed around 25% via futures with my ES position short from 1012 (1016 SPX). We have only exceeded 1012 on futures ONCE during cash hours in past 2 weeks (which is when I initiated the position) so I am feeling very positive about this position for the longer term. This position will only be closed out when we exceed 1012 during cash hours - no hard stop in place, if we break 1012 will get out on pull back or through break even hedge.
Longer term. As I will have some time this weekend I am going to post another update for the longer term here. As a result of what we are currently going through I am increaseing my short exposure slightly and will start to leg into longer term puts. I have added my first very small chunk today via:
FYS XG - S&P Dep Receipts [SPY] Dec 85 Put
SWG VQ - S&P Dep Receipts [SPY] Oct 95 Put
I will be adding more as we go higher with a final target of 1008. I have 3 other limit orders ready at 994 SPX, 998 SPX and one last at 1008 SPX.
Full position will represent a 10% exposure via options (which is quite large for me so I am pretty committed).
Celebration
Quite ironic - Today marks ONE YEAR of blogging for me. I started this blog last year on August 18th and its been a fun ride. As we all know the last 5 months have not been pretty and many have given up on the markets and minimized their trading activities. This becomes quite apparent on the traffic decrease I am seeing. Lets hope this one year anniversary will mark a turning day for us and we can finally enjoy trading again and of course make some money.
I see good things for all of us for the remainder of the year - whether its upside or downside, the past 5 months have been amazing for my trading skills and I am looking forward to apply this new found strength.
Talk to you all soon and good luck everyone.
Traveling
Ok as mentioned traveling this week so most likely no more updates for the rest of the week. I will check in when I can to give updates in comments or a new post.
As mentioned before there is a chance for another minor push down either today or tomorrow before the normal opex shenanigans to try to run this up one last time. Watch 998 very carefully as I expect this to be the top by Thursday end of day or Friday morning.
I am about ready to increase my short exposure to around 50% and will be setting up limit orders for sep, oct, dec puts between 990 and 1004. I am still hoping to be able to get a long hedge placed around the 965-975 range to be able to take some pain on those puts.
As mentioned before there is a chance for another minor push down either today or tomorrow before the normal opex shenanigans to try to run this up one last time. Watch 998 very carefully as I expect this to be the top by Thursday end of day or Friday morning.
I am about ready to increase my short exposure to around 50% and will be setting up limit orders for sep, oct, dec puts between 990 and 1004. I am still hoping to be able to get a long hedge placed around the 965-975 range to be able to take some pain on those puts.
Monday, August 17, 2009
Could it be true?
This was posted Monday last week.
Move 1 = this move would be corrective of nature and bring us back to the 965-980 levels on SPX. This should resolve itself by the end of this week and possibly range into early next week.
Move 2 (OPEX week) = this move here should reattempt the upper ranges we have printed on the market. Due to open interest it is my feel that we may see the 4 digits again.
Well the time has come and we hit my target and I am VERY afraid to hedge myself here now with a long position. I have just taken a hedge via NQ @ 1573 to protect my open profits.
Move 1 = this move would be corrective of nature and bring us back to the 965-980 levels on SPX. This should resolve itself by the end of this week and possibly range into early next week.
Move 2 (OPEX week) = this move here should reattempt the upper ranges we have printed on the market. Due to open interest it is my feel that we may see the 4 digits again.
Well the time has come and we hit my target and I am VERY afraid to hedge myself here now with a long position. I have just taken a hedge via NQ @ 1573 to protect my open profits.
What a GAP ...
Will not have much time to post updates as I am getting ready to prepare for travel this week. I will be looking for a long hedge here soon but will not try to chase it from here. Still short ES 1012.
I did load up via SDS on Friday with quite a bit but forced myself to get back out after 30 minutes as I violated my 30% capital exposure rule. Would have worked out nicely but hindsight is 20/20 and I did tell myself that I will stay very light until we have a clear direction.
I did load up via SDS on Friday with quite a bit but forced myself to get back out after 30 minutes as I violated my 30% capital exposure rule. Would have worked out nicely but hindsight is 20/20 and I did tell myself that I will stay very light until we have a clear direction.
Friday, August 14, 2009
New Rule: Futures Stops
As some of you may remember I have been having quite a frustrating time with being stopped out during overnight sessions at key levels just to see the market reverse and my positions profitable during cash hours.
The last BIG stop was my long position that was stopped out at 865.75, a quarter point off the low at the early morning hours just to rally strong. As you know I have been short ES @ 1012 for one week now and have adjusted my stop management to only be valid during cash hours.
As a result of this rule change for futures positions I have been able to manage to remain on this position without much damage. Of course there were times with me sweating as we moved higher during overnight hours but was met with sell off to bring the cash hours back inline. As you can see my 1012 ES positions has NOT been in the reds since last week Friday during cash hours (though has been down as much as 4 points during overnight sessions).
The last BIG stop was my long position that was stopped out at 865.75, a quarter point off the low at the early morning hours just to rally strong. As you know I have been short ES @ 1012 for one week now and have adjusted my stop management to only be valid during cash hours.
As a result of this rule change for futures positions I have been able to manage to remain on this position without much damage. Of course there were times with me sweating as we moved higher during overnight hours but was met with sell off to bring the cash hours back inline. As you can see my 1012 ES positions has NOT been in the reds since last week Friday during cash hours (though has been down as much as 4 points during overnight sessions).
Another Perspective
Sometimes its best to forget about everything in your trade rules and book and go back to a very basic view. As some of you know I use Elliott Waves quite a bit, never as a only mean for a trade or direction but as a confirmation. I wanted to quote something that is readily available online via Wiki.
Wave 1: Wave one is rarely obvious at its inception. When the first wave of a new bull market begins, the fundamental news is almost universally negative. The previous trend is considered still strongly in force. Fundamental analysts continue to revise their earnings estimates lower; the economy probably does not look strong. Sentiment surveys are decidedly bearish, put options are in vogue, and implied volatility in the options market is high. Volume might increase a bit as prices rise, but not by enough to alert many technical analysts.
- This move here is off the march lows. As everyone knows news was very negative and we all thought we get a small jump to move even lower. Instead we continued rallying all the way to 930-956 before we had any type of correction.
Wave 2: Wave two corrects wave one, but can never extend beyond the starting point of wave one. Typically, the news is still bad. As prices retest the prior low, bearish sentiment quickly builds, and "the crowd" haughtily reminds all that the bear market is still deeply ensconced. Still, some positive signs appear for those who are looking: volume should be lower during wave two than during wave one, prices usually do not retrace more than 61.8% (see Fibonacci section below) of the wave one gains, and prices should fall in a three wave pattern.
- Perfect explanation of our moves from 956 towards the 880 range. Many thought the bear market would finally take over again and volume continued to decline. Interestingly enough this retracement was based on a 3 wave corrective pattern.
Wave 3: Wave three is usually the largest and most powerful wave in a trend (although some research suggests that in commodity markets, wave five is the largest). The news is now positive and fundamental analysts start to raise earnings estimates. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to "get in on a pullback" will likely miss the boat. As wave three starts, the news is probably still bearish, and most market players remain negative; but by wave three's midpoint, "the crowd" will often join the new bullish trend. Wave three often extends wave one by a ratio of 1.618:1.
This pretty much explains our moves since the 880 lows and the rally into the 4 digits. Is it possible we could be at the wave 3 midpoint now? and move a lot higher still? You tell me.
For more information here is the link http://en.wikipedia.org/wiki/Elliott_wave_principle
Wave 1: Wave one is rarely obvious at its inception. When the first wave of a new bull market begins, the fundamental news is almost universally negative. The previous trend is considered still strongly in force. Fundamental analysts continue to revise their earnings estimates lower; the economy probably does not look strong. Sentiment surveys are decidedly bearish, put options are in vogue, and implied volatility in the options market is high. Volume might increase a bit as prices rise, but not by enough to alert many technical analysts.
- This move here is off the march lows. As everyone knows news was very negative and we all thought we get a small jump to move even lower. Instead we continued rallying all the way to 930-956 before we had any type of correction.
Wave 2: Wave two corrects wave one, but can never extend beyond the starting point of wave one. Typically, the news is still bad. As prices retest the prior low, bearish sentiment quickly builds, and "the crowd" haughtily reminds all that the bear market is still deeply ensconced. Still, some positive signs appear for those who are looking: volume should be lower during wave two than during wave one, prices usually do not retrace more than 61.8% (see Fibonacci section below) of the wave one gains, and prices should fall in a three wave pattern.
- Perfect explanation of our moves from 956 towards the 880 range. Many thought the bear market would finally take over again and volume continued to decline. Interestingly enough this retracement was based on a 3 wave corrective pattern.
Wave 3: Wave three is usually the largest and most powerful wave in a trend (although some research suggests that in commodity markets, wave five is the largest). The news is now positive and fundamental analysts start to raise earnings estimates. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to "get in on a pullback" will likely miss the boat. As wave three starts, the news is probably still bearish, and most market players remain negative; but by wave three's midpoint, "the crowd" will often join the new bullish trend. Wave three often extends wave one by a ratio of 1.618:1.
This pretty much explains our moves since the 880 lows and the rally into the 4 digits. Is it possible we could be at the wave 3 midpoint now? and move a lot higher still? You tell me.
For more information here is the link http://en.wikipedia.org/wiki/Elliott_wave_principle
Update
Ok, the past 2 days I was pretty much MIA from the markets. Had some personal items to worry about some personal stuff as I am traveling again soon.
Well, I am still in my short position from 1012 ES that I am seeing down 2 points now after having had gains of almost 30 points on this position. I did hedge in between with some NQ but the gains for that hedge were minimal compared to the losses incurred on open profits. Thats what I get for not watching it carefully.
We have not had 2 days of continuous tests on our previous peaks and the rally in the past 2 days has removed quite a few of the bearish divergences and we now find ourselves back with neutral technical indicators in an uptrend. Based on the price action the past few days and our pull back of 30 points we should expect more upside with a real test at the 1021-1022 range. I have to admit I am a bit surprised at this type of action here and would have expected at least a test of the GAP range at 970-980 SPX. We managed to test the 989 range during our overnight session 2 days ago but decided to rally without ANY pull back off the open. DIP buyers in full force.
At this point it seems not even significant resistance and overhead supply is able to stop this market from moving higher. We have seen a mere week of sideways action to remove the many overbought conditions. Instead of a pull back, time was the only thing that was added to bring the market back into neutral to be able to continue the rally. As incredible as it seems the market has only one goal in mind - higher.
For the bears - while we have significant resistance levels above the bears have no choice but to let this pattern play out until a decision is made for the downtrend. This has been the game for the last 5 months and will continue to be the case. Any IT positions entered even with great timing and price seem to flourish for a few days just to be brought back to break even. I continue to struggle with the decision to let the IT position run or remain on a day trade basis which seems to be the only choice the bears have left.
For the bulls - as mentioned they hold all the cards and are in a position now to take out the previous high made by SPX. We have a good 20 points on the upside before the market is in need to pull back or distribution again.
The key levels to watch for today are the 1021-1022 on the upper ranges. A break here and we need to be ready for another 10-15 points, otherwise this could lead to a start of a larger pull back. However, chances are there for the bulls now to take this market higher instead of switching to profit taking mode.
Well, I am still in my short position from 1012 ES that I am seeing down 2 points now after having had gains of almost 30 points on this position. I did hedge in between with some NQ but the gains for that hedge were minimal compared to the losses incurred on open profits. Thats what I get for not watching it carefully.
We have not had 2 days of continuous tests on our previous peaks and the rally in the past 2 days has removed quite a few of the bearish divergences and we now find ourselves back with neutral technical indicators in an uptrend. Based on the price action the past few days and our pull back of 30 points we should expect more upside with a real test at the 1021-1022 range. I have to admit I am a bit surprised at this type of action here and would have expected at least a test of the GAP range at 970-980 SPX. We managed to test the 989 range during our overnight session 2 days ago but decided to rally without ANY pull back off the open. DIP buyers in full force.
At this point it seems not even significant resistance and overhead supply is able to stop this market from moving higher. We have seen a mere week of sideways action to remove the many overbought conditions. Instead of a pull back, time was the only thing that was added to bring the market back into neutral to be able to continue the rally. As incredible as it seems the market has only one goal in mind - higher.
For the bears - while we have significant resistance levels above the bears have no choice but to let this pattern play out until a decision is made for the downtrend. This has been the game for the last 5 months and will continue to be the case. Any IT positions entered even with great timing and price seem to flourish for a few days just to be brought back to break even. I continue to struggle with the decision to let the IT position run or remain on a day trade basis which seems to be the only choice the bears have left.
For the bulls - as mentioned they hold all the cards and are in a position now to take out the previous high made by SPX. We have a good 20 points on the upside before the market is in need to pull back or distribution again.
The key levels to watch for today are the 1021-1022 on the upper ranges. A break here and we need to be ready for another 10-15 points, otherwise this could lead to a start of a larger pull back. However, chances are there for the bulls now to take this market higher instead of switching to profit taking mode.
Tuesday, August 11, 2009
Expectations
This is just a random non-technical post but merely meant for observation purposes. Many readers here are also following all the other financial blogs out there, primarily slope, evil, acetraders and maybe even xtrends (poor guys there).
The one thing that strikes me is the big disconnect many are having. I remember very clearly that 2 months ago many were in the same camp of bearishness with only a few here and there calling for higher prices. From my perspective we have seen quite a change in the financial blog world. Not only do we have quite a few bulls with us now - but the price levels that many are calling for are getting to quite extreme levels. Regardless of who is bull or bear, converted bull, short term bull, bear - whatever you want to call it. Almost everyone has price targets of at least 150-200 points away from where we are today.
Everyone knows what my price targets are on the downside and I still hold to those numbers as they are fit fundamentally and even technically. However, as you know me I keep targets more focused on the short term and where we see ourselves in a few weeks, at most a month out. Many other authors and blogs have been quite similar in the past and we are currently seeing quite a different tone. No one is really focused on our surrounding prices anymore. By surrounding I am talking about the key GAP at 970, the 1014-1022 range or even our key support at 870. All I read is 1150+ (with some even going into the 1200 range). Very few are even considering the 870 or even the 800 range on the lower side.
The other thing to consider is that many of the blogs we frequent have been primarily bearish, and still are, but we are seeing a larger number of bulls, converted bulls and traders choosing to minimize capital exposure and remaining on the sidelines. No one can deny that this market has been extremely difficult to trade, yes easy money has been made on the long side, and bears are continuing to get the shaft on any attempt to short this market.
Why am I saying all this? The end result is pretty clear to me, there does not seem to be a single person out there that is confident in where the markets will move this summer - yes we have some stubborn people that keep on shorting but I would not necessarily consider that a call for market direction but more a gamble to be able to try to get in at the top.
Overall - I have no idea where we may head, we are faced with a large overhead supply that at this point has only materialized through sideways action but could turn out in more upside. Additionally yesterday represented the lowest SPY volume day of the year. When looking at the markets on the 1-min chart we see price moves limited to 30-60 minutes of the cash hours and remain totally flat after those moves are over. Consider this - we are at key resistance and key levels and the market is able to stay within 1 point range for more then one hour - something we have not been able to see in over 2 years time.
I want to tell myself its the quiet before the storm but that again is just another justification for a point of view that had losses written all over it.
The one thing that strikes me is the big disconnect many are having. I remember very clearly that 2 months ago many were in the same camp of bearishness with only a few here and there calling for higher prices. From my perspective we have seen quite a change in the financial blog world. Not only do we have quite a few bulls with us now - but the price levels that many are calling for are getting to quite extreme levels. Regardless of who is bull or bear, converted bull, short term bull, bear - whatever you want to call it. Almost everyone has price targets of at least 150-200 points away from where we are today.
Everyone knows what my price targets are on the downside and I still hold to those numbers as they are fit fundamentally and even technically. However, as you know me I keep targets more focused on the short term and where we see ourselves in a few weeks, at most a month out. Many other authors and blogs have been quite similar in the past and we are currently seeing quite a different tone. No one is really focused on our surrounding prices anymore. By surrounding I am talking about the key GAP at 970, the 1014-1022 range or even our key support at 870. All I read is 1150+ (with some even going into the 1200 range). Very few are even considering the 870 or even the 800 range on the lower side.
The other thing to consider is that many of the blogs we frequent have been primarily bearish, and still are, but we are seeing a larger number of bulls, converted bulls and traders choosing to minimize capital exposure and remaining on the sidelines. No one can deny that this market has been extremely difficult to trade, yes easy money has been made on the long side, and bears are continuing to get the shaft on any attempt to short this market.
Why am I saying all this? The end result is pretty clear to me, there does not seem to be a single person out there that is confident in where the markets will move this summer - yes we have some stubborn people that keep on shorting but I would not necessarily consider that a call for market direction but more a gamble to be able to try to get in at the top.
Overall - I have no idea where we may head, we are faced with a large overhead supply that at this point has only materialized through sideways action but could turn out in more upside. Additionally yesterday represented the lowest SPY volume day of the year. When looking at the markets on the 1-min chart we see price moves limited to 30-60 minutes of the cash hours and remain totally flat after those moves are over. Consider this - we are at key resistance and key levels and the market is able to stay within 1 point range for more then one hour - something we have not been able to see in over 2 years time.
I want to tell myself its the quiet before the storm but that again is just another justification for a point of view that had losses written all over it.
Monday, August 10, 2009
Important 2 weeks
Ok everyone. Lets take a step back and try to identify the next 2 weeks. We have reached an important level on the markets here with the 1014, a number I have been talking about over and over again in the past. At the same time we also hit an important level on the DOW of 9400.
From here on out we have a great way to identify what this market holds for us for the next 3 months. My perfect scenario would play out as follows here.
Move 1 = this move would be corrective of nature and bring us back to the 965-980 levels on SPX. This should resolve itself by the end of this week and possibly range into early next week.
Move 2 (OPEX week) = this move here should reattempt the upper ranges we have printed on the market. Due to open interest it is my feel that we may see the 4 digits again.
So taking this into account, we have a great way to identify if we are going to move into a longer down leg or continuing on the up side. It is my feel that we will give the 998 a test again - here is where the market will make a longer term decision - either continue higher to reach the 1050 or 1100 levels or move lower to retest the 880 and possibly fail to move lower.
I will be trying to play both sides but of course start with a short basis that I had initiated last week. After the move lower I will most likly change to a long bias of 3 long : 2 short by keeping my core short positions but offsetting them with a larger long bias for the 4 digit test next week.
This is my current trade plan and the reasoning for my new short positions initiated on Friday. If I play it correctly I will have a very neutral bias by the end of this week and have a good way to let the market show me where it may head. Either the short will be stopped out and the long takes over and the shorts continue to work in my favor with the longs being taken out.
As you know I have been burned quite a bit shorting this market and my account can vouch for that. As a result I have minimized my capital risk by quite a large amount until the market finally shows me the signs we need.
Good luck all =)
From here on out we have a great way to identify what this market holds for us for the next 3 months. My perfect scenario would play out as follows here.
Move 1 = this move would be corrective of nature and bring us back to the 965-980 levels on SPX. This should resolve itself by the end of this week and possibly range into early next week.
Move 2 (OPEX week) = this move here should reattempt the upper ranges we have printed on the market. Due to open interest it is my feel that we may see the 4 digits again.
So taking this into account, we have a great way to identify if we are going to move into a longer down leg or continuing on the up side. It is my feel that we will give the 998 a test again - here is where the market will make a longer term decision - either continue higher to reach the 1050 or 1100 levels or move lower to retest the 880 and possibly fail to move lower.
I will be trying to play both sides but of course start with a short basis that I had initiated last week. After the move lower I will most likly change to a long bias of 3 long : 2 short by keeping my core short positions but offsetting them with a larger long bias for the 4 digit test next week.
This is my current trade plan and the reasoning for my new short positions initiated on Friday. If I play it correctly I will have a very neutral bias by the end of this week and have a good way to let the market show me where it may head. Either the short will be stopped out and the long takes over and the shorts continue to work in my favor with the longs being taken out.
As you know I have been burned quite a bit shorting this market and my account can vouch for that. As a result I have minimized my capital risk by quite a large amount until the market finally shows me the signs we need.
Good luck all =)
Thursday, August 6, 2009
The madness continues
There really is not much more to stay. From a technical perspective we got 3 closes above a key pivot point in the market, however, most technical components should be ignored at the moment as we are finding ourselves in an emotionally driven phase of the markets.
After the fact, those moves can easily be justified technically - "retracement this, retracement that, indicator x, indicator y". As you know there is always an indicator available to sell you on a bearish case, so is there one for the bullish case. Some blogs even resort to astronomical cycles. So out of 100 possible bearish and 100 possible bullish indicators, we are bound to find a few that will explain this move.
At this point, from a basic technical perspective, we are unable to make any calls for direction. We are finding ourselves at extremes very rarely seen before. We had one extreme in october 2008 and now not even one year later are finding ourselves again with a market that seems difficult to comprehend and is moving on the extreme side of the spectrum.
Can we continue going up for another week? Definitely possible, I said 2 weeks ago we should be retracing but we did not. What did you think during our crash last year? Can it go down another day? another 50 points? If you had to ask that question back then, you were answered with more drops day after day - until it stopped. Same here - we will continue going up until we stop. While this sounds totally silly I wanted to emphasize that any position that is taken now really is a gamble. If you have been long for more then 2 weeks - congratulations to you. If you are short, well I hope you covered 2 weeks ago. If you are cash - remain that way until the market becomes clearer.
After the fact, those moves can easily be justified technically - "retracement this, retracement that, indicator x, indicator y". As you know there is always an indicator available to sell you on a bearish case, so is there one for the bullish case. Some blogs even resort to astronomical cycles. So out of 100 possible bearish and 100 possible bullish indicators, we are bound to find a few that will explain this move.
At this point, from a basic technical perspective, we are unable to make any calls for direction. We are finding ourselves at extremes very rarely seen before. We had one extreme in october 2008 and now not even one year later are finding ourselves again with a market that seems difficult to comprehend and is moving on the extreme side of the spectrum.
Can we continue going up for another week? Definitely possible, I said 2 weeks ago we should be retracing but we did not. What did you think during our crash last year? Can it go down another day? another 50 points? If you had to ask that question back then, you were answered with more drops day after day - until it stopped. Same here - we will continue going up until we stop. While this sounds totally silly I wanted to emphasize that any position that is taken now really is a gamble. If you have been long for more then 2 weeks - congratulations to you. If you are short, well I hope you covered 2 weeks ago. If you are cash - remain that way until the market becomes clearer.
Wednesday, August 5, 2009
This deserves its own post
I generally do not cross link here but this is quite funny.
http://www.zerohedge.com/article/new-wall-street-reality
http://www.zerohedge.com/article/new-wall-street-reality
Tuesday, August 4, 2009
One last push left in it
Ok get ready for the last burst up here. Double top on NQ and 1008-1009.25 on SPX. Will initiate a small short there. If we don't get there thats fine too. Not going to chase it.
May also do a small SRS and SKF position as well.
May also do a small SRS and SKF position as well.
Indicators
As the title of the post says I wanted to bring up the use of technical indicators. I for one have fallen for those indicators yet again. The last time I was convinced of a move supported by technical analysis indicators was in October 2008 with many attempts to go long into deep oversold conditions that have all but failed. It seems this here is equivalent to a bear crash scenario similar to what has occurred last year during the deep sell off.
It seems I have fallen for this same type of condition yet again, with similar losses as I had incurred the last time around. What is even more frustrating is that after the year end review I did I had adjusted my trade rules to ensure this will not happen again. End result is that I am seeing myself yet again with a month that has incurred large losses when they could have easily been avoided. I am glad I covered my shorts early last week as I had been waiting for a pull back that never came, however I do not consider that a success.
Looking back at the big picture, I have missed and traded against a 50% move in equities for the past 5 months. Regardless of how good of a trader you are, or how good of a trader I think I may be, this is a disaster. It really just became clear to me now, after having stepped back from the day to day trading and looked at the big picture. This rally has been extreme and I have been finding myself on the wrong side over and over again. I looked back at my long trades over the past 5 months and its not surprising that the majority of them were very successful. Many were done as hedges primarily and closed out way too early against technical signs but as a mere emotional resistance of mine to go long this market for more then a few points. There has only been ONE long attempt that had conviction that of course got stopped out as you may remember.
Now, I keep on asking myself if my bearish views have changed, I want to be 100% clear, I am still bearish on this market, however, from a trading perspective I have to respect the move. After a run up of 50% of course I cannot go long, even if I wanted to, retracements are not coming and any sign of weakness is being used to capitulate by many shorts.
The one thing that I am very surprised about is the demand and supply component. The 1K mark on the SPX and 9K on the DOW brings back a huge amount of long term supply so I thought. Many investors that have been long and have been averaging at key points such as the 2008 Q4 lows, the March lows and other important retracements, are now seeing their positions at a point where losses have been recovered and gains are starting to materialize. As you know the use of margin during this rally here has increased on bullish funds and many other bullish positions to levels only seen during our DOT COM boom. So one would expect this supply to materialize and long term investors to minimize margin, and minimize exposure on positions that have finally shown signs of recovery. As you can see VIX has been moving to the upside recently which is the first sign of many of those investors looking to protect those gains but are not yet at a point to make changes to those core positions.
I am not sure what this point is and when those positions will be re-evaluated for profit taking, however, 875 is my new long term reversal point. As you can see we are quite far away from this but I will stay clear of any large short position until this key point is broken. Until then I will continue to trade very short term regardless of my longer term perspective.
Forex Update: I had 6 positions going into last night and got stopped out of 5 of them at the respective high and low (depending on short/long), with 4 of those 5 being nice in the money now. Another learning lesson to manage positions properly as they trade 24 hours a day and have big moves even overnight depending on the pair being traded. As I am trading very small still I am only down $70 for the night as my other position is moving nicely.
It seems I have fallen for this same type of condition yet again, with similar losses as I had incurred the last time around. What is even more frustrating is that after the year end review I did I had adjusted my trade rules to ensure this will not happen again. End result is that I am seeing myself yet again with a month that has incurred large losses when they could have easily been avoided. I am glad I covered my shorts early last week as I had been waiting for a pull back that never came, however I do not consider that a success.
Looking back at the big picture, I have missed and traded against a 50% move in equities for the past 5 months. Regardless of how good of a trader you are, or how good of a trader I think I may be, this is a disaster. It really just became clear to me now, after having stepped back from the day to day trading and looked at the big picture. This rally has been extreme and I have been finding myself on the wrong side over and over again. I looked back at my long trades over the past 5 months and its not surprising that the majority of them were very successful. Many were done as hedges primarily and closed out way too early against technical signs but as a mere emotional resistance of mine to go long this market for more then a few points. There has only been ONE long attempt that had conviction that of course got stopped out as you may remember.
Now, I keep on asking myself if my bearish views have changed, I want to be 100% clear, I am still bearish on this market, however, from a trading perspective I have to respect the move. After a run up of 50% of course I cannot go long, even if I wanted to, retracements are not coming and any sign of weakness is being used to capitulate by many shorts.
The one thing that I am very surprised about is the demand and supply component. The 1K mark on the SPX and 9K on the DOW brings back a huge amount of long term supply so I thought. Many investors that have been long and have been averaging at key points such as the 2008 Q4 lows, the March lows and other important retracements, are now seeing their positions at a point where losses have been recovered and gains are starting to materialize. As you know the use of margin during this rally here has increased on bullish funds and many other bullish positions to levels only seen during our DOT COM boom. So one would expect this supply to materialize and long term investors to minimize margin, and minimize exposure on positions that have finally shown signs of recovery. As you can see VIX has been moving to the upside recently which is the first sign of many of those investors looking to protect those gains but are not yet at a point to make changes to those core positions.
I am not sure what this point is and when those positions will be re-evaluated for profit taking, however, 875 is my new long term reversal point. As you can see we are quite far away from this but I will stay clear of any large short position until this key point is broken. Until then I will continue to trade very short term regardless of my longer term perspective.
Forex Update: I had 6 positions going into last night and got stopped out of 5 of them at the respective high and low (depending on short/long), with 4 of those 5 being nice in the money now. Another learning lesson to manage positions properly as they trade 24 hours a day and have big moves even overnight depending on the pair being traded. As I am trading very small still I am only down $70 for the night as my other position is moving nicely.
Monday, August 3, 2009
No Change in Direction
Even the mighty 4 digits are unable to initiate any type of profit taking or selling through any bear out there. Volume remained very low for such an important price point across all sectors. Needless to say sectors have made new highs for the year and are currently working towards the 2008 Q4 peaks.
For the Bulls: The bulls got the best close they can imagine. Not only did we get an intraday test at the key resistance levels, we also got a close above key levels on all major indexes. A close at 9300 for the DOW would have made this a clean sweep for the bulls on all indexes, however 9286 is close enough.
For the bears: The bears have time on their side at this point, while we continue trading higher this is occurring on lower and lower volume while at the same time showing technical patterns of indecision even with new highs. Due to the total lack of selling and/or profit taking any bear has no choice but to stand on the sidelines and wait for either downside confirmations which must come with a test of 956-970 with a failed re-attempt of the highs at 984-989. Otherwise its just waiting game for the DOW 9400 and SPX 1014. The only other comforting fact is that we just passed an important time cycle that had a top on Friday. As you can see those fib time lines have been very accurate thus far. The question remains whether we continue in a sideways fashion here all the way until 150-161.8% or we retrace.
By the way - loving forex. Even with the dollar craze we have had its a much easier market to trade. Currently in 6 different positions (all small in size with 1-2 contracts each) with a mixture of long and shorts.
For the Bulls: The bulls got the best close they can imagine. Not only did we get an intraday test at the key resistance levels, we also got a close above key levels on all major indexes. A close at 9300 for the DOW would have made this a clean sweep for the bulls on all indexes, however 9286 is close enough.
For the bears: The bears have time on their side at this point, while we continue trading higher this is occurring on lower and lower volume while at the same time showing technical patterns of indecision even with new highs. Due to the total lack of selling and/or profit taking any bear has no choice but to stand on the sidelines and wait for either downside confirmations which must come with a test of 956-970 with a failed re-attempt of the highs at 984-989. Otherwise its just waiting game for the DOW 9400 and SPX 1014. The only other comforting fact is that we just passed an important time cycle that had a top on Friday. As you can see those fib time lines have been very accurate thus far. The question remains whether we continue in a sideways fashion here all the way until 150-161.8% or we retrace.
By the way - loving forex. Even with the dollar craze we have had its a much easier market to trade. Currently in 6 different positions (all small in size with 1-2 contracts each) with a mixture of long and shorts.
4 Digits Cont ...
Market already up pre-market by a good 10 points. Of course with a GAP of this size we should expect a stepping day with the low being set in the first 15 minutes of trading that should be within 2 points of the open.
However, it is my feel that this will not be occurring today. The same numbers still apply as I had outlined last week.
998 - 1004
1014
1021-1022
The key number in my opinion is 998 and this should not be exceeded on the first try, regardless of the GAP formation that normally leads to a trend day. The 4 digit range is too important to be gapped without any real run up during trade hours - I could be wrong but technically this should not be occurring. It is quite difficult to make a call here for today, a new week, a new month and a new important range.
Lets watch the first 30 minutes before making any calls for direction for the day and week.
However, it is my feel that this will not be occurring today. The same numbers still apply as I had outlined last week.
998 - 1004
1014
1021-1022
The key number in my opinion is 998 and this should not be exceeded on the first try, regardless of the GAP formation that normally leads to a trend day. The 4 digit range is too important to be gapped without any real run up during trade hours - I could be wrong but technically this should not be occurring. It is quite difficult to make a call here for today, a new week, a new month and a new important range.
Lets watch the first 30 minutes before making any calls for direction for the day and week.
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