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.


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.


  1. Chris; good to see some thoughts over the weekend; are you back in England, and can we expect comments at 3 am again? Still stuggling to get a feed at work (blogs are restriced); using google reader but only getting the first 2 or 3 lines of the post and no charts or comments. If you have any ideas I'd appreciate it. Looking forward to your updates and hope your travel goes well. Steve

  2. Steve, yeap back in the UK and will be posting my updates in the very early morning. I am going to play around with the google reader this weekend to figure out how to configure it to show the entire post.

    And yes it has been a weekend of deep thoughts and evaluations of my trades and strategies. I am sorry to use this blog as a venting mechanism but writing it out always helps me a bit better =)

  3. Don't sweat the venting, it's healthier than sticking you head in the sand...which is kinda whatI'm doing while watching my short investments decline in value (sort of a paralysis of waiting just one more day ...again and agin) before I accept the loss.

    I also have slope of hope in my reader list; I can get all of Tim's verbage, but the graphs are blocked and still no comments. I spent a weekend a few weeks ago trying to find settings to adjust, but no luck so far.

    Anyway, can communicate from home and look forward to your take on the action this week. Cheers. Steve