Wednesday, June 3, 2009

Some Type of S&P Top is in; June 3, 2009

Today's selloff got my attention. Not only was breadth and internals of the market weak with 85% of NYSE volume to the downside, and well over 400 S&P stocks trading down, but gold, silver, oil and the euro did strong sharp reversals today. This was a massive across the board selloff that also appears to be falling impulsively. Also, today's downturn has created a bearish divergence on the momentum indicators with the most reliable one being the RSI (see above daily S&P futures chart).

Although it seems a bit shallow and premature to call the wave 3 underway, it does appear that a great risk/reward trader exists at current levels on the short side. I added 10% more to my S&P short position with the SDS early in this morning's trading. My stop loss for this additional position is just above today's highs (949 in the futures). As long as I'm not stopped out, I will watch the structure and strength of the decline to determine if it's possible wave 3 is underway now, or if this current set back is just a pause in the wave 2 uptrend. Right now, I'd have to say it's the latter.


Michael K. said...

I brought FAZ at $4.39 with my whole portfolio near the close today, with no stop. I am going to hold this position for about 2 week or when FAZ reach over $10. Call me crazy but I just had a dream last night where FAZ was trading around $11. Wish me luck. =D

Todd S said...

I wish you the best of luck!

Anonymous said...

Just a thought on how to profit from the collapse of P3. If the market is disfunctional and shorts will be paid off early then how would we anticipate being able to buy at the bottom? Also as I understand it SDS deteriorates over time so if P3 does not start until say earliest of July wouldn't you lose money holding it instead of a 1x short like DOG ? I don't understand why the market is so bullish and p/e's are no longer of concern?? It will most likely hit the fan in July ( qtrly profits ) then hit a rally into Sept as we will have formed a inverse head and sholder pattern on the s&p/dow which the market will perceive as bullish and by that time the bears will give up on blogs and it will be too late then to see it was really a M for murder and down we go. The government will not be able to save the next crisis and will have to default on China's debt which will cause a global depression and cutoff international trade as we know it. Just a thought. It would not take a war to give us the depression we are already close to.

Todd S said...

I agree with your analysis in that it is all possible. I give us a 50/50 chance of defaulting on our debt, however this presidential administration is spending so much so loosely that most likely it will increase to 75/25 likely of default.

The double and triple ETFs use some form of leverage obviously which is probably tied to the futures market. The futures market is at great risk of failing in this upcoming crash per Glen Neely and Bob Prechter. If so, I'm not sure any ETF is "safe" once this decline really gets underway.

Unemployment is heading towards double digits, housing has yet to show any real significant signs of life sustainably, and optimism per the DSI is at an extreme close to the October 2007 top, yet we're several hundred S&P points below that the level at that time.

Scary times ahead of us. I hope we're wrong. Things are going to get real bad........real bad.

Mika said...

SPX 960-990 starts really be the maximum. This might come a bit choppy where market blows some stops, just saw that happened with UsdYen.

It´s amazing how well equites actually hold that eurodollar plunge on friday.

Should be more downside coming for june. We have high possibility in here we just saw W1 of W1 downside, then could come much larger hit after corrective is placed.