Sunday, November 8, 2009

Market at Crossroads

I spent some of the weekend pouring over the bullish and bearish evidence and the result is several bullish AND bearish arguements that essentially cancel each other out. Instead of listing all of them, which I feel will only net a neutral outlook anyway, I thought I'd just simply state that early this week will tell us the medium term direction in the market. The market has been consolidating late in the week which usually means a "break out" is coming. If the market tanks early this week, then the bearish outlook will be on very firm ground in the medium term and all is well for our bearish case. But if the market rallies steadily on strong internals, then the 1101 in the S&P will be extremely vulnerable. A sharp rally and reversal early Monday morning does not count, and that would actually be bearish.

Watching the US dollar this afternoon into the Asian session may be telling of what will happen tomorrow in the stock market. The stock market should move opposite the dollar so following it into the US stock market session may give us a clue which way this market is about to "break out" in the coming days/weeks.

No matter what the short term holds, a continued rally to new highs above 1101 DOES NOT eliminate the larger wave count and outlook posted at the right side of this blog. The message is claer, with 5 waves down from the 2007 highs, the larger trend is down and I strongly feel the March 2009 lows will be broken. A new high above 1101 in the S&P will only mean another delay in its charge toward that goal.


Ian said...

Hi Todd, from this point (as a relatively inexperienced trader) if you are holding a short and your stop is at 1100, what would be the best way to trade the market, should it rise?
Would I be best off to raise my stop, or be taken out and re-enter later?
Thanks, Ian

Todd S said...

I would not raise my stop, that is really bad habit to get into. In my opinion, I'd keep the stop where it is and make the market take you out of your position. Also, with the VIX so low, you can consider buying short term call options on the index ETFs to allow you to hedge a little of that short risk.

If you're eventually stopped out, I would recommend waiting for another good re-entry point. I've been repeating this for several weeks, knowing that eventually I'll catch the big title wave and make all these little losses well worth the psychological struggle.


Gustavo said...

Hello all there:

Interesting question from Ian:
I don't beleive in absolutes but if you have one stop in position is for a good reason and my recomendation is never touch it.
If you are stopped, and you still think what the market must go in the direction of the last trade, how Todd says look for one new entry point. It's the most healthy.
In my case I can blow all my account because I have not stop at all:-((.
One the best friend of one trader is your stop.
I am waiting for a turning point in the dollar what I cannot see until now.

The USD/CHF continues falling and EUR/CHF is another time in the 1.50's zone where the Swiss Bank make interventions in the past.

We'll see...

Todd S said...

Thanks for the comments Gustavo.


ian2000 said...

Thanks for the response Todd, and also Gustavo. I thought you might say to leave the stop in position and let the market take me out. It is good practice.
I have been linking the Elliot wave priciple employed on this blog along with Delta (Matrix).
According to Elliot Wave and also Delta (which is based on time) the last high (1100) was a significant one.
If my Delta long term count is correct, it should not be taken out and should fall down to the next long term low.
If I've counted incorrectly, then the Delta point is incredibly late, but it does happen. Let's hope 1100 holds :-)

Todd S said...

Thanks for the info, Ian. 1101 in the S&P looks like a solid ceiling for the market and it appears today we'll have a major non-confirmation in place with only the Dow making a daily high while the other indices are lagging, and a Dow Theory sell signal in place with the Transports not making a new high while the Industrials did. Until the other indices follow the Dow and make new highs themselves, it's a bearish signal.

Oftentimes it's what happens the day AFTER a big move that's more important than the big move itself.

I'm noticing that the US dollar has actually strengthen modestly while the Dow has surged late in the afternoon and some other high risk indices are really lagging. Just another divergence occuring. So the internals are strong on this rally, but the market is very fractured otherwise. That's bearish

Tomorrow will be a good tell as to what today's move really means.