Saturday, February 28, 2009

Huge Five Waves Down, Almost Complete; Feb. 28, 2009

Attached is a daily S&P futures chart showing the huge 5 wave decline that started more than 1 1/2 years ago. With new lows in the S&P and Dow in place, the decline can be considered complete, and at any time a huge multi-month rally that will correct this decline (at a minimum) will be underway. Obviously considering how large and long this decline was, the ensuing rally will be absolutely insane and breath taking. I'd like to catch the majority of it if I can keep risk tight, which might be very hard to do. This rally should last most of 2009.

As for the short term, as I've said in the last few posts I in no way want to get caught naked short now. The market has satisfied all of EWP's requirements for a 5th and final way and can rally huge at any time. I have a 1/4 short position in the Nasdaq 100 protected by call options in place. So if I miss the bottom, the call options will minimize the damage significantly. But looking at two things 3 things it appears the decline is not complete:

1) the Nasdaqs have not broken their 2008 lows, but should do so before this decline ends.
2) the wave structure appears incomplete as I'd like to see a small wave iv and then a wave v to complete it. This would fit into having the Nasdaqs make new lows as well.
3) after a huge 1 1/2 historical decline, I can't imagine a soft bottom be put in this market. I picture a huge selloff starting in oversold territory where almost all traders literally throw in the towel and sell, pushing this market down anywhere from 3%-6% in a day. Then a huge rally ensues from that into positive territory. That is when basically all the sellers have sold and only buyers are left to launch this market to the moon. We haven't had that yet.

So there it is. I'm very very cautiously bearish, waiting for signs of a bottom to get aggressively long.

Friday, February 27, 2009

More Downside Potential, But Staying Short Getting Risky; Feb. 27, 2009

The long awaiting target on the S&P at 741 has finally been reached. I've been pounding the table on this number for months it seems, and now it's finally been broken and closed beneath. However, the bear phase is coming to an end. Pessimism is so extreme that the room to the downside should be quite limited, and the risk of a huge fast and ferocious multi-month rally is just around the corner. Remaining short with no protection is not wise in my view because the risk is way too high and the additional potential for further losses is minimal.

I covered half of my half short position at the lows on the day (rare) but still have some Nasdaq shorts left because I still feel that the Nasdaqs will break their 2008 lows as well. I still have my call options in full strength and am situated to either make a small profit if the market rallies strong, or make a big profit if the market continues to fall.

The next big opportunities will be shorting gold and silver, and waiting to get long the stock market.

Thursday, February 26, 2009

Market Should Make New Lows Soon; Feb. 26, 2009

I woke up this morning and saw that the market was amazingly up strong while the Nasdaqs and small cap high risk indices were all lagging big, along with the structure of the rally from the past couple days being very choppy and having overlapping waves barely making any real progress. It was a gift from the market gods this morning. I re-entered my short 1/2 short positions with the S&P around 773. And again, after the early morning the market trickled down all day, still proving that this market is not ready to bottom and that the larger trend is still down. Once a new low in the S&P at 741 is broken, the market is at serious risk for a huge bottom and rally that will rip your face off you're not careful. So very cautious trading here is warranted. I'm using call options to protect myself from a strong rally, especially if it starts in overnight trading when I'm unable to act.

As far as I'm concerned, two things need to happen before I will seriously consider getting heavily long the stock market:

1) The Nasdaqs need to break their 2008 lows
2) Some type of "wash out" decline should occur, i.e. a Dow down 400+ day followed by a huge rally into positive territory on strong breadth.

Until then, I'm still cautiously bearish the stock market.

I'm also currently short gold as well, with a stop at a new high on the year above $1,004.

Wednesday, February 25, 2009

Stronger Than Expected Rally Underway, Then Lower Levels; Feb. 25, 2009

The corrective rally has extended this afternoon almost breaking above the start of a 5 wave decline which now opens up much higher levels to be achieved potentially. As I said before, I don't feel a significant long lasting bottom is in the market yet so the larger trend is still down. So the market can crash at any time. I posted a 4hr S&P futures chart above to show a large 5 wave decline that should hold as long as the trend is still down toward lower levels.

On the chart I have the fibonacci retracement levels mapped out and project a rally to the 38% fibo area at 790 which is also the area of the previous 4th wave, which oftentimes halt the correction. If it breaks out form that congestion area, then the 50% fibo will be in sight at the 806 area. The market should not rally much higher that this area here. Any strong rally and close above 820 will call into question the bearish case that new lows will still be achieved in the short term.

With today's rally into positive territory I exited all my short positions near break even. Once the market hits my target areas I will begin to reshort again. Until then, I'm on the sidelines watching.

5 Wave Decline and Correction Should Be Over; Feb. 25, 2009

Here's a chart of what I was talking about the last post. In the 30 min S&P futures chart we have a clear 5 wave drop and a 3 wave rally, SO FAR. As long as that holds, the near term move should be down to lower levels...........and possibly much lower levels. I do not feel any significant bottom is in place.

I'm currently half short.

Rally Good Shorting Opportunity; Feb 24, 2009

Today's rally makes a nice 3 wave rise following a clear 5 wave decline. As long as the 800 level, and especially the 815 level in the S&P cash stay intact, I'm shorting this rally.

This morning, the market did not sell off hard creating a "wash out" like I would expect if a major bottom was in. Instead, it trickled down slightly and then rallied all day on strong internals. We may see some follow through tomorrow, or even the rest of the weak. But gains from here should be hard faught and eventually reversed.

I am now half short again and am stopping out if the S&P rises above 792. The fact that the market didn't "wash out" today and rallied instead is the worst the bulls could hope for. In means that most likely this market will absolutely tank in the near future bringing the S&P into the low 600s.

Monday, February 23, 2009

Market Requirements Satisfied, but a Bottom in?? Feb. 23, 2009

The market has continued to decline as expected, and I've been pounding the table in the past few dozen posts over the past few months saying that new lows will be achieved in the indices. The Dow certainly has, the S&P is inches away, and the Nasdaqs have a little ways to go. However, this is the final move in a large almost two year bear market, so I do not want to get caught heavily short when this thing bottoms and reverses. If the market continues lower from current levels, I would be very cautious of a bottom and huge "rip your face off" rally that will immediately ensue and last for most of 2009. It's because of this I'm not short at all right now and have closed ALL of my short positions. If the market rallies from here, it's quite possible it's just gearing up for another charge lower so I will probably short the rally. I do have a gut feeling that this final segment of this long leg down will finish itself with a huge wash out selloff, i.e. Dow loses 500+ points in a day, or loses 200+ points a day for a week. Until that happens, and wave structure supports it, I will still be looking to short rallies.

If no rally occurs, then the next major opportunity will be to get heavily long. The rally from the bottom should be fierce and quick and should last several months.