Friday, April 16, 2010

Stock Market Registers AT LEAST a Short Term Top

S&P 500 Cash Index Short Term Wave Count




Today the market finally ran out of gas. After showing extremes in various indicators, the market sold off hard today. Although it closed off its lows, the bulls were unable to regain control and push the market significantly higher into the close. The late day rally also fits well into the S&P's wave count as a 4th wave, so we should see some continuation to the downside on Monday. The S&P is sporting the best short term wave structure from what I can see at this point, so I'm charting my count there for now. If we can break today's lows real early on Monday, it will give us a real nice 5 wave drop from the highs, and allow me to get aggressively short on the ensuing corrective rally since the larger trend would clearly be down. So I'm looking for a quick continuation downward on Monday, followed by a corrective rally that will top and reverse before exceeding yesterday's highs.


Dow and S&P Divergences






So yesterday I pointed out that the Dow made a new high while the S&P did not. You can see what I was talking about in the above charts with the first set of blue lines. You can see that it led to a big selloff today. Although divergences between these two indices doesn't always result in reversals, it's good to pay attention to them as they often offer good early warning signs. Also notice that at the end of the day today we had another divergence with the Dow making a new high and the S&P not doing so. Will this lead to the same result as it did before? a selloff? I think so. The wave count is incomplete as shown earlier, and with the divergence shown in these two indices late in the day, the evidence points toward lower levels early Monday.


NYSE Internals




Today's selloff was done with conviction as you can see from the above NYSE internal data. 92% of its volume today was to the downside, and decliners outpaced advancers 4.32 to 1. So the bears had the upper hand today as the bulls stayed on the sidelines. I'm not going to get into total volume today because it was options expiration and that will skew the numbers a bit.


Goldman Sachs - OUCH!




The big news story today was about cream of the crop firm, Goldman Sachs, being charged with fraud by the SEC. I'm sure lots of politics are behind this, but whatever the motivation is, it was a surprise to the market. Just look at Goldman's daily chart above. It's ugly.


SUMMARY


So it appears the long long awaited short term top and reversal has registered. With one more shot down on Monday to break today's lows, we'll have a nice 5 wave decline from the highs this week. Because of that, we will know that the larger trend is down, and that any large rally is a correction and should be sold. Only a break above yesterday's highs would negate the short term bearish view. My initial target for the decline is still the 1171 area in the S&P, but judging by the structure and behavior of the decline, my targets may become much much lower.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Brief EUR/USD and Stock Market Update



On Monday I mentioned that the EUR/USD had a gap left from Sunday's open that should be filled at a bout a 100 pip profit from the current levels (click here for original chart). Today, the EUR/USD closed that gap so I'm lowering my stop loss to 1.3566. I have no real grasp of the larger trend and it's possible 5 waves down from the November 2009 high has completed, so I don't want to be too aggressive or greedy on this trade. So I'll keep lowering my stop as this pair treads lower until eventually I get stopped out at a profit.


As for the stock market, we have a nice sell off right now with the Dow down over 100 points. We've seen these occur several times in the past few months where the sell offs are bought up later in the day. If we can maintain the losses, or even accelerate lower, it would be very encouraging for the bears (correction: replaced "bulls" with "bears" here). A strong rally as the day wears on and into the close would put us back at square one in looking for signs of a top.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Thursday, April 15, 2010

Market Finishing up Subdivisions Before Topping; Prechter on CNBC's Fast Money





The Dow made a new high today but the S&P did not. So it's possible we'll get some pullback tomorrow if this divergence holds. When the S&P makes a new high with the Dow, then this divergence is erased and we will continue to count the unfolding subdivisions higher into a top. With options expiration tomorrow, I expect to see repositioning and some volatility take place. The Dow and S&P appear to be unfolding in slightly different wave structures right now, but should reconcile these differences as they both move into a top. The constant continuation of the rally into further overbought territory only strengthens my bearish position, and any sharp rally higher will only lead to me adding to my shorts. Once I can confirm a top with high confidence, I will get aggressively short at that point. So it's a waiting game from here.

Bob Prechter on CNBC's Fast Money (given about 45 seconds to speak, and then was forced to listen to screaming bulls talk over him. Enjoy the 45 seconds.)
















Thanks to blog reader Jimbo for posting this video because I would have missed it otherwise. I used to watch FastMoney (FM) everyday when Ratigan and Mackey were on, but now the show is crap in my view with perma bulls doing cartwheels all day on the show.

(below are just a copy of the comments I left in response to Jimbo's post)

This is unusual for Prechter to go on here because he's said many times he doesn't like getting into shouting matches with people so he usually only does interviews if he's the only one on. Perhaps his subscriptions have tapered off a bit so he's spreading his wings into areas he normally doesn't go into.

And I'm actually glad those guys on FM are laughing at him and blowing him off because that only strengthens his case in my view. The FM crew preaches to the mainstream masses, and if they were scared or on board with Prechter, that would be concerning. But their blind optimism and dismissal of Prechter's caution is encouraging for the bears. I watched FM the past few years and no one was calling for a major top and decline and most of the time they spent the whole show talking about stocks to buy as the market descended lower. Big bears Fleckenstein, Nourial Roubini and Doug Cass always get a lot of crap from the FM crew. During the last big decline, some of the FM crew were bearish and expressed caution here and there in the short term, but no one on that show prepared us for the magnitude of what 2007-2009 gave us, NO ONE did. But Prechter did give us the play by play on it from start to finish. Prechter should have asked them where the fu$@ they were in October 2007 when people should have been extra cautious, not throwing "Fast Money" at their buy recommendations? Why doesn't the Fast Money crew run down the list of stocks they recommended to the public to buy during that time and compare them to Prechter's recommendations? FM missed the last top, so I don't expect FM to give us the scoop on a major top this time around either.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Wednesday, April 14, 2010

S&P Made 3 Waves up, Probably has Further to Rally, then Perhaps a Major Top

S&P Cash Index




So the S&P didn't read my post yesterday to know that it was overbought and should fall soon. But that's okay, I'm not offended. The extension and strength of the rally suggest it's a wave iii instead of a wave v that I suggested yesterday. This allows for another down-up sequence before a top. With options expiration coming this Friday, it shouldn't be difficult for us to accomplish that.


MACD Histogram




Above is a daily chart of the S&P cash index with the MACD histogram. The histogram shows us the divergence between the moving averages it charts (not shown). So a healthy and strong uptrend should be accompanied by the histogram increasing as well, which would indicate the moving averages are trending strongly upward. When the histogram moves in the opposite direction as price, it MAY signal an exhausting trend. In the above chart you can see that since March, price has charged aggressively higher while the histogram has declined and now gone flat. So momentum behind the push higher has waned. Now this is not a timing indicator since it can continue to exhibit this diverging behavior for a long time, but when I see stuff like this I know it's a bit late to jump on with the uptrend and that I should be looking to get short.


RSI




Above is a daily chart showing the RSI, another momentum indicator. Here you'll notice that the RSI is well into overbought territory and is the highest it's been for the entire rally from March 2009's lows. Again, this is not a timing indicator, but it does let us know when momentum is running out, or in this case, extended.

I can go on and on with these momentum indicators and fibo retracement levels and other stuff, but we've been grinding out these indicators for several months only to be faked out time and time again. The market will roll over when it's ready. The key for me is to stay mentally focused and disciplined to keep my eye on the target, and that's for a very large wave [3] or C decline to occur soon. Once it gets rolling, we'll know, and we can then make sound decisions to increase our profit potential. Patience is key.

Three things stand out to me currently that now have my attention at looking for a larger top than previously expected:

1) The RSI is at such a high extreme that it leaves the implication that perhaps this upcoming top will be larger than what I've been expecting. The extreme overbought nature of this market is astounding, and may lead to just as an astounding decline.

2) I have three friends that have retirement accounts that they manage themselves but they are far from economic or finance savvy at all. They missed most of the entire decline in 2007-2009, but have been cashing in on the big rally from the March 2009 lows. They know my very bearish long term position, along with Prechter's, for a major top and they know that I've been wrong as well recently. But today was the first day that all three of them boasted to me about how financially savvy they are, and how much money they've made on this rally, and then preached to me about how to trade the markets, and laughed about how wrong I've been for a "major top". For non-financially savvy folks like this to be boasting about how financially savvy they are and then rub in my face how right they've been screams at me that this rally from the March 2009 lows is in its latter stages. Optimism, even at the micro-levels, is at a real extreme. Pay attention to it.

3) And lastly, let's not forget the reliable VIX indicator. Yesterday the VIX confirmed the sell signal which means sometime in the next few days we should have a top and reversal. Considering all the momentum and sentiment extremes that exist at the moment, it's quite possible that a much larger top may be forming than originally expected.

We've been faked out several times for "the top" to register in the past, but that doesn't mean we should ignore signs of a major top being in from now on. Again we are approaching what appears to be a major turn in the market to the downside. We don't have to catch the absolute top tick, there should be plenty of time to make a well thought out disciplined approach to maximizing profits if "the top" does occur.

Let's see what happens in the next 1-4 days.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Tuesday, April 13, 2010

S&P Did Not Confirm New Highs of Other Indices Today; VIX Issues Sell Signal




The wave count for the short term I posted yesterday does not appear valid anymore due to the depth of the correction that continued into today. Right now I'm not sure what the short term count is, but it appears to be part of a 5th wave, or maybe a "b" wave within a 4th wave flat correction. There are two things of note that occurred today, and both have bearish implications. The first is that the Dow and Nasdaqs all made new highs today but the S&P did not. Oftentimes this divergence will occur right before larger turns in the market. So we'll see if this holds true with a sell off tomorrow. Second, despite the market closing up today, the VIX also closed up and above the lower bollinger band which gives us a nice sell signal. With options expiration this Friday, we could be in for a wild ride, and the evidence points to the ride being to the downside. The market seems poised to turn lower at any moment.

The EUR/USD has not closed the gap from Sunday yet so I'm still holding short that pair in anticipation that it will be filled soon, and perhaps continue lower from there with the stock market's decline.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Monday, April 12, 2010

Market in Final Stages of Rally Before Falling Lower Toward 1171; EUR/USD Still Looking Bearish

S&P 500 Cash Index




The market sructure on the smaller timeframes appears to show that we need one more push higher to complete a 5 wave rise which should be a wave v of (v) of 5 and finally end this very persistant rally from the 1050 area. The only problem with this outlook is that if you look at my 15min chart above you'll notice that wave i is much sharper and deliberate than wave iii. Although this breaks no EWP rules, it's still a bit unusual so I'm cautious in hanging onto every little detail of this count. But it's a good basis for the short term and when to expect a top to be in. The fact that it does seem like a 5 wave rally is unfolding and that it's a wave v of (v) of 5 which usually shows signs of weakness anyway, I'm putting this as my preferred count. The first target for the decline will be the 1171 area (correction from the 1071 I originally posted). I'm currently short using SDS and will add aggressively to it when I see signs of a reversal in place.


EUR/USD




The EUR/USD still sports a nice opportunity for the bears to get short this pair in anticipation that it will close the huge gap left from Sunday's open. With the Greece news all over the place recently, and the rise from the lows looking like a corrective 3 waves, I'm all over this short trade and am looking for lower levels in the EUR/USD, and higher levels in the US dollar.


VIX Setup




For those of you who subscribe to Elliott Wave International's Financial Forecast newsletters, you'll know that they have lots of nice technical indicators for optimism and internal market strength, some of which were shown in today's newsletter. Some are proprietary so I won't mention them here, but the VIX indicator is quite common and something I've followed for quite some time. Today we will see that the VIX's reckless descent has caught up to this bull run as today's close was beneath the lower bollinger band on the daily chart. This is showing complacency in the market as investors continue to think protecting positions with put options is a waste of money. Once the VIX closes above the lower bollinger band, it will be a sell signal. This is one of the most reliable technical indicators out there, so today's action got my attention.

So the evidence is falling into place, although it's been doing so for several weeks it seems, that the market is in its final stages of uptrend for the short term and that selling pressure should soon hit the market. Despite the constant fakeouts to the downside, if we play the market right and control risk properly with a disciplined strategy, we should still be able to profit on a downturn here despite being stopped out a few times in the past few weeks.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

S&P Surprises to the Upside; EUR/USD Should Fill Gap Soon



I guess it shouldn't be much of a surprise at this point that the market didn't fall as expected, and has rallied to new highs since my last post. The uptrend has been strong, but perhaps too strong. I still have to beat the same drum in that the S&P is finishing up a 5 wave advance and a pullback to at least 1171 should occur soon.



Above is the 1hr EUR/USD chart which opened yesterday with a huge gap up that has not been filled. I think this pair will fill that gap soon, which is about 100 pips away right now. If one can control risk enough, this would be a good shorting opportunity.

More later this afternoon.

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

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