Christmas Rally Continues-I'm Selling into it; Dec. 13, 2008

On news that the auto bailout was failing the Senate on Thursday night the asian, european, and US futures overnight sessions collapsed in a panic. But immediately at the US cash market open, it was bought up all day to finish positive. The market wants to go higher. As I've shown in prior posts below, the Nasdaqs are leading the way up and down, and right now they point up. Above is a 15min chart of the S&P showing what looks like a 5 wave rally, which tells us that the near term trend is up and further gains will be achieved. The second chart above shows some targeted resistance levels which I will use to close long positions and establish more short positions. You see the resistance levels in the blue horizontal lines which are at 920, 964 and 1008. 1008 is the maximum point this rally can go and I have big doubts it will get even close to that area. Once the market works its way to those resistance levels I will start closing long call option positions and putting on more short positions. The more it rises, the more aggressively short I'll become. This rally over the past few weeks is a correction, which means new lows on the year will be achieved. I'm going to align myself with that event.

Signs of a Rally at the Open; Dec. 12, 2008

The auto bailout failed in the Senate and chaos rang out in the overnight overseas sessions as markets sold off fiercely to include US stock futures. We’ve seen this before, and it usually results in a rally at the open of the cash market. That’s what happened today. I have a lot of long positions on so it was decision time this morning of whether to sell into the rally assuming the markets would continue lower, or buy into the rally assuming people will buy the dip and the panic. I closed a small short position at a nice profit and tried to close another one at a better price but it never reached it. I wanted to look at two things to see if the decline would continue or not: 1) the performance of the Nasdaqs; and 2) breadth. As you can see on the above 3min chart of today’s action (the orange line represents the Nasdaq 100 and red/green candlesticks represent the S&P) that the orange line representing the Nasdaq 100 is well above the S&P. So the Nasdaq has been much stronger today. Plus breadth started extremely weak but strengthened as the day wore on (see bottom indicator on chart). Then I looked at all the small cap indices and they were all up sharply just like the Nasdaqs. These are all high risk indices so when fear enters the market these tend to be much weaker, but when confidence is in the market these indices go higher. So it was strange that under such dire circumstances and a huge sell off over night and at the US open that people would be diving in to buy the highest risk assets available. This all warned of a rally coming later in the day. So I held onto my long positions and so far it’s proved a wise decisions as all three of the major indices are trading in the positive now.

My projection is for the S&P to rally to 950, but with this deep decline yesterday and early this morning, I might have to move the target down to about 920-930. Once the market reaches that area, it’s at severe risk of a massive selloff in a short period of time.

Nasdaq 100 Leading the Dow and S&P; Dec. 11, 2008

I often say that the Nasdaqs lead the overall market so I watch them closely for hints of short term market direction. Above is a chart that shows the S&P in red and green candlesticks and an orange line which represents the Nasdaq 100. The chart shows today's market action. You can see that the orange line (Nasdaq 100), was following right in line with the S&P all day until late in the afternoon. Then you see the orange line drop down and separate from the S&P. I saw that occur today and immediately closed half of my long positions. The Nasdaq 100 broke to a new low on the week and so I was sure the Dow and S&P would follow. They did. Once the Nasdaq bottomed and curved up, I put my long positions back on at a better price. I just wanted to post this chart to show you how usefull watching the Nasdaqs can be to predict very short term market direction.

Market Needs to Rally Soon if it's going to 950+; Dec. 11, 2008

Today's strong selloff on severely weakened breadth warns of change to the rally scenario projected. For the first time in a few days the Nasdaqs showed weakness that led the Dow and S&P down. As you can see from the top chart, there's a mild 3 wave rally on the daily chart. This, combined with the stochastics in oversold territory looking like they're going to drop soon, warns that the next round of selling pressure may already be underway. Tomorrow should tell us a lot, and I have a feeling the auto bailout results or speculation may play a key role. Continued weakness in breadth and price tomorrow will signal that the next decline phase to new lows on the year is probably already underway. But I expect to see strength tomorrow and a strong rally in the S&P to the 950-1000 area before topping. I do feel this rally will be sharp and short lived, so it I will be shorting aggressively as it rises. If the market doesn't rally by Tues./Wed. next week, it probably means it won't rally at all.

The Quick and the Dead; Dec. 11, 2008

The market's technicals continue to show weakness on this rally as shown from the last chart posted below. However the internals of the market are still strong and signal further rallying. NYSE breadth is positive today, however it keeps getting weaker and weaker every day as seen at the bottom indicator in the chart above. All this tells us the trend is weakening and will end with a sharp selloff. With the weakness building but internals still showing strenght, I expect a pop rally into the 950 area of the S&P before a top forms. Any strength above 900 is a good shorting opportunity and I will be taking advantage of that. I bought back more call option protection yesterday and today at a lower price in preparation for this rally to 950. As seen in the above chart, I project a rally to 950 and then a sell off to 800, a period of consolidation will then occur. This will be a great shorting opportunity because our risk will be well defined and the profits will be quick and big.

With all that said, we are in a large 4th wave which means it's going to be very ugly and difficult to predict what's going to happen. So my strategy is to align myself on both sides of the market for now and take profits quick as they come to me. As the title says, in this 4th wave there are two types of traders, the quick and dead. I'd like to be quick. I'll be taking profits on positions when they move into the green.

Crossroads; Dec. 10, 2008

Euro, gold and the stock market are at a crossroads. The euro and gold need to turn down now to maintain their short term bias. I saw weakness in the stock market at 900 in the S&P and closed half my long options positions. So far it has been a wise move with the market in the negative. No time to post a chart, too much happening. But the bottom line is that market may make one more sharp decline before making an attempt and rallying above 950 for a top. On a very short term basis this market is bearish.

Short Term Sell Off Likely First; Dec. 8, 2008

Looking at the 45min S&P futures above I must say that some immediate weakness is due before the rally can continue higher to the previously mentioned target range of 950-975.

You can see the stochastics crossing down several times at lower lows while the S&P price continued higher. The MACD and RSI are also showing a bearish divergence.

Looking at the EUR/USD which has been tracking along with the stock market; it has broken a trendline and is making lower lows which may signal that the uptrend is broken.

Anything can happen over night, but it appears tomorrow will be a big fat red day.

Rally to 950-975 S&P Looks Probable; Dec. 8, 2008

Boy what a snoozefest in the market today. Nothing really changed from the last chart I posted so I decided not to post another one. The rally looks corrective as it's just too fast on too bad of news with contracting NYSE breadth (see prior chart below). Plus, gold and the euro have been tracking the stock market very closely and both are set up for major declines soon. So even though more stock market rallying is on the way, it's best to keep in mind that I believe it's all corrective and should remain below 1000 in the S&P. (FYI: I'm currently short silver at $10.03 with a stop at $11.00).

With all that said, the market most likely won't rally in a straight line up anymore. It's already done that, and now it's going to have to work a little harder for its gains. I expect a little pullback tomorrow, perhaps to the S&P 880-890 or so before more rallying occurs. Most likely I will just start moving my portfolio bias to short again as the S&P approaches the 950, and will greadually get more and more short as it works its way towards 1000.

Once the market tops, another major declining phase should be underway again. Once it starts, I'll look for targets.

Added to Long Positions; Dec. 8, 2009

In the interest of full disclosure I just added to my call option positions going long the SPY (ETF long the S&P500). The Dow dropped to 180 and that's where my order triggered exactly. The market is showing weakness on the 15min charts, but as we've seen in the past from these bear market rallies, that means nothing in the early stages. I see a sharp rally today and the following days this week in a strong large wave C taking the S&P towards 1000. So I bought more call options just a few minutes ago to protect myself from that surge if it happens. The rally so far looks incomplete, so any weakness this afternoon I will most likely cover small amounts of my short positions.

Market in Strong Wave C; Dec. 8, 2008

The market obviously did not collapse early this morning as I thought. But I did say that which ever way it moved, up or down, early this morning it would tell us the near term extreme direction of the market. We should be in a wave C within a larger wave 4 right now. The S&P should stay below the 1000 area but may be drawn to it. I'm a little hesitant about being aggressively bullish here for a few reasons:

1) the EUR/USD is near the top of resistance and is poised to thrust sharply down out of a triangle. This currency has followed the stock market so that would imply the stock market should fall as well.

2) gold also looks poised to sell off huge to around $600 soon, like this week! Gold has also tracked the stock market as well.

3) as seen from the above chart, breadth continues to weaken on this rally, although Friday and especially this morning, we saw a huge spike upward. But as the morning wore on, breadth significantly deteriorated.

4) silver, which is a measure of risk, is near the $11 "make-or-break" level I determined. I heavily shorted silver this morning because the risk/reward was too great to pass. So it appears silver, gold, and the eur/usd are at the top of their maximum ranges and due to sell off sharply very soon. It's possible the stock market can move opposite these things, but knowing that this rally is against the larger trend, I'm not going to get caught "long" this move.

I have some call options I purchased Friday and covered some short postions. Any signs of significant weakness in the market or the above mentioned currencies/metals, I'll move back to heavily short. But right now, I need to let this rally play out and plan for a rally to 1000 in the S&P just in case.

Market Should Collapse Early Monday Morning; Dec. 5, 2009

After reviewing the charts and indicators it's hard to get past the strength of the rally today and breaking to a new high. However there are two corrective waves that can account for the strength of the move today, and they are waves C and 2. Both are very strong and both result immediately in a strong reversal to new lows. It's possible today's rally was just a wave C of a 2 wave. However as you can see from the above chart, the correction is quite elongated compared to the intial five wave drop making this wave count ugly. What's good to know is that the market is currently near the beginning of that 5 wave drop, and if it rallies above that next week then we know we have much more rallying to go. But as long as the market trades below that level, it's immediately bearish. The above chart is very busy, I know, but it is what it is. One thing I did notice on the bigger time frame chart is that despite today's huge rally on solid up volume, the NYSE advance decline ratio still failed to come close to making a new high. Plus, two things that have been trading in line with the stock market were down today, i.e. gold and the euro against the dollar. Both look to be immediately bearish and have heavy selling ahead. So this may signal heavy selling for the stock market too.

If the wave count above is correct, it means a wave 3 at multiple degrees should get underway immediately Monday morning which means a straight line down right out of the gate. So if that were to occur, I expect to see the futures down big on Sunday or early Monday morning. So watch for some big news event this weekend possibly to trigger that.

To sum it up, the market's nice short term bearish pattern has been rocked, but not destroyed. As long as the indices stay below last week's highs, the market is immediately bearish.

Caution Warranted; Dec. 5, 2008

The rally this afternoon has carried much further than I anticipated, and up volume and expanding breadth (see above chart) warn that this MAY be the beginning of a major rally phase. The Nasdaq 100 was showing the clearest elliott wave pattern and it has made a new high this afternoon (see above chart), negating that second 5 wave drop I labeled. The larger trend is still down, but due to the recent strength of the rally making new highs, caution is warranted. I covered some short positions at break even and bought some call options for protection. My bias is still short, but because I'm not sure what the very short term market structure is, I'm moving to a little more conservative. Regardless of what happens the rest of the day, this afternoon's rally calls for a reduction of risk.......for now.

Sell Off to New Lows on the Year is Underway; Dec. 5, 2008

With the contracting breadth, impulsive (5 wave) declines, choppy weak rallies, and now break of the ascending trendline, we can be confident that the next declining phase in this bear market is underway to new lows on the year (below 741 in the S&P).

Above is a 15min charts of the Nasdaq 100 showing the clean strong break of the ascending trendline, and with this morning's decline it created another nice 5 wave drop. So according to Elliott Wave Principle, the trend is now down. My target is for new lows on the year to be achieved farely quickly which will bring the S&P below 741.

I am fully short the S&P and Nasdaq 100, along with gold. I have no long positions right now.

Clear Break of Short Term Trend Line Signals Big Losses Ahead; Dec. 4, 2009

There are several indicators I look at every day to try and understand the health of the market. I don't talk about all of them every day because then I'd spend all day making charts and writing. We saw that yesterday's chart showing contracting advancers/decliners on the NYSE while price was rising was a good indicator that the rally was waning and a sell off was coming (see "CRAZY MARKET" post below). That sell off finally happened today around noon PST.

Above is another chart that I was watching because of the channel that formed for the rally this week. You can see a nice parallel ascending trend channel shown with the black lines. I basically decided that whichever way the market brokeout to, was the way the market would strongly take us in the near term. As you can see on the chart above, the market broke cleanly and strongly to the downside which tells us that the market's near term trend is down, and much lower levels are soon to come. Usually when a market breaks a trendline it will rally up to touch the underside of the trendline and then reverse downward again. So it's possible we'll see a rally overnight in the futures, or early in tomorrow's session and then a very very sharp reversal to the downside. As long as the market doesn't break through the underside of the trendline and trade back inside the trend channel again, the short term trend is down. And it should move in a hurry.

I'm holding short, with no long positions. If my analysis is right, tomorrow and next week should be heavy selling taking us to new lows on the year (S&P below 741).

Possible Short Term Bullish Potential; Dec. 4, 2009

*** Please look at my prior post below to get a look at the bigger picture so we don't lose focus on where we're at in this bear market.

With the constant horrible news coming out this week, and the futures down every morning and yet Tues., Wed., and Thurs., all rallying into the positive once the cash market opens, it's apparent this market wants to push higher. So I want to look at a very viable bullish alternate scenario. As seen by the chart above, we might be in the early stages of a very long and strong wave C. The reason I don't like this scenario is because the rally so far is very choppy, not impulsive, and all the internals are very very weak and getting weaker. But all that can change with on huge surge across the board. But as for now, this just seems unlikely the way the market is trading internally and technically. But until we get a huge down move, this is a possibility, so I will keep my eye out for this possibility.