Wednesday, December 31, 2008

Expecting Big Move at the End of Today; Dec. 31, 2009

I expect the market to sell off big at the close today. Currently the S&P is at 905

S&P Cash 15min Chart Shows Major Bearish Divergence; Dec. 31, 2008

Another quick note, above is the 15min S&P cash chart which shows all three momentum indicators at the bottom of the chart are not confirming the huge rally in the index. And the MACD is actually crossing lower and in the red even though the market continues higher. This doesn't tell us when the market will drop lower, but it tells us that this rally will be reversed at a large degree.

Caution Warranted as we Turn to a New Year; Dec. 31, 2008

Just a quick note: the market has continued this rally on somewhat strong breadth. I am very wary of chasing this rally at all because it's the end of the year and there's light volume today. I see this as a good opportunity to add to my shorts, which I did. I wouldn't be suprised if the market flips wildly in the last 30 minutes of trading today as players jossle for position into the new year. Wackiness is occurring today so caution is warranted reading too much into today's action. For example, the EUR/USD dropped 200 pips over night yet gold is actually up $5 today! Amazing. It's quite possible we will rally all day and then sell off hard into the close and then the selling won't stop for the next few weeks. Or, we rally today and a few of the first days in the January and then sell off hard.

I'm shorting rallies.

Tuesday, December 30, 2008

S&P Daily Futures Chart With Potential Bullish Targets; Dec. 30, 2008

Today's rally was strong other than it was on light volume as expected due to the holidays. With the rally unfolding today, we can see from the above daily S&P futures chart that there is a possibility the bullish move to the 950 area is underway. I listed 3 key resistance levels that should ultimately halt the rally, if it even gets there. Those are the levels I will most likely add to my short positions.

Rally Invalidates 5 Wave Decline; Dec. 30, 2008

In overnight trading, the Dow and S&P futures broke the beginning of the proposed 5 wave decline I labeled yesterday (see above chart) invalidating the wave count and conclusion that the trend was now down. With another failed test of prior support area in the 850s again yesterday, it's possible the rally to 950+ is underway. However it needs to get moving quickly because indicators and time are really not supportive of this move at this juncture.

I have not changed my strategy of holding fully short, and am prepared to add to my short positions on any significant rallying.

Monday, December 29, 2008

Large Swings at the Close, but Larger Picture is Bearish; Dec. 29, 2008

Above is an hourly cash S&P chart and it shows a strong support line (red horizontal line) in the 857 level. The market is telling us this level is important because it's bounced off it several times. Once the S&P makes a strong break of this level and closes the day beneath it, it should lead to an acceleration of the downtrend and target the 750 area. Despite today's strong bounce back at the close, we had a five wave decline, a choppy rise, and decliners outpaced advancers by almost 2-1 and down volume was 66% of volume was to the downside.

Regardless of whether or not the short term gives us a strong rally to the 950+ area, this entire rally from 740 looks very likely to be a correction. So I will be shorting any significant rallies.

Declining in 5 Waves Now = Downtrend Has Resumed; Dec. 29, 2008

The market has now declined twice in 5 waves in all the major indices. The evidence continues to point towards immediate market weakness instead of any strong rally occurring first. Above is the S&P 15min futures chart that shows a 5 wave decline, then a fibonacci 78% retracement, then another 5 wave decline. This tells us the trend is now down.

The next level the S&P futures needs to break to strengthen the bearish view is 852, and in the cash S&P it's 857 and 851. A break of those levels in both the futures and cash markets will confirm that a strong declining phase is back underway that should take the S&P to AT LEAST the 750 area.

Important Candlestick Forming Today; Dec. 29, 2008

The formation in the market tells us it's at a big crossroads and today could give us a big clue as to its direction in the coming days/weeks. If a large bullish or bearish candlestick forms today (see chart above) then it should continue in that direction in the coming days/weeks. So far the market is weak internally and nominally, but that can change in seconds with light trading volume today.

Friday, December 26, 2008

Market Flat Until After Holidays; Dec. 26, 2008

The market has been fairly flat and volume has been absurdly low. I see that with the new year coming around the corner big moves should occur in the market soon. I'm positioned to benefit from that move being to the downside, with tight stops on most of the positions. Nothing has really changed in my analysis over the past week or so. The market should rally into the 950 S&P area, but its failure to do so in a timely manner and weakening momentum indicators tell me that may not happen. So I'm positioned short this market with the idea that's it's quite possible for a strong rally to 950. So I have plenty of capital on the sidelines to short such a rally.

I'll post something new when I see something worth mentioning.

Tuesday, December 23, 2008

Market Uncertainty Calls for Positions with the Larger Trend....DOWN; Dec. 23, 2008

The market's failure to rally into my target area of 950 for quite some time and numerous bearish indicators that show a big decline can occur any time has caused me to abandon my long positions. With very light volume during the holiday weeks here it only adds to the uncertainty and risk. The larger trend is down, that I'm quite certain of so I have modest short positions and will add to them if the market rallies.

As for the short term movement day to day, I have no idea. I'm short and holding short for the next declining phase.

Monday, December 22, 2008

I have no long positions anymore; Dec. 22, 2008

No time to go in great detail as I'm reconfiguring my strategy. The market has failed to rally as proposed for quite some time now. Today is a light volume day but the market suggests a rally but it keeps drifting lower. I don't like what the market is doing so I exited my long positions and am only modestly short various sector ETFs and the Nasdaq 100. I am still allowing for a sharp rally into the 950 area so my short positions are fairly small in preparation to reshort on rallies. A strong S&P break of 850 should eliminate most/all bullish possibilities in the short term.

To sum up, I'm now only short with modest positions on in preparation for a strong rally where I'll just add to my shorts. A strong break of 850 in the S&P should result in an accelerated decline and will cause me to pile on more short positions.

Friday, December 19, 2008

Double Top in S&P; Dec. 19, 2008

Very tough tough couple weeks analyzing this market. With failures to push higher to my 950 target in the S&P in a timely manner and the momentum indicators trying to turn down, the VIX falling on complacency, and now the above double top formation in the S&P, it starts to beg the question if the market is getting ready to roll over very soon.

Breadth is strong and the Nasdaqs are still outperforming the blue chip indices so I'm not diving in fully short yet. But I'm not sure being long now is a good idea. It's options expiration day today and that brings about large volatility at the open and close of the markets. With the VIX in complacent mode, breadth strong, and the Nasdaqs very strong, I'm going to make an educated guess that the volatility later today at the close will be to the upside. I will exit half my long position on an S&P break of 877 and exit fully on a break of 850, but probably sooner.

With that said, if we get a huge rally today, I will use that as an opportunity to close most or all of my long positions and to start establishing short positions. Keep in mind it's possible we could see the market float higher during the holdays towards 1000, so I will apply position sizes accordingly. But the way I see the market now, a big rally today is an opportunity to take profits on long positions and start getting short.

VIX Decline Showing Market Complacency; Dec. 19, 2008

Attached is a daily chart of the VIX. The VIX is essentially a fear indiator. The higher the VIX, the more option put buying and therefore more fear. The lower the VIX, the less fear in the market. VIX lows and low fear can accompany market tops because people have become overly optimistic and complacent. Granted the VIX is much higher than it's "normal range in the 15-20 area, but it has come down significant this week as you can see in the chart. This doesn't tell us that a turn down is coming now, but it does tell us that the market is setting itself for another big sell off soon. The more bullish/optimistic the market, media and all the financial news pundits are, the more bearish this market becomes. I think sometime after Christmas, or perhaps after New Years, we'll see this market start to roll over again. I'll be watching closely during those times for signs of a turn.

Despite Modest Sell Off, NDX and Breadth Still Strong; Dec. 19, 2008

Despite the sell off after the opening rally, breadth is still positive on the NYSE and Nasdaqs are well outperforming the S&P and Dow. These are not the characteristics of the downtrend resuming. This doesn't mean I'm a staunch bull, but I don't any signs or reasons to get aggressively short. I'm still long the S&P and short various ETFs (XLE, XLU and XLK), plus short gold.

Utilitiies ETF Bearish Triangle; Dec. 19, 2008

Using options going long the market did not work well with volatility shooting lower and completely eroding my option premium making it very difficult to make any gains regardless of how big the market rallied. So I've decided to get long the S&P with a double long ETF (SSO) and short the market through various ETFs that are showing bearish formations. One of those is the above utilities ETF (XLU).

The above chart is a daily of the XLU and you can see that the trend is clearly down and it drops right into a consolidation that is clearly a triangle. Also notice the MACD below is showing a bearish push down. According to EWP, triangles like this result in a sharp thrust in the direction of the previous trend. The rules are clear as to how far it can rally as well. In short, if the bearish triangle scenario is correct, this ETF should thrust sharply to new lows before it rises above $30.18. It's trading now around $28.95 so I'm risking 4.2% to get to a new low at $23.28 which is at least 19.5%.

That's a risk/reward ratio I'm jumping all over.

Daily S&P Bearish; Dec. 18, 2008

Just wanted to take a minute and step back to look at the bigger picture and keep focus on my main projection; which is that the stock market will fall to new lows on the year in the coming weeks. The chart above is a daily S&P futures chart that shows a rally very hard faught with overlapping choppy waves which is clearly a correction, not a trend change. Also, the daily stochastics have been in overbought territory for a while and keep trying to cross down.

This all tells me that the market will sell off hard pretty soon. The hard question is when? and how much higher does it go before it does sell off? All I can do is look at the short term structure and try to find 5 wave drops and rallies. So far, I find none either way.

Despite the fact that the near term is unclear, I want to make sure I don't lose focus of the big picture above; which is that the larger trend is still down and that we have new lows to achieve on the year.

Market Structure Uncertain; Dec. 19, 2008

The market structure is unclear so I just wanted to repeat myself when I say that my positions are much smaller now and any good gains I get I'm taking profits on them. THE QUICK AND THE BROKE!

Until I get clarity of what market structure is unfolding where risk is clearly identified, I'm quick shootin the market up and down.

Thursday, December 18, 2008

Market Uncertainty; Dec. 18, 2008

The market broke my control point and the near term structure is unclear to me. This rally is a correction but it's a 4th wave and there are several possibilities, and a few of them would take the S&P to 950-1000. Other possibilities take the S&P towards new lows on the year. With this uncertainty, I closed most of my long positions and have reduced all my position sizes except for my short gold positions. Tomorrow is options expiration day so it should be a wild one. But if the market follows through with more selling on weak breadth then it's possible the next decline phase is underway.

All I can say what I'm going to do is take the thinking of "the quick and the dead". I will look for short term opportunities and keep stop losses tight and positions size small until I get more certainty as to what exactly is transpiring. I will take profits when available fairly quickly and trail my stops. But I don't have confidence taking a strong stance either bullish or bearish right now. But I can assure you that rallies above 920 in the S&P I will start adding small short S&P positions gradually as the market rises. The lows of 2008 of 740 will be broken in my opinion.

The quick and dead..............or maybe I should say, the quick and the broke!

Gold Haulted at Resistance; Dec. 18, 2009

Above is a daily gold futures chart that shows a fibo resistance of 78% and a down sloping trendline from the previous two highs haulting gold's rally. This is significant because any follow through on the rally through that resistance would mean a new high for gold and it would break the downtrend of lower highs and lower lows. I expect gold to undergo a corrective decline over the next few days/weeks.

Brief Correction Possible, Then Rally to New Highs; Dec. 18, 2008

Above is a 15min chart of the S&P and I posted a possible wave count unfolding. It has us in a small wave 4 down and once complete we should shoot up towards 950. If this count is correct, this current decline should not go below 885, which is the wave 1 peak. Doing so would violate one of EW's rules.

The EUR/USD seems to have broken down and should be in a corrective phase down. Gold is falling with it.

Wednesday, December 17, 2008

Dollar Getting Hammered; Dec. 17, 2008

Above is a 4 hour chart of the EUR/USD. It moves the opposite of the dollar. You can see that the euro has spiked straight up over the past few days and according to Jamie Saettele at, the EUR/USD has undergone it's largest move in one week over it's entire history in existence! This is why gold has rallied so strongly as well. But this rally has moved too much too fast so a correction is due, and it should be a large correction to the downside. If you look at the chart above you'll see I circled the severely overbought stochastics and RSI that show the extreme level this pair is currently trading at. But I tried shorting this rally twice and got stopped out immediately. I'm not getting in the way of this trade again. I do have a short gold position which has been extremely painful to have, but I'm waiting for the EUR/USD to correct and gold to fall so I can close my gold positions.

As for the stock market, breadth continues to get stronger and is almost break even. I'm unsure of the immediate near term direction, but the direction over the next few days/weeks is up.

Profit Taking Underway Then More Rallying toward 950; Dec. 17, 2008

Nothing interesting on the charts this morning. Today we appear to be seeing some profit taking from yesterday's surge higher. Most people are too nervous to hold stock for a long time so when big gains occur, they tend to sell. This is actually a contrarian indicator and tells me that a top is not in. Once people get complacent and very optimistic and hold stocks longer, that's when a top is forming. Also, it's good to note that despite the declines today, breadth is not too bad with only 59% of volume to the downside and 1.26 decliners to advancers. So no heavy selling across the board is occuring today; just light profit taking.

Once this correction is complete, look for the market to shoot higher.

Tuesday, December 16, 2008

Market Rallying as Projected, Still Has Further to go; Dec. 16, 2008

The market is playing out as expected with the strong push higher today of 5% in most of the major indices. The S&P is entering resistance areas and the general target of 950 as I've stated many times. Big moves like today call for profit taking or establishment of new positions so I added a small amount to my short S&P position.

The Fed cut rates to almost zero, showing the desparation of the Government to help this doomed economy. So they really have no more bullets left in their gun as every lending facility they've set up has failed, and their interest rate slashing campaign has done nothing to stop one of the sharpest stock market declines in history. Looking at the above S&P 15min chart we can see the strong rally that transpired today which was accompanied by very strong breadth spikes as seen from the indicators at the bottom of the chart. The last time I looked, 93% of all volume on the NYSE was to the upside. This was obviously a broad market rally and due to the strength and structure of the market, it should chug to higher levels in the near future. It's quite possible the rest of the week will be one big rally. But this is all guessing, the goal is for the S&P to get to the 950 area and I can then start aggressively getting short in preparation for the next declining phase.

Market Rally is on Pace and Should Accelerate; Dec. 16, 2008

Nothing new to really report this morning. The market is rallying into the Fed meeting at 2:15 EST as projected. Again my target for the S&P is to get somewhere into the 950 range before topping and selling off sharply. The quicker we get there the better in my view. As long as the market continues to follow my projected path within the parameters allowed the more confidence I have that my wave count and analysis is correct. And of course, that means the maximum amount of profits with minimum risk. If for some reason the market does not continue this rally and it sells off sharply, breaking new lows and especially 820, then something else is going on that I'm not aware of and it will be tough to position myself for that. So all indications for now point to higher levels over the next few days/weeks.

The above 15min chart of the S&P shows that the rally today broke the previous lows and eliminate any realistic chance of counting the decline starting last week as a 5 wave affair. Therefore the decline must be corrective, and new highs should be achieved in the short term. Again, the 950 area in the S&P is the target. As the market rallies higher I will adjust the target area and start establishing short positions.

Monday, December 15, 2008

Market Should Start Rallying Tuesd./Wed.; Dec. 15, 2008

The market dragged all day to the downside and a sharp rally near the close helped bring the indices back from deep red territory. Again, the Nasdaq led the way and was down well over 2%. But no support levels I mentioned in the pior chart below were broken. As long as they remain intact, the market has significant bullish potential in the very short term. Tomorrow is the Fed rate announcement and that usually carries a lot of volatility. I expect that whatever the Fed does, it results in a strong rally phase that should last a few weeks and take the S&P to the 950 area. A strong break of Friday's lows, and especially a break of 820 in the S&P will signal the next decline phase is already underway and on its way to new lows on the year most likely. I don't expect that to happen though. Look for a strong rally tomorrow and/or Wed.

Bigger Picture and Support Levels; Dec. 15, 2008

It's always good to keep an eye on the bigger picture. Above is a 15min chart of the S&P and it shows where Friday's panic lows are. Those levels should hold because we rallied strongly off them immediately and to build on that momentum we need to stay above those levels. Ultimately, a strong break of 820 will negate the projection of the S&P to get to 950. As long as we remain above those support levels, I see this market as bullish with a target in the 950 area.

A-B-C down SO FAR; Dec. 15, 2008

Above is a 5min chart of the Nasdaq 100 showing what appears to be an ABC down so far. A break below the lows of today will make it a 5 wave drop and warn of further losses after a brief rally.

Nasdaq 100 (NDX) Rally Attempt; Dec. 15, 2008

The NDX is spiking higher and attempting to bring the bulls back into the market. We'll see if this has legs or not. Downside volume is still very weak and advance/decline ratio hasn't moved. I'd like to see a spike higher in both of those indicators to coincide with the NDX to get more excited about a more prolonged bullish rally.

Nasdaqs Leading the Way Again; Dec. 15, 2008

Again, the Nasdaq 100 is telling us where the short term market trend is. Above is a chart showing the Nasdaq 100 (orange line) and the S&P 500 (red/green candlesticks). As you can see, the Nasdaq 100 is trading much lower and therefore weaker than the S&P early this morning. This suggests further weakness in the market ahead, for the very short term at least. Until the Nasdaq cross back above the S&P, this market is short term bearish. But I'm not getting too bearish this market yet by any means. Breadth is a modest 60% down volume and 2-1 decliners to advancers. Until I see the breaking to new lows on solid breadth and volume, I have a slight bullish bias on this market.

I still see the S&P rallying to the 950 area before it tops and rolls over big. That will present the best and clearest opportunity to short heavily.

EUR/USD and Gold; Dec. 15, 2008

Just a quick side note. I have been heavily short gold and have taken a huge pounding lately as gold has rallied ferouciously. Here's one reason: the EUR/USD suprised me and a lot of people in rallying through resistance very strong as you can see from the above 4hr chart. Once the rally exhausts, which should be fairly soon, the EUR/USD will roll over to a new low which is about 1300 pips away! Gold should fall significantly when this happens. The only question in my mind is when?

Saturday, December 13, 2008

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.

Friday, December 12, 2008

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.

Thursday, December 11, 2008

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.

Wednesday, December 10, 2008

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.

Monday, December 8, 2008

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.

Friday, December 5, 2008

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.

Thursday, December 4, 2008

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.

Long Term Big Picture; Dec. 4, 2009

I think it's good from time to time to post the big picture so we don't lose sight of what's going on-on a large scale. The chart above is a daily chart of the S&P. I labeled the chart assuming that we will soon rally sharply in a wave (4). You can see that once that's complete, we will fall to new lows for 2008 in a wave (5). Once that occurs, the entire decline since last year will be wave [1] in a 5 wave cycle. So a major multi-month strong rally will occur in wave [2], which I feel will be due to the euphoria of the Obama presidency beginning. This wave [2] is one we don't want to get caught short in, and we definitely want to be long during this rally.

Wednesday, December 3, 2008

Crazy Market; Dec. 3, 2009

Well the market continues to be extremely volatile and choppy. The choppiness and inability to go above that key level in the Nasdaq 100 as mentioned in prior posts tells me this rally phase is just a correction. However I'm not certain as to what exactly is going on, I only know that the larger trend is down so rallies should be shorted and declines should be used as an opportunity to take profits.

Above I placed a 15min chart of the S&P with the NYSE advancers/decliners indicator at the bottom (purple line). The higher the NYSE indicator, the more advancers there are vs. decliners. Many times we can identify the strength of a move and/or when it's ending by this indicator because it shows us the demand for stocks. So let's look at the chart and go over it:

Notices that I circled the highs on the NYSE indicator and the corresponding highs on the price chart above it. The first set we see "Highest High" on both price and the NYSE. That level marked the strongest NYSE breadth during this period. Then notice the next circle it's "Lower" while price was "Higher" in red. So price made a new significant high, yet NYSE breadth actually contracted during this tiem, telling us that-that big rally was weakening. Shortly after this occured, we had a 9% sell off in one day. So it proved to be a good indicator of a weakening rally.

Now let's look at Tuesday and Wednessday's data. We see the "Highest Highs" again in black. Then notice that all of the following "Higher" highs in price are accompanied by "Lower" lows in the NYSE breadth indicator below. So the market is rallying but breadth is contracting. It seems that buying demaind is severely waning and this rally is weakening severely. Last time this happened we saw a 9% sell off in a day. As long as this trend continues, this market is about to sell off.

Wave C Rally, Then Sell Off; Dec. 3, 2009

Above is an updated 15min Nasdaq 100 chart. So far the projection is playing out as expected (see chart from prior post). It appears a wave c rally is underway and when it exhausts, it will be met with heavy selling pressure to new lows on the week. As long as a new high from last week (see horizontal line on chart above) is not exceeded, the short term trend is down and rallies should be sold in my view. I've already shorted at the high yesterday and shorted again when the Dow rallied over 120 this morning.

I'm selling big rallies and closing positions at profits on sell offs. That's my theme until the medium term picture clears up.

Tuesday, December 2, 2008

After Correction, Another Sell Off; Dec. 2, 2008

Well if an A-B-C correction is taking place, like projected in my chart below, then the wave B went much deeper than expected. But that's ok, it could be a "flat correction". This means a slight new high above wave A and then the market will roll over to new lows on the week.

I posted a 15min chart of the Nasdaq 100. It tends to be a good leading indicator of what's going on the overall market. This index is the only one that traced out a clear 5 wave drop yesterday (see above chart). With that huge selling pressure yesterday, I expect some follow through soon. We didn't get it today, and the choppy nature of the rally today tells me this is just a correction, and the continuation of selling pressure should resume soon, like sometime tomorrow.

As long as the Nasdaq 100 stays below the beginning of wave 1 (see red horizontal line on chart above), then the market is short term bearish.

Correction Underway; Dec. 2, 2008

With the very strong decline yesterday and momentum and candlestick indicators pointing to lower levels, I expect to see some follow-through soon. Today's correction has already traced out what appears to be a 5 wave rally (see above chart), so after a brief correction it's possible another rally will occur to complete the whole correction. This correction today is healthy for the downward move. The market dropped 9% yesterday and if it immediately continued this morning it would reach an oversold level and I'd close most or all of my short positions. The fact that it's rallying and alleviating the downward pressure probably means a bigger drop will come soon, probably well below 800 in the S&P.

Monday, December 1, 2008

Wow! Only One S&P Stock Closed up Today; Dec. 1, 2008

Well the bearish divergence I spoke of in prior posts finally had an impact on the market today with the S&P shedding almost 9% today. When the market rallies that much that fast and is accompanied by a divergence of momentum indicators it almost surely results in a snap-back in the opposite direction. A healthy bull market would move up gradually with minor bumps along the way; not 18% in 5 trading days.

Today's decline was extremely ferocious, almost like some type of 3rd wave. Out of the S&P's 500 stocks, only 1 stock closed up on the day. I've never seen that before. Also, 98.6% of NYSE volume was to the downside. So today, everybody sold everything. It makes it a possibility that some other more bearish wave count is unfolding that I'm not seeing and the market will head to new lows on the year very soon. Tomorrow will be very important in determining that. Another day tomorrow with big declines and very weak breadth all the way into the close could mean that the market is falling much further and sooner than expected. And as you can see on the above chart updated from this morning, as of the close today we have a nice strong bearish candlestick formation and the stochastics have crossed down. So the very bearish scenario is a possibility. We should see follow through to the downside tomorrow, and possibly most of the week.

The market structure and short term trend is a bit unclear right now from an elliott wave perspective, but we know the larger trend is still down, so I'm holding the core of my short positions until at least 800 in the S&P is hit, depending on the internals when that happens. I closed about 25% of my short positions today and all my call options early this morning as well.

The Next Decline Phase is Underway; Dec. 1, 2008

The decline phase I've been waiting for is underway. And as usual, it doesn't happen exactly when I expected it to. This is another reason why I like to ease into positions. I've been shorting this entire rally on the way up and this morning I closed the remainder of my protective call options at a small profit.

The reason I feel this is the next declining phase that should take the S&P to at least 800 is because we finally have the sellers back in the market. NYSE breadth is very weak and out of all 500 S&P stocks only 7 or trading up today.....yes, 7! That's a broad market selloff. Once again, the beginning of a new month brings about heavy selling. This accompanied with Black Friday's retail sales out of the way, and the horrible manufacturing and construction numbers are contributing to the sell off. This decline feels the it's the real deal because unlike previous declines the past two weeks, this one is accompanied with a 5% sell off in gold, and the euro is selling off, and the yen is rallying strong across the board. All these are signs of a broad market selloff that should have enough strength and momentum to reach my target area of 800 in the S&P. And quite possibly much further.

As for the technicals; in the S&P daily chart above you can see a big red bearish candlestick forming after smaller green ones from the week prior. This is a weakening structure as long as we close down big today. Also, look at the stochastics at the bottom (circled), they are about to cross down. A strong close down today should make those cross down and confirm that momentum is now turned down.

Sunday, November 30, 2008

Looking for Positive News This Week; Nov. 30, 2008

One more note before we go into this week. I'm looking for a lot of positive news this week, whatever it may be. We should see nothing but optimism pour from analysts on the financial news and a sense of complacency and euphoria hit us this week. Once that occurs, the market will be primed to start it's decline. So expect great news to come out tonight, Monday, and perhaps Tuesday which will send the market higher. But by the end of the week, the market should rollover and enter a multi-day/week declining phase.

Friday, November 28, 2008

S&P Big Picture; Nov. 28, 2008

I just thought I'd post a "big picture" chart of the S&P. As you can see we're in for some very choppy and sloppy trading over the next few months until wave (5) of [1] bottoms. I see this as a good range trading opportunity, i.e. always have short and long positions on and sell into rallies and buy into declines. To do this I will own call options on the major indices and own double inverse ETFs shorting the major indices. When the market rises and falls I will take profits accordingly. The key thing to remember is that this decline is not over and that we'll make one more new low before we establish a major bottom and rally for months. Once wave [1] bottoms, most likely sometime at the beginning of next year, we will undergo a huge wave [2] rally that will last most of 2009 and the news and psychology will be overwhelmingly bullish. I can guess that this optimism will be due to the Obama hype that he will save the world. Wave 2's tend to be very strong and deep rallies so this will be a great buying opportunity. But until we make new lows from this year, the bias is still to the downside.

As for the short term, the rally continues to float higher with weakening momentum. I continue to short into the rally and will continue to do so until a major selloff occurs to relieve the bearish divergence in the momentum indicators. Right now, the more it rallies, the more it pulls back on the rubber band that will lead to a huge snap back decline. I think with the beginning of a new month coming next week, and black Friday sales out of the way, it opens the door for a large pop rally in to around 950 in the S&P possibly before it rolls over and sells off massively. Again, my short term target for the S&P is the 800 area to fill a small open chart gap. That seems like a good place to take a lot of profits on my short positions.

To sum up the short term: prepare for some more rallying to possibly the 950 level next week. But it will soon lead to a big selloff to at least the 800 area shortly after that.

Gold About to Fall; Nov. 28, 2008

I just wanted to post a gold chart because I've built heavy short positions the metal over the past few weeks. It appears to have made a strong 3 wave rally and is currently in a consolidative pattern similar to a triangle. This appears to be a 4th wave. So I'm expecting one more pop to a new high around the $840 level which is the 61% fibo level of the entire decline in Oct. From there, gold will decline to a new low on the year. My target is $650 which is about 20% lower from current levels.

Wednesday, November 26, 2008

Alternate Scenario, but Same Ultimate Result; Nov. 26, 2008

The market dipped at the open today but was immediately bought up and is now trading in the positive. The Nasdaqs seem to be leading the way up now (contrary to yesterday), and have made new highs on the week. The Dow and S&P have not though which is very short term bearish until they do. NYSE breadth is still fairly strong telling me there's still buying demand in the market. Watching financial TV and reading financial articles there appears to be no shortage of analysts who have an indicator calling a bottom in the stock market. Many seem to be rushing in to buy so that they don't miss the "deals of the century". But after Friday and Monday's massive surge, the market has had no follow through and has struggled to maintain any gains. This accompanied with the weakening momentum, tell me the rally is severely weakening and at least a good solid correction is warranted. The key is recognizing the turning point.

Above I made a chart with an alternate view of what will unfold in the coming week or so compared to my primary most favored count in the prior post. If this week's highs are broken in the Dow and S&P, then the chart above will become my primary choice. The reason I'm opening the door to some more short term bullish movement is due to the following:

1) due to the holiday there is light volume so a small amount of buyers can shoot his market higher, and with NYSE breadth bullish, it shows that the bulls are in control right now.

2) the structure in the chart above looks extremely similar to the last big rally we had earlier in the month. The market shot up to one more new high before selling off again to new lows. So new highs on the week are possible.

3) NYSE breadth is still strong and until sellers come back in the market, it will probably continue to drift higher.

4) So many people think a bottom is in it's ridiculous. There is so much hope that this is finally "it" and it's time to buy in preparation for Dow 30,000 in the coming years. This hope is lifting the market..........for now.

But regardless if the above scenario is unfolding or the one below in the prior post is unfolding, the end result is the same; a big selloff to at least the S&P 800 area in the coming week or so. So new highs and rallies should be sold into in preparation for that.

Tuesday, November 25, 2008

Big Sell Off Coming Very Soon; Nov. 25, 2008

The market showed huge signs of exhaustion all day today. The market opening higher this morning as a true gift. It was like the S&P was yelling at me through my computer, "SELL ME!! SELL ME!!" So I did. In the futures, the S&P made a new high but the Dow didn't, creating a bearish divergence. Plus, carry trade currencies were weaker this morning despite the stock market's apparent strength. This was all bearish and told me the rally into the open was bogus. The market sold off right after the open and didn't recover until the last 30 minutes of trading where it failed to make a new high on the day. Again, this shows exhaustion of the bulls as they are really struggling to inch the market higher now whereas before it was so easy. On top of that, breadth declined significantly from the past two trading days, and the Nasdaqs closed significantly lower than the S&P and Dow. The Nasdaqs have riskier tech stocks and the fact that they were so much weaker today tells me that people were selling their riskier assets and taking profits. The Dow and S&P should follow soon, as they usually do.

The above chart shows the elliott wave count I have. Tomorrow, or very soon, we should undergo a strong decline in a wave C. My target for the S&P is the 800 area as there is a small chart gap that will probably want to be closed. The one thing that can screw up a perfectly good wave count and technical setup is a holiday with light trading volume. Tomorrow and Friday should be met with light volume meaning just a few traders will be around and they can shoot the market all over the place. This can benefit the bulls or bears. But the setup I have now shows that the bears will be the benefactor of this. Regardless of what happens this week, the rally is exhausting and momentum indicators continue to show bearish divergence and are now crossing down on the bigger time frames which all tells me that we are in for a big decline soon. If the market manages a new high above today's, I will short again, and continue shorting until a big selloff relieves this overbought condition and bearish divergence on the momentum indicators. I predict tomorrow will be a big down today, and quite possibly Friday as well as just a few amount of traders shoot this market down as they take profits at the end of the month.

Monday, November 24, 2008

Momentum Indicators Show Severe Weakness; Nov. 24, 2008

After observing the 15min. S&P futures charts I see a severe divergence already building into the rally From late Friday into today. Observe the above 3 charts which have various momentum indicators on them. Notice that on all 3, the price of the S&P futures rises (see ascending blue line) yet the momentum indicators fall (see descending blue line). Most importantly, the RSI indicator (red) is showing a severe bearish divergence as well. Often times when a rally or selloff moves very far very fast, divergence occurs and therefore calls for a healthy correction before perhaps continuing. This severe bearish divergence on all 3 momentum indicators, especially the RSI, tells me we are in for a very strong correction soon.

This does not change the fact that a multi-week bottom is probably in and a major rally phase is underway. All it means is that this severe weakness can be used to close existing short positions and/or establish long positions. But these charts tell me a big selloff, whether it be a correction or a continuation of trend, is coming soon.

Rally Structure Turning Very Bullish; Nov. 24, 2008

The rally continued all day and has now traced out a clear 5 wave pattern starting from Friday's lows (see wave count on above chart). This tells us that the new short term trend is now up. This, combined with the very strong NYSE breadth today warns that a near term bottom may be in for the year, and a multi-month rally phase is underway. With 5 waves up now, and bearish divergence on the RSI (see bold blue lines on above chart), it tell us that at least a correction is coming. Not to mention we've rallied over 900 Dow points in 2 days. The key will be to observe the structure of the decline once this rally is over. If it looks corrective, then we'll look to exit short positions and flip to a more bullish bias. One area I'm looking at to do this is an open chart gap in the S&P around the 800 area. I feel any correction should at least close this gap. So that will be my short term target to close some short positions and perhaps start establishing long positions.

To emphasize, this is only short term bullish movement that should only last a few weeks, or into the beginning of next year. The larger longer term trend remains down. So I'm not a long term bull now, just being very cautiously bearish trying to make a little money on short term rallies.

Tomorrow should be a very telling day of where we're headed in the next few weeks.

Not Buying the Rally...Yet; Nov 24, 2008

The rally from Friday and into this morning was unexpected as far as strength and length. As you can see from the above 15min S&P chart, it's a straight line up. That won't continue, and it's gone up too much too fast to buy into at this point. The elliott wave structure calls for at least one more new low, I project to the 710 area in the S&P before a significant bottom forms. However the length and strength of this rally is not something to blow off, especially considering we've profited so much on the short side up to this point and we know a bottom is forming. Caution is warranted. Whether a bottom has been formed or not, once this rally gets some pullback I will be buying more S&P ETF call options and selling my short S&P ETF positions to prepare for the big rally that will come soon.

NYSE breadth today is very strong, with advancers outpacing decliners by 7-1 and 93.5% of all volume to the upside. This tells me that no sellers are in the market today and heavy buying demand is in play and will probably last all day unless some huge selling power gets ignited somehow. I do feel that it's just that the sellers became exhausted last week after pushing the market down 13% in two days and now the bottom fishing crowd has come in to dominate the day. Again, supposedly this rally is based on a government official appointed by Obama. What?! And the Citibank bailout. And we know how well all the previous bailouts were recieved in the market. This does not seem bullish to me. It seems again like a "hope" rally, in that everyone "hopes" the bottom is in and they don't want to miss the big move.

Bottom line: I still feel we have new lows to achieve in this market before a major multi-month rally ensues, but seeing as that we're so close to that happening, any weakness from here on out I will be moving my bias to the long side.

Friday, November 21, 2008

Moving as Projected; Nov 21, 2008

Looks like the market moved exactly as I projected this morning (see chart below on prior post). The more it follows my projected path, the more it strengthens my wave count.

Check out the above chart where I just copied my projected path from this morning to an updated chart after today's market action. You can see that the market followed the projected red lines fairly well.

Even though today is options expiration day and big volatility was expected, especially a rally being expected on my part, reports that the rally was due to Obama appointing a new Treasury Secretary. What! So the market rallies 600 points because a new Treasury Secretary has been appointed? What? I hope this is why the market rallied, becuase if so it will quickly be reversed early next week. I think options expiration combined with the market losing 13% of its value in 2 days as the reason for the rally. By rallying like it did today, it relieved a lot of the oversold pressure on the market and it allows the market to fall once again to new lows once this rally is finished. I expect this market to selloff again early next week, perhaps Monday afternoon.