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.