Thursday, April 23, 2009
Gold rallied hard today before weakening modestly at the close. I am losing confidence in this short term wave count because wave 4 is getting much too large and elongated in relation to wave 2 which challenges EWP's guidline for the "right look". Regardless of the short term wave count, gold remains bearish as long as it doesn't make a new significant high, and that high I determine to be the $950 area. I am straight up short the gold ETF (GLD) and have put option butterfly on the same ETF to profit if gold continues to go up slightly or sideways for the next few weeks.
Nothing new to report today. The market was wild as the bulls continue to "hope" the market higher but in the end in the big picture, the market has moved nowhere since March 21st. My key level in the S&P futures of 859 held today so I remain bearish and only have one bullish position as a hedge (selling puts on Intel).
The bank stress test will be discussed with government officials and various banks tomorrow morning, and the government will disclose their methodology to the test. I expect it to be a dog and pony show with outstanding results. But the key is the market's reaction to the news. Right now the wave count I have sets up for big wave 3 down within wave C immediately. So I feel that the reaction to tomorrow's news on the stress test will result in a selloff. If for some reason it doesn't, and 859 in the S&P futures (861 cash S&P) holds tomorrow, then Monday the actual results from the stress test will be released and that may hold the big selloff day.
Bottom line: tomorrow or Monday should carry a big selloff taking the S&P toward my 761-780 target area as long as 859 in the futures is not exceeded first. I have all my same short positions and have gotten rid of all but one long hedge position.
Wednesday, April 22, 2009
My stop out point is the 876 level of the cash S&P and despite the bulls valiant effort to extend this multi-month rally, the index stayed below that level all day. The choppy eratic and fractured structure of the market today is the exact market action I expect to see at a top. The bulls knees become shakey and the bears gain confidence at these times. Then both are literally duking it out. As we can see from the last 30 minutes of trading today, the bears won. The bears should continue to gain the upper hand as the S&P should shoot sharply lower in a wave C toward the 761-780 area before I look for a bottom. The first test should be the bottom of the parallel trendchannel which hits the 812 area tomorrow. From there, round number support at 800, and then prior support at 780 should challenge the index's decline.
On the rally today, I closed more of my bullish option positions (options I sold as part of bear spreads) to where I have very little bullish hedging available. So I'm almost fully short the S&P, XLF, and various tech stocks using options.
STOP LOSS: with today's decline at the end of session being so strong, and all the stars lining up for a big decline right now, I think it's safe to move my stop loss area down to the 859 mini S&P futures level, which is just above today's high. After the weakness seen today, if the market shoots above that level in the coming days, it will most likely continue much higher and above 876. So I'm watching the 859 level and will most likely fully exit at the level, but will definitely be all out on a break above 876.
Above is a mini gold 8hr futures chart that shows we're probably still in a 4th wave. Because of the wave count, the make or break point has now moved from $911 to $950. I never want to raise a stop loss and increase risk (my goal is always reduce risk whenever it increases the value of a position/trade). So I took some profits on this trade that started well above $900 and moved fully out of my bear GLD spread and added to my short ETF position on the GLD. I also bought an option "butterfly" to act as a mild hedge, especially if gold trades slightly higher or sideways which it might do if it's in a 4th wave as suggested.
So my new gold positions are an option butterfly and a straight up short on the ETF (GLD)
Tuesday, April 21, 2009
The S&P completed 5 waves down this morning as I posted early this morning and then spent the rest of the day rallying. However the rally was not very strong internally and on modest volume. Looking at the rally today it made it to the 50% fibonacci retracement level (see 60min S&P futures chart above). However it does look like a 5 wave rally, not a 3. So it's possible today's rally is wave A of an A-B-C rally that may take the rest of the week before complete. I will assume the rally is complete though until it proves to me otherwise.
What's good about the 5 wave decline is that it gives me a solid stop point. That stop point is at the 876 level to which I will completely stop out of all my short positions and finally throw in the towel and sit on the sidelines until the structure clears up. As long as the market trades under 876 I will remain short in the forseeable future.
I remain short my same positions but closed some of the options I was selling (the positions I was long the market). The more the market rallies, the more I will sell these positions and get more short biased now that my risk is clearly defined at the 876 S&P futures level.
Gold rallied this morning but sold off sharply in the afternoon in what appears to be an impulsive decline. It fits well with the wave count in that it would have completed a wave 4 (see above 4 hour chart) because it was a flat choppy rally that reached the area of the previous wave iv extreme. I fully expect gold to fall to a new low in a wave 5 beneath $865 without trading above $897. The metal is currently trading at $885.
I am still short gold through bear option spread on the ETF (GLD) and shorting the GLD outright.
Last night's decline in the S&P futures makes a very clear 5 wave decline (see above chart). With 5 waves down occuring after touching the top of the parallel trend channel, and having extremely weak NYSE breadth during the proposed 3rd wave, tells me that the larger trend is now down in the at least the short term. However, with 5 waves down it opens the door to a possible correction of that 5 wave decline. Once complete, the market should continue lower to new lows on the month.
My target is the 760-780 area.
Monday, April 20, 2009
Gold is still declining impuslively which suggests the larger trend is down and has further to go on the downside. However it's getting a bit "bunched up". I like to see the metal's decline stretch out a bit soon for me to be more comfortable holding it short through my option bear spread on the ETF (GLD). Right now you can see from my 4hr futures chart above that it should be in a 4th wave rally. Once complete, it should break down towards the $830 level.
I remain fully short with a stop at $911.
From an EWP perspective, it seems clear that an ending diagonal pattern just completed (see above futures chart). Notice the above 4hr S&P futures chart above shows the choppy hard faught rise from March 20th 762 low takes the form of a very nice "ending diagonal" after the decline today. You can see that the pattern is clear and adheres to EWP's rules. In ending diagonals, the are usually followed by a sharp reversal that wastes little time retracing back to at least the beginning of the diagonal. In this case, that area is the 775 level in the S&P futures (see chart above). So after breaking below the parallel trend channel I mentioned in the previous post, I expect the index to charge immediately lower to the 775 where a bottom MAY form.
I remain short the S&P, XLF and various tech stocks (CSCO, INTC and ORCL) through option bear spreads.
Market decline today looks like a top is in, at least in the near term. NYSE breadth was extremely weak today with almost 9 declining stocks for every 1 advancing stock, an amazing 96% of all NYSE volume going to the downside, and 479 out of 500 S&P stocks trading down on the day. So today was a solid down day across the board. Notice that the index reversed sharply at the ascending parallel trend channel I drew above. After the second test here, I expect the index to charge lower toward the AT LEAST the lower end of the trend channel which crosses the 808 area tomorrow.
The 4hr S&P futurs chart above shows how it tested the upper trend channel twice last week and is now reversing sharply lower. On top of that, this time the talking heads on CNBC are saying how they've seen these declines before in the past few weeks and the market rallied back. Well that complacency and over-optimism is what I want to see in market tops. I expect the S&P futures to drop to at least the lower trend channel line at the 810 area, but most likeily much lower and on into the 760-780 area.