More Downside Potential, But Staying Short Getting Risky; Feb. 27, 2009

The long awaiting target on the S&P at 741 has finally been reached. I've been pounding the table on this number for months it seems, and now it's finally been broken and closed beneath. However, the bear phase is coming to an end. Pessimism is so extreme that the room to the downside should be quite limited, and the risk of a huge fast and ferocious multi-month rally is just around the corner. Remaining short with no protection is not wise in my view because the risk is way too high and the additional potential for further losses is minimal.

I covered half of my half short position at the lows on the day (rare) but still have some Nasdaq shorts left because I still feel that the Nasdaqs will break their 2008 lows as well. I still have my call options in full strength and am situated to either make a small profit if the market rallies strong, or make a big profit if the market continues to fall.

The next big opportunities will be shorting gold and silver, and waiting to get long the stock market.

Market Should Make New Lows Soon; Feb. 26, 2009

I woke up this morning and saw that the market was amazingly up strong while the Nasdaqs and small cap high risk indices were all lagging big, along with the structure of the rally from the past couple days being very choppy and having overlapping waves barely making any real progress. It was a gift from the market gods this morning. I re-entered my short 1/2 short positions with the S&P around 773. And again, after the early morning the market trickled down all day, still proving that this market is not ready to bottom and that the larger trend is still down. Once a new low in the S&P at 741 is broken, the market is at serious risk for a huge bottom and rally that will rip your face off you're not careful. So very cautious trading here is warranted. I'm using call options to protect myself from a strong rally, especially if it starts in overnight trading when I'm unable to act.

As far as I'm concerned, two things need to happen before I will seriously consider getting heavily long the stock market:

1) The Nasdaqs need to break their 2008 lows
2) Some type of "wash out" decline should occur, i.e. a Dow down 400+ day followed by a huge rally into positive territory on strong breadth.

Until then, I'm still cautiously bearish the stock market.

I'm also currently short gold as well, with a stop at a new high on the year above $1,004.

Stronger Than Expected Rally Underway, Then Lower Levels; Feb. 25, 2009

The corrective rally has extended this afternoon almost breaking above the start of a 5 wave decline which now opens up much higher levels to be achieved potentially. As I said before, I don't feel a significant long lasting bottom is in the market yet so the larger trend is still down. So the market can crash at any time. I posted a 4hr S&P futures chart above to show a large 5 wave decline that should hold as long as the trend is still down toward lower levels.

On the chart I have the fibonacci retracement levels mapped out and project a rally to the 38% fibo area at 790 which is also the area of the previous 4th wave, which oftentimes halt the correction. If it breaks out form that congestion area, then the 50% fibo will be in sight at the 806 area. The market should not rally much higher that this area here. Any strong rally and close above 820 will call into question the bearish case that new lows will still be achieved in the short term.

With today's rally into positive territory I exited all my short positions near break even. Once the market hits my target areas I will begin to reshort again. Until then, I'm on the sidelines watching.

5 Wave Decline and Correction Should Be Over; Feb. 25, 2009

Here's a chart of what I was talking about the last post. In the 30 min S&P futures chart we have a clear 5 wave drop and a 3 wave rally, SO FAR. As long as that holds, the near term move should be down to lower levels...........and possibly much lower levels. I do not feel any significant bottom is in place.

I'm currently half short.

Rally Good Shorting Opportunity; Feb 24, 2009

Today's rally makes a nice 3 wave rise following a clear 5 wave decline. As long as the 800 level, and especially the 815 level in the S&P cash stay intact, I'm shorting this rally.

This morning, the market did not sell off hard creating a "wash out" like I would expect if a major bottom was in. Instead, it trickled down slightly and then rallied all day on strong internals. We may see some follow through tomorrow, or even the rest of the weak. But gains from here should be hard faught and eventually reversed.

I am now half short again and am stopping out if the S&P rises above 792. The fact that the market didn't "wash out" today and rallied instead is the worst the bulls could hope for. In means that most likely this market will absolutely tank in the near future bringing the S&P into the low 600s.

Market Requirements Satisfied, but a Bottom in?? Feb. 23, 2009

The market has continued to decline as expected, and I've been pounding the table in the past few dozen posts over the past few months saying that new lows will be achieved in the indices. The Dow certainly has, the S&P is inches away, and the Nasdaqs have a little ways to go. However, this is the final move in a large almost two year bear market, so I do not want to get caught heavily short when this thing bottoms and reverses. If the market continues lower from current levels, I would be very cautious of a bottom and huge "rip your face off" rally that will immediately ensue and last for most of 2009. It's because of this I'm not short at all right now and have closed ALL of my short positions. If the market rallies from here, it's quite possible it's just gearing up for another charge lower so I will probably short the rally. I do have a gut feeling that this final segment of this long leg down will finish itself with a huge wash out selloff, i.e. Dow loses 500+ points in a day, or loses 200+ points a day for a week. Until that happens, and wave structure supports it, I will still be looking to short rallies.

If no rally occurs, then the next major opportunity will be to get heavily long. The rally from the bottom should be fierce and quick and should last several months.

Market About to Make Big Move; Feb. 18, 2009

The market internals suggest a huge move coming most likely Thursday. The market closed flat today but the Dow was up with the S&P and Nasdaq Comp. down as well as the NYSE. NYSE breadth was negative with more than 2-1 decliners to advancers. Various indices and sectors were up and down today illustrating an unstable and fractured market. Usually when this occurs, the market moves violently the next day. My wave count above suggests that-that move will be to the downside. However, in case I'm wrong, I want tight stops on up to half my position to protect myself from a violent temporary rally. I plan to start stopping out my positions on a solid break of 802 in the S&P. Most likely if the market is going to move violently to the upside then it will probably be due to some kind of news event. So I'll be watching for news releases out early in the morning and watching the markets' reaction to that news. If nothing comes out, and the the markets tank, then the next heavy downward selling phase should be underway.

Bottom line: a violent stock market move should occur tomorrow, either up or down, so I'm prepared to protect myself to the upside and profit big on the downside.

Possible Alternate Interpretation Calls for Rally; Feb. 15, 2009

After looking at this structure over the weekend I have come up with an alternate count which is just below the count listed in my previous post. The reason this count I'm showing now is not on equal footing is because of the heavy selloff that occurred minutes before the close on Friday which may signal what will happen first thing Tuesday morning in preparation for the stimulus bill reaction; and also because the decline on Friday is very very choppy and not impulsive. Now we've seen this same choppy widening structure just before the October selloff which I chalk up to extreme volatility as the market gets real shaky and panicky before it tanks, but it does not really fit into an EW count. So my alternate count calls this choppy decline a "b" wave within wave (2). So a strong "c" wave rally should ensue soon. A break of 841 in the S&P futures will confirm this is in fact occuring. However with momentum indicators so weak and suggesting further weakness, along with various internal technical indicators suggesting weakness, and the the projected wave count being a large wave 3, a sharp "c" wave rally will be nothing more than a golden opportunity for the bears to add or establish strong short positions. I am currently only half short, and will short much more if a rally on Tuesday occurs. On the flipside, a break of 804 in the S&P futures will cause me to add to my shorts as well because that will confirm the downtrend is in fact underway, and it should waste little time breaking the 2008 low of 741.

Bottom line: any rally above 841 I'll add to my shorts and any decline beneath 804 I'll add to my shorts.

S&P Needs to Selloff HARD Early Tuesday; Feb. 14, 2009

The wave structure is running out of waves 1 and 2 where it now needs to collapse in basically a straight line down in a wave (3) of 3 of (iii) immediately. The choppy decline seen yesterday and Thursday does not fit nicely into a wave count however we've seen this choppy widening downward movement in the past. Right before the October crash the market did the same thing for weeks before it finally made a straight line down that month. So we'll see if that happens again. 841 in the S&P futures needs to hold otherwise we could have a week or so of more rallying. I'm uncertain of the near term so I took half of my positions off and will re-establish them on a rally above 841 or a drop below 804. The fact that the Dow has traded and closed beneath the key 8000 level most of the week is very very encouraging to the bearish case.

Expect wave 3 of 3 of 3 to do a straight line down early Tuesday, if not, it's possible we'll have a sharp rally that lasts a week or two before that happens. But overall, I'm aggressively bearish and there's little doubt at all that the larger trend is down and the bears have control of this market.

Gold 5 Wave Decline; Feb. 14, 2009

Here is a 15 minute chart of gold futures which shows a 5 wave decline followed by a choppy corrective looking rally that has haulted fiercely at the 50% fibonacci level. Gold is bearish as long as it trades beneath $954.

Gold Looking Like it Will Fall off a Cliff Soon; Feb. 14, 2009

I have been wrong on gold for so long I haven't posted much on it. But I do see a severely weakening up trend here, and add that most of the TV and news I hear is bullish on gold and I can confidently say that this metal is in its last throws before a massive selloff. Look at the above daily chart of gold futures and you can see the RSI and MACD momentum indicators have failed to make new highs since December, even though price has continued to push higher. This doesn't tell us where or when the uptrend will end, but it does tell us that this rally won't last long and when it reverses it will be a fierce fierce selloff.

5 Waves Down, Now a Correction; Feb. 12, 2009

The market dropped in a nice 5 waves from the highs but hit a wall late today with another garbage government plan. However the wave count shows that it's just a C wave in a "flat correction", which ended right at the previous 4th wave extreme. I don't expect this rally to continue much at all. Ultimately 873 in the S&P futures must not be exceeded, but a strong break of 840 would warrant caution. The market counts to be in a large 3rd wave right now, so if that's correct then this market should charge lower very very soon. Any further strength for a day or more might call that larger count into question. First significant resistance is the 840 area and ultimately, 873 is the ultimate breaking point. But I don't expect that level to be tested any time soon.

I expect a flat or down market tomorrow.

All Indices Confirmed 5 Waves Down; Feb. 12, 2009

All the major indices' futures have now made new lows on the week which makes 5 waves down across the board. With the market opening in 10 minutes it's more than likely it will push the cash indices down to new lows as well. The S&P futures is bumping down on the that blue ascending trendline I drew in two posts prior so a solid break of that combined with 5 waves down from last week's high tells me this market should accelerate in downtrend over the coming weeks.

No time for a chart....

Only Nasdaq Futures Make 5 Down SO FAR; Feb. 11, 2009

The Nasdaq futures have made 5 waves down as seen from the above 30 min chart, however the Nasdaq 100 cash market has not, and only the S&P cash has also done soe. The S&P futures just touched the wave 3 low, but did not make a new low to consider it a 5th wave. This fracturing of wave structure in various markets is not good for the bearish case. We need all the indices to break through to a new low and follow the S&P cash and Nasdaq futures. Otherwise this is a non-confirmation which can lead to a sizeable rally.

Major Decline Phase Underway, 5 Waves Down Will Confirm It; Feb. 11, 2009

Can't talk long, but with the major selloff yesterday and most of the government nonsense out of the way, the market is now free to fall. Still waiting on a 5 wave decline which appears imminent, as well as a break of a trendline formed from the entire rally established at the 740 bottom (note blue ascending trendline in the 30min S&P futures chart above). 740 in the S&P cash is the first and minimum target.