S&P Falls as Forecasted, More to Go; March 30, 2009

The S&P fell hard today and made a nice profit along with the XLF and gold trades. Again, with such a hard fall today I took profits to protect my capital. Momentum is headed sharply and strongly lower (see above 4hr S&P futures chart) and the internals of the market were extremely bearish as there were very little buyers at all in the market according to NYSE breadth. We might get a mild pop rally tomorrow but the next move of importance should be to the downside and I see support at the prior 4th wave and 38% fibo retracement level at 761, and the next level of support at the 743 level. Many on TV seem to site the 740 level as very important and the place to form a bottom and start buying. Because of this, I'm contrarian to this mainstream view of course and don't think that will mark the bottom. So most likely we'll see this decline end around the 760 area. But that view can change as this decline unfolds.

I'm still short the S&P through a bear put spread on the SPY.

Gold Breaking Support and Starting to Crack; March 30, 2009

Gold closed below the ascending trendline (see daily gold chart above) suggesting that the metal is about to cascade lower. It's been treading this support level, along with the $890 level, for months and once it gives way for certain, it should shoot to the $890 level in a hurry. Like I said before, the $890 level has been tested several times so the bullish support has been severely eroded already, so I would not be surprised if $890 gives way like warm butter when it's hit.

$850 is my initial gold target, but the potential is much much greater into the $650 area.

XLF Loses Over 8.5% Today, More to Come; March 30, 2009

The XLF fell over 8.5% today and it appears to have more to fall as the $7.90 area looks to be the next level of support as this decline gets underway. However with such a big selloff today I'd be a fool not to take SOME profits, so I took 25% of my XLF position off the table.

Financials VERY Bearish; March 29, 2009

Above is an hourly chart of the financials' ETF (XLF). The financials have been leading this market up and down for the past several months so it's good to keep an eye on it. As you can see, the ETF has risen from $5.88 to $9.71 in just 12 days which is an amazing 65% rally! This is obviously way too much too fast and after that 12 day strong 65% rally, the financials have not made a new high since the peak on March 18th, even though the stock market has made new highs. This divergence supports my position that the stock market is headed lower in the short term, and should hold true as long as the XLF does not make a new high above $9.71 first.

You can see in the chart above that the XLF's rally was basically a straight line up, but then in haulted at the $9.71 area and moved sideways, consolidating in a triangle-looking formation. According EWP, a triangle in this instance would mean it's in a 4th wave and the consolidation is just a pause in the uptrend before it thrusts higher to complete the move. Because of this, I can't rule out one more sharp rally to new highs before it reverses sharply. However, looking at the stock market and how bearish this sector looks right now, I'm far from certain this will happen. So again, I'm using put options on the XLF so I can risk whatever I want and I can just sit back and let the trade run without worrying about losing all my money if I had a straight short equity position. Using put options will allow for a sharp rally and reversal without getting stopped out and trying to get back in. Regardless, this sector looks very bearish and should fall hard, soon.

Bottom line: I'm short the XLF using naked April put options expecting a sharp decline to at least the $7.90 area, which is a 25% decline!

Gold Bearish, Needs to Break Key Support Levels Though; March 29, 2009

Above is a daily mini gold futures chart that shows that it tested the ascending trendline drawn from the $700 price area acheived back in November. Gold should break through that level Monday or Tuesday which should lead to an immediate drop to the very key and strong support level of $890. $890 has held gold up several times but with every drop to this support level the more it eats away at the bullish defenses that protect it. So when it heads to $890 this time, it should barrel right through it because bullish support should be significantly compromised by this time. That should lead to a big selloff, possibly to the $850, or much lower. Gold has the potential to cascade down into the $600s at any time so I'm not going to be quick on the trigger to take profits. I'd rather just move my stops down and let gold run lower, and let the market take me out of the trade so I don't cut my profits short. But I will take very small profits as it falls; but the majority of my position will remain intact with a stop loss backstop.

Bottom line: gold should be falling for the next week or so and the $850 area is a good target for support but the potential for it to fall much further into the $600s is also quite great.

Sharp Wave C Down Underway; March 29, 2009

If the above count on the 4hr S&P chart is correct, then the market is finishing a "flat correction". This means wave C should go just below wave A at 787 before finishing the downward move. I think a much better target is the 770 area where the prior 4th wave ended and the 38% fibonacci retracement level. However, the momentum indicators are so bearish and the volatility index is still suggesting huge swings in the market in the coming days/weeks, I wouldn't doubt the market falling much further in some other type of correction. So it may just tornado through the 770 level and head on down to the 730 level in order to releive this severely overbought condition the market is currently in. Once that occurs, the market should be on a launching pad to target the 950-1000 level so it will be a major buying opportunity as this market falls in the coming days.

Gold Should Fall Now; March 26, 2009

Nothing new on gold other than it probably finished a correction and is headed lower. The above 4 hour chart shows the momentum indicators crossing down now with plenty of room to run. Plus, gold fell hard right at the close of the US session today which often has signaled weakness in the day(s) to follow.

Stops remain at $957 for 1/2 position and the last half will completely stop out at $971.

Market Edges Higher, Major Selloff Due; March 26, 2009

The market continued to push higher today, led by the Nasdaqs and tech. The financials, best tracked by the XLF, failed to make any real progress upward today except for a surge in the last 20 minutes of trading. The momentum indicators show this rally becoming very exhausted and either being held up by hope, or an artifical buying spree, or both. I believe it's both, and when it's over and people realize they can't push the market higher, it will collapse. As reported by CNBC, the quarter is coming to end in a few trading days so big shots are loading up their books with stocks to mark them down for the quarter. I feel once this has ended, perhaps April 1st, the big correction I've been waiting for will come to be. So that's a time estimation for the big correction downward, the price target is the 867 area for a top because it's the underside of an ascending trendline established months ago. So in an educated guess essentially, I can see the S&P futures possibly rallying until April 1st to the 867 area.

As you can see from the 6 hour S&P futures chart above, all three momentum indicators below are making lower lows while price continues higher and higher. This creates a rubber band effect. Sure, the market can continue higher for days or weeks, but until that rubberband is released, it creates a lot of tension on it and when it snaps, it will shoot this market down hard.

Because I know the larger trend is up and this market may rally for the next few days, I do not want to sit on a large equity position. So I'm using put option spreads to short the market at high leverage and minimum risk. This way I risk exaclty the amount of capital I'm will to lose on this short trade, and all I have to do is have the market fall before my option expiration date.

I'm also heavily short the XLF which is the ETF for the financial industry. It looks extremely bearish and definitely in its last throws of its rally. I can't rule out one more sharp pop rally, but it should be quickly reversed and lead to heavy selling which should take the rest of the market down.

To sum up my trades, I'm short the S&P and various tech stocks through April put options using spreads. I'm also short the XLF using a put option spread.

Gold Moving Down as Expected; March 24, 2009

Just to update the short gold trade from the post on March 21st below; the head and shoulders pattern proved a great indicator for the bearish potential that came about (see above updated gold chart). Gold has sold off nicely this week and I expect it to continue. It's time to move my position to have the stop losses at break even in the $955 area. Now I can just sit back and let the trade run. I expect gold to get to $880 at least, in about a week or two.

FYI - I don't always post updates here if nothing significant or new has happened in the markets. I don't see a point to post "nothing has changed", or "waiting". I've beeen waiting for the stock market to show signs of top, which I got wrong a few days ago, so I've been on the sidelines essentially. Now I see a stock market top and gold has moved significantly in my favor so I'm posting an update.

Right now my trades are short gold with a stop at breakeven, and I'm mildly short the S&P with a stop at 821.

Big Downward Correction Underway; March 24, 2009

The strength of this rally sends a strong signal to me that this market has formed a bottom that should last for months, or more. For that reason, it's time to start trying to get long this market. However, the market appears severely overbought, and momentum indicators are not confirming the new price highs and are dragging downward on the larger time frames. You can see on my 4hr S&P futures chart above that even the RSI has failed to make any significant new highs since the S&P hit the 760 level. So that's about 60 S&P points uncomfirmed by the RSI. This is very bearish. Plus, with the amount of progess this market has moved upward in such a short period of time, some pullback and profit taking is due. The financials (XLF) has been leading this market up and down, actually brokedown at the close today and closed down almost 5% on the day. It made new lows and declined impulsively. So the short term trend appears to be down for the financials and they should drag the entire stock market down with it.

Key target areas for this decline are the fibonacci 38% retracement level and prior 4th wave area at 761, which should prove to be formidable support, as well as the 743 and 725 levels. I am mildly short the market right now but will quickly move to start establishing bullish positions once the S&P gets into the 760 area.

So, to sum up, the market appears to have formed a significant bottom and I'll be looking to get heavily long once this market pulls back enough to releive these overbought indicators. In the very short term, the market looks bearish and should take it down to the 760 level. From there I will start shifting from a short bias to big long bias.

Gold's Bearish, Stock Market's ???; March 23, 2009

Gold sold off near the close of today's US session and should mark the beginning of a significant decline to at least the $880 level. The stock market obviously did not decline like I thought it would but today's fierce rally was on strong breadth and technicals which strongly suggests that this market has formed a significant bottom (S&P 666 cash) and is in a major rally phase. It's too late to chase this rally on the long side so I'll wait for some significant pull back to get in long.

Gold Looks Immediately Bearish; March 21, 2009

After the Fed news on Wed. and me watching a nice short gold profit evaporate in less than a minute, gold has had little follow-through. This is bearish. Now look at the 1 hour gold mini futures chart above that shows a MACD bearish divergence (bottom indicator) and the classic bearish head and shoulders pattern price is forming.

I'm short gold again with a stop at a new high. If I'm stopped out, I will re-enter again on weakness.

S&P Has Begun its Pullback; March 21, 2009

The S&P is moving just as expected. It was repelled by the 800 level and had no follow-through after the Fed announcement on Wed. Some type of top is in the market in the short term. Momentum indicators are showing major bearish divergence on the 1hr-4hr charts so this decline could be significant. I'm not certain it will take the market to a new 2009 low because the rally above 800 should be a wave 4 but it violated the previous wave 1 so it can't be. It's possible this final wave down is much larger than I previously thought and we're undergoing a very large wave 3 down right now, but I'll let the market prove that to me first and not assume it. Right now I'm a short term player only, because that's what's clear to me. The market has rallied too high and too quick and momentum indicators suggest a large pullback is in its early stages.

I'm short the S&P and Nasdaq 100 through ETF options and will stop out with a strong break above 800 in the S&P. I'm also short the gold ETF.

Short Term S&P Looks Bearish; March 19, 2009

Attached is the 4hr S&P futures chart. It shows why I think a significant bottom might be in. The projected wave (4) has entered the territory of wave (1) which is a big rule violation in EWP. Are there there other alternatives to still offer a bearish scenario suggesting another major selloff, yes, but this is what we have now so I'm going with it for now. But as you can see, this rally has been pretty straight up and needs to correct before it moves higher..............IF it moves higher. Also notice the MACD momentum indicator at the bottom. There is a major bearish divergence building which acts like a rubberband and when it snaps it will be a strong snap that should shoot this market downward long and fast. So in the short term I'm bearish the stock market will option protection. Once I see the structure of the decline it will help me determine whether it's a correction and the market will move higher, OR if the market has resumed its downtrend. So, to sum up, I"m short term bearish the stock market waiting for clarity regarding the larger trend.

Long Term Chart Shows Significant Bottom May be in; March 19, 2009

Attached is a daily chart of S&P futures which I put a projection of market movement back in January. As you can see, the market has followed my red line very closely. It's quite possible the S&P has formed a significant bottom and will rally for months, if not years from current levels. However, I'm not jumping on big long just yet. The short term wave count would look better with one more new low (below 666 S&P cash), and the social environment just doesn't seem pessimistic enough to think a solid bottom can be in. I am not getting heavily short based on the long term picture, so I will play the short term side while always protecting my positions with options. The rally from the bottom looks impulsive, which suggests the trend has now changed from down to up, but we'll have to see how the decline unfolds as well. If the market rallies in an impulse wave and then declines in a choppy and messy decline with moderate internals, then that means it's time to buy. So we'll have to wait and see the structure of the decline to determine if the larger trend is up or down and that will tell me whether I should be looking for only long or short trades. But for now, the short term looks bearish.