XLF Headed Lower, Risk/Reward Outstanding; April 2, 2009

The XLF did not plummet like I projected yesterday, but after the inditial pop at the open it sold off all day. Another interesting tidbit is that it halted again underneath $9.70 resistance yet the stock market made new highs. As long as this divergence exists, and momentum indicators (RSI, MACD) keeps making lower highs, I'm immediately bearish this sector. I did not close any of my XLF position today because of the reasons I mentioned above. A strong break of $9.70 tomorrow will probably get me to close half my position and let the rest of my option position just run into expiration.

Gold Headed Lower; April 2, 2009

Gold decisively broke the ascending trendline after a typical test of the underside of it (see above 4 hour gold chart). As stated in earlier posts, by clearly breaking the trendline gold should freefall to $890. This level has led to huge rallies the last two tests of it but both times it's eaten away the bullish support there so the barrier for the bulls to break through is much thinner. $890 should be blasted through in the coming days which could lead to a cascade lower to the low $800s, and possibly the $600s!!

My new stop is $949, but will be ready to re-enter on weakness again. Gold will not undergo a significant bull rally until the $680 level is broken.

Gold Trade Still Good; April 2, 2009

Gold fell hard last night but has rallied a bit early this morning. This trade still looks good, gold should continue to fall. I remain short.

Market Rallying Too Far; April 2, 2009

Yesterday the market rallied unexpectedly after what looked like the perfect move in the morning when the futures were down so big. The market is showing strength again and I don't want to stick around with big positions I can't handle if it soars to the moon again. A break of the XLF and S&P highs will cause me to close at least half of my current positions and leave open only small hedged option positions I'm willing to go to zero. Stops are:

S&P 834
XLF $9.55 - $9.71 (depending on if the S&P broke above 834)

XLF Should Have Topped and be Headed Sharply Lower; March 31, 2009

The XLF showed a lot of strength today, even at the close compared to other sectors and the major indices. However I see a possible ABC three wave correction occuring today which means heavy selling should hit the sector tomorrow now that the 1st quarter portfolio jossling is out of the way. A break of the wave A high at $8.96 would confirm the 3 wave rise, but if it breaks above $8.96 beforehand, it will hurt the bearish outlook severely.

I remain short the XLF.

Gold Immediately Bearish Beneath Trendline; March 31, 2009

Gold has traded sideways for quite some time beneath the ascdending trendline that has been intact for months as seen in the 4hr chart above. As long as it holds beneath that trendline, gold is very bearish in my view and should fall off a cliff at any time to the $890 support level at minimum.

I remain short gold.

S&P Should Fall Hard Wed. and/or Thurs; March 31, 2009

With the first quarter maneuvering out of the way, the market should now continue to follow the forecast of declining into the 760 area at minimum. Today's rally was larger and stronger than expected, but it's the last day of the quarter and some maneuvering to puff up portfolios had to be tolerated. The heavy selloff into the close and continuation into the futures market afterwards to even lower levels gives strong evidence that the next decline phase to at least the 760 level is underway.

I remain short.

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.