Head Shoulders Suggests Lower Levels; July 4, 2009

Happy 4th of July all! I'm gonna celebrate America's birthday with a movie and some tri-tip grillin. I hope everyone has a nice enjoyable holiday.

As for the markets, they have not been clear lately but a massive head-n-shoulders pattern has formed on the above 8hr S&P futures chart above. A break of the 885 necklilne will open up the the market to a fall to the 845 level which is a prior congestion area. I added a little to my existing covered call S&P (SDS) strategy on Wednesday, once I saw the market topping in the afternoon. I am about half short of the full position I'd like to be and might add short on any large rallies toward the right shoulder area at 928.

For the head-n-shoulders pattern to hold, the market must stay below 958, but a strong break of 930 on big volume and expanding NYSE breadth would probably signal that 958 will be broken in the near future.

I have half of a full position short the S&P.

Stopped Out Most of Short Positions, Waiting....; June 19,2009

The market rallied completely unexpectedly as I surely thought it would fall today after Friday's action. July 4th shortened weeks tend to be bullish but I don't usually pay much attention to that type of stuff. The market internals were not impressive at all today but the Dow did confirm the rise from Friday in the S&P and Nasdaq which removed the bearish non-confirmation I discussed the other day. Plus, with the rally today, most of the major indices made new highs to where it creates a clear 3 wave decline from the highs a couple weeks ago. This means it's quite possible the short term correction is over. The market structure in the short term is now unclear, so I stopped out about 60% of my short positions at the highs today (unfortunately). I will wait for clarity on the short term structure before I get aggressively short again. The key element to all this analysis is that the long term picture points strongly toward much lower levels in the stock market.........specifically this means an S&P crash to the 400s with a year or so. So I do not want to lose focus on the bigger picture. So I will continue to look for shorting opportunities only.

I am currently short the S&P with a covered call strategy on the SDS.

Market Should Fall Monday; June 28, 2009

The market was fairly flat, but fractured on Friday and an divergence occured between the Dow and the S&P with teh S&P making a new daily high while the Dow did not. After this occured, the market sold off sharply into the close Friday. As long as this divergence holds, the markets should be on a downward trend.

Expect the market to fall Monday, especially at the open at the least.

Rally Today Was Complete Surprise; June 25, 2009

Needless to say, today's rally was a complete surprise. I still do not fully understand what all the excitement was about. I do know that volume was not that strong and NYSE breadth was moderately impressive, but not nearly as strong as one would think it would be after such a strong rally. Consumer discretionary names led the market higher, along with technology again. The sharp rally caused me to close by bear put spread positon on the SPY at a $1.04 profit per contract. Right now we have only 3 waves down from the highs put in last week, and the two downward waves are counted clearly as 5 wave moves. As of now, this could be just a zig-zag correction that has completed, and just a few S&P futures points shy of my 880 target I originally set out with. It's quite possible that today's action is the start of the next bullish leg that moves this market to new highs, or at least attempts to do so. With that in mind, caution is warranted, and I do not want to let good profitable trades turn into bad ones. A break of the wave B high of 923.25 in the S&P futures would put the immediate bearish count at severe risk because it wouuld confirm just a 3 wave move downward from last weeks highs. A 3 wave move is a correction, and therefore new highs on the year will be achieved. So I want to stop out of at least half my position on a break of 923.25 in the S&P futures.

I will close my remaining futures positions and the extra short ETF positions I picked up along the decline if the S&P futures break 923.25. I will maintain my covered call position on the SDS as that is a long term income yielding position.

On Verge of Massive Selloff; June 25, 2009

The market rallied into the Fed announcement but then sold off in the afternoon creating a nice bearish reversal day. Then the futures rallied to new highs in the Asian session overnight but then sold off once again in the European session and into this morning's US session. The selloff broke the low of wave X, labeled in the chart above. This overlapping nature of waves tells us that the rally is clearly corrective and that new lows on the week will be achieved. My wave count suggests that the market just completed a "combination" correction according to EWP which composed wave 2. If correct, it means a wave 3 within wave C is getting underway in the very near future. This of course means a massive selloff is on the horizon. I'm positioned accordingly with my short S&P mini futures contracts, bear put option spread on the SPY, and a covered call strategy on the SDS.

Big Market Move Ahead, Trend Still Looks Strongly Down; June 23, 2009

The market did nothing today, probably a "wait-and-see" approach to the Federal Reserve meeting conclusion and public announcement coming out tomorrow late morning (PST). There are various ways to interpret the short term wave structure and outlook but I don't want to get too caught up in the minor ups and downs in the market because the important point for trading is that the larger trend appears to be firmly down still. I think the 880 S&P futures level might offer a good support level, although the wave structure suggests that this level might get blown away soon.

Today's sideways action can be interpreted as a triangle in the S&P and the Nasdaq composite. Triangles only occur in 4th waves and B waves. The current market conditions suggest a B wave which should be followed by a sharp thrust upward in a C wave. But triangle thrusts are terminal, or finishing, moves. So that rally will be quickly reversed and the downtrend will resume. The other scenario had today's sideways action as an actual correction where the small 5th wave labeled on the 2 hour S&P futures chart above is extending, or it's a wave 3 within C.

All of the 3 scenarios eventually lead to lower levels, and 2 of the 3 lead to sharp big moves to the downside. So I remain heavily short, ready for a brief sharp rally where I can add to those short positions.

I'm currently short Sept. S&P mini contracts, have a bear put option spread on the SPY, and a covered call option position on the SDS.

S&P Futures Shorts Bring in Big Profits; June 22, 2009

If you shorted the S&P futures at the top (952) where I thought we had a nice reversal and a high probability of a top in place then you'd be in the profit $3,200 per contract right now! I personally put in a sell stop at 919 so I'm currently $1,550 in the profit per contract right now on top of my current ETF and bear spread option positions. I've eliminated over 4 weeks of losses in only 6 trading days, and more profits should come for the shorts in the near term from what I can see. As I said in my previous post on the cash S&P index, the selloff was broad-based and very strong, no bulls were really in the market and with 5 wave declines and choppy rallies accompanying that it's quite clear the bears are in full control.

Wave structure suggests we're probably in a 5th wave of smaller degree so a near term bounce may come soon. With my projected target area of 880 only 10 points away, I'm planning on a further decline tomorrow morning to that 880 level where we may see a corrective rally take place. So I will be taking some more profits off the table if the market opens down 5 or more S&P points tomorrow in preparation of that bounce. But the rally should be short lived (depending on its structure) and it will just give me another opportunity to reshort the market again. I do feel we have further declines to go and this could very well be the beginning of the major wave 3 down I've been calling for that sends us into a full blown depression. So I'm on high alert for signs that may be occuring. With that in mind, I don't want to get too cute buying and selling too large of positions on short term moves. The larger trend is clearly down at this point so I want the majority of my position short for the longer term. I am merely playing little pieces of my portfolio on short term moves.

I remain short the Septermber S&P futures, a bear spread on the SPY, and covered call options strategy on the SDS. So I am still heavily short the S&P at this point.

Big Profits Booked for the Shorts Past 6 Days, More to Come; June 22, 2009

The markets continue to fall as planned. Above is a 15min cash S&P chart showing that the market is falling in 5 waves (impulsively) and rallying choppy corrective waves. Breadth and internal strength of the market continue to be extremely weak telling us that the bulls are exhausted and the bears have full control. Technicall, a small degree 5 wave decline appears to be completing as shown above so caution is warranted for getting aggressively short term bearish at this point. However, this was an across the board very strong selloff which tells me most likely we'll see further declines in the very near future before a meaningful bounce. I closed a very small short S&P position today because I feel I just have to take at least some profits when the market falls this much in a day. I will add that position back if the market rallies tomorrow. But as of now, it appears the market will fall further in the coming days or weeks, and I'm on full alert to see if the big wave 3 down is underway or not. Right now it's inconclusive.

Market Unfolding as Planned, 880 S&P Cash First Target; June 22, 2009

Last post on June 18 I projected a sharp rally to suck in the last bulls and finish a 3 wave corrective rally and resume the decline. My target was around 930 cash for the short term rally to end and it made it to the 927 before topping. Then a small 5 wave drop occured Friday and now this morning, right on time, the market is selling off sharply. My S&P cash index target is 880 for the immediate short term, but this market possibly has much much more bearish potential. So I won't be anxious to completely liquidate my positions. The break of 900 in the S&P today caused me to add to my short positions and a cash index close today will cause me to probably add to my short futures position.

The market is weak and can fall much further in the near future. But 880 is the first wall to break down. A strong break in that level can result in a an acceleration to the 800 level.

By being patient and sticking with my analysis and not letting emotion take over my trading strategy, I've gained back over 4 weeks of losses in just 6 trading days as the market stands now.

Probably Small Short Term Rally, Then More Declines; June 18, 2009

The mainstream media (mainly CNBC folks) are way to short term bearish right now to get me to fully dive right into the short side now. So many CNBC anaylsts and articles online are talking about a "short term pullback" that it has me very cautious about the market declining right now. The wave structure still leaves the door open for more time to elapse and higher prices before the next leg down. I am still very bearish in the next few weeks, but I think we need another "pop" rally to get rid of some of those mainstream bearish attitudes in order for the next leg down to get started. Tomorrow is a Friday which is typically a slow day so it's possible we just drift higher all day tomorrow. If not, I expect a sharp ferocious rally that will suck all those short term bears into the market to go long which will lead to a top and reversal. Whatever the method, I still feel we will climb a bit higher in the very near term here.

My chart above of the 15min S&P cash index shows my projection for the market where it rallies just above the prior 4th wave (typical in EWP) to the 50% fibonacci retracement level at a nice round number of 930. There's no requirement for the market to get there of course, it's just my best guess as to what I need to prepare for. I'm about 50% short right now and will increase to 75% short as the market works higher.

The bottom line is that the market is in a decline phase that should take the S&P to the 875-880 area before even considering a bottom. But in the very short term, a rally to the 930 is quite possible.

Wave C Underway, Then More Declines; June 18, 2009

The attached chart shows a typical EWP wave count with a strong wave C underway right now. My projected target is the previous 4th wave area around 924 in the S&P futures and 927 in the cash index. This rally is an opportunity for me to get heavily weighted on the short side again.

Nothing Changed; June 17, 2009

Nothing changed with today's action. If anything it just proved again that even after the Dow losing 300 points in two days, the bulls still cannot gain any control or strength. It's quite possible today is part of an ABC correction which will lead to a sharp wave C rally tomorrow. But that will just bring about a better opportunity to short some more as the ensuing decline should be quite fierce.

I remain staunchly bearish.

5 Waves Down Suggest Trend Now Down; June 16, 2009

The S&P cash index declined in a very clear 5 waves from the top last week. Today's decline was quite weak as far as breadth and declining volume, but not as bad as yesterday. The Dow has lost 300 points in two days and I now see a very clear 5 wave decline which tells me a short term bounce may be on the horizon. For this reason I sold some options against my short S&P ETF position and closed my very short term S&P emini futures position at a nice profit. The break of the ascending trendline on the daily chart I've talked about in previous posts, and now the impulsive clear 5 wave decline in the S&P cash index tells me the larger trend is down and the market should be headed to much lower levels after a possible short term bounce to correct the 5 wave decline.

My initial target for the S&P futures is the 880 level. I remain short the S&P through a bear put spread on the SPY and through a covered call strategy on the SDS. The next few weeks should have this market in a downtrend. So far, the decline is not exhibiting the type of behavior I would expect if the big wave 3 or C down is underway. Regardless, the market is headed lower in the short term.

Trendline Breaks, More Declines to Come; June 15, 2009

The S&P futures finally broke and closed beneath the ascending trendline established for months as shown above. This is what I've been saying would signal the next significant decline phase. This, combined with the very weak breadth as more than 93% of NYSE stocks traded to the downside and almost 5 1/2 stocks traded down for every 1 stock that traded up. Volume was a bit light but that just opens the door for more sellers out there to come forward and push this market down. All this evidence suggests that the buyers have become exhausted and there really aren't any more out there at these levels.

Expect the market to decline to the 880 futures level at least with last week's highs remaining intact.

Stock Rally Severely Exhausted; June 13, 2009

The stock market rally is severely exhausted. The market cannot push higher over the past week, breadth continues to deteriorate, the small cap and tech indices are showing more weakness than the blue chips suggests people are exiting their "risky" assets, momentum indicators did not confirm the recent high in the stock market and several other indices did not confirm that high in blue chips. Usually when the market closes with NYSE breadth negative and the Nasdaqs and blue chips are mixed up and down it leads to a sharp decline shortly after. Well not only did we have that action occur Friday, but it's happened 3 times in a little more than a week! Again, this fractured non-confirmation failure to push higher is signs of extreme bullish exhaustion.

I still await a strong break of the trendline and ultimately a break of that 5 wave rally on Thursday which I feel was an "ending move". Once this occurs, we can be all but assured that a significant top is in place.

I'm short 65% total strength with the SDS (ETF) and a small bear put spread on the SPY.