Gold Did Nothing, But Still Bearish; April 9, 2009

Gold did nothing today so there's nothing new to report other than yesterday it made a feeble attempt to break above $890 and stay there and has now started to decline towards the next support level at $830. As long as $890 is significantly broken and held, gold is immediately bearish in my view.

I'm still heavily short and will remain short until I'm stopped out or a strong rally changes the outlook of wave and technical structure. As long as the metal remains solidly beneath $890, I fell comfortable holding short. A strong break and close above $890 will bring extreme caution. My initial target is still the $890 area, but possibly much much lower.

S&P Rally Unexpected, Still Needs Selloff; April 9, 2009

The stock market rallied ferociously again today, unexpectedly, on strong breadth and technicals like has been for the past few weeks which supports the idea that a significant bottom is in the stock market (S&P cash 666) and the larger trend is up. But it's way too late in the game to get bullish now and momentum is severely diverging to where a large correction is needed in order to alleviate this overbought condition before it's safe to get in big on the long side. Because the larger trend is up, I dont' want to establish a large short equity position where I can lose my entire position if the market keeps charging higher for some reason. So I'm using SPY bear spreads (buying May $85 put and selling $80 put) on the S&P ETF with a May expiration now as a way to short this market. This way I risk a much smaller amount and just have to sit and wait for the market to correct. Being so aggressive as I am I'm willing to try and catch a top and reversal, even though it's against the larger trend. Someone who is more conservative might just want to wait for the selloff to occur so they can become a buyer at that point. But waiting weeks for that is not my thing. So I'll risk a small amount on bear spreads to try and catch this large selloff that should occur soon. I remain short various tech stocks, the XLF, and the SPY through option bear spreads.



I was asked a question today by a reader which is a very good one. When is it time to get in and get short? Because the larger trend is up, it's very difficult to get a definitive answer because it depends on the person's strategy. If someone's shorting using pure equities or futures, then I would wait for weakness to occur, then short and put a stop loss at the last high. But if using options like I am, it's okay to just short now with bear spreads and wait. When the market reaches a peak and sells off, I can buy back the put options I sold that were in the process and just have a naked put option there to profit from the ensuing decline. So I can profit when it rallies, then close that profitable position and let the other position get into the profit as the market falls. The fact that the S&P broke 850 today and the fact that earnings are going to come out in full force soon, may give a que that this market is ready for some profit taking. I think a lot of this rally is just a buy and hope rally for overly aggressive and hopeful bulls who don't want to miss the next bull market (which we are not in by the way). But with earnings coming out here soon, and having the run up we have already in stocks at this point, it seems fairly obvious to me that the market will selloff as companies report earnings in order to take in profits. So the market is rallying ahead of earnings only to sell off during the actual earnings. That's my view.

S&P Rally Still Waning, Making Little Progress, Ready to Fall Hard; April 8, 2009

Well I sound like a broken record in saying the S&P is bearish but I call it like I see and I have to take what the market gives me. Right now I see severely waning upside momentum as there's so much hope that this rally will go straight to 1100 without looking back that people are pushing this thing up with everything they have. But hope will not sustain the rally and the momentum and internal breadth indicators support this as they are severely weakening every day. As of today, the S&P is at almost the exact same level it was at March 23, 2009. So in over two weeks, the index has gone nowhere, even though it seems like it's been so bullish during that time. Again, this is the last bullish hope that this market is going up in a straight line and panic buying is taking place because people are petrified in the missing the bottom. But what they should be worried about is buying at a top, which most people are doing right now. The market may drift higher in the coming days to the 850-860 level, but the evidence is overwhelmingly bearish at this point, and any rallies will only be met with further internal weakness that act as a rubberband that will shoot the market down further. I am short and remain short. I'm watching the expanding trendchannel I drew on the 4 hour S&P futures chart above and am watching for a clear break of the lower end of the channel. This will lead to further telling to at least the 760-780 area of congestion. From there I might turn bullish.

I've rolled my April S&P put options over to the May contracts and remain short the S&P and the XLF (financial ETF) also in the May expiration. I feel strongly that the market will correct downward to my target areas before more significant bullish potential is to be considered. So I wait.

Gold Tests $890, then Should Fall Hard; April 8, 2009

In a previous post I said gold might rally and test the underside of the $890 area before grinding lower and that's exactly what happened in the overnight session. The failure to break through above the $890 level should cause the remaining hopeful bulls wanting gold $2000 to finally give up and sell, sending this metal sharply lower.

I remain heavily short gold, but am watching that $890 level closely.

Gold Falling as Forecasted, More to Go; April 06, 2009

Of all the trades I've been tracking, gold has been a cash cow and has followed my exact forecast. First, the ascending trendline was broken which I said would lead to an immediate charge and test of $890. I said this level has been formidible in the past, but shouldn't put up much of a fight now because it's been tested so many times that the bullish defenses should be severely eroded by now and the metal should break through the level convincingly. Well it broke through $890 last night and into today convincingly alright as you can see from the daily futures chart above. Now the bulls may push the metal back up to the $890 level to try and bust back through it, but it's not required, and it should be a failed attempt. Once that happens, the bulls should just give up and send this metal down hard........and fast! However, this may not even happen and the metal may just continue lower from here. My initial target to start taking profits is the $830 area, but I'm mindful the metal may make it to the $600s so I'm more interested in dropping my stop losses and letting the market take me out so I don't miss a big move in case it happens.

The metal is bearish and should be headed lower to at least the $830 level in the coming days.

S&P Should Charge Lower in Coming Days; April 6, 2009

The S&P is showing signs of bullish exhaustion, and after today's action it's now showing internal and external weakness. The rally should exhaust soon, within a few days, and heavy selling should resume taking the index to at least the 800 level, but probably the 760 area before attempting a bottom.

S&P Weakness Calls for Short Entry; April 6, 2009

The S&P futures sold off sharply early this morning and pushed the RSI to a new low on the above 4 hr chart which should pull price down hard as well like I've been expecting. Risk is clearly defined at the prior high with a stop at the 849 level. If the expanding channel above holds, then the S&P futures should get to at least the 790 level before bottoming which makes for a good risk/reward trade.

Gold Breaks $890; April 5, 2009

Gold broke $890 convincingly early in the Asian session early Sunday night US time (see daily gold chart above). We'll see if it holds this time. If it holds, it should lead to a cascade of heavy selling pressure into the low $800s, and possibly the $600s in a week or so.

XLF Probably Continues Higher; April 4, 2009

The XLF turned into a real dog as it continues to rally yet lag most sectors and indices. When the market finally rolls over to undergo the huge correction I've been painfully calling for, the XLF will get the worst of it and collapse hard. Yet it doesn't appear ready for it yet. It rallied big a few minutes at the close right at my control point at $9.70 so I closed no XLF positions. I will cut some if it rallies strong in the morning and let the rest of my options run until expiration. The next resistance level appears to be the $10.09 area.

I will not talk about the XLF again unless something significant happens to report on. Again, more rallying Monday will cause me to reduce my XLF position and let the rest run until option expiration later in the month. If it declines sharply I'll report on it here.

Short Gold Working Well; April 4, 2009

Gold continued lower after breaking and retesting the ascending trendline as projected. It fell right down to start testing the very tough support shelf of $890. This test should occur in full force Monday or Tuesday and as I said before, it should break through that support and cascade lower next week and perhaps for weeks. My initial target is $850 but there is much much more bearish potential into the mid-$600s, so I won't exit at a market order, I will just trail my stop down and let the market take me out so I can let my profits run.

I remain fully short with a new stop at $937 with a quick trigger finger to re-enter on weakness again if stopped out.

Market Continued Higher, Still Needs Pullback; April 4, 2009

The market started down early but faught back into the positive later in the day. Again, unexpected. But this is good evidence that a substantial bottom is in at the cash S&P at 666 because of the relentless buying power and force behind this rally. But in my opinion, it's too late to get long now having it rallied so much so fast and momentum severely weakening. Folks are buying now out of fear of missing the new bull market, which we're NOT in, this is just a large bear market rally. Regardless, the best decisions I think are to go lightly short with put options so risk is well defined, or just sit out of the market and wait for it to fall so I can start establishing long positions. The larger trend is up, but momentum suggests that a major pullback is due before it's safe to get in long.

I'll post the above hr S&P futures chart until the channel is invalidated.

Market EWP Count Uncertain, But Momentum Weak Tomorrow Should be a Big Down Day; April 2, 2009

The market rallied well above my control points and I exited half my S&P position a few minutes after the open this morning. The EWP count is unclear so I posted another chart showing the weakening stage of the market. It launched in a straight line up in the beginning, but over the past week or so it has struggled to make new highs and is looking wobbly (see above 4hr S&P futures chart). Several other indicators suggest a selloff may occur tomorrow:

1) The XLF did not make a new high today and actually sold off all day, even though all the major indices rallied to new highs.

2) The Nasdaqs were modestly weaker today.

3) The market soldoff a bit at the close today.

4) The VIX (volatility index) barely dropped today, and was actually up at one point of the trading day.

5) The RSI has not made a new high since March 18th, despite the fact that the S&P futures have rallied 30 points with 3 new significant highs during that time.

All three of the above suggest internal weakness in this rally. The first 4 above tell me that people are getting nervous on this big rally so they're staying away from the risky Tech stocks, they're buying a lot of puts as shown by the VIX, the financials have lead the market lately and they soldoff all day, and stocks soldoff at the close indicating more nervousness about holding stocks overnight especially with the jobs numbers coming out tomorrow.

With evidence of today's market action, the speed and length of this rally, and the big jobs numbers coming out tomorrow; I am bearish this market in the very short term. I will probably not add to my short position unless the market goes higher with all the same conditions occuring above still happening tomorrow, or if the market opens flat.

I'm still half short the S&P and am fully short the XLF pending a strong break of $9.70 where I'll close half.

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.