My preshyuss

Above is a chart of SLV. There has been absolute carnage in SLV. As they say a downfall in SLV predicts a recession. Well how true. Anyways, we think SLV has almost completed the first of its downward move. The chart looks prime for a take off to the 14 region, in the next 2-3 months.

Buy on any pullbacks. Hop on, ride on.

Triangle smashed?

Guess, everyone knows what happened. The triangle has been invalidated. We got of our short SDS at around 115, after we saw a ginormous green candle on the 15 min. We definitely did not see such a big rally. Nevertheless, we are less bearish than yesterday. 

What now? -

we don't want to play until we understand what is happening? One day doesn't make a market. We want follow through. The next couple of days are important. 

Is the low in?

The next couple of days will tell us.

Our strategy?

Until the indices shows follow through or busts through another resistance, we are not playing.

our stance: we are oh-so-slightly bullish, given the nature of this rally. Why? because we are dead sure there are a million shorts out there who are caught flat flooted given the nature of this rally.  It was a stealth rally with no warning and even the media is groping for reasons. Heck, even we did not get whiff of it, even though we were looking for a bottom sometime this week. Any down day and there will be short covering. Either ways, you can bet there will be a tussle.

If things workout fine, we could see 1150 on the S&P in a few weeks.

The abyss ahead

I got an email, requesting me to atleast draw a chart instead of soothsayer like predictions. Sorry but we have been extremely busy and trading is only an addictive hobby for us.

So here goes -

The chart above is of the SPY.
We were hoping that the pennant type cluster which began on oct 10, resolve quickly last week and we finish off the necessary 5 waves. Unfortunately, that hasn't happened. I guess no one can command the waves. This is also because in general corrections alternate. Wave 2 as you can see was a sharp, short affair. Wave 4 is this sloppy, time consuming pennant or triangle or flag or whatever you chose to call.
I believe, we got into wave 5(i), on thursday late and ended with the gap down on friday morning. Whole of friday we spent on wave 5(ii). The last 10 minutes, could have the been the beginning of wave 5(iii). The silver lining is the positive divergences on the momentum indicators, indicating the selling is losing strength and validates our view that we are in the final phase (wave 5) of selling.

If this plays out, we could be down hard next week. We are praying that the 2002 lows hold. That target is around 768. We don't expect 840(oct 10 lows) to hold. There are other targets around 730 and around 656. But the most dire target is around 484.
Timewise, these waves should end by next week. And we should see a multi-month bottom in a week or so. The question is at what price?

We are fervently praying that this market holds near 768 or even 730. Beyond that, it is extremely scary to even think what would happen to the world we are living in.
I guess we all need to pray.

next week

It was a very frustrating day today for us. We thought we had capitulation at the beginning of the day, but there was none. It whimpered out. Guess the waves have to finish playing out. So the date of turnaround is put off at least till the late half of next week. We will probably see some heavy selling before that.

In lieu of this view, we loaded up on SDS when the dow was down about 200 points today. We think the indices are going to go much lower. We also expect the heaviest phase of selling to come on monday and tuesday. So buckle up

Sad but true.

What now?

CNBC has on its front page, if today was a capitulation bottom. Well we are close, but not yet there. We still have at least 2 more large sell time periods, which could potentially be more damaging than today. But the good news is a rally is close, as we said in the previous post.

Our plays - we will short on strength but with reduced position sizes. We covered some of our gold short, while letting the rest run with a trailing stop.

Good luck.

Event Horizon -- Part II

The end of another nice week for us, though not as eventful/profitable as the last 2.

We are mostly in cash except for a small nugget of index shorts, loaded up today at 970.
We have a key turn date coming up next week or early the week, after that.
That should lead to a multi month rally.

As for the action, in the next week, we envision a symmetrical triangle formation/wedge formation on the indices. We think this triangle will break down. How low we go is anybody's guess. We may retest the lows again or even test the 2002 lows again. We are more certain of the time now than the price action. Since there was a huge amount of selling in the last 2 weeks.

The week ahead and the next

As we said in our earlier posts, this market is not out of the woods and further tanking is in order. Our targets are around 815, 768 and even 713.
We will watching for everyday volumes and momentum indicators. This will give us a "tell" if the downside is saturating. This is exactly similar to the inverse scenario of the commodity bust that we predicted so accurately back in july. We believe a multi month bottom is a week or so away.

We will also be watching keenly for 5 waves down. That should give us a reason to start dipping our toe on the long side. Just so that you can synchronize, today is either a full or a part of wave 1. We will see a rally very soon either tomorrow or into friday.

Strategy: A small portion (20%) to short into strength and the rest is dry powder.

Caution

Firstly, we got a nice rally from the lows. We timed the 1000 pt jump to almost perfection. But our indicators are not behaving well. We are very cautious here. We are not out of the woods as yet. We ideally wanted to see today's low taken out or retested.

Consequently, there may be another round of selling or we want some proof that the rally can unfold in fives and not 3's, implying we want to observe the market for some more time. If it unfolds in threes, we have some more ways on the downside. Our target is around 815 and/or 768 or so, should it occur. Lets see

Has the moon been sighted?

On time, like clockwork, beautiful and a big :-) on our face, in our heads and in our account.

Lets pray it stays that way.

Event horizon

We have not posted much due to our day job taking its toll in a tough corporate environment.
I will leave out charts for the same reason here. I guess individuals can do their own DD. The
We made decent gains this last month by staying short and finally covered all our shorts today.
We think tommorrow could be the abyss, and we expect a multi month rally. How high - sizeable. One thing at a time. Why?
There are lots of reason.

1. The charts are playing out in 5 moves down and 3 up. EWT theorists know what I am talking about. Today was move 3, looking at the futures, it is very likely that wave 5 finishes tomorrow.
2. We are expecting to see the investor intelligence sentiment index to hit a pick. If you take a look at http://www.market-harmonics.com/images/tech/sentiment/ii2.gif, we expect to hit the upper trendline. The peaks have been significant market bottoms.
3. Next week is opex. Banks are in dire need of money and a rally can be a cash cow for the put writers.
4. Wink wink!! Count the number of weeks between market highs and lows. We were amazed to find it is so perfectly periodic. Ideally this periodicity leads us to a turn next week.
5. The reason everyone knows, - divergences on all momentum indicators and oversold. How much value does this have? I don't know but I guess, it has been enough to scare us away from shorting for now.

We will start dipping our pinky toe tomorrow on the long side. Tech is the most beaten down and so are emerging markets. We expect these to rally big.