Pullback still not done

We were busy with work all day and sadly had no time to trade or watch the tape except at the end of day.

Recap & Stance:

The pullback doesn't seem finished. We may have to revisit the scheme of things if SPX closes above today's high (~810). Until then, we are at ease with labeling this as a Wave b rally in a Wave 2 move => we still are rooting for 760 on the SPX . We may get some continued strength tomorrow morning, but we expect wave 'c' down to kick in shortly either tomorrow or on thursday.
Intermediate term, we are still watching for our turndate, the 8th of April (+/-).

Silver seems to have painted a nice long tailed candle. Gold painted a doji, so it appears the bears are unable to push this lower. The rest of the week will give a vital clue if we need to cover our short positions in the precious metals. As of now, we are just lowering our buy stops on slv.

Pullback continues

Recap & Stance:
We got a nice sell-off today and there was not even a hint of resistance by the bulls. However volume still remains relatively light, which is a good thing for the intermediate term bullish scenario.

As for our stance, we are still short term bears. The move down doesn't appear to be complete. We need some more time. As we mentioned in our previous posts, the area surrounding 760 remains our target. Infact, we would "ideally" like for the price to drop below the 20d moving average. This would drag quite a few bears on board and act like a false breakout on the downside. Note that this mere speculation on our part. Markets will act as they want. Our strategy is to start layering from around 760.

Trades:

We did not trade today, since we were busy. Gold broke beneath the bevy of moving averages. It would be bearish for GLD (and good for us) if we get a confirmation red candle close below the moving averages tomorrow. The encouraging thing for precious metal (PM) bears is the volume is increasing on the downside. Silver is still sitting on these averages - so we may see another bounce tomorrow. Eitherways, we still think PMs have 2-3 months atleast before the underlying bull market from 2000 re-asserts itself, which could propel gold towards 2000.

Pullback begins

[Will add a charts and some calculations tonight]

Recap & Stance:
We finally started seeing the pullback today, though volume remains light which is a good sign for the intermediate term bullish case. As has been our stance since the past couple of days, 27(+/-) turned out to be a cycle high and today we got a close (the first one, since 16th) below the hourly 20MA, first signs of that a 5-10% decline is in the works. Our next cycle turndate is around Apr8-10.

Trades:
As we wrote in our posts yesterday, we bought some TZA yesterday. We are out of the trade today by the close today for an ~8% gain, though we believe this market has more downside to travel in the next week. The 760 region should be a good first target. We must include a note of caution here - as per our ew labeling now, we could get a sharp (yes *sharper* than the last 2 weeks) of rise out of the next low. So, it would rather be advisable to not get caught with shorts positions.

We put on a silver and gold short trades, last week and are still holding it. Gold seems weaker than silver (a bit of a surprise to us), but nonetheless the next 2 weeks should be key in giving us a concrete direction, for the price is on the crux of so many moving average, 20, 50, 200 - you name it. We are still rooting for a quick burst to the down side.

Bulls on steroids

Recap & Stance:

Another bullish day, with another whipsaw and another round of pain for the bears.

We will be the first to admit, we were wrong in looking for a cycle low around Mar 27th (+/-).

Instead it most certainly looks like it will be a cycle high. Cycle inversions happen sometimes in our model of calculating cycle turndates (and again we will be the first to admit, our cycle model needs more work).

What the market has done is actually tag the 20Weekly moving average. It is a tag after a long time. The market will face resistance here. The daily SPY is wedging - the internals advances/declines, momentum, mclellan oscillators etc. are calling for a sharp pullback ( probably a DOW -400 tomorrow??). We like the odds of a nice sell-off/correction here. 

Trades:

We did not trade intra day, but when we saw the SPY tag the 20Week moving average late in the day, it opened the window for a disciplined "easy" trade in terms of risk-reward. We entered a small position on TZA (3x short russell) @ 44.5. The plan is simple - a daily close above the 20Week moving average + 1%, (around 835) and we close our trade for a loss. The reward side - our target is the 5Week Moving average, around 760. 

Our next cycle turn is Apr 8th (+/-). Maybe Wave 3 starts then??

Another Whipsaw wednesday

(A pithy) Recap, Stance, trades:

Nothing much to add, since there is not much change yet in the intermediate term outlook.
No trades today.

Sentiment

There is a "lurking" feeling deep inside us somewhere that we may get another shake out. This has not been translated into the charts yet, but some of the sentiment indicators we are watching are really bullish.

1) The chart above is the nasdaq daily sentiment is almost even at bulls/bear

2) The put call ratio is hovering around 0.75 - we would like to see it above 1.1 or so

While it can be that this bullish sentiment acts as a tailwind for the rally. But...

Bottomline: We will continue to watch these sentiment indices. A "reset" of the sentiment would be a really help fuel the rally with lots of force.

Addendum Rant (feel free to ignore): Was just watching a few archived analyst interviews on TV today. Got to give it to Robert Prechter!

http://www.elliottwave.com/singleissues/the/0902EWT_Time_To_Cover_One_of_the_Biggest_Trades_of_All_Time.aspx?code=cga

You cannot argue with his timing and conviction - it is a dream trade, the perfect one.

Wave 2 Chop Shop

Recap & stance:
Nothing much to add today. We chopped around. Volume was light. Thus far, everything is as expected. We are tentatively labeling this as a wave '2' pullback.

Lets look at some timing here. Wave '1' lasted roughly 10-11 days. If indeed, this is wave 2 and lasts a fibonacci .38, 0.5, 0.618 ratio for an appropriate price correction,
we could see the short term bottom around March 27th or Apr 1, thereabouts. If you traded last year, April 1 was a record breaker then. If my memory serves me right, we had a mammoth rally on April 1. So seasonals are also positive. What I mean is the stars all look lined up.

I would like to add a note of caution here - fibonacci time series estimations are just a guess. FWIW, they should not be a primary reason to buy. It should only serve as a wake up call, that the time may be near.

Positions:
No trades today. Our precious metals shorts went green, so lowered the buy stops - atleast we will be assured of profits, unless ofcourse there is a big gap up.

Another possibility

We have been mentioning the March 25-27th (+/-) turndate. The market is extremely overbought and sentiment has become quite bullish in only 10 days of a rally. While this could provide a tailwind for another day or so, there is a possibility that the coming turndate could prove to be a top. We have a cycle turn on Apr 8th (+-), it could happen that the big rally starts on Apr 8th.

I guess we will just have to observe the pullback.

90% upside day

Recap & stance:
We were expecting a bounce alright, but 500 pt was no where in the range. Eitherways, we expect a low into March 27th timeframe. The bottom is probably in.

Positions:
We covered our CVX short, as mentioned in the post last friday. Today, we did not trade much, since the rally came out of left field and there was a lot of emotion in the market. Our long term positions in oil companies (COP, BP) did well. We also opened a small precious metals short positions today. We believe silver and gold (the fear trade) may subside over the coming months. We are looking at 25-30% declines in these precious metals.

Sentiment wise, today was a bloodbath for shorts. A visit to the FAZ message board is a strong case that the low is in. There appear to be lots of amateurs caught in triple short ETFs. On a shorter term basis, our stance is still the same - we are overbought shorter term, so we will be bearish into the 27th (low) and wait for the next buying opportunity. We believe SPX can make it to 1008 over the next few months - hopefully.

Rant (As always feel free to ignore):- Today the treasury spent another 1Trillion dollars. In a perverse way, we are fortunate that the banks are not lending. The FED has injected tons of money into the banking system. If and when the banks start lending again, we can be assured of high prices of everyday goods. Now with supplies diminshing at the rate at which they have, will high prices be on their way? I don't know the answer yet. It is a possible scenario. If prices do rise, will the FED raise interest rates again? Will they have the guts to do it? or will the market force it upon them - I am siding with the market on this one.

Spring equinox

Recap & stance: We got a weak sell-off in the markets today. There may be a short term bounce monday or tuesday but our turndate is around the 27th (+/-) and we will continue to be bearish into that time period. We did a quick & dirty calculation of targets based of fibonacci retracements (we will update it over the weekend, should we find errors). It looks like the 740 region will be the first stop.

From a psychological perspective, it is possible that we get a "deep" retracement into the 700-710 area, whereby some bears could be lured back in and subsequently trapped. Under our current count, we not like to see the market break 666. If it does, we will have to reevaluate our bullish stance. In any case, next week's waves are key to this puzzle.

The month of march (Spring equinox) is a very popular turn period for lots of markets around the world, for whatever reason. It looks like this year will no different. If you traded last year, March 17th was the bottom until Late May. We are expecting a similar rally this year too, and then it could be "Sell in may and go away, once again" - we'll see.

Rant (Ignore): I am sure there are lots of experienced seasonal traders out there. So, there is no reason for a trader not to add seasonality to one's arsenals of technical tools. Google search gives me http://www.spectrumcommodities.com/education/commodity/charts/index.html
It has some basic, but nice, seasonal charts to refer from time to time.

Positions & Trades: Lots of traders would have been eyeing XLE and its components today. This was one of the "easiest" trades in terms of risk reward without having to worry about waves, indicators and such. We made some $ on CVX puts as noted yesterday and cashed out at the end of the day. We believe CVX will head down to its 20MA (~63) sometime next week.

Still acting tough

The markets have been holding on in this options expiration week. One thing that really bothers us is that the put call ratio on the day open was 0.48. It has been a long time since we saw such wild optimism. It is possible that that big money knew about the FED announcement and bought a load of calls.

If the above is true, we might see another green day tomorrow, and another push higher. Today's action looks like a triangle correction in the leg up from Mar 10th. So, we may have another rally tomorrow, followed by a sharp descent.

Whatever, the reasons may be - if the SPX gets over towards the 820 region, we will probably add some shorts, as some stocks just seem way too extended. Specifically, we are eyeing a few names in the energy complex - CVX especially stands out as having good risk reward and a well defined stop. We would short CVX with a stop on a daily close above 67. Our target is a 50% retracement of the entire move (~60).

Whipsaw and a rant

Whipsaw Wednesday! Bears got slaughtered, Bulls (a few) escaped, Bugs (gold ones) reincarnated :-).

There were a lot of message board traders calling for a massacre as if it were a no brainer. We feel vindicated in our neutral stance from yesterday and are really glad, we were out sitting out of this one. XLE hit 44 and even the SPY went into the "demilitarized zone" (but not SPX). We need to listen to the market here.

Yes, we are overbought on the momentum indicators, but the key is to determine whether this is a buying opportunity or a selling one. A week of hard rally doesn't make a bottom after a 1.8 year bear market. We need a base pattern (for e.g see the oil chart forming a nice base over 2 months from Dec 08). We need to see how the market handles the pullback.

In simple TA terms, overhead resistance comes from the 50MA. The 50MA and the 20MA are pointing down and the 20MA is still below the 50MA, meaning the up trend has still not gained traction.

What do we see playing out: We think the market can advance for another day or so, piercing the 50MA, but it is not guaranteed. Seasonals say that, Mar 20th will be a red day => we could see a decent pullback into 25th-27th, breaking down through the 50MA and 20MA. The nature of this pullback will tell us whether the market has bottomed or not.

Rant (Feel free to ignore): Mr. Roubini and others were calling for Dow 5000 and C, BAC to be a penny stock on March 9th. The media and our leaders have been painting this as the worst time since the depression. Of what I have read in books, we are still way better off today than in 1974, in terms of unemployment numbers and the likes. Yes, we may slide further but it is just something to keep in mind. The FED today finally officially called for debasing of the dollar. It might be a sad day indeed, but the key is to not allow transference from news to effect trading. Block out the news and trade.

Addendum: The mclellan oscillator is extremely overbought. We are seeing degrading internals in the market as the rally pushes on. There is a good chance of a >=10% correction over the next week or so.

Ouch Day!

It was an ouch day for us, no reversal and we got stopped out with a nice 20% loss on XLE.

Our "uncle" point on the XLE is 44. If the labeling we have been following is right, we need to start selling off first thing tomorrow. XLE closed at 43.5. So, there is not much wiggle room. For the SPX, the point is around 800. The Nasdaq has a wierd wave structure and in a world of its own. We will revisit the labelling based on the action tomorrow.

Intraday charts (not posted) have bearish momentum divergences and daily oscillators are overbought. The other comfort for the bears is the declining volume on the move higher.

We will wait and watch for the type of pullback we get over the rest of the week and next. We expect a pullback into March 25th-27th. If we make a higher high than 666 on the SPX, we could have a "failed" 5th wave and be off to the races in April.

Our stance is neutral as of now. Things are too mixed for us to discern one way or another.

Addendum: Hopefully tomorrow will provide us a vital clue. If we get another big up day tomorrow, the theory of wave 4 of 5 could be over and the big rally we have been expecting started indeed on one of our turndates (Mar 11 +/-).  We have a turndate on Mar 27 +/-. We are still biased towards a pullback leading into the 27th timeframe(a low) and then a monster rally. Things are definitely getting very interesting at this point.

Where are we now?

We may have had the reversal today. As we have said in our previous posts, we were looking for a top +/- March 14th (turns out march 14th was a saturday :-)). We will pay attention to the weekends from next time. 

Anyways, today was one of the most shorting opportunities one can ever expect to find. The above is of the XLE. The technical formation is quite clear - a bearish rising wedge on declining volume. The put call ratio has dipped below 0.70 meaning people were scared of missing the bottom. This is OPEX week, so caution is advisable. 

As for us, we made our money on the TZA calls today and were out by the end of the day for a sweet trade. 

What next ? - The stochs are just descending from overbought, the daily cycle ends somewhere around 25th-27th. We are still eyeing for a potentially strong rally/ bottom in that week.

For this week, we may scalp short on any bear flag rallies. 

Side Note: 

1. ACH popped out of the triangle today, without us. But painted an ugly topping candle. We will not chase it here. We will wait to see how the upper triangle line is treated on the pullback, which will surely occur this week.  
   
2. We would like to add a note of caution, which I think is necessary. We are in 5-of-5 by count, meaning, we will have a large rally at the end of this downleg for the next 2-3 months at least. While today was an easy shorting opportunity, shorting further on must be done with extreme caution. We are almost at the end of a 1.8 year bear market, so a large vicious rally could ensue due to panic buying. It is better to be safe than sorry. We would short very light and have tight stops. If wave 5 ends truncated, we could have immense pain. We are more enthused towards adding massacred industrial commodity stocks here.

ach

Busy today so no long post. But this stock caught my eye since I thought it had a recogniable pattern.

XLE

Above is a chart of XLE. This has given us a very clear indication of where we are in the bottoming process. As we had said earlier, this is expectedly the last phase of the bear market before a sustained rally for 2-3 months, at least. We are not there yet but very close.

We are in wave 4 of the market (or have been since Mar 3rd). In any case, the 20d and 50 moving averages above look threatening enough, at this point in time and we expect XLE to be pressured downwards by these.  Today's volume was lesser than yesterday which is a bearish divergence considering the breadth and enormity of the rally.

We think this index could start a new leg down by Mar 13(+/-) and should lead to a week to 10 days of final selling. We are very optimistic about our turndate around Mar 27th for now. As for our positions, we might take a small swing short should XLE (& XOM) hit the moving averages, until then we are in cash.

Huge Rally

Today's rally was not a surprise at all. We were extremely well prepared for it and it was a home run all the way. That being said, we still think this is a relief rally. We expect this rally to fade by Mar 14th or so.

We are still very keen about our earlier call around March 27th for a "true" bottom. For now, in cash we trust.

capitulation or not? and Dr. Doom - true to his moniker.

No charts today. Only Rants.

We are getting close to our possible (mini ?) turndate on Mar 11th (+/-).

I would advise shorts to be extremely careful. There is just way too much negative sentiment and the D-word is being used without care. 

We see that there is lot of talk of the coming capitulation on message boards to mark a bottom - well do we capitulate a second time? While anything is possible , it is key to note we already had the big capitulation in 2008. 

More importantly, we are nearing a strong rally phase in all the indices very soon. We would rather bet on the coming rally than the capitulation and try and time every penny out of the market. So many names are attractively priced for a 50-100% move. We are also beginning to see some odds of a 1000+ pt rally in the next week or so. We would rather catch that than the capitulation bottom.

As an aside: For those who watched  Dr. Doom (aka Nouriel Roubini) today on CNBC - We are appalled by his ability to connect the dots sometimes and really wonder if he is really worth the salt as an university professor and economist. We simply cannot get over his government interference policy to save America talk. He has correctly ascribed the problem to excess liquidity, but fails to take the argument to its origin  - who created the excess liquidity in the first place - the government. Why should they be relied on to fix this mess? Similarly his logic that - no one wants to buy, if things are cheaper tomorrow. If this was the case, then conversely,  why would anyone sell when there is inflation and everyone knows prices are going to go much higher? In our opinion, this is totally against econ 101, there is a price where buyers will step in, similarly there is a price when sellers will step in. To say things will spiral back to the neanderthal age, if left alone is just as nonsensical, as saying in a growing environment, we will just keep growing unchecked. 

Remember, cheap resources are good for companies with strong balance sheets. The companies who are sitting on massive cash will eagerly lap up these resources when they become attractive. These are the companies which will be lean and mean enough (due to the cheap resources) and likely emerge the leaders of tomorrow. In short, this recession is a blessing for the sector leaders. All the dumb companies, who were competing with the market leaders for resources will be garbage collected, effectively leaving only the best and brightest in the business. Remember, mankind as a race is optimistic and progressive. This deflation is all about optimism for the future and we are preparing the base for a new start. This is not about spiralling back to the stone age as Dr. Doom puts it. Maybe he is taking the name, CNBC has given him too seriously.

Likely target/Scenario

Above is a long term chart of the dow jones transportation average. This average was the first amongst the major indices to break its Nov 20 low. As can be seen, the average is very close to 2000. For elliott wavers, this is the apex of the previous Wave 4, which is usually the target of a correction. Plain technical analysis says, we should expect a strong bounce from this region. I fully expect us to visit this region (2000) sooner than later and a bounce to 3000 at least.

I have drawn a possible scenario, which can unfold in the coming 4-5 months, giving us the strong 50% rally in this index, and the subsequent resumption of the bear market trend, before the year end.

Sadly, if this head 'n' shoulder plays out (I rate the occurrence of this scenario very highly) - we are going to have an extremely brutal 2010/2011, we can expect it to be much worse than 2008, especially when we break the neckline (sometime later this year/2010). 

Hopefully, we will have somewhere to hide then - probably gold, agricultural commodities ?? (if they are not banned by the govt). I don't know yet.

Side Note (feel free to ignore):- Politically, if this HnS does play out - We will be at the bottom of the bear market during the re-election time. The social mood will be so bad, that Obama's chance of an extended term seem very slim.

Not there yet :-(

We are not there yet :-(. We don't think 700 will hold. Although, we are looking a temporary respite bottom around the 680 level tomorrow/dayafter. We may get a 10% deadcat bounce (vicious?) into Mar11th. But we believe the final bottom will be around the Mar 15th-27th.

As for us, we are happy with our XOM March 60 puts, we took > 200% on a few of them and let the others ride. We fully expect XOM to reach 60 or thereof.

If one is not already short, it is best to sit on ones hands. It is now only a matter of time and patience is the key. This is a golden opportunity where good dividend paying stocks like COP (conocco-phillips) etc. are reaching their long term monthly support trends. The trader sentiment is very bearish and we are beginning to feel the crowding on the short side.