cycle dates

We are going on a vacation for a couple of months. So we won't be able to post, not regularly atleast. In any event we just wanted to paint an intermediate scenario.

Our tentative next cycle dates are on July 9, July 22 and aug 11. The polarity is still not clear to us. But as of now it looks like 9th will be a high, 22nd a low and 11th a high to bring the bear out in real strength again. The July 22-aug11 is very important. We expect to see a 2-3 month bear from that time frame. We don't have price targets, but anything in the 750 area is game. It is possible that gold may provide temporary respite during august when we expect a mini crash.

The cycles are just waiting for the dollar to put in a double bottom or some sort of base. There may be one more drop in the dollar and then a blistering rally. Sentiment has been negative for quite a while.

On a fundamental note, we are seeing signs of distribution in the bond etfs - notable the junk bond and munis. While it is a tad too early, the loss of momentum bears watching. Have a good summer.

The widowmaker revisited - natural gas

Above are the monthly and daily charts of natural gas.

Our preferred ew counts are labelled on the daily. It makes the argument for another leg down into July 23rd or Sept1 or oct 11, which are seasonal turn dates for natural gas. The long term chart shows a nice 1:1 symmetry at 2.7$. We expect a nice bounce off there should prices dip down into that area.

We did buy UNG when natgas was at 3.25 and had a huge move up. We rode the 'a' leg up a month or so ago, mistaking it for a new bull run. We got out at the 50d moving average. Natgas pierced the 50d but was stalled by the 20W moving average. Since then it has gone nowhere.

Ofcourse, all this will be wrong if natgas exceeds the peaks of A,C. Lets just say, if natgas can break above the 20W moving average, then we will jump on board again natgas again.

In essence, whichever way this triangle gives, there will be a whole lot of supply/demand above/underneath. Looking at the volume on UNG a lot of players are interested. Seems to us, they are tad too early.

Jun 25

11:45 a.m Sweet rally from the cycle low of Jun 22. Cycles work! (well atleast 70% of the time and it sure is good enough with good discipline).

12:00 Noon We will update the nat gas chart post later today. We left it unfinished yesterday night. The gist is that there maybe one last downleg remaining (our preferred count) to at least the 2.5 level.

5:45 P.M Ok, we got our rally. That was the easy part. The next few days until our cycle turn on July 9th is the tricky part. 927 will be a stiff target and the market is overbought on the shorter timeframe. Our inclination is still on the bullish side, but we don't know about price limits. The problem is we are unable to identify a leading sector. Very few chart patterns have a basing formation. If we follow the cycles, we will wallow our time until July 9th and then short the market.

Jun 24

00:10 a.m Too busy yesterday, so a short summary. We still own DIA and are still underwater. 888-890 is still holding and we are still oversold. But this is not bullish action. We need to break 900 before the 26th, because that is a key date in terms of pivot days and weeks since the rally started. This action looks almost like the stock market is waiting for the dollar to put in the last few pieces of a bottom pattern before a waterfall drop. We need to hold rally tomorrow.

10:30 a.m. Jun 22 cycle lows seem to be holding for now. We have a nice rally, albeit with a light volume. Our DIA bet is in the money now. 927 is the real test. If we get over that we can attempt the recover highs of 956.

11.10 a.m A personal rant - We would like to see Roubini and Cramer face off again. At 666, Roubini called cramer a fool. Cramer may be one but he is definitely a rich one and anyone who followed cramer would be sitting on tons of profit. Maybe Roubini has good fundamental reasoning (arguable in our view), but whenever he speaks of doom the market rises.

1.45 P.M Out of longs for a negligible profit. FED meeting coming up and we cannot handle whipsaws.

5:20 P.M Standing out of FED decisions is always a good thing. We continue to look for a rally into 26th atleast. We think the market can make it to the 920s before that day. Our next cycle low is in the first week of July 7th. It is quite likely the market rallies into 930-950 by the July4th weekend on relatively light volume.

Jun 22

10:50 a.m. Just got back from a week long trip. Looks like the market has followed gold and silver into selling off. But we are within our cycle low turndate period. We expect some bottoming action here around 8375-8400 dow. We would be a scalp buyer here with a stop around 8200 dow. Our target is back to the old highs near 9000.

3.00 P.M Opened long at 83.65 DIA.

5.00 P.M Absolutely no respite in the selling. And that means we are nicely under water in our long position. We have to start rallying tomorrow and SPX 890 must hold, otherwise the cycle has inverted again and (it is high time) we have to go back to the drawing table on our cycles model. On the bullish side, we have some positive divergence on some small stochastics and they are oversold, very oversold. That is no reason for a rally if the trend is bearish. For the bulls, 903 is a key level if taken out, 927 is the next target.

Gold and silver must be shorted on any rise. It is a pity we got out a week earlier before our trip. SSRI has sold off more than 30% since we first shorted at ~25 and only captured about 10% of the move. The precious metals have indeed been leading the commodity complex. Natural gas is still stuck in no man's land according to us. We continue to wait for july seasonal low or a break of the 20W MA.

Bonds and the dollar continue to rally. We are looking for a 4 handle on the 30 yr
yield.

Jun 17

12.00 Noon We are traveling this week, so will have intermittent internet connectivity. We got the top on Jun 11th as expected, next turn is a short term low 22 (+/-) - so late this week to monday. This bounce could be a 3 wave or a 5 wave bounce. If it is a 5 wave bounce, we can rally to new highs in august, otherwise we need to look for a break of 903 and then 875. For now, we are slightly leaning to the bull camp. But lets react not act.

Jun 15

5:45 P.M Brief update as we don't have too much time this week. The level highs from our Jun 8th turn date has produced a reversal.

Our trades - We covered a lot of left over SPY slivers from 950/960. We will look to short gold and silver stocks on any palpable bounce. We covered them PM shorts a bit too early on friday. Shorting PM looks the best trade in town. But no worries.
The message is clear - don't try any "bottom fishing" until next week (Jun 22-25 cycle turn) to see how the pullback ensues. Intermediate term, we are looking higher into august.

Is gold in a bear market?

The chart above is that of Gold in Euro. I think this chart is quite telling. The message is clear, we are in a cycle bear atleast for the next 8 months in gold.

Try out silver in euro, even clearer

http://stockcharts.com/h-sc/ui?s=$SILVER:$XEU&p=W&yr=3&mn=0&dy=0&id=p28604460239

The EW labels are crystal clear thus far and the message is BEAR.

Some longer term thoughts

This is a sequel to this post. We are trying to "paint" the future directions of the market. There are quite a few people skeptical that 1000 will be exceeded soon (us included). However, we need to look at this objectively. The rally from the lows has unfolded as we called out in that post.

To put things into perspective timewise, we had a decline for over 420 days, we have now been rallying for less than a 100. The long term chart just doesn't look complete timewise i.e we have need to spend some more months here or higher (Lets say DOW 11000 before June 2010).

Ofcourse, this is purely speculative on our part. Our cycle model and studies only point to a high in the first week of aug and a low on oct 20th or so. We have pointed out that in the chart above

In terms of price advance it will be a suboptimal advance. But timewise, it should drive sentiment high enough that people forget about the crash of 2008 and the govt. label its efforts a success. In general, people are still quite negative. Quite a few message boards and stock sites are humming with talks of P3 (elliott wave 3). We just don't think it will be that simple, either for the bulls or the bears. We could have a slow arduous grind up - imagine the days of old - 150 dow points for over 10 months. Well the previous week is a glimpse. As we have maintained, bear markets are designed to break down speculation. There were a lot of people in the 90-2000s who were enamored with stocks(us included). This is essentially unproductive. Such periods of going nowhere are necessary to kill the love. Fundamentally, the trillions of liquidity will surely buy us some time. Last week we had one such period. We had a similar period from Nov 08 - Jan09. We may just have a bigger one beginning the end of the year to mid 2010.

Jun 12th

9:36 Covered SPY sliver short from 96.
5:30 P.M Covered all SSRI, ZSL etc. Not that the bear trend is over! but we are travelling next week and don't want to lose any profits. The market tape sures seems whippy. Maybe we just keep whipsawing until Jun 22nd. Now that would be fun??

6:00 We have been quite busy the past few weeks with work (and ofcourse we are happy for that :-)).
Would just like to point out our dollar/ PM call which we have the most conviction in and hence our positions. We believe Silver/Gold has started a leg down.
For context, please review this post
Sometimes cycles work beautifully as in this case. There is so much fibonacci symmetry that it is astounding. We believe the time to buy PMs will come in 2010 or in late october when the seasonal rally kicked off by the Indians buying gold ensues.

Gold/silver topped out in Mar 08, oil and other commodities with a lag of 2-3 months. We believe it will true this time too. Oil may go upto 80 or so, but the rise in oil, copper look countertrend at least as of now. Lets say with the lag of 2 months, we may see the bottom fall out of these commodities like oil once again-- August. Oil could very well dip below 30 this time.

Jun 11

1:30 P.M Breakout. Volume looks OK by last month's standards. Our first target is the 50W moving average. This is a breakout from a triangle, meaning we are going to retrace the whole move sometime in the next few months. Trailing stop on R.

3.45 P.M Stopped out of R at 31.2. Added SPY sliver short at 96.

A contrary view

Yes, the chart above is not representative of the overall market. It is of SWN, an energy play.

As we show in the chart, the highs were made in the first week of June and since then we have been consolidation in a tight triangle. The labelling suggests another push down towards 38.

Now, lets go to why we think the overall market is following this pattern. As we noted before, we were expecting a high in the first week of june, we promptly made a high and have traded sideways since. Our next cycle date is June 22. So, it is possible that we have a similar pattern in the SPY. We scanned a few energy charts and a few others AH. Most of them (e.g. COP, PWE) have either a bearish hanging man/black doji (e.g COP) or a possible ending diagonal (XOM) or the formation above(PWE).

Sentiment wise, we scanned a few blogs & message boards, everyone has noticed the triangle on the SPY and is getting prepared for a break of 950. While certainly our scan is not pervasive enough (and sentiment is to be treated with care :-)), we believe a small correction could be in order here. We will weight the bear scenario 55-45.

This post is just for building the bear case. On the SPY, if 95 breaks, this bearish case is dead. If 925 breaks the bull case is dead.

Jun 10

1:15 p.m Covered SPY sliver short from 95 at 93.7.

5:40 p.m Been a bit busy to check in intra day. Anyways, the Jun 6th week cycle highs is still intact, but we have been bouncing inside a tight trading range, meaning what we are undergoing is a time correction and not a price one. When this time correction is over, we may have another shot up challenging the 50W moving average. ~96 on the SPY. TBT is in its last legs of the rally. As for currencies, we want to see another rally in FXE. We will reload our DRR there again and hopefully hold it till the end of the year or so. We believe the dollar index can hit 90-100 by the end of the year.

Jun 8

8:30 a.m Initial weakness on our turndate week. More interestingly, the markets which had been leading us and soaring - $hsi (hang seng), $bse(sensex) got obliterated. Profit taking/shorting is beginning to kick in.

10:10 a.m. Covered some portion of the SPY sliver from 95 at 93.45, though we expect a lot more weakness into June 22 cycle low. Also covered some SSRI and some ZSL (L)

10:35 a.m. covered some of our DRR position (Euro short = dollar long)

3:20 p.m The late afternoon rally. Buying money on the sidelines has still not abated. Buy there are sellers who are willing (as witnessed in the morning). Our decision to cover some of the SPY shorts in the morning looks good now. We'll reload SPY sliver shorts at 95, should it get there. On a side note, what material use is it to blame the PPT?

4.00 P.M Added SPY sliver short @95.

6:10 P.M Ugly candle on the dollar for the bulls. Ugly candle on SLV and some of the PM stocks for the bears. It means there may be another push lower in the dollar and another push higher in stocks/PM. We will give the rally until the end of this week.

June 5

9:30 a.m Covered some SSRI for a 3% profit. Will reload some portion higher.
9:40 a.m Shorted SPY sliver at 95.


6.50 p.m Was loaded with work for the entire day and could not watch the action. End of the chart sweep suggests a big fight occurring at the top of a move. Couple this with strength in the dollar, weakness in PMs and our cycle date in the week of the 11th, we believe a (at least short term) top is in progress. Our SPY sliver short strategy has worked well and consistently thus far.
Our pf without the house money longs is
5% short silver
10% short SPY ( +2% PUT)
5% DRR
5% UNG
5% R

Rest is cash.

Next week we will look to short TBT/go long the bonds. We should see a nice rally in bond prices.

We would like to leave with a post of ours from a few days back. Look at how AAPL has rallied relentlessly to fulfill the prophecy. Today we got the first sign of weakness on this stock. Since the candle is so small, it is ideal risk/reward to short AAPL right here right now.
Have a good weekend.

June 4th

3:20 P.M Reloaded a small short position in SSRI @23.8. Some stocks have been on a manic rally. e.g GS & AAPL. We blogged about potential targets in this post. The stocks are almost at their targets, maybe another 1-2%. That is *not* a reason to go short. What it means is, the time is ripe to look for a topping process.

10:20 P.M The picture has not changed much. We are still expecting another push higher into the weekend. FWIW, there is a short term low in the week of Jun 25th. We bought some long term SPY puts and added some shares of R. The stop loss is if the triangle breaks. We also shorted some more SSRI. We will still believe there may be another move up in silver, gold, oil, markets etc and one more move down in the dollar.

Lottery Long - ggc

As the name suggest, see charts above.

jun 03

8 a.m minor weakness, but looks like correction though. We should see a rally from the 930 region at least.

10 a.m. Covered 95 SPY sliver short @93.6

11:30 a.m Work has again swamped us. Our strategy is to reshort somewhere higher. We have a SPY sliver short order in at 95, we think it may get filled today/tomorrow.

12.00 Noon BTW, today is a bradley turn date. Google for it. There is another turn on June 6th. We don't vouch for astro indicators, but it is always good to know. On market action, our short positions and the PUT in SPY, dollar (L) and slv (short) doing extremely well. If the dollar has not already found a bottom, this nice bounce should set up massive positive divergence for the dollar. Our first target on the dollar index is 84. We believe before the end of the year or by march next year, the dollar index will take out 90.

1.10 P.M Covered some more SSRI for a 10% profit.

1.50 P.M The sector heat map says it all. Looks like a 90% down day. Intense desire to sell. But.... the volume is still light. Who is the king?? -- the "$".

3.00 P.M Very oversold on the hourly timeframe. Look for a bounce, volume remains light. AAPL, GOOG and some tech is in the green. We thinks, this could be a fakeout move down due to funds selling at 200d. We may rally upto 960-980 by the end of the week/early next week and set up a big negative divergence for a move down starting June 8 (+/-). But no bets on the long side.

3:40 P.M Natural gas sold off hard today. Natural gas is trying to turn at the 3.2$ level. One of the two needs to happen before one can jump in either 3.2$ gives way or the 20Week MA gives way. Until then this is a dangerous market. It is best to stay away. The +ve seasonal for natgas begins in July. Is there one more downleg left in UNG?

5:25 P.M Nice profitable day for us today. But tehcnical wise volume was light, breadth was so-so to the downside. It leads us to believe there will be another push to the upside into our turn date. Precious metals got slammed. Silver & gold must not break back above their 5MA daily, if this happens then the bearish bet will take time to play out. But as a PM bear, we could not ask for a better day than this. Silver got slammed, so did SSRI, so did PAAS.

June 2

9:30 P.M Quite busy today, so no trading. Nothing has changed since yesterday. At 975 hits, we will add another SPY sliver short. SLV continues to act extremely well in comparison to gold.

BUT look at SSRI & PAAS, they seem to have a small triangle in the 4th wave position signalling another shot up is in the works on the precious metals probably worth another 4-5%. We will look to reshort SSRI. BTW, the candlestick formation on SSRI looks interesting. Three days of gap ups but could not hold the gains on any of them.

Lets look at some fundamentals with a disclaimer ofcourse that we have absolutely no proven skills in macroeconomics :-). What we don't see any analyst out there talking is the dimishing trade gap.

The imports into america are falling because we are broke. The exports have been increasing as other countries as we either sell off assets to foreign countries or export to the newly found "wealthy" nations. The trade gap has been diminishing. One should not be surprised if the trade deficit turns into a surplus a few quarters down the road. This will lead to (at least a short term) dollar liquidity shortfall. Will the media cite this as a reason if the dollar rallies in the next few months?

10 P.M We noticed that our long term PUT order on the SPY SZCOR got filled today at 2.54. This is about 1% of our account.

June 1 wrapup

Nothing much to add since the day session. The trend is still up short term. We will look for a topping process later this week/ next week. Our short term cycle tops later this week/next week. But the intermediate cycle doesn't top later on, atleast till July end-Aug beginning (tentatively). We don't know how to read this yet. It is possible we have some choppy move down . Remember, there are a lot of shorts caught (well) short. So it may not be a straight line down.

Dollar still in bottoming process, the intra day wave counts don't look complete, but we are very close sentiment wise atleast.

As for targets, we made some calculations today. 98.1 on the SPY is possible.

For long stocks keep an eye on Ryder R where the symmetrical triangle is still in play. It could gap up this week and reach the 200d moving average.

Relentless surge

7.00 a.m Futures up big. Everything is as per plan. We are in the 8th-9th inning of this rally now. We may have another 5-10% left on the indices. So it is wise to start hedging after every big rally on the short side. Think may 2008. Commodity bulls running rampant citing dollar crash. This is exactly what a prelude to a period of deflation and the next leg down needs. Just for kicks (always with care;-) on sentiment) - try out a search for dollar on yahoo message boards.

8:40 a.m The good news is flowing in all fronts.

This usually occurs just before (or in ) a fifth wave.

http://business.maktoob.com/20090000004225/OPEC_Sec_Gen_says_oil_price_rally_may_persist/Article.htm

10:10 a.m Opened position in R(L) and D(L). Opened first short starter position in short silver.
10:20 a.m. Remember the 50W moving average. That is our first target. We don't expect the Jan high of 943 to hold. That is the battleground right now. It may prove to be a fight. But we expect the 50W to be tagged.XLU still has some room to run. In gold, we are slightly reluctant to name a top, but we are leaning towards the 1033 being taken out. That would the mother of all fakeouts. Say 1055? before the plunge downwards.

10:50 a.m. Battle for the jan peak continues. For the bulls, it smells, looks, walks, talks, quacks like a bull flag, thus far at least.

11.00 a.m. Silver continues to fall, so does the euro, so does gold. R is looking good for us. We are hoping for a break of the symmetrical triangle today. It could be one helluva move up in one day. TBT rallying again, setting up for a massive divergence (-ve) and a double top. This is a really nice short at the double top region.

We can feel our heart rate faster on a day like this. Guess for the same reason the vix is also up. Everyone is feeling jumpier. Remind us not to our emotions carried away. Staying away from news stories etc for a while, we don't more transference now.

11:40 a.m. Took 40% of R(~4%) and (~2%) of D - profits.

1:50 p.m Bull snooze button on. Transports have another 2-3% before the hit of the 200d, Will add a sliver of SPY shorts on the hit. We believe it is slightly late for new longs now(unless R breaks out of its triangle > 30) and blazes away, we will not add to longs. We hold. For dollar longs, Euro needs to break the ascending channel of the past week, it is around 141.6 now.

2.00 p.m Another sentiment watch (with care ofcourse, since everyone is a contrarian by birth ;-)), there are quite a few traders in chat rooms and boards, who have been massively short since the 850, beginning to add (hedge) longs, at the break of the january peak. We should get another spurt of buying today/tomorrow. These are extremely risky trades. In a contrarian sort of way, the market aims to whip them out a) either exit the long too early or b) make the longs also negative.

By the way, oil is beginning to show typical commodity behavior massive spikes into a peak or bottom. Don't know why it happens. Any clues?

2:30 P.M Euro fighting the uptrend line. The violence in the currency markets is stunning.

3.00 P.M Trail stopped out R and D. SPY sliver short added at 950. There seems to be some violence in the market and intra market divergences setting in (e.g FXE, XLF selling off). We have our dollar position, silver short and our SPY slivers. We are almost entirely short save for residual house money longs.