Mar 15th

Another warning shot today:

( Flashback: Bear market ends when walmart breaks down)

Going by the same token, walmart is breaking out, we are cautious.

4:20 p.m. We got our first signal today to go short the market. We put on a short position in SPY.

New high

Too easy for the SPX to fail here. Also too easy for the SPX to fail immediately after making a new high. Two pieces caught our attention today

o C (citigroup) trading >200M shares in the pre-market. This is greed taking over. Chasing is going on all right.
o The greek minister saying everything is over and greece is an isolated case. When it is officially denied problems are officially confirmed.

This is just a matter of time now. Price objectives will be met with new highs. We are sure will see a Put call ratio of less than 0.55. We will initiate our first short position then.

March 5

We missed the rally since March 1. Our thinking of a decline from Feb 24 was wrong. But as the last post says, none of our indicators have flashed a sell signal yet. Stockwise, scrips like GOOG, GS are rallying all right but we don't understand the technical strength behind these moves. We don't recognize those patterns and so have not played them. There are still a few junk names like CBS, PERY, WGO which fit our setups. But we have missed them.

What next?

There is something very key going on here which we view as a trapping process. Stocks like GS which did not rally until feb 25 have caught up. Ones like AMZN which rallied earlier are not participating. There are very few technical setups in our scan of charts. Bears who went short around Feb 15 are being forced to "hedge" putting on risky long position. In other words, the tape is making people chase, but these are not technical setups. The chasing could take a while to complete. What is bearish would be volume cum breadth expansion accompanied with price contraction. This would mean larger (broad breadth) volume bars but smaller percentage up moves. This is what occurs when chasing happens. People just want to own a stock.

Bottomline:

We are setting up for a fall alright. We missed this rally but are not short either. It is only time before this chasing game turns sour. Our best guess at this point is for a down cycle to get hold by the 2nd week of march. If that occurs, we can have a bumpy april, may, june.

seasonal cycle

The bullish seasonal cycle begins in march. So, we are inclined to call it a low. We have another major cycle low around March 15th. So net-net we are looking for an intermediate term low in the first week of march.

For the above outlook to hold, we need to decline pronto. Any rally exceeding Feb 24 means we are actually heading higher. As of this writing, there are no signals to go short. Plus if a significant bear market has to unfold in the later half of 2010, we need to see distribution and that typically takes 6-8 weeks of choppy trapping action. As of now, we want to see how the seasonal rally out of the march low will unfold. If it is strong, we expect a top near 1270, otherwise we could just make a failed double top (~1170) or some such.

We will wait to see how the market handles itself into march 1 before any trades.

For now, we don't see any tradeable charts. If gold declines into the march 1 timeframe, we would buy it based on the HL chart in the previous post.

bigger picture

The weakness comes in on very light volume which should frustrate so many technical analysts out there. We said in our last post, yesterday was anything but bullish, internals were bad. That is not how a consolidation should look. We are looking for a sustained down move in this market into the march 1 timeframe.

Two conditions were met on Jan 15. In our weekly scan of over 500 charts, we found about 15 bull setups. Furthermore, none of these 15 broke out. This told us to look for weakness. Some of them like YUM, LRN have held up into selling forming their long winded consolidation patterns, but one has to ask given the strength in the last two sessions (cycle turndates on 29th), why these haven't broken out. We think we will get another quick blast to the downside this month. A few battered ones will start to turn around by Feb 15, while others will continue to lag till Mar 1. Our first target for the SPY is 1050 and the 200d moving average after that. We don't know if the march rally will lead to new highs. But we know it will last for months.

We present one such stock we are looking at, not that it is representative of the market, but this miner has very nice cycle properties.

bearish

Lets give the market another day to prove itself over 1104 area. But technically there was nothing bullish about today. Maybe we will get continued weakness into feb 15 time frame. Looking for spx 1050 over the next 2-3 weeks.

Feb 1

We did some buying on friday. Maybe we are a tad early. Maybe the SPX tags 1062 and 1050 extended targets. If it does, we expect to see a fast retrace and possibly even new highs into may this year, depending on the sentiment readings.

The next weeks should be interesting. In any case, If the market declines into Mar1, buy.

Jan 29 turn

Bang on our turndate, we get a lift. If this is really the turn date, the next turn is on Feb 12/Feb15. Since that is options expiration week, we will even give it leeway until turnaround tuesday Feb 16. We expect to see further weakness into March 1. If this weakness occurs, march 1 would be a nice buy point.

Time for the seasonal rally

We look like we have 5 waves down in quite a few of the stocks we see (T, GS, FCX etc.). Also quite a few stocks have come into their weekly or daily averages. A technical bounce combined with the famous rally of Jan 26th-Feb1 (> 80% seasonal ratio) along with our turndate on 28th(+/-) would mean a rally should start anytime now.

However, the larger cycle remains down. If we go sideways or down in the march 1, expect to be buying on March 1 for a sizeable rally from the march 1st low.

Friday Jan 22

10:30 a.m. Bullish divergences beginning to appear. We think we can get a bounce here upto 1120 or so atleast.

We like LRN a lot here. Looking for a 5-10% move in the next week. JPM if it gets down to 39.5 region for an option scalp.

And finally it comes

Our stance to bail out on the long side around 1140 seems smart in hindsight.
The question is now what?

We don't have any turn up in the advance decline lines or divergences in any of the indicators yet, meaning this decline is not done yet. We have a turn date around Jan 28th (+/-).

On an intermediate term, like many elliott wavers claim, if this is a "major top", then one thing to note compared to other major declines is that the price never got stretched far beyond the 20 and 50 day moving averages. In our work, we found that such declines are "laboured".

We are not willing to commit to a major top just yet. If we read this right, we believe there will be another attack back up towards 1170 sometime in the next 2-3 months.

In the shorter frame, most stocks are on some sort of a moving average, we expect a weak bounce followed by another decline into 1080-1060 area culminating on our turn date.

Jan 8

Regional banks (BK, IAT and others) have taken on the baton as we noted in an earlier post for another round of russian roulette sector rotation. The target of 1140 has also been met.

We still believe there will be a shakeout after tomorrow's jobs numbers or sometime next week. We expect the SPX to fall to 1100. As of this writing, we expect 1100 to hold.

Our trade will be to short on break of 1127 with a stop at 1129, if it occurs tomorrow.

Jan 6

More of the same action, slow grinding. Need to a bit cautious here around 1140. The question to ask is if 1120 - 1125was the barrier (50%) retrace why is the market not zooming upwards.

The trading shows grinding action, allowing lots of "them to get in". Typically, once a resistance breaks not many are allowed to get in. For example, look at our pick ACH, each of the moves in the past 3 days, each 5% or more. This is what a hot market should look like.

For this reason we are expecting a shakeout of the longs soon (30-50 SP points). Oil is at the doorstep of 85$ (our long held target) and so is the SP near 1140.

Our trades - closed out ACH, WNR, AB, SCHW positions for decent 10-15% profits.

2010

Welcome 2010, the grind continues. We are more cautious now. We took profits on 20% of AB position for a 7% move. We are not ready to go short yet. We still think 1040 is doable, as we have been harping for over 2-3 months now.