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.