Fri May 15

12.00 P.M Added a small portion of TSO long. Covered a portion of SPY sliver (from 90) at 88.8

2:20 P.M Since this market volume/breadth/$CPC etc are not confirming the plunge. There is a risk of a sharp rise in the next few days/weeks now. We would not want to short anything until 875 is taken out. On a technical note, the obvious target on the upside is 200d SPY. It is entirely possible that the big program trading and hedgie shorts are waiting for a tag. And since 200d is an "easy target" to start shorting. It may very well happen that the market rally a nice 5-7% above the 200d to put off rookies.

Sentimentwise (at the risk of everyone being a successful contrarian :-)), has we seen major jubiliation no! Remember this downturn started with bad news (of retail spend down). Rallies don't end on bad news. They end on good ones. We are weary because we expected a much more vicious downside thrust. Alas it seems to be missing.

We need to scan the charts to see if there any trade setups on the long side. We will report back later in the day.

6.00 P.M We could find very few convincing charts for long setups. TSO was a half baked one, so we put on a small long position. A break above 18.5 on TSO would give a massive thrust to 25, the stop is a close below the moving averages.
That being said, the market volume was low, the breadth sucked and we bounced again off the 20d ma. We don't feel like going aggressively short here. Ofcourse our sliver SPY short positions keeps us in the game. We covered some today at 88.8. We will add if the market rallies to 900. We will unload some SPY shorts at the 50d if the 20d breaks. In terms of weekly charts, most indices and SPDRs had an inside week, something to keep in mind.

We prefer to stay safe here.

May 14

12:40 P.M Small bounce today. Should have been expected of SPX bouncing of 20d. But nothing spectacular about it. It will probably down soon, like the other indices - NDX, RUT etc.

2:50 p.m. The market is as drowsy as us. Added an SPY short sliver at 90.

May13

8:45 a.m Heavy weakness P.M. Will probably cover 1 spy sliver at 88 if it gets there.

9:20 a.m. We absolutely hate it. We stalk out and buy NVS and then it does nothing for a few days and we get out with a meagre profit. And now it gaps up 4% :-) This happened with PM too. bah! we need more patience.

1:10 p.m. Covered spy sliver short from 92.5. We have two more slivers @87.5, @90.
1:20 p.m Gold miners and PM getting smashes. And we got shaken out of SSRI short. Damn! Maybe there are phases in trading. We are probably in a lean one right now, after a fabulous run over the last month or so.

5:55 p.m Nice solid red candle with nice increasing downside breadth from monday, looks like a 3 wave of some kind. We seem to have made a top bang on our May 11th cycle turn. Next short term cycle turn is May 25th(+/-).

Now the more important question - Is the bull rally over? We are leaning towards - *not yet*. Technically, the larger term cycles don't turn until June end. More importantly, we need to see how the market handles the 20 and 50 moving averages and also April's Wave 'B' triangle consolidation(for e.g. in XLE). We are likely to see buyers turn up in that zone. The larger question in our mind is what will the bulls buy? We don't see anything attractive other than a few energy stocks, specifically natural gas stocks which is pulling back after the gusher move. Tomorrow should be the test of the 20d moving average on the SPY. The russell, tran, NDX have already failed at their 20d, which is a pointer rds further weakness. The interesting area is therefore SPX - 830 (50d). We fully believe the market will make it there in a few weeks time.

Our strategy is to short stocks that have flown up high above their 20d, e.g. AFAM. Basically, the more the separation the greater the fall. We will also start covering some SPY slivers along the way, every 25 points or so.

May 12

10:30 a.m. Covered SSRI for a loss of 3%. Not still broken out, but taking no risks as we may not be at our screen. NVS looking to break out. Lets see if it can do it.

1.10 a.m. NVS seemed to be failing at the 20week resistance. Bailed out at 39 for a 2.7% profit. We covered AMZN for a 2.5% profit. Quite a few sectors are red, but the volume, TICK, VIX truly suck. So other than our SPY short slivers which we regularly pick every 25+ points, we are not in the game. It is looking very likely now that we made a short term top on our May 11th cycle date. Our next cycle turn date is May 25th, which could be short term low. We still think there is another month or two left before an solid term top is made. What sectors will lead the next bout of buying? We don't know, there are extremely few setups we can see for buying now. We may have a "dead" market for sometime, probably designed to kill option traders.

May 11

12.00 a.m. We injured our shoulder this morning, so we will be out of action for the next few days sleeping and being numb most of the time :-).

2.00 p.m Quite drowsy on painkillers but nonetheless, we shorted SSRI, GDX this morning, the double top is the stop. Watching CNBC during the day is entertaining to say the least. I has been sometime now watching talking heads give their views.

6:20 P.M mild sell-off. In our brief scan AH, we don't see any clear bull setups in charts. IPSU the one we were watching (and the one which scottrade did not allow us to buy, for some strange reason) finally blasted out today. What this means is tomorrow's breadth is the key. With no apparent leaders anew, what will the bulls buy next? That being said, trash is now beginning to fall down back to earth. e.g. DRYS, CPSL etc. which had enjoyed > 100% gains are giving way.
Looking at CAT chart, could that be a small triangle in the 4th wave position? - it is definitely possible, meaning we may have another small thrust up, but it will also mean that would be the last and will fully retrace the move.

Nonetheless, this week promises to be interesting.

8:00 P.M Some possible triangle plays for a last thrust up - FMCN, AXYS, CAT, BQI (trash still going up)

Time again to short gold stocks

Above is a wave count on XAU. In our eyes, the 5 waves down are clear with a triangle at the fourth, followed by a 3 wave rise, including a triangle in the b wve position. We will reshort gold/silver stocks at the double top, with a stop above the double stop. If our labelling is right we could have one hell of a ride down in the coming few weeks.

Rant (feel free to ignore):- We have been questioned quite a few times about the validity of TA and if it is really so powerful why doesn't everyone use it and therefore rendered useless. Our view of a stock price is that of a machine (or function/ stochastic process) with inputs at every time instant  since its inception. The news now creates a new input for this machine and based on all the inputs thus far, the machine gives us a new output for the next instant, the stock price. A chart is a simplistic way of capturing this relationship in time. Sometimes, whatever be the input at the next time instant, given all the inputs thus far, the function can output only a few selected values. Think of it like a degree of freedom. For e.g if there has been only  good news on a stock and it has soared relentlessly, the "surer" output is it is going down e.g AAPL circa 2008. What TA does is place odds on this "sure" bet. In our opinion quite a few technicians (including ourselves) try and time every small wiggle as if external factors don't matter. Of course they do, but the question is always to what extent. e.g in sep 08, when the bank bailout was not passed, the market crashed. The congress turned around immediately and passed it. It promptly crashed again. So one can think of it like the degree of freedom in this case was by how many points it was to crash. The unsure bet was by how many points. Since picking such moments of surety is quite subjective (in our opinion atleast), it is difficult to time every move. Often the best thing to do is not trade the stock and look for stocks with the right setup.

May 8

10:45 a.m. Today is a potential important 45 day possible cycle top from the Mar 9th lows. Keep a look out for more clues about possible tops. On the stocks front, the last bastions "energy" are eking out gains while the higher beta nasdaq is losing it, which is expected and hence our short position in AMZN yesterday. We believe the 50d will be hit on this trip. That is when we close our short.NVS is acting sickly, we will watch for a close below the moving averages and then stop out. We don't think the market will crash back to the old low, at least not in one swoop. What is more likely in our opinion, is a lengthy 3 or more months of going nowhere and a trading range, to draw a right shoulder (look at a 20 yr chart of the transports (Our earlier post)). For now we scalp and play the ranges.

1:50 A.m (9th) We were away from our desk all day, so we did not trade today. Today finishes 45 days of a rally. The percentage of stocks above their 200d is upto 50% today. Percentage of stocks above their 50d is now 94%. The daily sentiment index (jake bernstein) is 85%. Talking heads are increasingly seeing green shoots everywhere. We have quite a few bearish signs, momentum wise. Probably the most bearish is the nasdaq not confirming the dow's breakout. The nasdaq has been the leader thus far, but as we noted it is energy which is leading this last thrust up. XLE has also tagged the 200d. We have a potential short term cycle topping 8-11th. We are not going aggressively short, we will wait for the hourly average to give way before entering a sizeable short. If indeed the market falls, the next cycle turn date is the 25th of this month.