Sunday, October 2, 2011

Trading Thoughts for Week of Oct 3

I think that next week will be the one to remember. I am looking for market to bottom for 2011. It will be an intraday reversal from sub-1100 level. I have been looking for it this past week, but conditions have not been met.
I am less set on levels at the moment. It is going to be tough to call the exact point decline below 1100. I have been initially looking for 1080 - 1090 zone, but I see another possibility @ 1070, based on weekly pivots. Nonetheless, I will be looking for bottom to occur and will be interested in buying on the way up. I will not be catching a falling knife, I am a trader - not a gambler. Those who are keen on catching bottoms could put some silly bids in and see if they get them. I have never been able to do such, and therefore will let the "lucky" ones bring the price back up to my levels.

So, instead of doing my usual daily outlook for the following week, I have decided to devote all of my attention in this post to how this bottoming scenario may play out. I am going to go over technical stuff, and hope that many will not mind the mundane details.

Here is what I am looking for:

1. My attention will be on SPX daily MACD, which is diverging, i.e. lower low on price with higher low on momentum.
2. NDX is going to have a higher low at the time when SPX is below 8/9 lows. That would create a non-confirmation of SPX break-down. I would equal this to the NDX breakout non-confirmation on 7/26, when it made a new marginal 2011 high while SPX was already rolling over.
3. Speaking of non-confirmations, let's see if DJT stays above its 9/22 low, while SPX makes a new low.
4. Back to NDX. I will be looking for SOX to lead the bottoming process and start its usual divergence from NDX and overall market, as it did this entire year. There is an open gap @ 329.
5. More on NDX. There is an expression that on the way down they shoot the generals last, meaning the decline in the market always ends with most favorite stocks (leaders) being taken outback and shot. This has happened in the last three trading session. AAPL, GOOG, AMZN, PCLN, BIDU, and other leading momentum tech stocks have all been demolished. Big money was hiding in those names. Give the market some time to bring these "most wanted" to the levels of utmost desire, I bet there are huge resting bids just waiting and salivating to load up.
6. It is very important for SPX to trade below 1100 during the regular cash session, and not just futures. This sounds more like a hope on my part. With most of major moves happening during European session, I may be out of luck again (just like last Monday). I guess the good ole USA ain't the main show no more :)
7. I am looking for VIX to make a slightly lower high (below 48 made on 8/8) on this SPX 1100 breach.
8. Now about chart patterns. There is a widely-publicized and discussed-at-nausea bear flag on SPX. Projected distance (flag pole length) is 245 points. Folks, that would take SPX to 975 - 985 if flag broke. Possible, but highly improbable. Oct to Jan is a late-year rally mode, not sell them into oblivion. This said, many will point out 2007 Oct - Jan decline. To which I will quickly point to where SPX was in the beginning of Oct 2007 - at the end of 4-year bull market, at all-time high. We have already had a steep decline of 20% (1370 to 1101). I am looking for a fake bear flag break - bear trap just below 1100.

Traders, I am no clairvoyant, spilling my gut feeling predictions. I do trade what I see, and realize that sell-the-rallies mode continues. But I had predicted a top on July 22, just as everyone was in buy-the-dips mode. And now I am looking for a short-term bottom to trade up from. It will be a trade, perhaps a contrarian - against the trend. But market does this all the time, it punishes the complacent ones, to reward the patient ones. I am done with the bear side until Jan of 2012. If I am wrong, I will reassess, and will change my mind as more data changes.
Many will ask: if I believe so strongly that SPX goes below 1100, why not short? Because my reward to risk ratio parameters will not let me. In this 1100 area there is little room (both points and time) left for a swing short to be successful. I am not a prophet, and have no 100% assurance that 1100 breaks. There are huge players waiting for a retest to pull the trigger. I will be a fly on their back and will not be ready to reverse into long. I am no longer a day trader, swing positions only (due to HFT intraday shenanigans). I would rather stay flat, observe the market during the retest, and be ready for that long when my parameters are met. For now, I am looking for a reversal from sub-1100 level and a sustained rally into the end of the year. Let's see what happens...

Update: Oct 3 @ 1:20 pm edt
DJT just made a new 2011 low. AMR is getting demolished. Dow theory followers are cringing. So, take point #3 off my list above. Market is displaying extreme weakness into mid-day.

Update: Oct 4 @ 10:25 pm edt
Today was the epic turnaround day I was looking for.


  1. Absolutely amazing call! I'm in awe!