Friday, September 30, 2011

SPX Update

SPX is having a tough time keeping its head above 1160. Next weekly pivot is there. SPX would need to close above that on two consecutive daily basis to continue higher. My bias remains neutral in this choppy tape. Economic news was better than expected this morning, yet it was sold into again. Bear market rallies get sold.

I am wrapping my mind around a climactic washout day next week. I have been looking for it this week, then decided it will not come due to everyone looking for the same thing. But now I am back into that mode of wanting an epic turnaround day from sub-1100 level. It has to come on huge intraday volume and diverging momentum studies. I want to see VIX trade below 40 after that turnaround, and trend lower. Maybe I want too much :)

For now it is "trade what you see" - sell the rallies.

Update Sep 30 @ 4:40 pm
Closed on the low of the day and the week. Window dressing was not met with buyers. On Monday there could be some new money put to work. There is no reason to think that SPX will not breach 1100 after not being able to rally on good news this week. I am no longer confused - market cleared up my mind. I am perfectly fine to wait out the last 40 - 50 SPX points on the sidelines. No reason to be the last one to sell at the bottom. I will be looking to go long after a breach of 1100 has been completed. If you are a conservative trader, wait for short-term bottom to form. If you are an aggressive contrarian, put silly bids in, you may just get them filled...

DXY and EUR/USD Update

If there was not enough confusion, EZ inflation has decided to pop further above ECB's comfort level this morning. This is putting some doubt in the theory of aggressive cut at upcoming ECB meeting. While traders are still pushing Euro down on overall dollar end-of-quarter demand, chances of 50 bps cut are pretty much gone, and cut in general is in doubt as well. So with this in mind, I am still looking for some Euro weakness heading into the meeting:

1. DXY is fighting flat-on-the-year resistance @ 78.96
2. Once above, it will fly to 79.70 level - 150 wsma / 200 wema laminate
3. Next level of resistance after that would be 81.30 - 2011 high
4. Based on the above, EUR/USD is heading for lower levels next week to 10 days by 200 - 300 pips
5. My projected targets are: 1.3230 and 1.3110
6. If DXY really gets going to 81.30 level - EUR/USD will dive to 1.2870 (I am not expecting this in the next 10 days though)

My last week's 1.3350 projection was almost met (within 10 pips)

Good luck!

Update: Oct 3 @ 2:23 pm edt
EUR/USD hits 1.3230

Thursday, September 29, 2011

Is NDX sell-off a capitulation?

Today's NDX action took me by surprise. As I lay the arms down and move to the sidelines, I am asking a question: is NDX sell-off a capitulation by big money which was hiding in big tech? I will be observing the trading over the next few sessions to derive the answer. These money flows take days, and sometimes weeks to play out. Since we are in HFT age, may just take hours :)
More questions to think about:

1. Is tech the last leg of the stool to go?
2. Will old tech outperform the new tech?
3. Will NDX underperform the entire market going forward?
4. Is this a few-days wonder or will this be the trend to continue?

Huge sell-off in momentum tech stocks today. These are very steep declines, and usually do not happen out of nothing. It looks like funds, who were up in these tech names compared to down everywhere else, decided to cash in their chips. But is this the only reason, or is there something else the market is telling us?
Tech was the leader until today. It may continue to be, but I am not sure now.
The fact that we sold off on good economic news continues to tell me that we are in bear market, where all rallies get sold hard. I like to know who the leaders are going forward - it is not clear now. Staying flat...

Going Flat

I am a bit confused. When confused - do not trade. I am torn apart by two macro scenarios, which preclude me from making a clear and definite choice from which side to trade the market. Being a macro trader I have to follow my rule: when unsure about near-term market outlook -- go flat. I will be weighing econodata and corporate reports to clarify my position on the market. I do not have any technical bias at the moment either, which complicates further my overall decision making.
Many people think that traders have to be long or short. Flat is a position too. I am going flat...

Wednesday, September 28, 2011

Case for SPX and NDX longs

I am leaning toward SPX and NDX longs on this pullback. All I really had to do is read my own notes. Blog is a great tool - it serves as a diary, a trade journal, and a rule book.

So it is from my own blog that I derive the case for this long:

1. SPX tested 8/9 lows, even though it did not get to 1100 on cash, the futures did test 1102 and bounced nicely (note that futures low on 8/9 was 30 pts below). So we have higher lows developing from that retest. Staying above 1150 on closing basis SPX cash is very important for this trade to be valid.
2. There is a possible solution in Europe, while it is still yet to be completely put together, I like the TALF-like approach. I have to say that I am very skeptical about how quickly they get this thing going, but it looks like ECB/IMF will keep things propped up until then. I know I am jumping the gun on EFSF finalization, due to German vote still in question tomorrow. I say it is "Ja" in Bundestag on Thu Morgen.
Finns approved it today without any mentioning of collateral, how funny, after all that fuss they produced earlier. Did Frau Merkel send a free keg of Deutsche beer to Finnish parliament prior to the vote?
3. XLF has bottomed for short term. It will provide a boost to SPX. I expect a continuation of XLF rally to 13.48 level at least. XLF is a lifeline of sinking economy.
4. SOX is acting really well, thus supporting and leading NDX higher. SOX has been an early heads-up indicator of what NDX and entire market will do. Speaking of NDX, it is way above 8/9 low and really outperformed the market on this retest. (2234 gap just got filled, as I type)
5. Crude oil has bottomed and is providing good support to energy sector - important SPX component.
6. Economy is not in recession. While there is a slowdown in order, all economic reports coming out currently are pointing to a slow growth. We may have a quarter left before we find out we are going into recession. Plenty of time left to trade this market in the range, before it will be a steady short.
7. Short interest and sentiment surveys are showing extreme level of scepticism - a very important background for sustained rally.

I could continue being a doubter on sidelines, and be a part of the reason for this rally, or join in and be a part of the rally itself. I choose the latter.
SPX is going to 1250, I intend to get a big chunk of that.

Good luck!

Update Sep 28 @ 5:30 pm edt
SPX held 1150 on close. Market is worried about all the same things and more... I still expect a rally from this level tomorrow.

Update Sep 29 @ 11:30 pm edt
My case got whacked in the head due to NDX severe underperformance today. I do not want to see the leader being taken outback and shot, just as I went long. I quickly cut the position loose and will remain flat until I can understand the message of the market. This looked a bit more than simple profit taking.

Tuesday, September 27, 2011

I remain skeptical, still looking for SPX 1100 retest and breach

I am so sorry to be so negative on newly-found Paradise. But can someone please explain to me how in the world of madness are they going to get such a complicated structure together in Europe just in time? I mean it took forever for those knuckleheads to figure out they needed a leveraged structure in the first place. Just wait for this end-of-quarter window dressing to pass and market will retest 1100. Observing the action, flat for now...
I am looking for 1163 gap to be filled in the next few days.

Need to clarify. If 1150 holds, then 1100 retest has already happened. ES_F did trade to 1102. I really hoped to see SPX cash down there as well. But hope is not a trading rule :)

SPX - was that the retest?

Going flat SPX remaining short. Small profits are better than big losses.
XLF is ripping higher and giving SPX a boost. I am not sure I want to reverse and chase it higher here. I am too skeptical of this advance above 1166 gap fill to wrap my mind around a new long. This said, if we do not go below 1150 on pullback, we may have seen the successful retest. Buy the pullbacks is now the name of the game. It is funny how things flip flop on a dime. I wanted to see a print below 1100, just to say we have had a retest. One may still be coming - all we need is a credible denial of EFSF leverage. I am going to observe this action while staying flat.
Do not fight, do no harm to your account.

Monday, September 26, 2011

SPX - quick technical update

SPX has closed 1166 gap. This completes "unfinished business". I expect the market to digest EFSF leverage news overnight, and start the descent to 1100 retest. There will be no peace in the market unless 1100 gets tested, imho.

XLF - bottom is near

Very near! Like this week near. I am not an etf trader. I trade index futures. But I have to stay aware of market sectors which drive my favorite vehicle - SPX.
None of those sectors is as important as financials. It has been widely-publicized and well-documented that financial sector is dead money. While I do not want to dispute weak fundamentals of this sector, I am going to go contrarian here and say that based on charts, it is getting ready to bottom for the short term and head higher on a bear-hunting run. I think that it will be fast, furious, and steep, and I can provide the levels to which it is going.

Here is my technical case for XLF bear-market rally:

1. There is an enormous momentum divergence on daily chart. As the price is making new 2011 lows, MACD is not, and they have now diverged by quite a lot.
2. Volume is declining on this lower low. It is about 25% less than Aug lows volume, in the sign of waning sellers on this last leg down.
3. Falling wedge has now developed, and the price has kissed the lower trendline, and just bounced nicely on Friday in a reversal chart pattern.
4. Stochastic is oversold, but is not embedded into the sell though. With price rising, it will go back above the signal line, and HFTs will sniff that buy signal fast.
5. Price bottomed at support level going back to 2009.

So if XLF has bottomed, where is it going? I think it is heading up to challenge 8/31 high at 13.48, which is also at top of daily BB and roughly 50 dsma. That would be 15% rally from Fri close, which I think it will do on almost uninterrupted one to two week ascent. I expect this to help SPX bottom for 2011 this week. There may be an initial weakness on Monday and early Tuesday from which this rally may begin.

UPDATE Sep 27 @ 12:40 pm edt
XLF is up 7% since I mentioned the trade. It is important to remember that this is a counter-trend trade in a very strong downtrend. Scale out, trail the stops, please.

Sunday, September 25, 2011

Trading Thoughts for Week of Sep 26

Next week is going to be pivotal for equities. I expect a test of 1100, breach, intraday reversal from lower level, and steady advance into the end of the week from that lower level.

Here is what I think will happen:

On Monday we will start the week with optimism about consideration of leveraged EFSF TARP/TALF-like plan to recapitalize banks in preparation of Greek default (per reports over the weekend). Then after initial brief rally the other worries: double-dip recession and prospect of lower earnings from that will take over. Market will have to deal with that weakness due to no solutions put forward at G20/IMF meetings over the weekend, as well as the fact that EFSF leverage is only being discussed, but has not been decided, and EFSF itself has not even been voted on yet. The risk of European Lehman-like skeleton in the closet is real and imminent, there is very little time left to "consider" EFSF leveraging. Which bank will fail, and how quickly? We have 3 days of votes on crucial bailout program in Europe starting on Tue. All nervous longs will jump ship late on Monday, just as they see the rally fading. I am looking for a retest of 1100 on SPX at this time, which may prove to be a head fake.
New home sales out this day - nobody cares...

On Tue we may see a turnaround. I am looking for short covering in US equities to take place and spill over into risky assets everywhere else. If you are a shorty, you do not want to take a risk through crucial EFSF votes, which will most likely be "Yes".  I am sure that no politician wants to be the one who caused the end of the world, it all gets approved in Europe, I say. All eyes will be on Papandreou/Merkel meeting. I think the word meeting originated in Europe. Also Italian bond auctions begin.
On US econodata docket we will get Housing Price Index, Richmond Fed, and Consumer Confidence. 
SPX may bottom on this day. Monday close may be slightly above 1100, Tuesday may open there and quickly dip below 1100, after initial weakness it may reverse and move up from there. I could be wrong on the day of the week, but strongly think 2011 bottom comes next week between 1080 and 1090 on SPX. We may not see these low prints for the rest of the year.
Since on the subject of bottoming. It is important to note how SPX has not made new 2011 low yet, even though most risky assets are already below 8/9 low. Most importantly, NDX is nowhere near 8/9 low, and looks like it will stay way above it on this retest. So once we have a confirmed bottoming formation, I am going to use NDX as a vehicle to go long, as it usually outperforms in this seasonally strong period.

On Wednesday traders may be scratching their heads and studying charts, as some may feel like they missed the boat. I want to see as many doubters as possible, steady rallies are created on the back of stubborn shorts and hesitant longs.
We will get more EFSF votes in Europe, I think in Finland (I really do not care, as it will all be "yes").
Durable goods orders report out in US. Oil inventories out as well. It has been a long time since I have mentioned oil. I think oil bottoms here and moves up with SPX. This will be a head-scratcher as well, as I think the dollar will not get weak (on this a little later).

On Thursday German parliament votes on EFSF, the most important vote out of all of them. You guessed it right - it will be Ja. DAX will go up like nuts.
In US weekly u/e claims (more pain there I am sure), final Q2 GDP (lets see if it gets revised down), and pending home sales (again nobody cares). Unless we get crappy GDP, rally continues. 

Friday is the end of quarter - window dressing. Fund managers will be shedding losers, as many others may be looking to get in front of Q4 rally. We may just see a chopville, but may get a push higher into the close at the end of the day, in preparation of Monday rally.
In US we will get PCE index (deflation is coming, according to gold's plunge), Personal Income and Spending, Chicago PMI (very important), and revised UoM.

A few words about US dollar. While some traders think that for SPX to bottom dollar has to get weak, I have a different view. Dollar has bottomed for 2011 and maybe even longer. It will have a bid underneath for many months to come. It will rally along with SPX on the view of US economy being stronger than Europe's and many other developed countries', hence weakness in DXY basket. It also will benefit from weaker commodity and EM currencies, due to lack of inflation and slowing growth. Do not short US dollar.

Friday, September 23, 2011

Is gold flashing deflation? + Technicals on $GC_F

One can not ignore gold's decline post-FOMC. Many will say that it is all due to cash-raising activities by hedge funds, who are being battered in equities, commodities, and currencies. I have a slightly different thesis - deflation.

I have been saying here for months - there is no inflation anywhere:

1. Energy inflation scares we had earlier in the year are gone.
2. All other commodities, especially metals, are falling through the floor.
3. Govt reports show stalling of inflation on wholesale and consumer levels.
4. Yields on treasuries are lowest on record.

Gold does not do well in deflationary environment. It will not shine until Fed returns with QE3. If it bounces here on buying interest due to technicals - 100 dsma is @ 1637, I would not be surprised to see a sell-into-rally mentality to establish quickly. Late longs, suffering from break-even disease, will be selling 1700 - 1750 levels: between 8/25 low and 50 dsma respectively. Central banks' buying will probably support precious in 1530 - 1580 range: between 200 and 150 dsma respectively. Hence we will have a trading range at best: 1530/1580 - 1700/1750.

UPDATE Sep 26 @ 9:43 am edt
Gold traded down to 1535 in overnight session. I expect a retest of that level to hold, even if it gets breached by 5-10 points or so. This was a breath-taking decline in a matter of just a few sessions. Consolidation will be name of the game from here on - choppy, trendless, range-bound.

Market Update - SPX and DXY

SPX got to 1102 in premarket futures. Cash will follow there, if not today, early next week. We will have a retest of 1100. First retest is a bounce, second is a go-through. Let's see what happens...

DXY is stalling at flat on the year. Brief pause I say. Much more to come. This freight train will run over everyone standing in the way. No formidable resistance until 81.30 - year high.

I have to vent about extreme stupidity coming out of G20 leaders. They scrambled to issue a communique about how urgent and dire the situation in Europe is, and how coordinated their actions to combat the problem will be. The only coordinated action I saw was printing of the statement. What are they waiting for? It is stuff like this that unnerves the market: lack of progress, action, and brains. Where are all the smart people? Staying short...

Get ready for an epic day next week!

Thursday, September 22, 2011

SPX - back to reality

Thursday is back to reality day. Econodata everywhere in the world is very weak. Markets are having a field day. It is no surprise. I continue to sound like a broken record. Bad news never really went away. We are in recession/slowdown phase. What did everyone expect? News tailors to charts. Let the stock markets work their magic. We will retest 1100, flush out, and will be in better shape to restart the rally. Bring it on!!

SPX has an open gap @ 1166 and backtest of broken t/l there as well. We may be too weak to fill it today. This 1135 - 1150 range holds for now.
I see us going below it next week to assault 1120 and eventually fall below that on the way to 1100.  Progress of this trade, which began on September 15th, could be followed here:

Fed gave the market freedom

Now the market will do what it needs to do - stop out late longs, retest the 1100 bottom, and start year-end rally from slightly lower level. We have 2 week vacuum between today and start of Q3 earnings reports. So the market will do its work at this time. Back and forth action will mostly be directed downward, and SPX 1100 will fail but so slightly in my opinion. There are still respectable earnings coming out of many companies, cash on balance sheets is high, dividends are enticing, and seasonal strength is just about to start. All of that will keep the market from collapsing during 1100 retest. I expect 1080 - 1090 to be the bottom for the year, to be made in the next two weeks. Follow the progress of this trade here:

Wednesday, September 21, 2011

DXY trade is on

So we have what I discussed last night - DXY is breaking out to new highs.

Now all we do is buy the pullbacks. One has to wonder what news we get out of Europe overnight. Bunch of econodata is on the docket. I expect weakness there to continue, thus giving DXY extra boost overnight. Next level to watch is 78.96 - flat on the year. This would roughly equal to 200 pips in EUR/USD, which is heading to 1.3350 or so.

Good luck!

Traders knew about today's move

What happened today post-FOMC? Nothing new. At least for us, traders. It is just that Fed today has finally joined us in the view of US and world economy, "significantly" downgrading their outlook.

Please read my earlier posts. Traders were ready for this move. We are going lower, much lower, 1100 on SPX. There will be small retraces along the way down. But as you saw this afternoon, the moves are quick, vicious, steep, very hard to catch. Everyone woke up, what a joke! Transports, SOX, commodities, risk currencies - all have been pointing to downward move the last few days. SPX simply followed after FOMC meeting, but really has ran into 1220 sell zone for few sessions, and could not trade above at all.

Know your levels of resistance and support. You can follow my updates of this SPX move down to 1100 retest here:

Mid-day pre-FOMC Market Thoughts

SPX is in 1190 - 1208 range, again. This is so frustrating for both longs and shorts. I am flat, waiting for FOMC. Confirmed breakout to either side is tradeable post-FOMC.

ORCL and ADBE did not disappoint. Both reported respectable and guided well. My thought is that NDX is not shortable at all. While not immune to sell-off, it will be less susceptible to bad news outside the tech sector, and will recover much sooner on the upside, when more Q3 earnings start rolling out. I am watching for SOX to close 339 gap first, which may send entire market to marginal new 2011 lows in the next week or two. Then a long trade from those lows into the end of the year is what I am looking for. NDX is probably the best vehicle on the long side, and I am thinking as all indices make new 2011 lows, NDX will not. 

Since on the subject of tech... HPQ is bouncing on CEO replacement rumor. While the stock is up, and perhaps the idea is that HPQ's internal problem solution will benefit overall tech sector recovery, I think that IBM will eventually suffer from this, and will underperform the tech. Plot IBM's chart over HPQ since the Mark Hurd debacle, you will see what I mean. Investors left HPQ in droves and jumped over to IBM for safety. If today's news is true, we will see a reversal of that trade. With IBM being the heaviest-weighted of Dow 30, this may drag the Dow somewhat compared to other indices. This is just a speculative thought, and IBM has not reacted negatively yet...

Speaking of Dow, Transports are negatively diverging, leading on the downside, and pointing to overall market weakness still to come. This confirms my thesis that we are in for a few turbulent weeks, on the way to retest 2011 lows.

FX is weak against the dollar, with exception of euro. This is pre-FOMC positioning and short-covering, and is meaningless due to traders not knowing for sure what the Fed will ultimately do. This said, if euro joins the weakness after FOMC, we will have a nice dollar boost and new short-term highs on DXY.

How to trade US Dollar after FOMC

Many TV heads will be screaming tomorrow how Bernanke is killing the dollar. While it is true that previous QE has weakened the dollar, I think that unless Fed does anything unexpected tomorrow (like QE3 or major change of statement language), dollar weakness will be temporary post-FOMC, perhaps less than 24 hrs.
So let's tune out the noise and look at my technical and fundamental basis for dollar's bullish case:

1. Dollar index has been consolidating above 200 dsma. Chart has bottomed, at least on short-term basis. All those calling for continued secular bear are going to have to wait for this cyclical bull correction to play out first, long way to go in it still.
2. DXY basket is full of weak currencies at the moment. Euro, cable, loonie, swissy, and krona have all been declining against the buck lately, with exception of lone dissenter - yen.
a) Euro: LOL, can there be a weaker currency now? Well-known problems are weighing it down. This is 57% of the DXY practically going to hell in a handbasket (no pun intended).
b) Cable: economy is continuing to be in a dumpster due to austerity and banking sector's woes, stagflation is causing riots, more QE is around the corner, there was even a rumor today about some more stimulus (unconfirmed).
c) Loonie: slowing oil and gas industry with weaker exports to US (largest trade partner), waning demand for commodities in emerging countries, slower growth and lower inflation in the last few months reduced the need for a rate hike.
d) Swissy: peg to euro will keep it grounded (what a poor choice to peg to deteriorating currency), SNB selling CHF against the dollar as a result.
e) Krona: pretty much does the same thing euro does lately, not sure anyone pays attention :)
f) Yen: risk-aversion currency of choice at the moment (absent CHF), no need to stress about anything fundamental, fear trade... So 13% of index is kind of stagnant due to this, with BOJ lurking at every opportunity to counter the specs.
3. Speaking of risk aversion, dollar will benefit, as equities around the world are selling off into a bear market. There is no better liquid heaven to run to than the dollar in this scenario.
4. Commodities are extremely weak. All metals (except for gold) are selling off big. Just look at copper, WOW! - what a great indicator of more weakness in stock markets still to come. Dr. Copper is now breaking down, and looks extremely bearish.
5. Fiscal austerity here in US is in order. All those dollar bears, who were ready for a huge dollar downdraft due to Obamacare, are now faced with proposed $3T deficit reduction by the same President instead.
6. While the long-term interest rates in US are declining, they are not that much better in DXY components' countries, due to their economies slowing down. It will be just a matter of time before central banks there reduce them further (ECB in particular), thus closing the spread with our rates, and making it less attractive for currency carry.

All of the above will help the dollar going forward. I expect this bull run to continue for some time. It will do serious damage to commodities, equities, and risk currencies.
I will be looking to buy the dollar post-FOMC in the case of no unexpected QE3 announcement.

Tuesday, September 20, 2011

Market is in trouble

We are close to short-term top. Once Fed is out of the way there is practically nothing to keep the market up.

1. Advances are narrow, led by few stocks.
2. Market internals are weak.
3. Corporate fundamentals are deteriorating.
4. Global growth is slowing tremendously, with recessions looming in Europe and US.
5. Monetary and fiscal policies are running out of steam.
6. Intermarket correlations are diverging, with commodities and risk currencies pointing to further equities decline.
7. Charts are topping out.
8. News flow from Europe is getting worse by the day.
9. Cyclical sectors are stalling and pointing to reversal.

Conclusion: market is making a short-term top. BUT, wait for FOMC meeting to pass. Absolutely NO gambling with Fed! IF unexpected QE3 is announced, it will throw a monkey wrench into my theory.

Monday, September 19, 2011

Unconfirmed NDX Breakout

We have an unconfirmed NDX breakout. It is making new highs above last week, yet SPX and DJX are not. This may be a good time to be a little contrarian here. Unfortunately, I hate to put counter-trend positions on just before Fed. Let's just hope we have the same divergence at the time of FOMC, and then we know what to do :)

I am using this little afternoon short-covering rally to get flat the small long position bought earlier in the session. No more trades pre-FOMC.

Position Adjustments Update

EUR/USD may not see any daylight above 1.40 this week due to pure stupidity going on in Eurozone. Even QE Lite expectation is not helping it versus dollar. I am flat and stopped out of the last long small runner. No more trades pre-FOMC. Looking for big short post-FOMC if no QE3.

SPX is getting pummeled due to Europe of course. Flat there as well, stopped out of last tiny runner. Looking for a small long into FOMC after this weakness is dealt with in today's session. It will be a very quick small long trade, if I get my entry levels triggered. Just like with Euro, if no QE3, I am looking for big short post-FOMC.

UPDATE @ 12:13 pm edt
Very quick two-way action. Bulls bought the weakness just before President's presser. Gap fill on ES_F and a nice bounce. AAPL dragged entire NDX higher, NQ_F went to DP. There is another gap on NQ_F @ 2245. Will be trying to catch that before FOMC. Back and forth action to continue, Greece/Troika conf call results coming up shortly. Be very careful here, quick trades only!

UPDATE @ 1:17 pm edt
Now it looks like there will be no announcement of any kind from that Greece/Troika conf call. This is disappointing, to say the least. Market is trading Bernanke put against Eurozone calamity going into Wed., hence chopville to continue. I am extremely cautious here both ways...

UPDATE @ 2:48 pm edt
There will be an announcement after all. Short covering in progress. LOL

Sunday, September 18, 2011

Weekend Thoughts about Trading FOMC Decision

I have to say that trading in front of FOMC this week will be a hit or miss proposition. Unless you have a profitable long position established already, it will probably not be too prudent to initiate a new long or short right before the decision on Wed @ 2:15 pm edt. Here is the reason:

Ben Bernanke has decided to extend the meeting to two days. He announced it in his Jackson Hole speech. It is a weird venue to discuss particular details about upcoming Fed meeting, has never been done before. In that speech he usually discusses Monetary Policy, like prepping us for QE2, but rarely says anything specific like one-day extension on upcoming meeting. So my thought is he may have a rabbit in his hat. What can it be? Market is ready for and has already priced in "Operation Twist". It is a reshuffling of maturities in Fed's Treasuries portfolio. I think that market has also priced in elimination of 0.25% interest paid on bank funds kept at Fed overnight. And that is all the market has priced in!! What if Fed goes one step further and does QE3? That means they will sell nothing in their portfolio and buy more Treasuries. Then my earlier thesis about shorting after FOMC decision goes to hell. I will not dare fight the Fed in that scenario. Market will go absolutely nuts and rally like crazy for days, if not weeks. I will join :)  But if Fed does what market has already priced in, then it is a late-day rally into the close and after that the "disappointment trade" is on for a week or two.

I hope this makes it clear on what I will do next week. If you have any questions, you are welcome to ask them in comment box.

Saturday, September 17, 2011

Trading Thoughts for Week of Sep 19

Here is my outlook for next week, which will be dominated by FOMC meeting.

On Monday market will celebrate UTX acquisition of GR. While everyone will scream that it's a cash deal, and how corporate cash will be put to work now, I believe UTX actually went to debt market to borrow it. Nonetheless, this hopefully finally pushes SPX up to 1230 sell level (on this in the last paragraph). I am a cheerleader with very small position left, after 1220 Friday sell on portion of my last long was triggered. I will use this opportunity to sell my remaining tiny long.

On Tuesday we hurry up and wait for FOMC meeting to start. Bond market will be getting in the way of stocks. There will be no reason to trade that day. It will be choppy and totally indecisive, as most pre-FOMC days are. I will be hopefully flat SPX by then. We will get ZEW data from Eurozone. I expect a gloom and doom to continue. While EUR/USD may dip on that initially, pre-FOMC screwville will do the trick to confuse many. I am once again a EUR/USD long cheerleader with small runner left, looking for a push higher on flawed idea of QE from Fed weakening the dollar. I will be looking to sell my small long position and reverse into a big short post-FOMC (on this in the next paragraph).
On corporate front, ORCL and ADBE report earnings, which are very important (more on this in the last paragraph).

On Wednesday it is a day of glory, as the scared central bank supermen will be called upon to save the world. I will be looking to initiate my SPX short, just as the market will be dancing twist in blind joy of celebration. Obviously, I am not entirely sure yet on how the post-meeting scenario plays out. I will go light and average in direction of the trade. The idea is we go down after the decision at 2:15 pm edt, but it may not happen immediately. I may use post-FOMC push higher to short SPX, as FOMC has produced a late day rally last time. It may look very counter-trend on short-term charts, be careful and watch your levels of entry and stops. This market is schizophrenic at best. It may also pay off to wait out the twist-dancing frenzy, and initiate the short afterhours.
I will also be looking for EUR/USD short, if it gets into 1.4050 - 1.4140 sell zone, due to temporary dollar weakness across the board at first. My idea is that dollar deals with it very fast and reverses higher against most majors in DXY basket, as big players buy it back in preparation for equity sell-off. Remember folks, it has already been all decided by big money, on Wednesday we get to see what they do and just follow them. Some, if not many, will be totally clueless, as DXY chase higher will start out of nowhere. I remain a DXY bull. I may revisit and reassess EUR/USD levels to adjust for this possible renewed risk-off FX weakness due to equity sell-off prior to 1.4050 - 1.4140 zone being reached. It will be tricky I bet. If you guys have any questions and/or suggestions on how to trade this day, please comment here.

On Thursday it is back to reality. Eurozone industrial orders and PMIs are out. I expect a total weakness and a serious downdraft in euro resulting from poor data. Hopefully my EUR/USD short is on at that time. There will be various meetings going on throughout the week about how to save Europe. I am very sceptical after failed Ecofin meeting results, where they told Timmy-TurboTax-Geithner to take a hike, and pushed all solutions weeks and months out. I smell a rat. Equities in Europe will take over on the downside again, and hopefully I will have my SPX short trade already on at that time. In US initial claims will probably disappoint again, and this time there will be no OpEx to rescue the market higher.

On Friday I expect a total exodus, blood bath, huge sell-off, due to all of market's latest worries coming to forefront again. I also expect possible weakness and lower guidance from corporate reports during the week to add to those worries and additionally weigh on equities. ORCL and ADBE are the most important to watch, as traders decided that NASDAQ will lead us up. SOX has entered 380 - 390 sell zone, which I mentioned before in my posts. I think that market's run higher is done for a while. As I said above, I was a cheerleader of this market into this SPX 1220 - 1230 sell zone, and now I am turning bearish again. My ideas on what this market will do from here on can be read in my SPX Roadmap for the rest of the year, which I posted a few days ago.

Good luck with your trading!

Friday, September 16, 2011

Quick SPX and EUR/USD update

This morning weakness on both is attributed to no Geithner-TALF-like bazooka at Ecofin meeting in Poland.
Let's remember though, that we have an FOMC meting next week. My thinking is that SPX and EUR/USD are going to run somewhat higher from here in anticipation of some QE from Fed. This said, it will be a limited advance to the resistance levels I mentioned yesterday: SPX 1220 - 1230 and EUR/USD 1.4050 - 1.4140

Market will be disappointed with Fed announcement, resulting in SPX and EUR/USD sell-off from aforementioned levels during the 2 week vacuum until Q3 earnings. Be ready, it will be quick. Read my SPX roadmap post for levels to watch.

Thursday, September 15, 2011

Roadmap for SPX from Sep 15 to Dec 31

I am going out on a limb to lay out SPX roadmap for the rest of the year. I have done this correctly when we were at 1345 on July 22, and it is time to do this again. I am not afraid to be right :)

Here is what I think will happen:

1. We are at crossroads here, in no man's land. We will leave this range 1190 - 1208 to the upside to suck in late longs, who will be thinking we are going much higher.
2. 1220 - 1230 lid will hold sending us down hard, and I mean really hard and fast. It will be a total exodus by those who thought we are above 1200 for good, as we will go below 1200. All of this will happen out of nowhere and be a total surprise, as VIX will be declining by then.
3. We will find ourselves at 1135 - 1150 area in no time. Brief reprieve there and small bounce will then be followed by another hard leg down to slice through 1120 area and retest 1100.
4. Everyone and their brother will be buying there at 1100, thus sending us higher back to 1120 - 1135 area for backtest. It will serve as a lid and send us back down to 1100 retest which will be breached this time. VIX will be above 40 by then, again. Are you dizzy yet? 
5. What happens below 1100 is the most interesting thing. Just as everyone will think we are going much lower this time, we will bounce hard, perhaps even intraday. That bottom will probably be between 10 and 20 points below 1100 at around 1080 - 1090, and will be the bottom for the year.
6. We will go up for the rest of the year after that, on a steady climb. SPX will end up at 1250 - 1300 on Dec 31, by then totally confusing the heck out of entire investment community.
7. After the year end, in January we will start another leg down of this major bear market. That leg will take us down way below 1100. But let's get through the end of the year first.

If many of you think I have totally lost my mind, please read my July 22 prediction when we were at 1345.

Save this post for your references. Send your checks to me when this becomes true :)

UPDATE Sep 21 @ 4:30 pm edt
It is obvious that this trade is now fully on. We are below 1200 and will be threatening 1150 tomorrow. VIX is spiking. If there will be a retrace in afterhours, it will be sold hard in Europe, as the move down was fast, and I am sure many have not gotten it. Sell the rallies mode is definitely the idea here.  

UPDATE #2 Sep 22 @ 9:35 am edt
SPX opened below 1135 - 1150 range. After initial weakness, I expect a bounce into that range. VIX is above 40. Scale out and trail your stops. There is a gap to fill @ 1166. Not sure we can fill it today, too weak at the moment. Stay tuned...
Very important: I just heard CNBC mention sub-1000 levels being watched. This is the kind of stuff shorts are waiting for to completely cover, just when everyone says it is going lower. We are not there yet though...

Update #3 Sep 22 @ 8:50 pm edt
1120 was violated on intraday basis, but SPX managed to close above it. News is getting wilder by the minute, exaggerating the moves both ways. Throw possible US govt shutdown and China currency manipulation bill into the mix now.  This said IMF/G20 meetings are going on, and intervention rumor is making the rounds as I type, just to balance the shorts with longs. Weekend risk-off may do the trick on both sides.

Update #4 Sep 23 @ 2:35 pm edt
SPX futures kissed 1102 pre-market. Cash is staying above 1120 for entire session so far, running into 1140 sellers. There is still that 1166 unfilled gap looming above. One thing is for sure - they are not going to make it easy for anyone to hold positions over the weekend. Intraday volatility is insane. All of this is due to crazy rumors: ECB rate cut, Greek default via bond haircut, French TARP, G20/IMF interventions, etc. I remain skeptical of anything being pushed out by those who's entire trading is based on premise of hope or deception. Whether you are short or long, just tune out this nonsense, beware of resistance and support levels, tighten up your stops, and most importantly - scale out. Next week will be decisive. Somehow I think we will see 10 as the first two digits of SPX quote, even if only intraday...

UPDATE #5 Sep 26 @ 4:10 pm edt
SPX has closed 1166 gap. This completes "unfinished business". I expect the market to digest EFSF leverage news overnight, and start the descent to 1100 retest. There will be no peace in the market unless 1100 gets tested, imho.

UPDATE #6 Sep 27 @ 9:50 am edt
SPX is ripping higher. At this rate we are going to be back to 1190 resistance in no time. This is no joke, at this point I am flat and taking no chances. We may have had a successful retest of lows if 1150 holds on pullback. Let the market speak. Observing...

UPDATE #7 Sep 27 @ 6:20 pm edt
Market has sold off hard into the close. It was still a respectable gain. We have an unfilled gap @ 1163. I expect a close of that gap and weakness just below that to test the resolve of bulls. Bears folded really quick on this run higher, me included - let's see what bulls do when it's their turn to fight. I will reshort on the move below 1150, if it does not hold on closing basis.

UPDATE #8 Sep 28 @ 9:20 pm edt
SPX sold off hard today but held 1150 @ close. I am biased long here, as long as SPX does not close below 1150. Market is bringing all kinds of boogie men out of the closet. We are now worried about China's hard landing. I was worried about it a year ago, so what? Not going to happen. Slowdown - yes, but no hard landing in China, imho.

Update #9 Sep 29 @ 11:45 pm edt
My long bias is gone. So is my long position. I have a problem with NDX getting demolished today. I can not take a chance of being late to recognize forthcoming carnage. It may continue into next week.

Update #10 Oct 3 @ 8:30 pm edt
SPX closed @ new 2011 low, marginally below 1100. I am looking for a final push down to develop in the next 24 hrs. Looking for volume expansion on that climactic move. Reversal will come out of nowhere...

Update #11 Oct 4 @ 4:15 pm edt
All bear targets met. SPX has bottomed today @ 1074. We may not see that price for the rest of 2011.
Ascent to 1250 - 1300 begins now?

You heard it here first

EUR/USD will wipe out all of these late shorts. I said just last night that it feels too one-sided. Let's see how high it takes us. No matter what you think you gotta cover. No more bank liquidity issues in Europe.

Technicals: retraces are aplenty in 10 big handle range. You pick the number. All of that does not matter now. It is going to be a blood bath for days. But after the dust settles: I would look at 1.4050 and 1.4140 as a "party-pooper" trade. After all, what has just changed? No solvency or structural issues solved. This said, liquidity issue is off the table. So as I said last night, any good news would be enough, vicious rallies to stop out shorts are sometimes the strongest you ever get.

I will admit letting my Euro short go at 1.40 was not the brightest decision I made, but catching the move to that from 1.4450 was not bad, I should say. I am getting some of that in this long. Take some off the table and trail the stops... We are in wave 2, going against the trend here, prepare for wave 3 down, long road ahead in this Euro saga still...

And now about SOX-led market rally. As I said last night, 380-390 resistance on SOX coincided with 1190-1200 SPX resistance is my moment for pause. A tiny runner is left on the table and I am a watcher of CNBC screaming "SOX has bottomed". Really? :)

Wednesday, September 14, 2011

EUR/USD sellers are lining up

They are just waiting for retraces, fibs, trendlines, resistance levels, bad news, downgrades, defaults, you fill in the blank, to sell the Euro. After 10 big handles were shaved off the currency, it is practically impossible to find any bulls around. All levels were sliced through with such force that anyone staying in the way was obliterated. Now all I hear is how everyone wants to sell EUR/USD, and they are all looking at the same levels of resistance to enter the short. My question is: if everyone wants to sell or has already sold, is it so oversold that short-covering rally will take it much higher than anyone expects? Obviously it will not take much of good news to send many shorts packing. Largest rallies sometimes occur in bear markets. Let's see what happens...

Market Technicals Sep 14

SOX is now up 8% from the time I mentioned it last Friday. Did you buy it??
It is entering a resistance zone @ 380-390. Coincidentally, SPX has entered 1190-1200 resistance zone. We have a melt-up, short-covering, relief rally, whatever you call it going on. OpEx is 2 days away. Do not fight this. If you are lucky to be riding this, take profits and tighten up the stops. Nobody ever went broke taking profits.

There is absolutely no doubt in my mind that we are still inside a bear flag on SPX and lower lows are still to come. This rally is nice and bears are allowed to be short-term bulls. This said, I am in no rush to sell. It is important to identify levels of support to be broken for a sell signal first. It will depend on where the rally stops. As we are approaching the end of Q3, underperforming fund managers are allocating their funds now. We may have a few days of this left, maybe a few weeks. I am no prophet, just a trader. There is no signal to sell yet. Staying long until proven wrong.

Tuesday, September 13, 2011

Trendlines overhead

We have trendlines all over the place just above current market levels. Trendlines are made to be broken.

Stops which are placed above trendlines are scooped and breakouts or reversals occur. There is no telling which way security will go after trendline is broken. Backtests are very common. In some instances, if breakout is strong, there will be a follow-through without any backtest. In others reversal will take place.

I am not a big fan of guessing. My action at trendline is to take profits, leave a runner, and trail my stop. I am either right or very right in that scenario.

Good luck with your trading!

Monday, September 12, 2011

We are going to have a short squeeze

If you are a shorty this afternoon is not what you want to see. Support held, SOX led up, DJT recovered strong, all indices closed positive, news flow turned positive, etc...

Did you have a chance to cover?  Probably not... It was a quick ascent and a close on the high. Short covering will continue in futures, spill over into overseas markets, impact commodities on the upside, possibly help euro recover some. No matter what your long-term outlook is - this rally was real and vicious. If we get follow-through tomorrow, we will have a multi-day rally into OpEx.

SOX NDX - no question the trade is on!!

It is absolutely no question that SOX is now leading NDX and the rest of the market higher. Start buying pullbacks and keep your eyes on SOX. I have been watching it for a week and think that we have entered a buy zone on tech. My Friday post on SOX NDX divergence signal could be read here

So you want to be a trader?

Here is the research that finds human traders obsolete within 10 years. I feel like a dinosaur already.

Sunday, September 11, 2011

Market Thoughts for Week of Sep 12

Next week will be split up into two parts. First part of the week we will find out how the market can cope with Greek default and downgrade of French banks. The second part we will see how US economy is fairing.
Here is my outlook:

On Monday all eyes will be on Europe. There is a talk out of Germany that govt is considering letting Greece to default. I am absolutely fine with it and will say this: let's get it over with already. Market will digest it and move on. It is the uncertainty that holds the market back.
There is also a rumor of possible Moody's downgrade of French banks, due to Greek bonds held by them. I would not be surprised it being the truth, but it will be priced in by then, as it is all over the newswires this weekend.

On Tuesday I expect whatever weakness we had in the US stock market on Monday to be reversed.
There will be some inflation data out of UK. Their growth was anemic in Q2. Austerity has taken its toll. If CPI is high again, we will have some worries about UK economy. Stagflation is the worst thing that can happen. GBP is sliding further against the USD -1.60 is the line in the sand.

On Wednesday we will get the most important econodata of the week - US retail sales. It is no surprise why US is not in recession yet. Consumers are still shopping, albeit at slower pace in August. I am tracking the weekly retail sales reports, and they point to slowdown in August. Let's see if we had any growth at all shown in the monthly report. It will be very slow I bet. Negative number will absolutely crush the market.
We will also get PPI and Biz Inventories. PPI may have gone negative, thus giving Fed more reason to act in Sep meeting.

On Thursday we'll get more inflation data out of US in the form of CPI. There is just no inflation in US. Until our homes start appreciating in price, we are stuck in deflation.
U/E claims also out that day. Until we get them to stay below 400K consistently, there will be no peace for market.
Speaking of unemployment. I want to point out that US real unemployment is higher than 9.1% official headline number. I encourage everyone to study Table A-15, published monthly along with NFP by Bureau of Labor Statistics. Pay attention to U-6 please. It is at 16.2% and rising. This is the real unemployment number in US!
More importantly that day Empire State and Philly Fed Mfg Indexes are out. We are going to see if they are improving at all. Absolutely need some end of further cratering there.

On Friday we will see what consumers are thinking about the state of our economy in UoM Consumer Sentiment. Even a slight improvement will send market rallying.

For this matter slight improvement in all US economic data may rally the market hard. I have been a short-term bull scarred by Europe's mess. Their saga better have some resolution. We have a little bit of time to save US economy from going into recession. I am afraid Europe is already there. We have one of strongest (as funny as it sounds) economies out of G7, helped by our insatiable demand for consumer goods, contributing to 70% of our GDP. We are one huge shopping machine that keeps on going. If Europe derails our consumer shopping train by sending our stock market further into a tailspin, watch out world economies. Even China will not be able to pull us all out of the gutter.

Friday, September 9, 2011

Is Oil Sending a Signal? Part II

On August 21 I wrote a post about possible escalation of Israeli-Egyptian confrontation.

There is breaking news (per newswires) out of Cairo that Israeli embassy has been attacked and broken into, and that ambassador is fleeing the country along with his family and embassy staff.

This is another reason why traders have to go flat into the weekend, and why this market can not get any long-term commitment from traders and/or investors. There is now a huge risk unfolding in Middle-East. What a sad story. It is not going away, and I am afraid that it is the beginning of yet another war there. These two nations have been at peace for 30 years.

Market knew this earlier today. At 12 pm I noticed that oil futures started diverging from equities and other commodities and closed flat on the day. I did not think anything much of it, except the fact that there is a hurricane approaching US. Well, now we know the real reason. I now see that some newswires started reporting about protesters trying to tear down the embassy wall as early as 12 pm edt. That was the low of the day for CL. This was too busy of a day for anyone to pay attention to that, as the tensions around the Israeli embassy in Cairo have been escalating almost on daily basis for several weeks. Oil traders paid attention. 

All I can say is watch oil futures and newswires for further hints on where this goes. Somehow I think we will start to price in this new geopolitical risk into the market on Monday.

SOX NDX Divergence could be a Bottoming Signal

Hard to find any positives on down days like today. This said, I noticed that SOX was positively diverging from NDX all day.  It was even up for the first part of the day. As a matter of fact, it has outperformed the stock market this whole week. Those who read my blog know that I identified SOX as an early signal for market top.
We clearly have a development here that needs to be watched. If SOX can continue trending higher, then I am going to keep my eyes on NDX for a possible rally and a whole market rally in sympathy to these leaders.

Technicals: SOX has to hold above trendline from 8/19 low on closing basis to keep me bullish. There is a gap to fill @ 339. It has to get above 363 on closing basis to continue the rally into 380 - 390 area, where it will meet a formidable resistance. That is 9 - 12% from here. We can see a nice 10% NDX and a whole stock market rally from current levels out of this development.

Stay tuned...

Market and Euro Update

Well, not being filled on EUR/USD short last night is upsetting, to say the least. But I will be the first to tell you that it happens all the time. Traders miss the moves, and the ones who tell you they got every move up and down are plain out lying.

So we have high-ranking ECB resignation and a possible Greek default at the same time (per rumors). Not sure I am buying this just yet, gold is up just $13.
I think if I was Trichet and Bernanke in Marseilles right now, I would be in crisis talks with all G7 members into the wee hours of the night to hammer out a total banking system "backstop" in the case of sovereign default. I would not be surprised if they already have the mechanism in place (per my earlier view that they designed it during their meeting in Jackson Hole). I said EFSF has to become TARP/TALF and go towards recapitalization of banks. It is a no-brainer!! We get to find out soon if that is the case. Somebody somewhere will leak this news to calm the markets down. Lehman was let to unwind uncontrolled, I suspect they learned their lesson.

Do not try to catch any falling knives here. SPX is below 1165 gap fill. I hoped that we would close above that level today. We still have 3.5 hours left. I am not very bullish here any more, and neutral at best. VIX is above 40. All long bets are off, I mean ALL. No need to be a hero here, absolutely no reason. Just relax, step back, and observe the action. Technicals will tell you what will happen. News will tailor to charts. Preserve your hard-earned capital. DXY runner is the only thing I would keep here, what a freight train.

Helmets on!!!

Thursday, September 8, 2011

SPX and EUR/USD technicals before President's speech

We have an open SPX gap @ 1165. We need to fill this gap before we go up above 1200. I call this "unfinished business". We can fill it in afterhours on futures or in regular hours on cash tomorrow. I would rather see a cash fill tomorrow morning and bounce into the close from there. If market is strong we may just get a half gap fill.
My bias remains bullish as long as we do not close below 1165 on daily basis.
BTW, roll your contracts to Dec.

EUR/USD has its first close below 1.40 and looks to do some damage. I am leaning towards a short again, but DXY @ 200 dma gives me a small pause. I have to say that it will not be a one-way trade here. Retrace to 1.3950 - 1.40 could be in order first. Many traders will initiate shorts @ those levels (yours truly included). We are still going to be fighting big panda, so be nimble and do not overdo it. We moved over 6 big handles from the top.

UPDATE @ 8:45 pm edt
SPX futures lost some ground after the speech, but quickly regained it and are now flat. Package is somewhat larger than previously leaked. Not sure market cares at the moment. A lot of it will not pass deeply-divided congress. One thing noticeably absent in speech was any mention of regulatory burden. Red tape is the biggest reason businesses are not hiring.
As if we did not have enough risks, we now have a possible 9/11 threat (per news wires) hanging above us. Watch gold for clues on risk-off bias.

Update @ 1 am edt
EUR/USD is not being let up to 1.3950 with Asian traders front running the level. I am a bit hesitant to put short position on at the bottom of 600+ pip decline going into G7 meetings weekend. Who the heck knows what these geniuses will cook up? A bigger retrace (to punish late shorts) could come before we get a good entry to short again. Patience is a virtue.

DXY 200 dma is here

Dollar index is at 200 day moving average. This gives me a pause. I have been on this train since August. It is important to take profits and be cautious at very important resistance. Should it plow through, we can buy back the scaleouts. Runner is to be left alone though. You just never know where this goes. If it takes the 2008 route, it will fly a lot higher...

Is G7 Coordinated Stimulus/Easing Surprise Coming?

I am no conspiracy theory subscriber. But some players in the markets are expecting some kind of coordinated bazooka stimulus/easing by G7 and CBs this weekend. I see how maybe the case could be made. ECB, BOE, BOJ, and BOC are participating in the meetings. They all passed on any action in their meetings this week, but all appeared very concerned about recent growth deterioration in their countries as well as entire world. Fed Chairman will be there as well, and just said he is open to further action to stimulate the economy. Again, I am not suggesting this will happen. But why have they all done nothing at their respective meetings this week? Especially when they sounded so concerned about the slowdown. Are they waiting for this weekend to coordinate and surprise the markets with shock and awe? We will see...

Morning Market Update Sep. 8

Trade what you see. EUR/USD is hanging around 1.40 and is not breaking down below decisively just yet. So many traders want to short this pair into oblivion. Trichet is one tough cookie, to me he did not sound too dovish this morning. Since the policy is so uncertain, we need to interpret the chart and for now it says 1.40 - 1.45 range may still be with us. Let's not forget that supreme ruler of the easy monetary policy, Ben Bernanke, is speaking @ 1 pm edt. That is your next risk of the day. My bias is neutral at the moment, unless we break out on either side of 1.40 - 1.41 decisively.

SPX is using 1190 for support and 1200 for resistance. How many times will we oscillate around this 1190 - 1200 level? There are open gaps at 1204 and 1165. We are going to fill both, but I do not know which one first :) My bias remains bullish for short-term, pullbacks are gifts, imho.

Update @ 11:55 am edt

SPX 1204 gap filled

EUR/USD diving hard after London fix. Currently @ 1.3950 and looking to test the low made earlier in the session. Consecutive daily closes below 1.40 and 200dma may open the flood gates.

Correction: Bernanke speaks @ 1:30 pm edt

Wednesday, September 7, 2011

QE and Stimulus Thoughts ahead of Bernanke and President

I am going to put on my economist hat and discuss what we are going to get from Bernanke and Obama tomorrow.

First of all, I am extremely skeptical of those measures. If the "leak" about both gentlemen's measures are true, we are going to get more of the same. Bernanke is getting ready to engage in "operation twist". I have discussed here before the possibility of QE Lite - reinvestment of the interest on portfolio. I think that "operation twist" is another version of what will happen. Fed will get rid of short-term paper and will buy long-dated. While the idea is to help housing refi market, I am going to remind that it is not an interest rate but the overall lending freeze that is affecting the housing market. Also this will not address the issue of deflating housing prices, even though supposedly Fed is trying to keep folks in their houses. Banks will continue foreclosures due to high unemployment, declining prices, home owners unwilling to repay due to being upside down on their mortgage. Let's remember this is the same Fed Chairman who said "subprime mortgage crisis will be contained".

Now about The President's speech. I have to give him a credit for moving the speech one day behind. So it looks like he is cooperating with GOP on something at least. I want to see more cooperation between the parties. Anyway, I hear that $300B of stimulus is coming. Folks, it is paltry at best. We have a $14T sluggish economy (that Beige Book was really stinky, 7 out of 12 regions are close to stagnation). We need at least $2-3T of stimulus, like we had during QE I and II, just to keep us from going into recession.

I am going to wait until tomorrow night to make all of my conclusions, but if the above information is correct, it will not be enough to keep this huge economy from recession.

SPX and EUR/USD mid-day update

Market is running on all cylinders. We are at 1190 resistance now, tighten up the stops and be ready for the risk of the day - Beige Book. I suspect it will be ugly, with a capital U.
Possible retrace could be at 1165 - 70 level. Gap close, short-term moving avgs, and t/l are all laminated there. VIX is being stubborn here, even as we grind higher.

EUR/USD is being helped further this late morning by Mr. Evans' remarks. Just like in his earlier interview, he is calling for above 2% inflation target, says that we are at very high unemployment level (we know sir), and if he could cut the rates further he would. Well, he can't :) What now?? Obviously he is for QE3...
EUR/USD loves it. I see a possible hold between 1.40 - 41 range until tomorrow's big Trichet moment at 8:30, and nobody wants to do anything big ahead of that.

Market Update

News flow is positive. Europe did not produce land mines overnight. German court spoke for bailouts, but next round has to be approved through parliament (I thought it was the case already). German industrial production did not disappoint, +4%.

So we have SPX uptrend developing from y/day low. I think we will run into 1190 - 1200 resistance soon. Pullbacks to be bought, imo. They could be quick 20-25 points (per VIX calculation) retraces to short-term moving avg and t/l.

EUR/USD trying to build something resembling a base at 1.40
Shorts will get worried the longer it stays above that level. ECB will let us know what to do tomorrow.

Gold is starting to look toppy. I am not going to short that crazy animal. Just trying to use it for my other trading as an intermarket correlation signal.

Yet another DXY component was shot this morning. CAD will cooperate against the dollar as BOC said no rate hikes any time soon. One by one all currencies will start respecting the king. This said, Ben-helicopter-Bernanke is the only one who can kill DXY rally at FOMC meeting later this month.

Tuesday, September 6, 2011

SPX update

Respectable recovery back above 1150. Almost closed above 1170, LOL.
On closing basis this gives short-term bulls (yours truly included) some hope. We have quite a few events happening overseas overnight. Better not have any land mines over there...
I do not want to spread any rumors (as I hate them myself), but there are some crazy ones about Europe, and they are all positive for equities. Some of them I mentioned here as my own views on what should happen with their banks. Some are the solutions and measures that our financial system went through in 2008. I will leave it at that...

Market Update Sep 6

We take a day off and world markets go to hell in a handbasket. So we get to play catch-up today. I do not like the fact that SPX is spending some time below 1150 (should have held that short). It has to get back above and hold this trendline we are backtesting, and close above 1150 today. If not, a quick retest of 1120 is in order for tomorrow. And I thought it would hold 1170, wrong.
I still expect 100 point rally from here into FOMC and Q3 earnings. Although, smaller brothers, DJT and SOX, are flashing a warning sign of much slower economy ahead, again. Their signal is obvious, powerful, and worrisome. I am a short-term stock market bull due to oversold conditions, asset allocation rebalancing, and expected liquidity infusion by G7 and CBs. This said, deteriorating technical picture will change my view rather quickly. I still see a tough road ahead in the long term. All we are doing currently is retracing wave 1, uptrending inside the bear flag channel, and resetting oversold weekly MACD and Stoch.

SNB shook the FX world at 4 am edt. I have never seen a 1000 pip hourly candle. The decision to peg to deteriorating currency is as surprising as the fact that they took so long to do this. More importantly, BOJ is ecstatic about the development because they are deciding on rates tonight, and will be helped by CHF plunge. Watch for some JPY fireworks close to midnight. (Note to self: try some Swiss cheese with sushi)

My EUR/USD call to 1.40 was met. I am not sure what one does here, but holding to the entire short position in euro would definitely not be it, imho.
All of this weakness in other currencies is helping my DXY rally call (patting myself on the back selfishly).

Sunday, September 4, 2011

EUR/USD update

1.41 is almost here. A lot of weight on euro's shoulders due to econodata, ECB, and German court ruling this week. Trailing the stops down is a must though, any positives can set of a vicious short-covering rally. Next support after 1.41 is at 1.4050 and then 1.40 below that. I am in a bear camp, but one has to be less bearish at 1.41 and 1.40 for sure. Scale your shorts out, imho.

Market Thoughts for week of Sep 5

Buckle up and hold on to your seats, next holiday-shortened week will be a wild one. From central bank meetings, to econodata, to European votes, to president's speech, it will be loaded with enough information for market to take the cue from for the rest of September. Next week market may even decide where it goes the rest of the year.

We begin with hurry up and wait on Monday - Labor Day. Exchanges in US and Canada will be closed. US Stock Index Futures trade until 11:30 am edt, and reopen at 6 pm. Enjoy extra day off. Believe me, you will need that rest. No significant developments, except Eurozone econodata: retail sales, Svc PMI, and investor confidence. Can't be anything but disappointment there.

On Tuesday adults come back from summer vacation. This is the day we start getting big money positioning for the rest of the year. SPX is down 6.6% YTD. Funds which underperformed will be looking to gain their lead on a possible rally into the end of the year. I do not want to be too bearish due to this fact (on SPX technicals later in the post).
The day's fun literally begins 30 minutes into it, when  RBA decides on rates. I expect nothing, and language can't be anything but dovish. Australia is not immune to world economic mess. Following that is Eurozone revised GDP, recession is imminent there I bet. Shortly after, we will see how Germany's factory orders are faring, I say they cratered.  In the morning we get US Svc ISM, better stay above 50.

Wednesday's fun begins the same way. Right after midnight BOJ decides on rates, or lack thereof :) Watch that meeting closely for major Yen announcement. Wait a little before going to sleep, we may see some fireworks. New prime min, new fin min, new beginning number umpteen. Lack of political continuity in that country is mind boggling. BOJ may just become the govt for a while.
Day continues in Germany with industrial production. Second negative number in a row will send DAX to its knees, better be above 0%. More important event in that country later in the day will be the decision on legality of EFSF by constitutional court of Germany. Better be Ja with no major restrictions, or world stock markets are going to hell for a while. Canada picks up in the morning with BOC rate decision. BOC holds, and holds, and waits for US to recover. It isn't coming, eh... Fun continues with Beige Book in the afternoon. I am going to go out on the limb, and predict at least half of US regions contracting. With nailing a negative NFP (0 is close enough), I may be on a hot streak. Fedspeak of the day comes courtesy of Mr. Evans. The gentleman's speech will begin with the words "I told you so!"

Thursday is the most important day of next week (if German court does not steal the spot on Wed). ECB rate decision and Trichet presser are starting the day. I am looking for definite end to the rate hikes, and perhaps a hint of a cut, if not an outright cut. Trichet will sound apologetic, accommodating, and less confused, I bet. What is there to be confused about now? Recession, sir, recession. US claims are out then as well. The President's speech comes way after US cash market close, but futures will trade at that time. Shorts may cover just in case. The day concludes in Asia - Chinese inflation and production data out then. Their CPI is extremely important for decision on further tightening by PBOC.

On Friday I think we are so exhausted that we may just meander. Some econodata out of Europe, Canada, and US, but nothing earth-shattering.

This brings me to SPX technicals. I am a bear, have been for a while, but do not want to be a hunter-became-hunted. It is important to note that should SPX stay above 1100 longer and higher, it is a shorty's nightmare to continue to hold the short. So many will decide to cover, and longs will sniff the rally fast, they will pile on sending SPX to 1250. At that point all those under water for the year will sell, and so we have a range in place perhaps - between 1200 and 1250 to continue into Q3 earnings. Support levels on the downside are: 1170, 1160, 1150, 1120, 1101. Resistance levels on the upside are: 1190, 1200, 1208, 1220, 1230. We have a trendline to hold about 20 points below here, should 1170 fail. That t/l from 1101 low, coming in around 1150 - 60 currently, could just become a base for yet another short-term leg up into 1250. Like I said, I am a long-term bear, but have become a short-term bull. My outlook is that after the year-end choppy hiatus, we are back where we started the year - at 1250ish, but in January we start the retest and eventually a break of lows below 1100. I am so sorry to sound so bearish, but the beginning of 2012 is not going to be good at all. We may join Europe and find out that we are in recession then. But let's just get through the next week first :)

Saturday, September 3, 2011

Learn how to read charts

To me nothing compares to weekend chart analysis. It is my favorite time. Yes, actually I enjoy the analysis more than trading. Surprised?
Art of charting is the best skill a trader can possess. Without being able to identify what a chart says, trader is not ready to battle. I have been able to study and perfect this skill in detail over the years, and quite frankly, the learning process never stops. I highly suggest that beginning traders concentrate all of their spare time to this most important aspect of this profession. Patience, perseverance, dedication, hard work ethic, and high attention level are important during this study time. If you have a full-time job, and have other activities during the night and weekend - it will take you a lot longer to learn. But once you acquire this powerful skill, nobody will be able to take it away from you!

Stay tuned to my thoughts for next week tomorrow...

Friday, September 2, 2011

SPX - where to from here?

Regardless of what one's long-term view on SPX is, this 1170 - 75 level is holding so far, and is very important to the upswing structure. I think that should 1170 - 75 hold (on closing basis) we may make a new high for this short-term upswing structure somewhere around 1250. After that all bets on the long side are off, and perhaps we trade in 1200 - 1250 range really choppy until the Q3 earnings roll out.
So my action here, based on the above observation, is to close 1220 and 1230 shorts and to start initiating longs.
Why am I abandoning 1150 - 60 short target? Reward-to-risk ratio is just not so great to hold on to that trade here.

Good luck traders!

Thursday, September 1, 2011

Europe going into recession without US?

Quite possible. This morning we got better-than-expected ISM. We also have gotten a generally flat to better econodata this whole week.
It is no surprise that all of European econodata was horrific today. Their austerity is really taking a major toll on the economy. We could just be lagging them by 3-6 months, but it looks like we are bumping along the bottom with no recession imminent. This fact may help the dollar against the euro. Ugly competition continues, I think EUR/USD is heading to 1.41 - 1.40 within a week.

EUR/USD gets absoutely killed after ISM

It is no QE3 for now. Market's interpretation of the better-than-expected data over the last few days is boosting the dollar. I am a dollar bull, have been for the last month. I am definitely thinking that Fed is on hold. All this possible talk of QE3 will be diminished (if not already) by better data. Of course just as I say this, we may get a negative NFP tomorrow, and it will all reverse. This market is bipolar at best...

SPX stop hunt update

We did get ISM above 50 so we may still get that SPX stop hunt above 1230. Be ready...

DXY is FINALLY breaking out

It is the umpteenth time that I mention this, but DXY is breaking out. All of this is due to EUR/USD breaking down, of course, as other DXY components are asleep. But, and it is a big but, if equities decide to retest the lows of Aug, DXY will put in a strong month in September. How high it goes I do not know yet. It will all depend on Euro. I will update the progress of this rally here, but seriously think it just started.

President's Job Speech and $SPX

Well, does anyone still think that President's speech on jobs will matter as much as it did before it was pushed one day further? What the heck is this? Now we are going to have a fight over when President is going to address the congress? I wish they continued their vacation for another month. This does not look very promising on any agreement about anything serious in this congress. Market is worried now...

Quick "never mind" on my last night's SPX comment about a possible stop hunt today. While I continue to think we are heading to 1150 - 60 area from here, I thought we would get a classic stop hunt to 1235 today. European econodata and Obama/Boehner catfight cancelled that scenario. Unless ISM comes in very hot, we are just going to continue this 1230 short from yesterday unobstructed. And all this talk about NFP surprising is so wrong. August was the worst ever for stock market. You telling me someone felt like hiring?

SPX stop hunt before reversal?

SPX futures and cash traders (especially those who shorted 1230 cash on recommendation here), I am tracking a scenario in which we may have a stop hunt above 1230 tomorrow before the reversal of the short-term uptrend. If we trade above 1230, I see a push against 1235 and possibly a top there for the near term. That 1235 rejection may start a move down to 1150 - 60 area.
Good luck!