Monday, October 31, 2011

DXY Goal Post Trade Update

DXY is back between the goal posts. Was DXY breakdown last week a fakeout? Traders are scrambling due to JPY intervention and MF Global-driven risk-off. But really, there are rumblings in EU peripherals due to Greek 50% debt haircut deal. If I was one of the other PIIGS, I would also say "me too, please". EUR/USD finished its relentless stop hunting run exactly at confluence of 61.8% and 78.6% fibs of declines from 5/4 and 8/29 respectively. It does not get any more technical than that.   

I anticipated this DXY bounce last week. Obviously, I was early.

Sunday, October 30, 2011

Yet Another Intervention

While I moved away from my screens for a few hours, they hit the panic button in Tokyo. Japanese authorities have intervened in forex market to weaken the Yen in order to support their fragile economy. Japanese exporters are having a tough time competing when domestic currency is strong. All previous interventions had a very short staying power. I think this one is pre-emptive. Here is my thinking:

Dollar has been hit across the board in the last 7 - 10 days due to Yellen/Dudley/Tarullo dove trio. These lovebirds have their nest built right above QE3.

Next week we have 3 possible easings, or strong hints of them anyway, by RBA, ECB and FOMC. MOF/BOJ have probably decided to attack tonight in anticipation of JPY strength due to rate cuts and/or further QE by those central banks. They are also probably doing this to send a message to G20, as their meeting is next week as well.

We have a full-fledged war of central banks. Traders' paradise. Let the volatility rein!

Outlook for Stock Market in 2012 - Part 1

With 2011 drawing near the end, it is time to start building a case for stock market in 2012, especially now that I went neutral in my view on markets in the intermediate term. In the next two months I will be putting a scenario together, which will help me to prognosticate what 2012 will look like. Today I would like to begin this task by sharing a few trivial facts.

Fact # 1
I am not a baseball fan, I am a hockey fan. But I paid very close attention to game 7 of World Series. Cardinals won (for the 11th time). On Monday morning the following phrase is going to be on the lips of every bull on stock market: "when Cardinals won World Series, Dow went up on the average of 13% in subsequent year". The only negative year came in 1932.

Fact # 2
2012 is a 4th year of Presidential election cycle, which has historically been very favorable for stock market. Since WWII, S&P 500 went up on the average of 14% during US Presidents' 4th year in the office, with very notable exceptions in 2000 and 2008.

I decided to mention these very interesting and entertaining facts, while gathering more important data for my 2012 prediction. My second part will concentrate on fundamentals. Stay tuned...

Friday, October 28, 2011

Is TNX Anticipating QE3?

A few days ago I wrote about how QE3 talk from Yellen and Dudley is pushing Gold up from last week
Unless Fed statement next week will dispel what Yellen and Dudley said in their last speeches, QE3 will get even more attention.

Bond traders could be anticipating QE3. Even though TNX has rallied 35% from low on Oct 4th, it is still below where it was the last time SPX traded @ 1285, which was 27.40 on Aug 1. If TNX can not return to that level after biggest monthly equities gain ever, and after GDP just printed 2.5% in Q3, then there is a pretty serious reason why it stays here. I say it is a smell of QE3 in the air.

This morning ForexLive has mentioned a "circulating report from well-known think tank about Fed embarking on QE3 via mortgage bond purchases". I agree with them, especially after pending home sales declined 4.6% in September. My notion has always been that Fed has to support and inflate US housing market, thus increasing our biggest asset's value. They can not stop, they will be in that market until it can operate on its own.

One development that could derail my thesis about lower TNX is inverted h+s with neck in 22.70 area. Price broke out above the neck and seems like it is currently backtesting. This would be a possible technical to go against my notion of QE3. I will keep you updated.

Update Nov 1 @ 12:40 pm
Neck broke, backtest failed, TNX is below 20.
50 dsma  becomes resistance. European debacle helped the move, which I still think started due to QE3 talk. FOMC statement and Bernanke's presser to be watched closely.

Update Nov 2 @ 3:40 pm
Nothing FOMC did or said today makes me believe any less that QE3 is coming. As the matter of fact, now that the only dissenter is a dove, QE3 is a more likely Fed policy course.

Thursday, October 27, 2011

Bull Market in 18 Sessions

It certainly has been done before (just like in Oct of 1998), but nonetheless it is astounding that we now had a bull market in 18 trading sessions. As I type SPX is up 20% from the low on Oct 4th.

I am not fighting, not joining, not doubting, not changing my mind, not doing anything, just watching. I have a goal, a plan, a roadmap, a responsible and well-designed system. Do not buy highs, do not sell lows, do not overreact, do not fight the trend, do not change your mind when a guy on TV says "those who overanalize will lose, it is time to buy, buy, buy". Really Jim C, do those words of wisdom sell your books and attract the viewers to your nightly show?? What a joke!

Yes, I missed every one of these long points from just below 1200 on SPX, but lost opportunity does not equal lost money. As I said on Oct 4, I am done with shorts until the end of the year, but that does not mean buy the highs. Just waiting for my setup, waiting for that specific moment when all of my criteria are met, and turning the stupid TV off.

Waiting for a credible pullback to reload my long. You just can not be in every move. Flat and mad!

Is Market Rotating?

In my previous message this week I mentioned how RLX was a strong leader this year. This morning I am noticing that RLX is not making new highs above recent highs, thus not confirming the move. I am not yet making much out of this, which could be a simple fact of market rotating from leaders into what was lagging, i.e. out of RLX and NDX into XLF, XHB, and such. Stay tuned for my further updates on this development.

Is 2011 just like 1998?

Could be. Just like in 1998 (when Russian debt crisis collapsed LTCM and brought our markets down) it is PIIGS debt crisis that brought our markets down now. Just like in 1998 (when decline was between July 20 and Oct 8) SPX started its 2011 major decline on July 22 and bottomed on Oct 4. SPX dropped 22.4% in 1998 from top to bottom - SPX dropped 21.5% this time (from top on May 2 though).

Now I want to know the only important thing - will SPX do now what it did in 1998 between Oct 8 and Dec 31??
In 1998 SPX went up 35% from Oct 8 to Dec 31 on a steady and uninterrupted ascent, in which it blew passed all resistance levels and moving averages in its way. If SPX does the same thing now - it would go to 1450. Will this happen? Here is my honest answer - I have no idea. My end of year target is 1250 - 1300. You can see how the above scenario may put a slight dent in my theory.

Update Oct 31 11:20 am
Add another stunning resemblance to 1998. This morning MF Global has filed for bankruptcy as a result of European debt on their books.  

Wednesday, October 26, 2011

NDX is the laggard now

For a change NDX is lagging DOW and SPX.

As I type, EZ debt solution has been reached via EFSF leveraged to E1T, and Greek 50% haircut agreement.
ES, YM, and NQ are springing towards YH. But while YM just broke out to new high and ES is almost there by 2 points, NQ is 1.5% below its recent high. I am not sure if this is highflyers' (AMZN, AAPL, and NFLX) earnings debacle finally weighing NDX down, or simply the fact that leadership is about to change going forward. We also need to see if perhaps this is yet another one of this year's many non-confirmation fakeout moves.

Divergence has been the best contrarian indicator this year. It was SPX and DOW who did not confirm NDX a few times. NDX is returning the favor this time. Lets see what happens during the cash session tomorrow.

Update Oct 27 11:05 am
NDX printed a new high and quickly sold off. Slow stochastic on daily is no longer embedded in overbought. Stay tuned for further updates.

Update Oct 27 2:00 pm
NDX is now above YH. It is playing catchup still, up about 0.5% less than SPX. There is no place to hide for bears, they are simply crushed today. The only question I have now - when am I going to get my credible pullback below 1200 on SPX to reload the long? Does not look promising, but better than being short. Flat and mad! LOL 

No reason to fight the trend on SPX

Unless Zero Hedge is your home page, you probably have identified that short-term trend of the market has been up. It is OK to try to pick a top with very small size and a tight stop just above the high, but fighting this rally in a big way from low on Oct 4 has not been a kind proposition for bears. I am continuously reading commentaries about how the market is going to hell from here. I have to respectfully disagree. If anything, SPX is simply overbought on short-term basis, and will reload at lower levels, if those ever present themselves. A very good momentum indicator - daily slow stochastic has been embedded in overbought since October 17th (thanks to Ira Epstein for teaching me this). There has not been a single close below 8 ema on daily since Oct 5th. If you are fighting these strong technical facts with all your might - you are about to lose your shirt. Just stop, assess the situation, try to identify the trend, do not trade what you think.

If you want to short, look for quality setup and add in the direction of the trade, set your stop and do not fight the trend once new highs are achieved. These trades against the trend (if you choose to make them) have to be quick, with multiple scale-ins and scale-outs, and stops brought to break-even after first target fill. It is very hard to do and requires a very good trading skill.

Preserve your account, live to fight another day!

Gaps, Gaps, Even More Gaps

Trading range in SPX is established. We have a top at 1256, bottom at 1075, and mid at 1166. We are going nowhere fast until EU cleans up the mess.
There are gaps below and above. My feeling is we push to close 10/21 gap @ 1215 first.
Below that there is a remaining open gap @ 1156.
One gap is looming above @ 1254.

Have fun trading these!

Update Oct 26 5:20 pm
SPX rallied on the back of China saving the world.
It sure looks like 1254 gap may become a magnet for tomorrow's session.
We came 6 points short of filling 1215 gap today.
Market is wild and very unpredictable due to European news headlines.
Be careful out there...

DXY - Goal Post Breakout Coming?

Dollar index is in goal post area on daily. This morning it bounced off 200 dsma and now (as I type) it is just under 50 dsma. This goal post area is going to break. My plan is to trade the breakout above 50 dsma. I think that EUR/USD has to breakdown below 1.3830 for this to occur. EUR/USD is trying to do that as I type. Be ready...

Good luck with your trading!

Update Oct 26 @ 2:05 pm
DXY 50 dsma resistance is holding. EUR/USD is jumping on rumor that Giant Panda is coming to the rescue of Europe. Very interesting, are they going to have money left for their own bailout? It is coming still... Nonetheless, do not argue with price. Wait for daily close above 50 dsma.
I wrote a piece about why Euro has not collapsed. No need to get into a pissing match with Giant Panda, which has been there all the way

Update Oct 27 @ 10:55 am
Well, DXY broke the goal posts, but on the downside. This is a very bearish development if it continues to consolidate below 200 dsma. If it can quickly turn around and get above 200 dsma, then perhaps it can muster enough bulls for a fight. But with such a huge risk-on environment today, hard to imagine it can do that.

Tuesday, October 25, 2011

Gold Gets Its Magical Powers Back

Gold is above 1700. Now it seems just a matter of time before it will assault 50 dsma @ 1741, and if that breaks, it is heading for 1775.
I have been bearish on gold due to possible downward bear flag resolution. I was clearly wrong. My view was that in absence of QE3 and EU-induced Financial Armageddon gold has no business above 1750. Well, today it seems that European debacle is coming to the forefront again, and in the last few days FED doves have been flying the message of QE3 down to the market. In this scenario gold is in heaven. We are sure to have 50+ point days like today, if Dudley and Yellen have it their way.

I have a serious doubt that FED would be doing QE3 in response to economic numbers, as they have been getting better lately. The reason behind QE3 would be Europe. ECB is about to embark on major easing campaign, which will weaken the Euro. So FED does not want dollar strength to kill any possible uptick in US economy. Multinationals are bound to suffer at strong dollar's expense.

All of this possible money printing by two largest central banks is the biggest reason (in my opinion)   behind gold's 100-point advance in the last 3 sessions. Today gold also got the message from dysfunctional EU. To make things even better for precious, SPX decided to take a plunge, thus giving gold all of its magical powers back, as it has been a hedge against falling equities, financial armageddon, inflation, and fiat currencies.

Gold successfully faked another breakdown. In my previous post I said that gold likes to fake these moves only to reverse hard. But really, there was never a daily close below 150 dsma, which has been a line of support for almost 3 yrs.
Bears, get the heck out of the way!

SPX Symmetry = Top

I think this may be how we find a top of this astonishing bull run from Oct 4.
At its highest point yesterday SPX was 26 points above established 2-months trading range: 1101 - 1230. On Oct 4 SPX bottomed 26 points below the aforementioned range. Coincidence? I am a strong believer that symmetry has a profound effect on charts. Add the fact that yesterday's high was one point below flat on the year, and you get a possible "get me out" picture. Funds which track SPX closely, and were down for the year, may have decided to sell at break-even point and buy back later at a lower level. At the same time shorts could have gotten somewhat better level of entry, as this was also 61.8% fib of plunge from July 21.

I am in the camp of new trading range for the foreseeable future: 1150 - 1300. So my thesis will be to look for a pullback and a better entry (below 1200). Double top on hourly ES and NQ futures (at 24hr session levels today) is yet another chart I am tracking for my conviction on this pullback view. Shorts do not want to overstay their welcome if those highs are taken out. Placing a stop above those highs is a must.

Good luck with your trading!

Monday, October 24, 2011

May I Change My View??

Only if you allow me :)

I know I may lose half of my followers (LOL, everyone is so bearish now), but it is time for me to become less bearish and move into the neutral column on my 2012 macro view. This is not to interfere with my short-term view that we are at the top of this bullish move from Oct 4 low, and we fail here in SPX 1250 - 60 area. Still think that we hit lows for 2011, but we pull back below 1200 (still patiently waiting) just to mess with longs and get their stops. Too far too fast... I will buy the sub-1200 levels for another push to 1300 before year end. USE EUROPEAN DEBACLE ON WEDNESDAY TO BUY THE PULLBACK, sorry for caps, just want to make sure everyone is clear.

So my idea on what to do in the intermediate term is not clear any more. I am torn apart by dueling macro scenarios and therefore moving into a neutral bias. Here is my breakdown of reasons for shift:


1. Q3 earnings are very solid. Q4 guidance is even better. 2012 guidance is plain out exuberant. You just can not deny this fact.
2. Retail sales are much better. S&P Retail index is 2 points from all-time high (historical high). Many components are at all-time highs already this morning. The rumors about American consumer's death have been greatly exaggerated.
3. GDP has been improving. Estimates are rising, and for now it looks like there will be no recession in US in 2012. These numbers are always a moving target, so still a slight suspect, but definitely better than I previously expected. Remember, there is a huge difference between slow growth and no growth or recession, no matter what the pundits say.
4. Cyclical sectors are showing amazing strength and are rebounding way faster than all others. SOX and DJT are leading this advance, and their components are all commenting on much better than expected business across the board. I have to respect this fact! Even lagging XHB has skyrocketed from Oct 4 low. Now I remember that I said  in one of my posts that I had 4 new homes breaking ground in my neighborhood. Little facts like these are a part of macro view.
5. Speaking of laggards, XLF, the biggest laggard of them all, is looking to breakout as well. I am no big fan of banks, but if we get some love in this sector, lookout bears. Banks are a backbone of business, enough said...
6. SPX, DOW, NDX technicals are way too bullish to be a bear here. Only a fool would fight this in full force now. I respect those who try to pick the top of this short-term move, yours truly did at 1230 and got out quick to no avail, but there is just no reason to continue this guessing game until stochastic went below the embedded overbought condition. Wait for a quality setup!


1. Europe is still in a sausage-making process of bailout. I am a skeptic on their resolve, willingness, and capability to solve ongoing debt problems.
2. European economy is heading into recession. All economic numbers are pointing to start of recession imminently or it is already in progress.
3. With their economy being so important for our exporters, US is in danger of catching the cold as well. This contagion effect is real and is a major threat to bullish case (above).
4. China is flashing warning signs. Not only is it depending on Europe but its domestic real estate bubble is getting ready to burst. Chinese bailout is coming too. This will be an ugly event and will take up a lot of their reserves, otherwise available to domestic developments and investments around the world. Copper and lumber are weak due to this fact.
5. Our (US) debt problem is no better shape than it was in August. We kicked the can and will have to show a little more resolution in November. Lets see if debt committee comes up with something magic to throw at the markets. A lot of skepticism on this front remains.
6. Debt market is not coming along for this ride from Oct 4. I mean not fully at least. Even though 10 yr T-note yield is higher, it is nowhere near its comparable level last time SPX was in this 1250 range. German Bund, CDS (especially in Europe), LIBOR, and US high-yield corporate debt, are all pointing to some credit event still yet to come. I am not going to brush it aside like many who say it is just hedging and scared money hiding. These guys have been right way too many times, especially in 2008.
7. Political uncertainty in 2012 will be probably the biggest reason for slow growth in US. Businesses will wait to see who is in charge for the next 4 years, before they make huge capital investments. What a drag on economy!!
8. Real estate market is not rebounding at all. Our biggest asset - home, is still deflating and putting an enormous weight on available spending (despite retail sales numbers). This has to be resolved for US to move forward on better footing.  

So you can see how it is easy to get confused and indecisive with above dueling scenarios. I am going to take a neutral approach and will continuously weigh all related points for future updates here. For now I am going to trade a range, an expanded range perhaps: from 1150 - 60 to 1275 - 1300. I do not see a decisive breakdown/breakout occurring any time soon.

Wednesday, October 19, 2011

SPX - open gap below

I do not want to get carried away on this call, since SPX is still above 1200 and is trying to take out 1230. But there is an unfilled gap @ 1156 still looming below. Market will probably go down and see what is there. I expect it to do so in the next week or so. European summit over the weekend will be the catalyst, I hope, to help SPX break out of this 40-point range. My guess, even if we do it to the upside, SPX will fake the move to 1250 and then go back below 1200 to fish for late longs' stops in 1160 - 50 area.
Wild prediction - has been done, successfully, a few times this year :) 

Financial Transaction Tax - Bad Idea

Everyone is captivated by the Occupy Wall Street movement. While I do not want to discuss the actual events, I would like to express my concern about a possible derivative. It is not exactly clear what the main demands of the group are, but in the latest developments it looks like the movement may be used by some interested parties to push for a Financial Transaction Tax (FTT). This tax will be calculated on every financial transaction consummated on stock, bond, and forex markets.

I understand that frustration with Wall Street can cause the urge to make the banks pay for harm that has been done to the economy, and more importantly the people who are unemployed. But my view is that FTT will cause even more harm to capital markets, which will further complicate the economic recovery. I will not go into many details on why this tax is going to produce more bad than good, which have all been discussed by many scholars and economists. But I would like to concentrate on its biggest unintended consequence - the death of a small investor/trader. It will be practically impossible to engage in daily activity of trading and/or investing because of the extra burden FTT will impose. "Insignificant", "negligible", and "fractional" amount, as the politicians who want to implement the tax call it, will be enough to put any small professional trader and investor out of business. These are hard-woking middle-class folks who caused no harm, needed no bailout, provide daily liquidity in the markets, and pay their fair share of capital gains taxes.

I strongly suggest that politicians, who are pushing for this nonsensical levy, consider the harm they will cause by eliminating this important pool of liquidity, thus making markets more volatile, and reduce government's revenue due to lack of capital gains tax paid by small traders/investors who will be put out of business. Lawmakers should also weigh the fact that investment banks, mutual and hedge funds will eventually pass the tax on to the end customer - individual investor. More than 50% of Americans, who own stocks in their 401K and IRA, will be the ultimate bearers of this extra cost on every transaction in their investment portfolio.

Our politicians have already caused a stir with Dodd-Frank bill, which produced red tape in lending and extra bank fees. Financial Transaction Tax will make Bank of America's recently-introduced $5 monthly debit card fee look like a walk in the park.

Read more:

AAPL - more room to go?

I think that AAPL has more room on the downside. Earnings report has put a dent into "perfect stock" aura, which has surrounded AAPL shares for a few years. This could just be a blip on bright future's radar. But we, traders, see the tip of our noses first, and it is telling me that there are 2 unfilled gaps down below. Both of them are laminated with moving averages: 50 and 100 dsma, giving me some serious conviction. So here they are: 388.81 and 369.80 respectively. But be careful getting carried away on this trade, so many dip buyers are lining up to buy.

This view will put heavy downward pressure on NDX, as AAPL has 12% weighting.

Tuesday, October 18, 2011

Gold is looking to break down

In my earlier article I discussed a possible gold bear flag downward resolution.

My view remains the same. This morning gold futures are down big and I think that the trade I discussed could be on the way. Keep your eyes on levels of support and how they break. Now that 1655 is taken out, 1627, 1595, and 1585 are next on the way to 1535.

Monday, October 17, 2011

IBM and AAPL to shape the week

These two stocks are the heaviest weighted on DOW and NDX respectively.
Where they go so will the market in the next few days.
I am looking for profit taking in both, as it often happens after new highs are made.
SPX has a gap @ 1156 and NDX gap is @ 2203.
I am shooting for those gaps on this retracement.

DAX and EUR/USD started this market slide @ 4 am edt. Surprise, surprise, European leaders are pushing G20 nonsensical deadline threat aside, and making all kinds of remarks about needing more time. They will be playing the same song at G20 meeting in November

Update: Oct 17 @ 4:50 pm edt
IBM is down $7 afterhours on earnings report profit taking.
AAPL reports afterhours tomorrow.
Will there be the same reaction?

Sunday, October 16, 2011

Trading Week Ahead: Oct 17 - Oct 21

My thesis for next week is to fish for pullback.

On Monday I am expecting (for the umpteenth time) the last exhaustion move by all risk assets:

SPX will try to pin 1230
NDX will try to take out 2400
EUR/USD will try to assault 1.3950
Gold will try a run at 1700

Due to the above, DXY will fight to stay above 76.

You are correct if you are reading between the lines and sensing my skepticism about this last push. I expect all levels, mentioned above, to hold. I am growing more inpatient, (LOL) not to buy, but to short the heck out of this thin-air rally. I want to buy SPX and NDX pullbacks, in support of my view that year lows are in for 2011. But if this rally continues for another day on Monday, I will short and ride the rollercoaster (I hate those things) down to my pullback levels. Once a trader, always a trader. The bad thing about doing this is I really do not have a credible setup just yet, so small initiation with tight stop is a must (since I am pissing against the wind). Adding to this trade on the way down will be essential. This is very short-term on stock index futures, but my forex view is different (read below).

And now a few thoughts about monopoly money-induced Eurozone rescue package. First of all, there is none yet. G20 fin mins released an angry (to say the least) communique, urging Eurozone to clean up its mess in 8 days. Great job! They (G20 fin mins) took more time posing for photo op than thinking what the consequences of such directed threat are. I am appalled at their inability to respect  Eurozone's right to deal with its crisis the way it wants. I am afraid that G20 has become more hostile towards very important European members. This will undoubtedly backfire. I am looking for some fireworks to be produced out of EU in the next few days. Statements like "do not tell us what to do" will dominate next week. Unfortunately, defensive statements are the least of my worries. My main concerns are that EU will rush the wrong solution to debt crisis, will produce a bailout plan which will bankrupt ECB,  will not address the underlying problem - inability of EU sovereigns to reduce and control their debt, and will eventually put Eurozone into a deep recession due to extreme austerity.

All of this is going to lead to very weak Euro. I am looking for EUR/USD to reach 1.2150 in the next 30 - 45 days. Euro weakness against the dollar will give the king a boost to 85 level. This will be a very confusing development, since I expect dollar and US stocks (following brief correction) to rally in that period of time.

Good luck with your trading next week!

Friday, October 14, 2011

XLF to pull back some more

I think that XLF will pull back from here. I see a possible retracement to 12 and 11.83 in the next few days. This will probably coincide with SPX pullback to 1160 - 55 zone.

I know I am being redundant, but trees do not grow to the sky. We are way overdue for a 5% pullback, which is nothing out of ordinary in my opinion. SPX is up 13.8% from low on Oct 4, and XLF is up 15%. I think it is a little overdone. Let's see what happens...

Update on Oct 17 @ 8:25 pm edt
WFC and C reported. BAC (the trouble child) will report tomorrow. European leaders are still pushing hard for financial transaction tax. Trade is progressing well.

SOX is Diverging from NDX - Again

Surprise, surprise. Non-confirmed (by SPX) NDX breakout is getting even more non-confirmed. SOX is now down. It has been the best, I repeat - The Best leading divergence indicator this year.

Open gaps below: 365.70 and 356.73

Stay tuned...

Update: Oct 14 @ 4 pm edt
I spoke too soon. No SOX reversal. Closed positive. Market is running all shorts out of town. This pullback is going to come soon. Just need to be patient. No need to buy highs, just like there was no reason to sell lows last week.

DXY Nearing Support

DXY is close to ending its corrective move. 61.8% fib, 50 and 200 dsma are all laminated in 75.95 - 76.20 zone. EUR/USD will be a big help in determining exactly where DXY correction stops. EUR/USD 50 dsma @ 1.3930 to be watched closely.

Stay tuned for my updates on this trade...

Update on Oct 17 @ 8:20 pm edt
EUR/USD ran into 50 dsma and got rejected @ 1.3914
I believe this trade is fully on now.
Expecting DXY to run up to 85 in the next 30 - 45 days with help of EUR/USD down to 1.2150 with a brief stop @ 1.2850 on the way.

Update on Oct 17 @ 10:50 pm edt
Possible inverted h+s on DXY with right shoulder developing. EUR/USD 1.3830 becomes a resistance now.

SPX Shampoo Trade Is Developing

SPX is in inverted head and shoulders formation. There is a neck @ 1220, head @ 1075, left shoulder @ 1120, and the right shoulder is now going to develop. Ideally for bulls, the right shoulder has to come in higher than the left.

Right shoulder targets are: 1166, 1155, 1148, 1136, 1131, 1120.

Stay tuned for my updates on this developing trade...

Update on Oct 17 @ 8:22 pm edt
I believe this trade is on now. Retracement to 1156 is in order.

Thursday, October 13, 2011

Non-confirmed Breakout Coming?

This has been a picture-perfect year of non-confirmed breakouts and breakdowns. NDX without SPX, DJT without DJI, etc, etc. You get the idea... These events have been reversal signals on every occurrence.

I think we are setting up for another one of these in the next few days. NDX will breakout above YH and SPX will not. That will mark the short-term top for this strong rally from Oct 4.

I will update here as it happens...

Update: Oct 13 @ 2:50 pm edt
At this pace it may just be few hours :)
GOOG may help the scenario...

Update #2: Oct 13 @ 4:15 pm edt
GOOG blew out earnings, thanks to that NQ is above YH. Let's see what cash market does tomorrow. Earnings call will be important. The scenario I discussed is playing out afterhours in futures, but I prefer cash market to confirm this non-confirmation of the NDX breakout tomorrow. My suspicion is about mid-day we would get the reversal I am looking for due to risk-off and profit taking into the weekend. Looking for ES to double top in 1214 - 16 area and sell-off from there. Let's see what happens...

Wednesday, October 12, 2011

A Thought on Central Bankers

Central bankers are not to be listened to. Simply ignore everything these folks say. They are in total denial when problems are at their door, only to acknowledge the problem when they are on their way out or have left.

Greenspan used his "greenspeak" alien language to wow the markets with his genius incomprehensible guidance in the middle of a boom, only to speak clearly after he left and say that "he had no idea how bad the housing and mortgage problems were" during his tenure. Glorious Fed Chairman could not see the simple fact that banks are overleveraged and undercapitalized?

Trichet today and yesterday, all of a sudden, has awakened and is saying that "systemic crisis has reached catastrophic proportions", and that "EFSF has to be leveraged". This is all new to him just 18 days prior to his term expiring. Raising rates should have helped the systemic crisis prevention, right?

Bernanke is the most famous of them all. I do not want to repeat myself over and over, you know what I think. "No subprime spillover to prime, no prime spillover to economy, all is contained", then $ Trillions in QE, and after that no rate hike for 2 years, etc, etc. This hero has some battles to fight still, a long time left for him to mess up further, and believe me - he will.

Can we please find someone else to drive the bus already?? Arming these folks with such a concentrated power of juggling too many balls at a time, has produced the outcome we are all suffering from now. While they were too busy fiddling around with impossible to alter boom and bust cycles of economy, they forgot the simple act of regulating the banks - their main responsibility. Having them fall asleep at the switch, and now bailing out everything in sight is what this world will have to deal with for perhaps another decade.

Tuesday, October 11, 2011

NDX Heavyweights at Resistance

AAPL and GOOG are running into resistance here, closing right below it as I type.

AAPL resistance @ 404
GOOG resistance @ 550

These two darlings are the engine of the NDX: 12% and 6% respectively. If they run out of steam here, pullback is in order. We are to monitor closely.

I have been waiting for a pullback to buy. It is a total bear-frying fest out there. No credible pullbacks for bulls either. I am a patient trader, I will wait...

Looking for SPX and NDX futures gaps:

ES - 1155.75
NQ - 2204.50

With today's top @ 1199, SPX cash 50 fib comes in @ 1137. This would also correspond to ES WP @ 1132.50 Looking for that as well... (in my little perfect world :))

Waiting, and waiting, and waiting...

Go Slovakia!! Give me my pullback. What a joke! LOL

Sunday, October 9, 2011

Trading Thoughts for Week of Oct 10

SPX has hit the bottom for 2011. This will be my ongoing thesis for a few months. I have to be honest with my followers: I am a bear, a grizzly bear, but I am a trader with an open mind and humble approach. I can not be right all the time, nor can I be ignorant to the changing facts and data. It is time to be on the other side of a bear - even if just for a few months. (more on SPX at the end of the post)

Here is my outlook for next week:

Q3 earnings season is here. It is going to be a very interesting event for traders - a tricky one. While companies will report good results (for the most part), they will undoubtedly disappoint on the outlook. CEOs are not stupid, they know how to underpromise and overdeliver. Why would you be optimistic in the middle of a bear market? Let's keep a score of how many CEOs will say the following: "Europe is the major reason why our outlook for next quarter is uncertain". We'll sum up the numbers at the end of reporting season.

Eurozone is dealing with the fact that Slovakia is about to stink up the joint.
How are EU heavyweights dealing with this problem? These bullies are telling the Slovakia to speed up the process and get the EFSF approved. Poor Slovakian politicians are sweating not to be the ones to kill the EU. How sad! Here are some fiscally responsible folks from a small, relatively unknown country, addressing an inevitable bankruptcy by a "cheater" member nation (Greece), which they will have to support and bailout, only to be faced with unlimited bailouts still yet to come: Italy, Spain, and eventually all banks which hold the bad sovereign Eurozone debt. If what I just said is not a reason to break up EU, then I do not know what is.
In the late breaking news, Merkozy is pledging the support for their banks (I guess Dexia caused some sleepless nights) without giving any details, again. Who needs details? They have been navigating this slowly-sinking ship without any coordinates since EU inception. I remember their presser a few months ago where they said "cheater" nations better watch out. Does anyone in their right state of mind believe that EU heavyweights did not know about the cheating going on when the fake Union was formed? Oh please... I am so over this theater, that I have actually went long EUR/USD and will be laughing about this for a few more days. Rest assured, my friends, it will not be long before this trader reverses back into short. Let the charts speak first though. We are not at that reversal point just yet. Looking for 1.3630 to unload remaining portions. Looking for resistance between 1.3730 and 1.3830 for initiating a scale-in short.

SPX is in a delirious state here. Traders who missed the bottom are kicking themselves. Shorts are scrambling to cover in total disbelief. Skeptical longs are still on the sidelines waiting for a big pullback or another huge leg down to load up. This is where bear markets are the trickiest. Just as SPX went down to 20% off the top, everyone felt like lower prices are still to come, CNBC was putting an all-night "New Bear Market" special together, and then..... I wish I had a first page ad in Wall Street Journal which said: "I told you so".
I will not mention any names, but I am continuing to watch and read some pretty negative commentaries from influential hedge fund managers, renowned market watchers, and well-respected market technicians. They are all saying that SPX is going down to a new low in the next few weeks. I deeply respect their opinions and their life-time achievements of being wrong on the market over and over again, but categorically disagree with them. History and charts repeat, when SPX hits 20% off the top it bounces for a few months. Why does it have to be different this time? Let the charts speak! I say buy all pullbacks and wait for a bounce of 16 - 20% to short again in January.

Update: Oct 10 @ 1:35 pm edt
EUR/USD long objectives met. Flat and waiting for reversal. On continuation of this rally 1.3730 - 1.3830 zone is a desired short area for me. DXY has to display strength and pullback buying interest at that time. Will monitor and update...

Friday, October 7, 2011

Gold - Consolidation Before an Explosive Move

Gold has been in a major bull market. It has served as a hedge against inflation, deflation, equity market decline, and fiat currency risk. On top of that it has benefited from insatiable physical demand by jewelers and central banks. Investors have accumulated an amazing amount of gold through GLD ETF.

So there is a constant bid underneath the gold market. If you glance at gold's long-term chart you can see a steady, uninterrupted ascent from lower left to upper right. The pullbacks are calculated, and are supported by long-term moving averages. There is a well-defined structure in place, otherwise there is no breakdown, yet. I have been a gold bull for a while, but I am not a gold bug, and do not find gold an attractive useful commodity. This said, there is a weird feeling that I have about this last violent decline. It does not look as orderly as all other declines in the previous few years. There is a clear and perfect double top at 1920 with broken neckline at 1750. Gold has been supported by 150 day simple moving average for over 2 years. It has been breached by 40 points on this last pullback, although there was no close below it yet. And there is a trendline from 2008 and 200 day moving average, both of which have not been broken yet.

Weird feeling or not. There is support on charts to trade against, but should it break, it will result in a strong move down. Let's discuss the probable scenario. Gold has formed a bear flag after the move down from double top. If this bear flag breaks it can result in a 400 point continuation down move from the top of the flag. This would imply a decline to 1280 - 1300 level, which would be astonishing, since we just had a 400 plunge already. I do not think many traders are prepared for this at all. On the way there possible scaleout targets would be: 1535, 1485, 1430, 1395, and 1350.

Traders are well-advised to wait for bear flag break first. Gold has been known for faking these down moves to suck the bears in and trap them. On the way up I see a resistance at 1700 and 1750. I do not think that gold can trade above those levels in absence of QE3 from US Federal Reserve.

Read more:

Update: Oct 10 @ 6:50 pm edt
Gold futures are testing the top of the flag @ 1680. This is a third time here at this resistance. DXY is not at its support yet. I am thinking a possible fake breakout to 1700 and then a hard plunge along with Euro is possible. I am definitely not shorting here. Scary beast can run all bears into hibernation practically in one trading session. I am looking for a bear flag breakdown to trade down to 1300. Quick 400 point trade may still be in order :) One has to remain patient and wait for aforementioned setup. First 50 - 75 points down from here may have to be missed. Quality setup requires confirmation and some money left on the table. No trades inside the flag, too choppy.

Thursday, October 6, 2011

SPX and EUR/USD update

It looks like SPX may target 1160 level on this astonishing bear-trapping run. I am looking for 50% fib pullback after that, as a possible entry level. Since I think that lows are in for the year, I will be buying all pullbacks in the next few months. If 50% gives way, next support would be at 61.8%  Way too many traders woke up and will be buying pullbacks, so we probably will not get there. Wait for the top of this move first, before putting a fib on it. I will update here...

EUR/USD is having a field day hunting for bear as well. Trichet is pulling all the stops on liquidity measures. It has been an interesting presser and he is still speaking to reporters afterwards - his term expires at the end of Oct. EUR/USD has reached my first target @ 1.3430 One should trail the stop to break-even.

Please note that I still think that both SPX and EUR/USD are in a bear market. But nothing travels in a straight line. We are witnessing markets at work, punishing the conplacent traders, and returning the price back to reward the patient ones with a better entry. Lower, much lower prices are still yet to come, imho. Just not now...

Update: Oct 6 @ 4:05 pm edt
SPX retraced 61.8% of 9/16 - 10/4 move. I expect a quick pullback from this level. Looking for 1120 and 1110 levels. 

Tuesday, October 4, 2011

Was this the bottom?

I say yes. Violent reversal on expanding volume. Close back above 1100. Many leading stocks washed out during the session only to reverse much higher. I could continue... You heard it all here for weeks. I was looking for this day. 

Euro Bear Market Rally (featured on Technorati)

Please read my Forex article, published in Technorati's Business Finance Section earlier today:

Stock Market Carnage (Featured on Technorati)

Please read my yesterday's October 3rd end-of-day Stock Market Update article, published in Business Finance Section on Technorati

Monday, October 3, 2011

Dow Transports Hit New Low

AMR is getting killed, down 35% as I type. DJT is at new 2011 low.
I was looking for it to possibly hold 9/22 low as a possible support, to no avail.
I have to point out this fact: on July 7 DJT made a new 2011 high without DJI. Dow theory followers were worried at that time, due to non-confirmation by Industrials, rightly so. This time DJT is making a new 2011 low, again without DJI confirming, which already has happened once before on 8/19, when Transports went to new low w/out Industrials. Is there another signal here, or just the fact that Industrials are lagging a bit and will follow to new lows? They are only 120 points above the 9/22 low. Need to monitor this development closely...

Please note that I am not a Dow Theory follower, I am just looking for some divergence and false non-confirmed breakdowns.

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.