Wednesday, February 27, 2013

This Is Still My View

Are we setting up a bull trap here? It is very possible...

I still see flat-on-the-year mark as a target zone for ES and EUR/JPY.

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Tuesday, February 26, 2013

Follow The Leader

Much has been said about the latest source of stock market rally - the weak Yen. It is back as the favorite carry trade, and EUR/JPY is the biggest beneficiary. So I decided to plot it over SPX, and the result is even better than I thought. EUR/JPY has been leading SPX since the latest leg of the rally began in mid-November. Based on this fact, it is safe to assume that SPX is in for more pain on the downside. There was a pretty negative and decisive reversal on SPX yesterday, but it really came on the heels of EUR/JPY divergence. It did not confirm the highs on SPX for over two weeks now. Forex likes to hunt for stops, and there are stops all the way down to flat-on-the-year on EUR/JPY. If SPX follows, and it has so far, it will also retrace to that flat-on-the-year level.

Please note that I used SPX futures to better reflect the correlation, as forex trades 24 hrs a day.

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Saturday, February 23, 2013

Dollar Index Is Ready To Take Charge

DXY has bottomed and just broke through resistance. Similar setup resulted in big sell-off on SPX last year.

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Monday, February 18, 2013

This time will not be different - The Finale

In the last few weeks I displayed some of the divergences that are present in the market today. In this post I will provide you with some more interesting facts, which will conclude my compilation of the reasons why this time will not be different. I will remain mum on the issue from here on and let the market speak for itself.

Since this bull market in stocks has begun in 2009, the biggest decline occurred in 2011, when technology sector did not confirm new high on SPX. Tech is the largest sector of S&P 500, with 18% weighting right now. Head and shoulders is one ugly chart pattern.

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Hedge funds are now bailing out of gold and piling into equities in droves. Those are some of the brightest minds, but their performance has been less than stellar and has lagged S&P 500 for the most part of this bull market. The fear of Eurogeddon kept them overinvested in gold and underinvested in equities in 2010 and 2011, producing strong equity rallies as they had to get back in and play catch-up. The fear is now gone, as Eurozone is supposedly fixed, hence the gold dump. And the greed has taken over, as they are thinking that this stock market rally got away from them. So now, after SPX is up 125% from the lows in 2009, they suddenly rediscovered the stocks and are at their highest equity market exposure since two months before the previous bull market peaked in October of 2007. This is usually a contrarian signal which leads to steep corrections.

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Speaking of contrarian indicators... Newsletter writers are now as bullish as they were in 2000. Their sentiment reading at or above 70% has produced a valid selling signal on SPX in the past.

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And finally, this is one of the most interesting facts I have seen yet. The chart below displays the correlation between SPX and Eurodollar futures. Adventure in Centrally Planned Paradise may be waiting just ahead.

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Wednesday, February 13, 2013

This time will not be different - Part IV

In the last four years, AUD has accurately predicted a top in S&P 500. Why should this time be different?

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This time will not be different - Part III

When IBM does not confirm new highs on Dow Jones Industrial Average, entire stock market eventually rolls over.

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Tuesday, February 12, 2013

This time will not be different - Part II

High yield bonds are no longer confirming new highs on S&P 500. When such divergence occurs, stock market eventually rolls over.

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Monday, February 11, 2013

This time will not be different

S&P 500 eventually rolls over when Continuous Commodity Index diverges and does not confirm new high.

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Tuesday, February 5, 2013

Stock Market Poem

I placed a short SPX trade on close today. I am either incredibly smart or incredibly stupid. Only time will show...

Three weeks ago I decided to cut my SPX long at 1472 and wait for a pullback to the upper 1440s to buy, and then look for a trip above 1500 after that. Obviously, there were no credible pullbacks (or they were too shallow) for me to buy - the stock market went straight up without me. But now that my price target has been reached, and the fact that it was done in such a chasing pattern, I think that this parabolic rise will end badly. Many charts are now in hyperextended mode and are gasping for air, so to speak. At times like these I go against the grain. While I was flat, I knew where I would short, and so I did today. It would have been nice to ride the last 40 SPX points up, but one has to have a trading plan. I followed mine, even though it was flawed. I admit that I was wrong.

After I shorted SPX on close today, I decided to write a poem about it. This was not done to praise myself or display an act of bravado, but merely to have some fun. I hope you will enjoy it...

Just like trees which don't grow to the sky,
The stock market reached its previous high,
This is where double top formed before,
So I sold SPX at the close therefore.
Bulls are in charge, they are running the show,
Bears have no might, their morale is so low,
They failed to bring the stock market down,
Ben Bernanke is still the sheriff in town.
But I have a feeling that this is the time,
When smart money scares the ones who are blind,
For they can't see beyond the end of their nose,
How far and how fast the stock market rose.
This trade is not easy, it's against the grain,
I placed it despite the urge in my brain,
To buy on a pullback and look for new high,
As taught in old textbooks, which I'll try to defy.
Complacency punished, patience rewarded,
And after this trade is herein recorded,
You know that I look for a pullback no more,
I now see SPX falling hard to the floor.

Friday, February 1, 2013

Do you want to buy the market here?

A picture is worth a thousand words. I do not have much to add...

click on chart to enlarge