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...
Friday, September 30, 2011
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) http://viewonmarkets.blogspot.com/2011/09/dxy-trade-is-on.html
Good luck!
Update: Oct 3 @ 2:23 pm edt
EUR/USD hits 1.3230
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) http://viewonmarkets.blogspot.com/2011/09/dxy-trade-is-on.html
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...
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...
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.
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.
Update
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 :)
I am looking for 1163 gap to be filled in the next few days.
Update
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.
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.
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.
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.