Sunday, July 26, 2009

ES Weekly Chart

Here is a chart of the E Mini SP 500 Index. A couple of posts ago I displayed a 5 point Megaphone type of pattern which is a reversal pattern. It required a close below the prior days low for entry on the short side. This has not happened yet. It does appear to be smooth sailing here as the bottom graph shows the Commercials occupying a comfortable long position and the trend being up.

One of my mentors Larry Williams has called for a top to be made here in the next couple of weeks. His market turn calls are beyond incredible so I have to take a look to see what could support that. There are two things that jump out here as being supportive of a decline. First, the middle graph shows stocks valued vs bonds, and it shows stocks extremely over valued. Second, the bottom graph shows in Green a sentiment measure, which is reading a very bullish number. Both of these things generally lead to declines in the market. However, that does not mean you just run out and sell when you see these readings.

What might be the best thing to look at to time this is the ADX indicator. It is a measure of trend, and generally when it gets to a very extreme level it indicates the end of a trend. It is approaching that level but is not there yet. Also, the Vix is indicating a turn is imminent.

When all of these things are put together, it tells me we have to look for a decline to begin within the next two weeks. It is frustrating sometimes not getting the highs and lows right all the time. This is impossible and a fruitless excercise. All we can do is put the odds in our favor and make the trades on the side of the probabilities. There is more market manipulation than at any time in history by the PPT so that is making short side opportunities harder to time. We just have to accept this for what it is because it is not going away any time soon.

Wednesday, July 22, 2009

Can I frame this?

This move yesterday late by the PPT was an all time classic. They do not want this rally to stop until they get all their spending back doored behind the american public. The sell signal that is out there now could be a nasty one and they know it. I posted that pattern yesterday showing one possible way of playing it. However, a false breakout to new highs that reverses is a well known pattern in all circles. When we combine that with the economic reports which for the most part are quite dismal other than the ones they are manipulating, and we have a potential for a nice move down if it were to get started.

Will it happen, who knows. What is clear though on a day like yesterday where alot of markets were teetering on breaking, was the end of the day save by the PPT buying futures to stop it. It is really difficult to predict when they will show up, but generally it is during periods where there are big picture reasons why a large down move would not be good politically.

Keep in mind as much as I think Barry the Intern is the worst thing that has ever happened to the world, this is not exclusive to him. The PPT has been operating for a while prior to his arrival.

Just sit back and observe the beauty of it on a day like yesterday this 5 min chart of the SP 500 should be framed.

Tuesday, July 21, 2009

Here is a pattern taught by Kevin Haggerty although he stole it from someone else and gave it his own name. He calls it the RST, but it is basically a megaphone pattern. Just to keep myself out of any trouble, I will not explain the rules other than just to display this here.

It is an expanding pattern of pivot points that resembles a megaphone, and it is a reversal pattern. There is another modified version of this called a Wolfe Wave. I did have that sell signal based on the Vix that showed up a few days ago that so far is terrible. Although it is just designed to identify a zone not a enter at the market when it shows up. However, the best ones do move price within a day or two which that clearly has not done, so it has to be labeled a losing signal.

Generally these megaphone patterns work best when they have symmetry like this has, legs of similar lengths in price and time. Also some oscillator divergence of some sort should accompany it and there is some of that here. It should work pretty quickly on a close below the prior bars low if it is valid. This is the first day it is valid, so look for a close below the low of a previous day for an entry here.

The cycles now are calling for further upward movement for a couple of weeks or so. I have blown the short term buy that I put on down at the low of this swing, exiting way too soon. I have not shorted this move yet fortunately as I use these signals to alert me to look for something not just to blindly jump in. It saves me from getting run over when they are early or wrong.

Tuesday, July 14, 2009

Mission Accomplished

As you can see from the chart, there is now an exit signal displayed coming into today. As I had stated, this signal was a short term signal that works over a few days period of time. I exited most of my stock trades on the close yesterday with a couple left to exit today at the close.

It does appear a potential short term sell signal will generate at the end of today, but we need a strong close for that to happen. Bigger picture there is a mixed bag here. Some of the indices are showing commercial buying and some are not. It is certainly possible we could have an upmove here. However, the trend remains down overall so I am just looking to sell strength when it shows up into that downward trend.

Keep in mind that there is a general bias to the upside above the 200 day moving average and to the downside below it for individual stocks. As a result try to trade in that direction in general. This is true basically because many fund managers really watch that average so it almost becomes a self fullfilling prophecy for it to work.

The 200 day has no edge in futures trading at all, it is a stock market phenomena.

Wednesday, July 08, 2009

We have a short term buy signal here as displayed for the Stock Market with the green arrow on todays bar. You can see from just looking at some of these signals that they generally give us a move over the next 2 to 5 days after triggering.

I think this sets up a bounce here that will set up a great sell setup in many markets mid month or so. Bigger picture I think this next down move could be significant but we will just have to see how it sets up after this bounce. This particular signal without getting into too complex of an explanation is based on the VIX.

I do also expect Bonds to decline as this rally occurs, setting up a bigger picture buy in that market. Many of the commodity markets have been absolutely obliterated in the last week, Energies and Grains in particular and Metals. This confirms the resumption of their downtrends, so rallies in all of them are selling opportunities.

Friday, July 03, 2009

After a day like yesterday it is usually important to not get so tied up in one day and to view things in a higher time frame. I know these charts are hard to see detail in, so just focus on the bigger picture. As nice as this rally from the March lows which I did call has been, it is still a rally in a longer term downward trend.

The red arrows indicate a proprietary combination of several things that tell me when to short the market. I also have them for buys but as you can see none of them show up on the chart which speaks loudly just by itself. You can see that on the way down they worked well, were a bit early on the way up. This is typical, they are not designed to pick exact spots, they are alerts to look for entries. We have been flashing these for awhile now, so once we find ourselves in July and in a known seasonal down period, have sell signals in a long term downtrend, that means we need to be looking to short individual stocks and the indices. This is what I have been doing and will continue to do until this picture changes.

If we combine this with what appears to be a top in commodities and currencies, and low in bonds, everything speaks in the same direction, lower prices for stocks. I posted about a month ago that it was time to get out of stocks, and we did rise a bit more from there. That was a general comment and not a day trading comment. It was made based on what is displayed here. It would be better to have the bottom pane more bullish which is actually a bearish signal. Fading sentiment is what we want to do, not go with it. The shift toward the emini's with commercials is underway and that weekly chart shows a more bullish reading with sentiment, which is bearish for stock prices. The preponderence of the evidence suggests down. It is possible that if during this decline the sentiment gets really negative it would support a test of the low and another leg up. That is something I will be watching as we move lower.

Big picture I think 2012 is when the ultimate low will be made and it will represent one of the greatest buying opportunities of all time. Between now and then we will have good swings both ways but I expect the big picture trend to remain down. If things develop in a way to change this view I will post something here to indicate my change in posture.

One of the very interesting developments is the very tight link between stocks and virtually everything else that is traded. You can watch intraday and when the dow rises literally everything on the board rises, and vice versa for declines. I have never seen anything like this and what it tells me is that the only thing that has really improved in the economic picture is that we have had a stock rally. As a result, when that appears to falter, everthing else that has been artificially lifted by it also falters.

Intermarket relationships tend to come and go making it impossible to model a trading approach after them, but I find this particular link very interesting. I just think it foretells of trouble not prosperity. There is really no fundamental reason for this link to be this tight.

Wednesday, July 01, 2009

What the Buck!

Here is a market that has confounded me this year so far. You can see the green arrows on the screen of the weekly chart of the Dollar Index. These are proprietary combinations of factors that dictate buying a pullback in an uptrend, some have been good, some have not.

There is very good reason to believe that we have another big leg up in this market coming by historical cyclical analysis. However, we are still in a shorter term downtrend. There is alot of jawboning about economic reasons as to why the dollar should decline. There are many that make sense conceptually, however I do not trade off such things. They are way to hard to quantify risk with and often can take years to play out. Also, I am of the belief that we have entered a long term deflation cycle that started last year and should continue for some time, so the inflation skit does not mesh with that view. I think the inflationary things the government is doing will just slow the rate of deflation, which behind closed doors is their real goal.

If we look at this chart we do see the commercials in the second pane green line at the top, being heavy buyers on these dips. This is bullish. In a perfect world my small fries with sentiment would be more bearish. You can see rallies have occurred when the readings on the bottom pane have been low. It might well be that we need to blow out these recent lows to get that sentiment more bearish to form this low, I am not sure. I am looking for buy patterns to get long here and have just not seen any yet.