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.

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.

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.

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.

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.

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.

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.

I said in my last post that I thought the bond market has a ways to run and as you can see it is doing so. Pullbacks are a buy in this market now likely through October. I had stated that we needed a higher low to confirm the trend change and as you can see we have gotten that now, so the trend is up, buy the dips. Do not get tied up in this bullshit from the gold bugs about how interest rates have to sky rocket based on all the money we are printing, blah , blah, blah. I would bet I make more money on one good trade than these clowns do in a year. Although they do charge a 30% commission, so I guess they are not that dumb. They can snooker the public better than most people.

Regardless of any fundamental analysis we might do the price action needs to confirm that or it is all bunk. The trend is up now so until it breaks back down, buy the dips and tune out the noise.

Also most currencies look like they are topping here which means the dollar is likely to have an upleg here which would be consistent with the long term cycles.

After finishing my last post I scrolled and saw than in the first week of June I did mention that long setup in Bonds. Here is the trade I made just exited this morning. I do think that this market has a long ways to run on the upside. This trade was exited simply because it hit a profit target objective and was against the trend.

We still do not have a higher low or retest point yet which would confirm a trend change. All we have so far is a sharp counter-trend move. When you trade aggressively against the trend like this you need to take profits sooner to stay alive. I am looking for a dip now that forms a higher low than the one on this chart, and will look for a buy spot if that happens.

I mentioned in my last post that a minor sell signal showed up for the SP 500 and was worth taking. Displayed over to the left is the result of that trade. I used a smidge of discretion exiting as it technically fell 1 point shy of where my limit order to take profits was, then started to bounce. No time to be greedy when something like that happens, so I just quickly went to the market to exit. It may not look like much on that chart, but that trade made quite a bit of money.

However, the bigger portion of the last post was on the dollar and it's potential long setup. That was also triggerred and the dollar has moved up somewhat, but not as quickly as I thought it would with the stock drop that occurred. There is some international jaw boning about world reserve currency etc.. Maybe that is why the dollar which appeared to be going gangbusters, has stalled. I have no idea, I do not trade on that kind of nonsense anyway. However, it does appear that we have a major top at hand in many commodity markets, probably for the rest of the year. As a result, I expect the dollar to continue to move up overall.

I heard an intersting comment about all the money the government is printing now and how inflationary it is. The comment basically said it is the velocity of the money that causes inflation, not just the supply of it. If it is being horded, it will not be inflationary. I think in general that is what is happening and why we are still in a deflationary environment that should continue for awhile.

I have also been bullish on bonds and made a nice longside trade there that I just exited today. I am not sure if I ever posted anything on bonds here or not, but traded some emails with some readers of this telling them I was bullish. I continue to be and will be hoping for a pullback to enter on the long side again. Also hoping to sell a rally in stocks if we are lucky enough to get it, this could waterfall here.

Well right on cue, a minor sell signal showed up for stocks, and we got a bounce here in the Dollar. I had stated previously that there was not a sell signal in sight for stocks, then all of the sudden it showed up quickly. Is this a really strong sell signal ? No. However, we are in an area where it is worth taking.

This bounce in the dollar is a good enough bounce, when tied into the larger picture cycles and major support, to signal a buy now here if we move back down as indicated by the line on the chart. All this means is that we need to form a higher short term low now, then we can buy a break out above it.



Will it happen? you never know. If for some reason we get a sharp stock decline this could just shoot right up out of here without a pause, but odds favor somewhat of a retest of the low, which will be our buying spot. If the cycle is ready to kick in again, this market could really move up quickly from here. If these lows do not hold, you can probably kiss the dollar goodbye for awhile. This makes it worth a shot on the long side due to the possible big move that could happen, good risk/reward ratio.

Here we have Bonds, a market that is setup to make a low. We have the seasonal low time period at hand, commercial buying, and very negative sentiment.

This does not mean just run out and go long this market, but what it does tell us is that we need to be looking for signs of a trend change to get long here. Seasonals are simply a guideline for us to look for something, they are far from a holy grail for trading. However, this is one of the most consistent seasonal patterns that exists in the futures markets.

There is no question that there is more government manipulation of markets going on now than what we have seen in the past, but there is always this type of thing going on somewhere. One thing we have certainly had proven to us without a shadow of a doubt, is in alot of industries the last honest man has left town quite some time ago. We cannot believe virtually anything that comes out of a CEO or Senators mouth nowadays. Just accept this, it is what it is. This should not preclude us from making money trading.

Here is the battered US Dollar Index. This is a market that I have been wrong about. I have mentioned the long term bullish cycle that kicked in last year and seemed to support price right on almost the exact day it should have to be valid. After that prices did rise nicely for quite awhile. However, we have gotten into quite a steep downtrend here. The commercials have been buying, but not an a super aggressive rate, and not enough to support the price yet.

We are now in a zone where if the long term up cycle is going to be valid, the price needs to be supported somewhere in the area of where we are right now. Since alot of the dollar strength has come from stock market weakness and a flight to quality situation, it is doubtful that this market will find support unless we have a stock market decline.

I have stated in here that we are due for a stock decline, and I still feel that way, however, there are no immediate sell signals apparent. So, until that changes, I do not expect much to change here. There are alot of people who focus on economics who say this move is caused by all of the deficit spending, the fallacy with that is that none of it has been done yet, it has just been approved. Be that as it may, you cannot trade based on large macro-economic views due to how inefficiently those views translate into daily market bias. Even when you are right, timing a view of the next several years into daily activity is impossible.

HUH?

I read an article in the San Diego Union Tribune yesterday about what a good thing it is that the VIX is dropping way down. This person went further to say that is what the rally needs to continue.

When I was younger this type of thing would have sent me through the roof. I really don't like it when stupid people are consulted as experts. It is possible that this person just may have never studied the VIX or did not have any understanding of what it really tells us. However, he is supposed to be an expert isn't he so shouldn't he know of what he speaks?

I am not an expert on the VIX, but what I am is somebody who has studied in detail how to use it to trade the SP 500. A shift to a relatively low reading is a warning sign of an impending decline. Conversely, a sharp spike up is the opposite, an indication of a coming rally.

This is the final piece we need to start looking aggressively for sell signals. This tells us there is complacency in the markets, and that there is a lack of an overall worry of a decline. There are alot of lines on this chart which are moving averages of the VIX and then moving averages plus or minus 15% of themselves. You can see where the RED arrow is yesterday that when we close below the line that is 15% less than the 10 day moving average, it is a sell signal for the stock market. This generally is good for the next couple of days. In this case I would like to see the RSI of VIX get under 5, that would be a greenlight special to short this sucker.

Oh wait, I am wrong, the expert says I should commit more money to the market right at a point where all the pros are shorting it......... At the very least do not add exposure to the market here and take some off the table if you have made some money since March.

Here is a chart of the Naz, I have left prices out due to having to block that part of the window so as not the reveal exactly what this oscillator is. It is what it is, this is free and I am not in the practice of giving up my secrets. The point is that this oscillator is now warning of a top at hand finally.

Often oscillators give many false top signals in trend moves up like this, and this one is no different. However, if we couple that with the seasonal tendency for a top here and the commercials activity leaning to the short side, this has to be taken into account. One of my mentors has called for a 5/29 top date, I have no idea if that will be correct or not, but if you read my prior posts I had a may and june date as possible places for a cycle top. So now that we are in that zone of time and these other items are lining up, I do think it is time to start taking sell signals in the indexes.

We are experiencing tremendous rallies across the board in almost every market in the futures, some of which are on the border of breaking weekly down trends. However, there are seasonal tendencies for peaks in alot of them in the next month so it is time to be on the lookout for a resumption of some of these longer term down trends.

The Market I love to Hate, GOLD

I hate it of course because of the collective fraud going on to rope suckers into moving their money into it due to the impending end of the United States and the dollar.

Notice how well this market has followed the seasonal pattern recently, rallied right on schedule from the low, and peaked similarly on schedule. This pattern calls for a slow drift down for a few more months. Rarely will the seasonal be this spot on do we cannot rely on it solely for trading decisions, but it can give us a bias of what to look for at certain times and that is how I use them.

Most of my short term indicators are still indicating a down trend so I am looking to short rallies, although I did buy it the day after the recent low with a short term technique I use for counter trend trading, but have exited that trade at this point. In the metals, Copper is by far the strongest up trend now, so longs should be done there not in Gold. You always want to buy the strong and sell the weak in a complex. Too many people have this notion of the weak will catch up, this does not happen.

As a result bearish folks should short gold and bullish should buy copper.

Here is the daily chart of the SP 500, what I call a running market. I did post last week that I thought it was time to get out. From a big picture standpoint I still believe that, however when we get into these running markets where as you can see the pullbacks are very small and do not form any wave type of look, it is very difficult to time an entry in the opposite direction. The reason for this is virtually every oscillator will diverge for awhile before these come to an end.



This last week did not show much change in the commercials activity, and there is not such an overwhelming amount that this can be turned on a dime. However, when the commercials are net short at the time of they year when the seasonal high is here, we need to look for a decline. I have not shorted this yet and doubt I will today the way things look. It is more likely that I will short this after we get a drop and then rally against it which could take some time.



I posted the chart completely plain to demonstrate one thing. If this was all you looked at without dates or indicators and were to place a bet on where the price would be in a week, I bet most would say higher. That is the point, don't get cute picking tops. We are in an area where one should occur but that is no lock that it will. If we were to blow through this area in the face of a commercial short position, that in reality would be a buy signal and indicate my call for this to be a top is wrong.

Time to be out Sports Fans

We have seen renewed commercial selling in this past weeks cot report and now you see the red arrow on the screen above last week. This is a mechanical sell signal based on COT data. Entry is another matter, but this tells us we now want to short this market. I know in my last post I said I expected this rally to last into May but part of being a trader is to adapt to what takes place on a daily basis.

I have continuously maintained that we had not seen the lows yet and I am still of that belief, so this is an opportunity for those who had not switched to cash in the retirement accounts to do so now. I have no idea if this is the exact high of the bounce, just that we are in a zone where fundamentals say the next big move should be down.

I have so many stocks setup for short trades that I am having a hard time paring the list down for the best candidates, and literally none on the long side. This acts as further confirmation of where we are.

Well all we need is at Weekend at Barry's to get a day like this. It is absolutely mind boggling how every time he opens his mouth the market tanks, never seen anything like it.



However, if you look at the chart it does not look like much of a big deal does it? So far as ugly as today was, I think it is a pullback in an uptrend. I certainly hope it is more because some of my short positions I mentioned in my last post were made very healthy by today. Hope cannot be part of your plan as a trader or investor. It is time to watch now how the market reacts on the bounce from this. There are certain proprietary things which I will not reveal here in this free forum, that I will watch on the bounce to see if they indicate it is likely to fail or if it is a continuation long entry possibility.



Nobody ever knows that for sure, trading is at best a good guesstimate of what might happen next, you deal the cards and play the hand. Obviously there are certain things to watch like the commercials to get an idea of what the major players are doing. So far there is nothing there that indicates the low for this whole move is in, which is my big picture view. Also there is not an obvious sell signal on a short term basis to re-enter index shorts for the big move back down. So short term trend is still up and long term trend is still down. I would not recommend anything other than short term trades on the long side, this upward move could end at any time now even though I still expect it to carry into May. It is a traders market not an investors.

My shorts are in individual stocks and some currencies at this point, not in the SP 500 itself. I will be watching my secret stuff now to see if a short entry is appropriate on the bounce, but I think it is likely I will be buying this dip

Not much has changed except one thing. The chart looks the same as it did last week, price rallying, commercials selling. We have reached the over valued zone however, so we may be nearing a short term peak.



We have what I call a running market now where we have very small retracements, too small to enter longs, and the price just keeps creeping along. The PPT showed up in a blatant fashion the last hour of the Tea Party day. There was no way in the world the new administration wanted a down close on that day, and they clearly manipulated the futures during the last hour.



What to do? In all honesty I have lost some money trying to short a few things this week. This bull move is lifting virtually every thing in the world except the soft commodities, and a couple of currencies, so shorting what is a pullback against a long term down trend has not been profitable this week. However, over the long haul, that is the way to play things.



Be careful shorting the stock market until we see some sign of the institutions slowing down on their push here. I will post something when I see that happen. The good news is that this is a great opportunity for those who got hurt last year to be able to now begin moving back into cash having recovered some of their lost money. Hard to say numerically how far this could go, but time wise another month or so is what I am thinking.