S&P 500 - Jan 31, 2009

charts courtesy of stockcharts.com

I really feel bad for the bulls. They had some talking heads on evening rounds of financial TV telling them that some plan was in the works to work it all out. Then they saw futures gapping up so nicely, and prices held high and mighty in the close of Wednesday. Then the whole thing gapped down on them.

Even some bears called it the beginning, or the resumption of the counter trend move higher. On one generally bearish blog, I saw charts with targets in S&P 1000 and above, drawing target areas and saying how quick money could be made ahead of the next big market drop from higher levels.

Even following the charts might trick some technicians. We had a breakout from a widely watched resistance level. But a technician worthy of his trade would bail on Thursday after the gap down that left us with an island reversal pattern. Acceptance of a loss is the hardest and the most important part of this game – and the sooner, the better.

It was not a big drop really, from 877 to 824, 50 points or so. But the psychological effect of it may be of more importance.

That is one of the reasons why I like range bound action. So much bull and bear capital gets whipsawed into losses. And by the time market is ready to make a move, there will be more skeptics than participants.

It still may happen that index gathers steam and goes up, who knows? Only that the bulls were just dealt a really tricky set of cards. It’s like they had 4 kings, bet a big chunk, and saw the opponent opening 4 aces – ouch!!

It happens.

On Friday, index tried to set a rally at the open, but seller would have none of that nonsense and it was downward action all day long

This is 15-minute chart of the index

Compare the wave structure of the drop from January 29 to the rise from January 21 and ask yourself this question: which one looks impulsive and which one corrective?

There are some positive divergences showing up, so, a bounce may be near. Please be mindful of the time frame. A 15-minute bounce may or may not lead to a 60-minute bounce, to a daily bounce, and so on. And depending on the direction of larger frames, small frame moves may or may not change the price dramatically.

This is a 60-minute chart

There seems to be a strong floor around 800-810 that supported the index for 4 days.

Breadth was negative. Volume expanded a little.

In a post on January 26, I wrote this

I would keep an eye on MACD, a cross may be very good for the bulls. ... I say this because McClellan oscillator has just been stopped from going down by an uptrend established from the October low. If they can carry higher, they might drag mid-term breadth out of mud and cause enough internal momentum for a good rally.

Let’s see where we are

We did not get the MACD cross, and breadth oscillator reversed course.

This is a perfectly executed whipsaw.

Being neutral and uncommitted, and just following the charts has so far worked. Soon this tight pattern will resolve, and if I want to take advantage, I need to start thinking about taking sides, and ponder how best I can participate without being exposed too much.

I know I will have to scale in as the next move gathers steam. The same principle of adding to one’s position that I have showed on a 1-minute chart applies to any time frame. The lag becomes bigger as time frame expands, but it is the same thing that I would do if I got a directional move.

It is that initial position that, at this point, is a bit of mystery to me. When in doubt, I remind myself that cash is also a position.

Food for thought: remember this count from the Food For thought part of the post of January 14?

Well, take a look.

Market seems to have a way of showing heaven and giving hell.

Surely the bulls got fooled in grand fashion. I wonder if there is something in store for bears as well or not?

Resistance: 850 area

Support: 810 (supported the index 4 days in a row), 800 as an obvious choice, 770 a pivot, Nov low: another obvious choice

S&P 500 - Jan 30, 2009

I covered all index-related short positions that I had initiated before and during this drop.

Why ruin a weekend by thinking what might happen?

Just to be a good boy, and give something back, I purchased a few SPY calls.

S&P 500 - January 29, 2009 - Trade Setups

charts courtesy of stockcharts.com

I wrote yesterday that since nobody seemed interested in shorting, I thought maybe I should have done something about it.

Look at this 5 minute chart of SPY

Look at that volume spike. The train of the next great, unstoppable bull market was leaving at 14:15 PM of the FED day and 10 million shares changed hands in 5 minutes – 10 million tickets to the next great market bonanza.

I took a gamble thinking that I would get a gap fill. But it was not to happen on the same day. At the close I was slightly ahead, and decided to keep the position. It was a small position with which I was comfortable.

Today, market gapped down and set an Island reversal. I was not even thinking about covering my position and booking the profit. I was thinking how and when to add to my position

This is a 1-minute chart of SSO. I have identified the important price areas. Hopefully it can clearly convey the trade ideas of the day

Around 1:00 pm, I posted that I had closed majority of my position, and was setting the rest on a stop.

Around 2:30 pm, same pattern appeared again, and I just had to go for it one more time.

Sometimes we get a bit of luck coming our way. It is then up to us to become aggressive and make the most of the gift the market gives.

S&P 500 - Jan 29, 2009

charts courtesy of stockcharts.com

Whoops!

Is that what people were thinking today, that what they so enthusiastically bought yesterday was a mistake?

Or was it that the masses fell for the umpteenth time to tricks of pumpsters and dumpsters?

I do not know, and it does not matter.

S&P filled the huge gap of euphoria that it had opened on January 28, and closed below it.

Breadth was really bad. Volume was below average, which may give the stunned bulls something to hang on to. On the other hand, this, IMO, is still a bear market, and volume spike is needed on a selloff to clear the system for a counter rally.

From Tuesday’s close to today’s close, nothing has changed where index levels is concerned.

Will the bulls find it in them them to gather their pieces and bid the prices higher?

Notice that yesterday’s peak had retraced 50% of the drop from January high.

Today’s action has so far retraced about 50% of the rise from the January low

VIX bounced off its support area

I still think that index has a chance at higher prices. It needs to hold the 850 area, and absorb selling shocks.

From an Elliot Wave point of view, we need clean waves that unfold to the upside, which has not been the case in the recent advance.

Food for thought: since index Yo-Yo’s through 850 with relative ease, is that level really relevant, or are some mysterious agents just using it to shake people free of their coinage? It is a level regarded as important by all but Martians, is it really that important?

S&P 500 - January 29, 2009 - Intraday

I wrote yesterday that I had gone short at the height of Wednesday's euphoria, and into intraday up-volume spike .

My intent was to fill the Wednesday's gap back to 850 area. I massively added to my shorts on the way down. More thatn 90% is covered since my intent and mission is accomplished. Just holding a little, and am going to leave that to a stop.

We got a nice rush down. Later, I will post a closeup (1-minute chart) of the trades I made.

TLT - Jan 28, 2009

charts courtesy of stockcharts.com

Long bonds continued to sell off. Which some may find curious because we know the FED would buy them if they need to in order to keep rates low. So the euphoric crowd believes the FED on all things they may or may not do but doubts them on the one thing they will do!?!?

Maybe it is not that curious. We still do not have a complete wave count, but we seem to be close.

It also can be counted as an a-b-c, We will re-evaluate when time comes. For now, let's see if we can trade a bounce when the waves complete

S&P 500 - Jan 28, 2009

charts courtesy of stockcharts.com

Index gapped past resistance at 850 and did not look back. It held steady into FED time, spiked on extraordinary volume, courtesy of the FED show, burnt a whole lot of shorts, and eased back a little into the close.

Volume was strong. But examining a 5-minute chart of spy shows us that about ½ of the daily volume happened after the FED-speak in a churning manner. Just have a look

Breadth was positive on all measures.

It was a day of hope and euphoria.

Seemed like nobody wanted to be short, so, I decided to lose some money and switched from long to short. It's a small position, the risk is well defined and acceptable to me, we'll see. Those high spike volumes are just too inviting. Sometimes they work, sometimes they don't.

This rally needs a follow through.

The advance today eliminated one short term wave scenario, but there still are more than one probable count

Had the internal wave structure of the advance from the January low been cleaner, I would readily count it as a 1-2-3 up, but things are not that clean. That being said, due to the force of the advance today, I expect higher readings on the index. 850 area should provide support now, and a break of that area will not be very good. It would be very healthy if the index pulled back a bit, recharged, and advanced again.

Up to now, bears had a clear level to try their tricks. Now, bulls have a clear level to reload.

Looking at the daily chart above, notice that the index is far from being overbought, and if media hits us with a barrage of positive news, index can easily work itself into overbought areas.

I will watch the 850 area, I will be waiting for a pullback, and should pay attention to how the index behaves around and/or inside the gap of today when and if it pulls back.

Next resistance: 912

S&P 500 - January 27, 2009

charts courtesy of stockcharts.com

Market action was like waiting for a leaf to fall – in June.

Everybody seems to be awaiting the wisdom of the FED show. Why?

I have learned not to insist on reasons for market action. It is what it is, and that’s that.

There was plenty of other stuff going on: Long bonds seem to be looking for a rebound. Gold stocks look like about to roll over. Oil is gushing up and down. Education stocks are giving those who bought them these past few days, when everybody was talking about them, a real education on how to avoid buying a spike in price, and more.

Alas, the focus of this post is the drab action of S&P, and I should leave the more exciting stuff for maybe some other time.

Index did not do a whole lot. It Yo-Yo’ed in a tight range on low volume.

Short term picture stays the same

Long term picture stays the same

Volume was really not impressive. With that in mind, breadth was positive and index managed to rise from mild selloffs, but it was held back by the widely watched 850 area.

The slow, but positive action of the last few days has lifted the Stochastics a bit. Market has not gained much, but maybe the announcement out of tomorrow’s FED show can lift some bull spirit and get the index past its resistance

I would be extremely cautious not get lured into a quick rally and dump the news event.

If S&P rises to the occasion, but collapses under heavy selling, bears may relentlessly attack the index.

Index needs to capture and retain 850, period.

I will let my pivots and areas identified on the chart lead me through the day tomorrow.

One thing to keep in mind is that the entire action of the past few days is not very clean, and feels corrective

But corrective action can carry farther than many may originally think. One either goes with them, or waits for them to exhaust themselves.

There is a possible Inverse Head & Shoulder setup that may give a quick trade. If I squint hard, I can see others, but let's take'em one at a time.

Interesting that the theoretical target falls right into the opening gap down from January 14.

It may become a circus tomorrow. If I want to play, I should define my game plan, and try to stick to it.

S&P 500 - Jan 26, 2009

charts courtesy of stockcharts.com

Marginal gain on lacklustre volume.

Index staged a rally off overnight future lows.

The rally carried to the 850 area and then fizzled. In the afternoon, the index was marginally negative, then late afternoon buyers appeared and carried the index into green.

Still, nothing has changed and ranges that we discussed over the weekend remain in play.

The entire wave structure from the low of January 21 looks choppy.

I patiently await the emergence of clean waves to show me which way the masses might take the index

Remember a while back when we had chop-chops from one pivot to another? This is technical trading pure and simple. There are no fundamentals many can trust. So, the big boys draw lines like the rest of us and play it from one level to the other. That’s what I think has been going on these past few days.

Soon, they should do a move one way or the other. Maybe we need a catalyst for that, like the passage of the stimulus plan.

Breadth was somewhat positive, but we still had more new lows on NYSE.

I always try, sometimes in vain, to examine a chart from both a bullish a bearish point of view. Look at the following charts, I would keep an eye on MACD, a cross may be very good for the bulls. No I don’t say this because of any strong belief in MACD, it is just a bunch of oscillating EMAs, and nothing more. I say this because McClellan oscillator has just been stopped from going down by an uptrend established from the October low. if they can carry higher, they might drag mid-term breadth out of mud and cause enough internal momentum for a good rally.

I think the technical clues for the short to mid-term fate of the market lie there.

S&P 500 - Jan 25, 2009 - 2

charts courtesy of stockcharts.com

I was looking at some charts, and realized that there is a gap down in the area we identified as resistance the previous post.

Stockcharts is great at many things, but not always at showing the opening gaps of indexes.

This is 15-minute chart of the Feb contracts


This is a 60-minute chart of SSO

and this is a 60 minute chart of the index

Just wanted to pointed it out so that we would not unduly fooled by index activity around that gap area.

There is another opening gap in the 920 area, but I'll worry about that when index comfortably trades above the 850 area.

S&P 500 - Jan 25, 2009

charts courtesy of stockcharts.com

S&P narrowed its price action into the weekend.

As you can see from this 15-minute chart of the index, trading has been narrowing.

I have already seen this being called a triangle. Name it whatever you want, but a break of the range to the upside may not necessarily mean a continuation on the upside.

There is very strong resistance around 857 as can be seen from this 60-minute chart.

If I wanted to decide on a level for long entry or short cover, I would probably go for the 857 area (+/- some points) and not what people are calling a triangle. To the downside, a break of 800-804 will not be a very good sign.

I am following the same counts as before, and nothing has yet changed there. The only thing I can say is that the limp rally attempt from January 21 does not look impulsive to me.

If the low of January 21 was the end of major wave B, then index may carry quite a bit higher, and a break of 857 to the upside may indicate that.

The other counts, with the low of January 15 being either a minor wave A or minor wave 1, have more negative implications for the index.

I will stay focussed on the ranges discussed above and keep an eye on the pivots.

Breadth was neutral to positive. There were more issues on NYSE making new lows.

The rally on Friday came on less volume than the decline of Thursday, but it still was above average.

Index is oversold on a daily frame, and it may manage a bounce, but I should keep in mind that oversold levels in bear markets may persist for sometime.

Short-term, Index is in the no-man’s land of a range (800-857). Mid-term, we have a sell signal still in force, and an index that is in a confirmed downtrend, and until that reverses, I would be very cautious if I were a bull.

Trading and discipline seems to be modus operandi for now, and cash is still a position.

There are two kinds of losses in capital markets:

1. A capital loss, which is hard to replace
2. An opportunity loss, but there are always other opportunities for those with capital.

USO - January 24, 2009

charts courtesy of stockcharts.com

Following up on the post from January 21, my stop survived the drop of January 22.

USO has quickly retraced 38% of the drop from January 6. I thought some profit taking might be in order.
If what is unfolding is a 5-wave move, then top of the wave marked i should hold, and that’s a tentative stop area for now.

These fast moves of schizophrenic masses in and out of issues like oil can offer opportunities for gain as well as loss. An aptitude towards calculated risk is essential, and discipline is the only lifeline.

GLD - Jan 23, 2009

charts courtesy of stockcharts.com

To borrow from Hemingway's For Whom the Bell Tolls:

did thee feel the yellow money move?

It was a nice 5% move. But more importantly, it cleared an overhanging down-sloping resistance line with a good thrust.

In a post on January 18, We said we were at a point where a great short or long could be triggered. Setting the sell stop was a bit tricky and wide, buy signal was easier, above the down-sloping trend line. Buy stop was hit.

In a post on January 14, we discussed how a meaningful buy signal might produce at least a good bounce. There is no magic here, just following the charts, and trying to stay objective.

From 2008 lows, we have a series of higher highs and higher lows on daily frame. It is not a very clean move, and I have my doubts and reservations. I think this breakout is a move mainly out of fear.

But price is what matters and not some blogger’s thinking and reservations. Another test will be around 92.5, that would be the first major high point to take because it is the peak of another uptrend.

Meanwhile, why not enjoy the ride? Stops are well defined, and if one is in this since the last daily turn that we discussed, it should be easy to manage into profit even if it gets stopped.

Looking at the above chart, we see gold stocks have been outperforming the GLD, and GLD has been outperforming SPY, and that is what a commodity trader should seek for a long trade.

There is a possibility of an Inv H&S to be in play. If that happens to be the case, the theoretical target is North of 100.

I still am not a true believer. But this is a very good example how we can, and should keep our beliefs, opinions and reservations out of the trading game. All I did was let the charts dictate the course of action – just read the annotation from January 17 on the above chart, where I noted the move above MAs

I would humbly suggest a re-read of the post on January 18. That is how I keep my objectivity – by focusing on the price in front of me.

What I would really like to see is for GLD to get seriously overbought before any major giveback appears. That might tell me the move has a better foundation than just the fear of the crowds, and help send some, if not all, of my doubts to the trash can.

If that does not happen right away, I would like to see shallow pullbacks that get bought.

Let's take peek at the weekly chart.


I may need to reconsider the wave count very soon, but, for now, let's focus on daily price action and see how much strength it shows.

S&P 500 - Jan 22, 2009

charts courtesy of stockcharts.com

I am going to borrow from Macbeth again, just a third time, in honor of the three witches that open my favourite Shakespeare play

... It is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.

Yo-Yo market continued today.

Despite the 30-point churn of the index, not much has changed from yesterday.


Some divergences started to appear, but nothing to really brag about yet.

Volume was above average. Breadth was not good. Not a disaster, just steady selling throughout the day. Between noon and 2 pm, index tried to rally, but it was pushed back. Even during the rally period decliners outpaced the advancers, which might mean the brief rally was concentrated in some large cap areas of the market

It is a week since daily Stochastics dropped below 20, and they are still looking limp and impotent.

VIX contracted, which is about the only positive thing I can find to say about today’s action.

It’s just too choppy to commit serious capital. 850 is a level that bulls need to take, and a break below 800-804 will be technically troubling.

It’s still a bear market, and cash is still a position, even more so in an environment of falling prices,

USO - Jan 21, 2009

charts courtesy of stockcharts.com

Oil time, again. In previous posts on USO, I have described trades and associated stops. Idea is to trade breakouts, and be disciplined.

Last time, the trade was very profitable. Let's see how it performs this time.

S&P - Jan 21, 2009

charts courtesy of stockcharts.com

Let’s continue with yesterday’s post and borrow from Macbeth again

To-morrow, and to-morrow, and to-morrow,
Creeps in this petty pace from day to day,
To the last syllable of bull & bear life;

The Yo-Yo continues. I don’t really know how investors carry positions through these churns. One must really believe in one’s outlook to sit on a big positions. Maybe that's why markets are so wild, nobody is sitting on anything for long - they are all on acid.

Breadth was broadly positive. Financials bounced. Good volume. An all around positive day. Only that we had more new lows than highs on NYSE

The day started with a gap, the gap was filled, the low was tested, and, gradually, the index rose. The rise was rather gradual, which might indicate that the index was working on absorbing what sellers had to offer. Then there was the last dash, some shorts throwing the towels, maybe.

Nasdaq 100 has been outperforming S&P, and it has not yet confirmed a mid-term downtrend.

We have a fractured market, some sectors in a downtrend, some not, some indexes in a downtrend, some not. This is very indicative of the battle between the bulls and bears. It is still a bear market on longer time frames, and a schizophrenic market on shorter frames.

We are following a number of counts as we’ve discussed. Two counts, however, are very active on my desk. You can refer to yesterday’s post for weekly views

Today's action has opened up a number of short term wave configurations

This is one possibility

If correct, price should not rise above 85o, which, as we remember is a widely watched pivot area.

What if the price rises above 850?

One other possibility is that we have just finished major B, and major C is on the way to establish primary B at higher prices

Another possibility is an irregular wave 2 / B

If so, then price should not rise for long, and if it gets too far past 850 area, I would get suspicious of this count.

I think that is enough for now.

All options are open for bulls and bears. 850 is, again, of technical importance. If the index makes a new low, probabilities will gravitate to the bearish counts once more.

It is important to watch Nasdaq and other sectors to detect early signs of weakness, or strength.

It's a tough market. Day trading, however, is not all that bad

It's not rocket science, all it it takes is focus and discipline, and an aptitude for taking calculated risks

RIMM - Jan 20, 2009

charts courtesy of stockcharts.com

In a post of Jan 15, I said

if the weight of the general market does not collapse on it head, it may still have at least one more spike left to the upside.

RIMM managed that spike , and then rolled over under diverging momentum and general market malaise.

This was a good trade, from initiation to completion.

What now? I am not sure. RIMM did a daily reversal today. It has not broken yet on a daily chart, but I keep reminding myself that this is a bear market and a trader has to clear the table while there is something on the table to clear.

I will watch and see how it behaves, and if it provides another setup, then I may become interested again.

S&P 500 - Jan 20, 2009

charts courtesy of stockcharts.com

To borrow from Macbeth

Out, out, brief candle!
rally’s but a dying shadow,

Is it over? Are we gonna go down an extended path of decline into depths of 600, 500, 400, God-Knows-What-Hundred?

Things do not look good. First the Santa Rally was a no show till very late and only on lacklustre volume. Then sure-to-happen inauguration rally turned out to be a bloodbath. It seems like market has made it its mission to punish the expecting hopefuls.

Before getting into charts, I should note that S&P is now in a confirmed mid-term downtrend.

Breadth was awful.
Volume was less than the rally on Option Expiration Friday but was above average. Selling was almost across the board. Many gold miners had positive days, but they eased back into the late day selloff. The one I closely follow and trade, AEM, had a spectacular downside reversal day.

No new highs, and 100+ new lows. Banking sector that gave us early warnings was decimated today (BKX – 19.7%), which may have been one reason for gold and gold miners doing well most of the day.

On the chart above, on January 13, I pointed to the MACD cross and said that I did not like it, especially since MACD histogram had been lagging the rally. That dislike has proven to have been justified

With closely spaced distribution days followed by liquidation days, an oversold bounce may materialize any day. Still, I would stick to my pivots and try to observe price action with regards to moving averages. I know I am repeating myself, but it is important to remember that when a trend gathers steam moving averages take over the show from the oscillators – Remember That!

With the advance from November lows being so short and truncated, and in view of the index having entered a mid-term downtrend, I am making this count my preferred

And this count now becomes the alternate

Nothing is set in stone, and market may go sideways for a while and then get into an uptrend, but we will deal with that when it happens. First, let’s see if we can get a bounce off oversold levels.

Here is a 60-minute chart

I have both counts (Primary A, and Intermediate 3) labelled there, but the intermediate 3 count has more immediacy for me at this point.

VIX, predictably, rose

Notice that, on January 7, we noted the change in trend that we now know was the harbinger of tough times for the index

It’s still a bear market. It may have become a trending bear market. Let’s be cautious and mindful of market’s subtle signals.

PS. In a post on January 17, I posted a 1-minute chart of S&P futures, called the action a Yo-Yo, and said that the rise from 12:30 pm on that day looked a bit constrained and corrective

Here’s the chart with the aftermath.

One does not need Elliott Wave to know there is something wrong with that rise. Traditional Technical Analysis addresses that, too. Fundamental analysis, on the other hand, is incognizant of patterns like that.