SPX, updated chart...

Back on March 22nd I posted the chart below in a blog entry entitled "No Basing???"..



You can see, I was seeing a pretty significant upward move.

Here is where the problem developes...(reference chart below)
The move was not "controlled". You can see the shaded areas did NOT happen (the second one did, but after establishing a higher high which voided the downward objective being hit). By doing this, the market has done one of two things, and as we approach closer to that time period I'll update my projections.



1. The actual "recovery" process has been delayed. The compensatory required down-move is now more significant, after accomplishing the objective, a controlled grind upward would be required to successfully recover the economy. This grind should develope with time. On a technical standpoint, this would create a larger right shoulder on an inverted head and shoulders pattern (see below).



2. The was too much too fast and we blew any attempt at a significant recovery and the supporting trendline from the 1930's will bust (the blue line, already broken is from the 70's, the red line originates in the 1930's)



In either case, this upward extension is at about the limit, or actually exceeded limit!

Need help on a price for IWM!!!!!

9/19/08, what was the high price on IWM?????

I need as official as it comes, many charting software companies correct large spikes like this.....

Kind of important, please, everyone give me some feedback here! I can tell you TOS and prophet have some significant discrepancies on this day.

End of day surge...

Looking at my positions, then magnifying by 1,000's, here is the outlook I gather for reasoning on the days final closing surge. First off, my technique of trade can be automated with some user defined parameters, and at some point I will have someone design that software for me, to both monitor and calculate entry criteria. By no means, is this type of trading the "algorythmic" type of systems frequently mentioned. It is quite the opposite and actually exploits the algorythmic systems to some degree. Most algorythmic systems are "in trend" type automations, not trend fading.

So, now that I have made that point. Let's look at the flip side of the coin. Both, the money fading the large decline that started in August, and the money fading the incline beginning in April, are now looking to be net sellers. The August faders are selling to close positions, the April faders are exponentially increasing sell size to open positions. When being a net seller, the name of the game is to attract buyers. In this scenario it is wise, and very profitable, to take one for the team. Basically, you buy (yes, go LONG) on a large block transaction to show strength. This strength builds on itself. First, those who think they are missing out buy in. Second, the algorythmic systems based on volume/tick and momentum kick in increasing strength. Now you have a full surge in play. The beginning triggers by large block buying, which you turn around immediately and start selling that same volume (or slightly more ;-)), after all there always has to be the "other" side of the transaction. So, you short at higher prices, and exploited those buying in at the top. Not sure what you think, but if anything says to the masses "your screwed", it was todays end of day action. A slight gap up would not surprise me, but expect it to get sold hard. A large downward gap here is really not that feesible, since creating the buying surge, they will have to "trade" down price, not gap it. They will want to reserve the panic sell for later momentum, not jump start the decline.
But hey, just one mans opinion. Have a good weekend.

Three signs...

Candlestick reversal patterns need to preceed an existing trend. Here we have three tops, each one, in its own right, a reversal pattern.

You can read Steve Nison's book on candlestick charting, yes it is TA, but, in the larger scope, it does bear some understanding.

Up and up and up......

Markets keep going up.... yet..... more stocks are hard to borrow than usual. Why do you think that is? Possibly... all the sellers positions are already taken. Under these conditions, where there is controlled distribution, making stocks hard to short allows those that need to distribute to do so while holding loftier levels. Why has volume been low? Due to a lack of selling, awaiting higher levels to sell. If you controlled the majority of shares in an individual stock and wanted prices to rise before you dumped them you wait. Wait for buyers and supply their demand. You are then controlling the rate of distribution. The draw-back... you can only do this so long before being discovered and shareholders bail. Then you have a race to the exit, fortunately you were one step ahead!

I'll probably put up some charts later this evening, showing how TA currently reinforces my biases. Have a good evening.

Record traffic...

People must have gotten their asses burnt today. This is typical when my blog traffic surges.

Weakness looks good and healthy. A candle pattern called "dark cloud cover" is found on many ETFs and stocks. This is typically a pretty potent formation. But, then again, we have had numerous bullish and bearish candle patterns not hold their weight as of recent.

I see further weakness ahead, as long as the NASDAQ leads, followed by the S&P, and the DOW bringing up the rear all is good. If we go up, DOW should be the for-runner, followed by SPY and then the QQQQ's. If either of these things happen... all is good in da' hood. I will be slightly disappointed if we don't see a marginal move in a gap or early AM move to the down-side. Especially since I added a pretty big chuck of OTM puts on the Q's at 35.12, these I am looking to hold for a 500% return. So... let's get movin' already!

The power of cost averaging...

Regardless of extensions the market achieves, there is always a constant. A portion of that extension needs to be retraced to allow the professional cost averaging individual (ie. market regeulators) to profit. It is how a market works, someone needs to take the other side of the trade. There are people who are obligated to do such. In return, they get a guaranteed return for allowing the market to "use" thier capital for support of the system. I was just speaking with one of my clients. We both mentioned, at about the same time, about coming into the market, at this point in time, 100% in cash. It would be an opportunity which could most definately retire an individual.

As markets extend, their reset retracement area does not move in the same trajectory as the price level. As the market climbs (or descends) the reset price level climbs at a rate that is slower than the price level. This is a type of delta, for every 1.00 increase, the reset level will move XX% of that 1.00. The higher the market extends, the larger this profit area becomes. It IS a guaranteed move, the time is not guaranteed, but the move is. This is where stocks purchases trump options. Yes, if handled carefully, leverage can be nice. But, it can also be deadly. There is no risk in cost averaging stocks. Yep, you heard it, NO risk. Returns, percentage-wise, are much smaller, but they are guaranteed.

This brings me to my point. We are currently at extensions never seen before by the market... NEVER. We currently have a 10% guaranteed move captured and possibly see it increase slightly more. To exploit this move, you have to be in the market, positioned correctly, and able to manage a rolling delta to maximize the move.

If you were to come in short, with 100% cash, in this market right now, I GUARANTEE you the matrix below would return you money. It is of the SPX, the matrix is generic, with many things removed, and all sideline data removed. The rolling average cost basis (red line) is calculated utilizing even lot sizes (multiplier of 1.00). The purple line is the deleveraging area, where you can decrease the position size by selling partial positions if capital allocation becomes an issue. The green line is the obligated target.

In a nutshell, buying 1 share lots, you can short this market from now until SPX 1300 and still end up in profit. A 100% move, when entering in at 35-40% is easily covered with minimal to no risk. Hence, the opportunity that you see, or do NOT see, right now, in the market, is one you will never see again (at least I do not believe so). If you don't see it, don't worry, most people do not. Also, if you don't see it, you won't miss it ;-).

Good night!

Charts...

I'll be adding a few charts as I analyze them on this post.

They may mean squat... but then again....

Back from vacation, ready to resume a decline.

Here's a picture we took on vacation. I do NOT have a god complex, nor would I ever imply that. My wife wanted this picture, I just thought it would bring some humor to my readers.

The second picture is the scenery from the deck of the cabin in which we stayed. I took the picture while enjoying the hot tub. All in all it was a vacation I enjoyed very much, and plan to repeat again shortly.











As my son and wife held each other for dear life... here my daughter enjoys her first flight, a helicopter ride over the Smokey mountains.



It was not all play and no work. I did get a chance to go over some charts with the Crypt Keeper.




See ya Monday, at the bell.

Low volume and what I see that is causing it....

OK all let me get this chart out there, then explain what I am observing. This is all based on my extension analysis and rolling cost average calculations and such.



What I see here, is something that I have never seen, and in all my historical studies something that I do not believe has ever happened to this magnitude.

Big money initially started fading the down move, this is highlighted by the broken descending green line. They were heavily, and exponentially, accumulating shares during this decline. The counter-move to the upside was violent, but, in context to the over-all down move initiated in September it was still not enough. The violent upward move has big money fading it also, since the rate of incline has not been relieved by counter down moves to delerage positions and allow profits.

This actually has big money trading against their own positions, which is actually not that abnormal. Here is the dilema now though: Those accumulating in the green lined area have just now come into the area of acceptable returns on capital utilization for fading the move. At the same time, those fading the rapid incline are also net sellers and will not cover/buy until a descent countermove to the downside has happened.

So green line faders are now net sellers, purple line faders are net sellers and will continue to sell on strength. See the problem? We have ALL sellers and NO buyers! You can not sell what no one will buy... period.

Logical solution? Everyone expects the market to correct due to bad news, or catastophic news even. But, that would compound the issue, now we have Joe Lunchbucket a net seller??? Nah, that plan won't work....

How bout this... Instead we get awesome news events, excellent earnings, everything is seen with the rose colored glasses and Joe Lunchbucket gets to buying. Hmmmmm... we have 90% sellers, 10% buyers and now new buyers buying in. The buying will be absorbed readily... very readily. Volume should expand, buy interest increases yet prices fall.

Prices rose on bad news... because we needed them to, prices will now deteriorate on good news, again... because they need to.

Todays areas of interest on DIA, QQQQ, SPY, and GS

These are the lines to watch today. Each line has a parallel not pictured in the chart (hence, they are channels!). My expectations of these lines: Eventually they will fail, with any luck that will be today.

A few interesting points regarding channels/trendlines:

1. Every trendline has a parallel, they are all channels
2. After the 5th hit on a channel the % chance of it breaking increases dramatically
3. A channel line can rebound prices (greatest chances), accelerate pricing through it (second greatest chance), or consolidate pricing on that line with the line being the mean of price oscillation (least likely).
4 Keep in mind... ALL channel and trendlines eventually break, just because they bounce a price it does not guarantee how big the bounce is, nor does it guarantee it won't be re-tested again immediately afterword to then fail.
5. Once a channel is broken, it is most often tested from the other side before continueing price movement away from the channel (find the next channel, it IS there).

One thing to say about tomorrow...

See if we can get this one to play out....

Here is a Q's chart, pretty self-explanatory and on a pretty short time frame. A larger time frame... we are at strong resistance here also.

To get a nice bearish jump on a follow through day tomorrow, we can get some nice candle set-ups here. A close here or lower will give us one of these many bearish candles:

Tombstone
Doji
Engulfing pattern
Dark-cloud-cover

I'll take any of the above!

Take a look at the GS chart, does someone know the jig is up?

Secondary extensions...

Within the primary extension of the market, a few secondaries, which reset quicker, have been posted. As of this moment, we are at the top of a secondary to a degree that was the maximum of the market prior to the middle of last year. The secondaries are upheld, but the overall market will conform to the primary, I guarantee that. In quick summary, we have a short opportunity with a huge short oppotunity staring us in the face, bold as can be, but.... who on earth would short? Would you?

On an entirely different note. The VIX and why I think it is bullshit (just another lure to suck you dry). The VIX is supposedly a measure of market volatility. Under this assumption, a down market is volatile while an up market is more stable. Does this make sense? No, not really.
My outlook on volatility is this. I define volatility by the magnitude of one way directional moves within the market that go uncompensated. Many individuals have stated that the VIX actually trails my extension level analysis,, and in fact, I have noticed the same. My volatility guages state we would be ringing much higher levels of volatility and we'll see if the VIX does not blow up unproportionatly to the drop it is tracking (when it does happen!). In comparison, on an equivelant percentage playing field, I would expect the VIX at TWICE its high reached within the last year. Why can't the VIX expand within both directions of the market?

It may prove more accurate to look at an ascending channel on the VIX (for markets are intended to rise) and insert a 50% line within that channel. The 50% line becomes a neutral environment, to either extreme (channel lines) is a level of high volatility (or areas of extreme "whipsaw"). This way, market up or down, you have a guage of a more true volatility.

Bag holders wanted....

Will you be left holding the bag???

IWM Chart, and other charts

Scope out this monthly chart on IWM, it is the entire history of IWM. The red box is what I suggested was a consolidation and eventual break of a trendline. The green box is now the re-test. I see a big fall just around the bend......



Here are the other ETFs charts I find pertinent.

ETF's the even bigger picture.........

OK, wondering just WTF was going on today, shorting my ass off (but no higher highs were realy set), I pondered to take a peek at the monthly charts. Now, my analysis techniques do exist on different time frames. My in depth studies concentrate on the shortest time frames, and hence the historical numbers are gathered from there. Many of you know, when a reset level is hit, the move after the reset is typically pretty quick. Many people note my timing on exiting a trade, these are when reset levels are hit. Looking at the monthly charts, and applying my shorter term technique to a larger time frame, I may have found the missing link. The down move beginning around August of 08 takes on a slightly different picture when viewed in the monthly time frame, and as in TA, the larger time frame will always trump the shorter. The SPX and DJI have closed ON THE RESET LEVEL today of that down move. Not close but ON, to the point, not a range, but to the dollar. Now, a small amount of penetration is usually seen, for large volume has to be exchanged at these levels. What does this mean for the rest of the week? The month? My outlook.... a virtual SHIT STORM sell-off. It may be for a very short time, but it'll be impressive.

ETF order...

The NASDAQ (QQQQ) has made up for the discrepencies between ETFs for the most part. We are about on even playing field now. The arbitrage is pretty much straightened out and I would suspect the down movement to continue shorty. SPY may have a slight edge to the short side. Happy trading!

To add, the QQQQ may run slightly more strong/less weak for a little bit yet.

A potential re-test of resistance/former support.

May be time to short, oh wait, been there, been doing that!

Very high potential of gapping up...

Tomorrows open favors an upward gap with pretty high probability. I'll be adding to all shorts pretty agressively between here and the exisiting top, although, I do not expect the top to be exceeded. Of course, I am allowing the top to be exceeded in the trade plan. Have a great night, today was a good chunk made back for me. I'll be adding it back in for the bigger ride.

Added note:

If we go up, expect the Nasdaq to lead, followed by SPY, then DIA.

If we drop, expect DIA to clear the way with SPY close behind it. The Nasdaq will fair much better and lag the others significantly in weakness.

Cutting GS

I exited the GS (Goldman Sachs) position today for a 40% hit on utilized capital for that trade. No biggie. It was not due to being stopped out, but due to the expense of the calander roll. Options on GS got a whole lot more expensive. Rolling this position would have been fine, for the capital was available to do so, but even after rolling, you could nail the top of a 35.00 move on GS and only get a 100% return! Something ain't quite right there. The "return on capital" is much better utilized in DIA, SPY, or QQQQ. So, do not get me wrong, GS will take a beat down, but liquidating that position and moving that coin over to an existing ETF position allows a better return and lowers my cost averages in the ETFs I add to. So, cut the weak, support the strong, as far as the position goes, not just the expected price movement. This is one of the biggest dis-advantages of options, the constant delta management and theta management. Pure stock plays do not have this problem, hence why the big money players do not waste their time with "wasted assets" (options). But, the small guys needs leverage, without leverage your hopes and dreams of riches would not be as great, would they? Leverage has killed many more traders than it has helped, this is why I recommend steering clear of 2x and 3x ETFs, and utilizing as little leverage as possible.

Short entry?

I did not short QQQQ here, but I did add to DIA...

Couple more charts, maybe a small amount of up room for the DOW yet.

After looking at numerous charts, I have come to one conclusion. The conclusion is purely speculative, but it is a conclusion. The end of October to the end of January was rapid oscillation ON a trend/channelline. Channel and trend lines can have multiple reactions, they range anywhere from acceleration of a move, to bouncing a move, to attracting consolidation. The last option, attracting consolidation is exactly what I believe we have seen. The line finally broke and is now running up to re-test. This appears in the vast majority of charts on a LARGE time frame, it is also the biggest reason most have been utterly obliterated while using TA during this time.

On a second note, on a shorter time frame, the most violent, one way directional moves on ANY chart (minute time frames, and even daily) is when a line has broken and running back for a re-test. The move to re-test is the quick and violent part.

Within the realm of my technical experience, I believe this market is SCREWED. This is speculative, and I will not base any trades on it (except maybe a lottery ticket or two). The large fall we seen before this 9 week rally, in hind-site, will end up looking extremely mild in comparison of what is yet to come.

I do not want this, I would much preffer a grinding, healthy bull-market with standardized and normal retracements. What I want, and what we get, is going to be two totally different things. The last time I screamed the sky was falling, it did. Unfortunately, I believe it will fall much further and harder starting any moment and lasting several months.

Many people believe we will see sideways trade for years to come. Well, not yet. The bottom has not been reached, the sideways trade we have seen is the period mentioned above with the consolidation on the trendline. So yes, we will see it, in fact we DID see it, but it was compressed into two months, not years.

In August of 08', check out the DJI chart on a daily 10 year chart. I called this in August, it was a run up to a broken line which was the neckline of a larger head and shoulders pattern. What we are currently seeing now is a run up to a broken line which does not appear on charts. It does not appear, for it appears to be the largest market cycle. Those familiar with EW are familiar with the grand cycles and such...

Another chart, see previous post.

One more chart, I'll try to add more later, along with one requested in the comments section. Keep in mind, all these charts were analyzed with the utmost EXTREME bearish bias.

New charts... with bias of course....

The market, this last month and a half, has done something that has never been accomplished in the entire history of the market. It has extended not only to record heights, but triple the maximum extension ever achieved. Admittedly, if not for my paranoia, and my extreme advoidance to risk, I would have been blown out of the water. My ability to take partial profit and deleverage a trade went a long way here. Also, keeping extra capital free, capital that is not even allocated to the worse case scenario helpedx also.

We have reached a level of the MOST extreme levels ever seen. If there were ever a time that I was 100% confident of market movement, it is now. Many of you know me pretty well, when I state something it is with conviction, and I typically am not incorrect. The markets are going to shave off quite a bit of their recent gains, and do so very quickly, once they get to my exit trigger areas I will have to evaluate where we go from there.

Markets can not be predicted, and I know this comes as a surprise to many (coming out of my mouth, and concerning the use of technical analysis by most of my readers). The markets operate real time and respond to real time influences. People, your average investors and fund operators, move the markets. The only predictable move is the move forced by those playing counter-trend trades. Sheep move the market, professionals correct it. When imbalances happen, they correct and exploit that correction. Two types of correction need to happen when a market reverses. First, they need to correct the arbitrage (level differeces between the indices), then they correct the imbalance (level from a neutral market environment).

When the market extends, it traps the difference of current price from the counter move target objective. The larger the extension, the larger that difference. It expands exponentially also on a percentage basis, for instance, a 20% extension will have a larger counter-move percentage wise when compared to the 20% absolute move then a 10% move will have when compared to its entitled counter move. At this moment (Fridays close), the pecking order has changed, no longer will the Nasdaq lead weakness. The S&P has now taken that roll, for it is obligated to about a 10% down move. The arbitrage has been taken care of for the most part (even the DOW will give us more down move on a percentage basis then the Nasdaq from these current levels). Now, we take care of the imbalance in the market.

I have been asked countless times in the last two weeks regarding what the lay-person should be buying. As of Friday, my advise has been this: If you NEED to be long, and you NEED to have money in the market, DO NOT have it in now. Take it all out, when we shave off 10% of the major indices you have a better chance of being long. I do not recommend going long then, but if you feel the need, do it then.

Here are a few charts for your weekend enjoyment. Sorry I did not post them yesterday as mentioned, apparently some brokers were having troubles with their charting software.

Throw some EW at yo' ass!

Here you go, terminal wave 4. Watch for the alternate count though (both violet lines)!

If the VIX were a stock...

Using conventional TA, if a stock showed this chart, I'd be going hells bells kinda long. Calls are looking cheap and enticing, huh?

Channels, the old school way! (with charts!)

SLP's

One of my clients sent me over an interesting article. The article is located here:

http://zerohedge.blogspot.com/2009/05/observations-on-nyse-program-trading.html

What is most interesting, to me anyway, is the SLP (supplimental liquidity provider).
This is the basic market regulation I have been referring to all along. These "other" entities, apart from market-makers, specialists, and such, provide the neccessary support the markets require to function. In function, I mean, to operate in an orderly manor. Up until this most current run up in the broad market, regulation has kept things petty orderly. Over the past few months this "orderly" market has been deteriorating. This is something that has NEVER happened in the entire existance of the market.

The deterioration of order, and influx of greater volatility, required these "entities" to have more overhead, unutilized capital within their accounts to regulate their repective financial vehicles.

Well, more overhead, less utilization, means less return. We NEED this regulation and support of the markets. Hence, incentive money. A "new" pilot program to support what was already present, to keep from pissing off those that support basic functionality of the market. There will need to be a comprimise, of course. That line, I am sure, has already been crossed, thus the required incentive.

If you read through the article, you will note the inception of these incentives has now reached an end, as of the end of April. From my point of view, it did not work. My guess is this...

To participate as an SLP and receive added incentive, you would need to come out in the "open". No annonimity (spelling???), or, these "entities" would no longer have the cover of remaining annonymous. This is highly sought after, for noone wants to be publically known for what does and does not happen within the markets. So, incentive actually had a reverse effect as what was first expected. Let's return to normal... shall we?