Wednesday, November 30, 2011

Gold Fakeout Coming?

Gold is advancing higher on central bank liquidity-induced rally. 
But what central banks did was not QE at all. It was a way to improve existing liquidity flow within the system, but did not add extra liquidity into it. Bottom line - no new dollars were infused into the system. Hence gold rally is highly suspect here. I would like to share my view on possible fakeout that may occur at upper trendline of the wedge, which gold is in.

Following is the daily chart. You can quickly identify (highlighted) twin pattern within this strong bull. I am not calling for the top on gold, even though one was clearly put in this year. What I would like to do is catch a short-term reversal at upper trendline of the wedge, and travel the distance of the entire triangle down to lower trendline (just like at the end of June), which is also @ 150 dsma, a long-term support and a magnet for 3 yrs.
If I am wrong, I want to quickly stop myself out just above 1800. Gold is a wild beast...

Here is my play:

Short   - 1765 & 1775 & 1785 (blended 1775)
Target - 1675 & 1685 & 1695 (blended 1685)
Stop   -  1801


Rwrd -  90 (blended)
Risk   -  26 (blended)
R/R    -  3.4
Gold may fake breakout
(click on chart to enlarge)

Update on Dec 2 @ 4:25 pm
Partial (1/3) fill @ 1765.

Update on Dec 5 @ 9:25 am
Since I was only able to get 1/3 filled, I will use 33.2 oz mini to lock in profit on 1/3 of this position @ +$25. Moving stop on 2/3 to b/e.

Update on Dec 5 @ 2:25 pm
Further reducing position by another 1/3 @ +$40. Stop on remaining 1/3 goes to 1753.

Update on Dec 5 @ 11:55 pm
Moving stop down to 1737.

Update on Dec 6 @ 1:15 am
I would like to lock in the profit on the last 1/3 here. Out @ +$47.

Trade results: +25 +40 +47 on 1/3 original position size. Not a bad trade, unfortunately 1/3 size.

Trail Your Stops

If you are long SPX, this is the time to take additional profits and trail your stops to just below 50 dsma. You can also get out altogether and buy the pullback. It all depends on your style.

This morning is all about liquidity. Central banks realized that there will be no tomorrow if dollars are tight. Use this opportunity to cut your losers, and trail the stops on your winners. Today is not the end of the crisis, today is a good day to celebrate the existence of Fed (if you are long).

Short covering en masse...

Update on Nov 30 @ 11:20 am
I should add that today we got yet another proof of the fact that US is not in recession and is not going into one any time soon. ADP, Chicago PMI, Pending Home Sales, and Retail Sales over the Thanksgiving weekend, all confirmed what I have said in the past month or so - no US recession yet. Rally should continue, expect a pullback, but use it to get longer, I say...

Tuesday, November 29, 2011

Why Is Everyone So Bearish?

Following is the chart which answers the question.
Many traders believe that the market is about to take an enormous dive.
I have an opposing view.
Only time will tell...

SPX Weekly
(click on chart to enlarge)

Dr. Copper Update

As I mentioned last week, Dr. Copper bounced off very important support @ 3.21
Price ran into 50 dsma and is closing right on it. Just as everyone has their eyes on the economically important barometer, and a leader of entire (risk-on) commodity sector, I wanted to show how it struggled many times at 50 dsma ever since it peaked in February of this year.

Note how except for July, the price would bounce off, or close above 50 dsma (highlighted in yellow) for a few sessions and reverse. Also  there is a twin pattern within the entire sell-off, which is now culminating at the apex (highlighted in blue).

If we are to witness a sell-off on European / geopolitical worries, it will send Dr. Copper testing 3.21 support again, with open gap @ 3.28 on the way there.

Dr. Copper
(click on chart to enlarge)

Update on Nov 30 @ 11:55 am
Well, Dr. Copper is leaping into the sky. First China cut RRR, and then Big 6 central banks infused extra liquidity in money market via swap rate cut. Price is now well above the 50 dsma and upper trendline of symmetrical triangle. Bulls will be buying the apex backtest. HG/SPX is near 100% correlation here.

What To Prepare For?

While I spelled out my bullish case in Nov 28 weekly outlook, I want to prepare for a possible European debacle-induced last sell-off of 2011. It is not going to be telegraphed, it will come from nowhere, and could happen in the next few days or so. The main reason - lack of credible European debt crisis solution. I am also a little worried about geopolitical issues creeping into the market, which is shown in oil chart.
This possible sell-off will not totally negate the whole rally from Oct 4 low. But I think that it will go below last week's lows and stop a lot of longs out (me included). To prepare for this, I am scaling out of more of my longs right here @ SPX 1200, and moving my stops to my entry levels, and will await 50 dsma test or will be stopped out on my last remaining portion. As I said yesterday, there is absolutely nothing wrong with taking profits. If I am wrong on this possible sell-off, I will participate in rally above 50 dsma on SPX with my remaining portion of longs.

In my Nov 28 weekly outlook I included twin charts of SOX and XLF, which are 2011/ 2010 carbon copies, and showed a support zone below last week's lows on both. In this post I would like to show one more - DJT (Dow Jones Transportation Average). This is my favorite cyclical indicator. It has led this entire year. I will use it to gauge where the possible sell-off may end. Resemblance with 2010 is stunning! I will reenter my longs (if stopped out) at those support levels and ride them into the end of 2011.

DJT has many supports below
Inverted Head & Shoulders Bottom forming?

EUR/USD Trade Idea

It has been a while since I looked at EUR/USD. The reason is there were better and easier setups somewhere else. This said, I may be warming up to a very quick long if my desired trade conditions are met.

This trade is against the grain, so exert caution and small size.

I would like to enter on a reaction to a possible weak Italian and Belgian bond/bill auctions overnight, especially if we get a "stop scoop" to gap fill or below last week's low. There is an open gap @ 1.3240 and last week's low is 1.3213

Here is my play:

Entry   - 1.3240 & 1.3213 (blended 1.3227)
Target - 1.3500 & 1.3530 (blended 1.3515)
Stop    - 1.3140


Rwrd -  blended 0.0288
Risk   - blended 0.0087
R/R    -  3.3

Good luck!!

Update on Nov 29 @ 9:20 am est
Both auctions had a good demand. There was a reason - the rates were very high. Italian 3s and 10s are inverted - very bad. Since there was no trigger in London session, I am going to cancel the trade. Price came 57 pips within my 1st target. I do not like that it spiked above YH, and for my entry it would now have to be below YL, therefore daily candle would be somewhat bearish inverted hammer. I say somewhat, because inverted hammer at the bottom of the range is not as bad as at the top (shooting star), and shows that shorts are starting to cover. So I will continue to monitor the developments and will update you if something changes.

Monday, November 28, 2011

Take Profits

There is absolutely nothing wrong with taking profits. When you are correct on the direction of your trade, you are wise to scale out and trail your stops. This strategy reduces your overall risk and makes you stay alert while your trade progresses. I have seen way too many times how traders get complacent and turn a winner into a loser.

While I am not teaching you how to trade, and respect everyone's style, my notion of taking profits comes from a deep respect of market's ability to fool most traders most of the time.

Let's look at possible scenarios of where "fooling around" will take place.
SPX has traveled the distance of entire air pocket, which lies between 1156 (gap fill) and 1195 resistance. Oil has ran into the $100 resistance. AUD/USD has unsuccessfully tried to take out the parity level. And EUR/USD has fiddled with 1.34 and failed.

Perhaps this is just a pause and late-day rally takes those levels out. You will still have the remaining portion of your original position to capitalize. Perhaps I do not know a thing about trading. Perhaps I am a trading genius, and just want to show off. It all does not matter. What matters is the fact that @ 11:50 am on Monday, after the worst Thanksgiving week since 1932, we are up 3% in a schizophrenic market environment, where an article from little-known Italian newspaper can be a culprit for world-wide short covering. You wanna guess when the next rumor article comes out?

Take partial profits and trail your stops!!

Friday, November 25, 2011

Trading thoughts for week of Nov 28

Next week will be the most important one before the end of the year.
Market closed just above crucial levels on many indexes and individual stocks that I follow.
S&P 500 will have to hold these support levels and rally strong to get above 50 dsma soon, in order to avoid a retest of 2011 lows.
And that is exactly what I am expecting the market to do. I expect a hold of 1120 - 1156 support zone on SPX, which will later progress into a year-end rally, with SPX target of 1320 - 1350.

Following are detailed charts, which I think will support my view. It is a make or break time for bulls! Yes, I am a short-term bull. (Stop chuckling). As I said before, long-term bears are allowed to be short-term bulls. To be honest, I turned neutral on SPX in the intermediate term. It is just too hard to be a bear at these levels, due to strong US corporate fundamentals, exuberant US consumers, and lack of US recession. I was a bear @ 1340, I am not a bear @ 1158. In a worst-case scenario, SPX will trade in a range all year in 2012, albeit somewhat higher from here (imho). But lets get through the end of 2011 first.

Without further ado, let's look at charts.

(click on images to enlarge)

GOOG is just above major confluence of supports

AAPL is @ 200 dsma

SPX is just above major Support Zone 1120 - 1156

SPX Weekly Support Zone


XLF 2011 Twin Pattern (of 2010) may try to form a Double Bottom
or Inverted Head and Shoulders

RLX is coming down to support
Thanksgiving Sales will tell us if it holds
This chart indirectly represents 70% of US GDP

SOX 2011 Twin Pattern (of 2010) is at broken trendline backtest
Break will send it testing the lows
I am expecting a bounce
Probably the most predictive chart of 2011

Thursday, November 24, 2011

S&P 500 Futures

click on image to enlarge

S&P futures have finally closed 1156 gap in today's abbreviated session. Also price has come back to a confluence of 61.8% fib with broken trendline backtest.

This is an interesting prelude to tomorrow's cash session.

Wednesday, November 23, 2011

Dr. Copper

click on image to enlarge

Metal with Ph.D. in economics has just bounced off 3.21 support, which I mentioned in my last night's post.

Watch this development very closely - HG/SPX correlation is very high.

Deer in the headlights

This market just can not get out of its own way. There will be no peace until all of the issues hunting it (pun intended) are put to rest.

Vulnerability to anything coming from Europe has reached a level of monumental proportions. Tonight's latest news is that Dexia bailout may get undone. Well, Dexia bailout put 1075 SPX bottom in. If you are long, better have your stops in and be ready to buy SPX way below current levels, if this story is true. Rudolph The Reindeer may need to survive the car encounter first, before we see any Santa Claus rally.

On top of this cheery news, China PMI has come in below 50 tonight. Welcome to slowdown world! Watch copper @ 3.21 for possible support, or it will breakdown to 2011 lows. This is going to let us know if SPX holds 1156 gap fill area or not. 

And what about Fitch US rating downgrade? They are the only ones who have not said a word after 12 apostles had their last burnt turkey supper. (I mean Super Committee failed) Will we get an unpleasant holiday surprise by Fitch? 

Lastly, has FED gone absolutely mad? I almost fell off my chair when I was reading the scenarios of the latest stress test (announced after the close today). How about making our banks prepared for possible event of Moon colliding with Earth? If XLF does not hold 11.83 on daily closing basis, we will see new 2011 lows on it next week. 

Well, this pretty much sums up all of the issues. Illiquid holiday trading will exaggerate anything even remotely resembling what I just discussed.

Happy Thanksgiving! (to my US readers)

Update Nov 23 @ 5:10 pm est

Add a failed German Bond (Bund) auction, 5.9 magnitude quake near Fukushima Dai-ichi nuclear power plant, and State Dept telling US citizens to get out of Syria, to all of the above.

Monday, November 21, 2011

NASDAQ 100 HFT Buy Zone Triggered Today

NDX is in 2184 - 2228 HFT Buy Zone, described in my Saturday post.

HFT Buy Zone
2184 - 2228
(click on images to enlarge)

Saturday, November 19, 2011

To succeed in trading you have to think like HFT

Every experienced trader knows by now that HFT (high frequency traders) have taken over the markets. It is widely documented that super computer-generated trading contributes to roughly 70-75% of daily stock market volume. So how are small individual traders like us supposed to keep up with these powerful machines? Let me try to answer this very important question asked by so many traders today.

"A man can fail many times, but he isn't a failure until he begins to blame somebody else."
- John Burroughs

Traders complain that these evil computers are impossible to beat, and pretty soon will displace humans out of the trading biz altogether. Investors complain that HFTs are killing the market, and very soon there will not be any investors left on the planet, and how it will all be super computers duking it out between intra-day support and resistance levels, with no human interaction and real fundamental investing involved. Influential market players are also complaining that what used to be investing has already been replaced by trading for pennies, with no long-term holding period in mind, which jeopardizes the primary purpose of stock markets - business capital generation.
While I agree with everything said above, I refuse to join the crowd in this blame game. I refuse to lay my arms down and stop fighting for my place to participate in financial markets. So I have done my part to adjust to the shenanigans of HFT. My trading is now solely swing and position. I realized that I can not be going after 4-5 SPX points during the day, when I am merely a fly on elephant's back. I extended my holding periods, widened my stops and profit targets, and methodically scale into and out of all of my trades. But I want to go further and try to use HFT for my gain. I want to use HFT for entries on my swing positions at correct levels. Following is my thinking in detail.

"If you can't beat them, join them."

What is HFT? These are quant super computers. They process enormous amounts of data very quickly, which is impossible for humans to do. But these computers are programmed by humans. These are people like you and I, who input the data into the machine, which then acts on occurrence of that data and generates a trade signal. So if we know what data is inside the machine, we can join it on the trade. The problem is these highly guarded algos are impossible to get, unless you want to end up in jail. Therefore we are left guessing what is inside the HFT machine. So here is my educated guess.

My idea is that algos are nothing more than a confluence of different indicators, support and resistance levels, volume, correlation between various asset classes, and as silly as time of the day generated signals. You do not have to have Ph.D. in mathematics to program your trading to do the same. This is something a well-educated trader can do on his own. The only advantage these machines have (or more correctly, their owners) is that they have 30 milliseconds to see our orders before they get executed. I do not know how to fight against that. I will leave that part to SEC and CFTC to deal with.

And now that I have a rough draft of what these HFT firms do, I will lay out the case where this market is going to go in the near future. My idea has always been - follow the leader. The leader of the market has been NDX. While many have said (myself included) that it is lagging in the last few weeks or so, I now think it is actually leading the market to a pullback. It is not letting SPX and Dow go where they want to go - up. Once NDX does what it has to do (described in detail in the next paragraph), it will then lead the market on the turnaround and year-end rally. This NDX weakness can be attributed to many reasons. AAPL and AMZN have been underperforming. Overall tech is weak due to some year-end related selling and cash raising by fund managers. If you can't sell losers you sell what you can - winners in this case are tech and gold. Also this past week we got some pretty crappy tech earnings-related performance from NTAP, DELL, CRM, and AMAT. But the most important reason for all of this weakness is - HFT can not do anything when the index is stuck in no man's land, where I think NDX is currently. With HFT being over 70% of trading volume and not generating any buying interest for a breakout to higher levels, NDX is drifting lower. This notion is being confirmed by anemic volume in the last few weeks. HFT are waiting for a signal to buy.

So now lets look at what HFT will do with NDX and therefore the whole market. While entire investing community is glued to SPX levels, I strongly think that we will get the buy signal from NDX. Following is my assessment of where HFT will possibly buy NDX and send it significantly higher. I am expecting that strong rally will last between Thanksgiving and Christmas and will take NDX to new 2011 high. SPX and Dow will come for the ride. In my previous post I described why am watching "4 Generals of Tech" (AAPL, AMZN, GOOG, and IBM), which have heaviest weighting on NDX (and one of them on Dow), for possible culmination of this market pullback. They all have gaps to fill, which are also laminated with major moving averages, where in my opinion HFT will be buying those stocks.
Now back to NDX itself. There is a Buy Zone between 2184 and 2228 where in my opinion HFT will come in strong. Remember I said confluence? Here is the breakdown:

1. 2184 is 61.8% fib of rally from Oct 4 low to Oct 27 high
2. 2188 is a double bottom from March and June
3. 2203 is an open gap from Oct 7, which has not been filled
4. 2218 is flat on the year
5. 2228 is 50% fib of rally from Oct 4 low to Oct 27 high
6. Formerly broken trendline (from 2011 high) backtest is also located in this buy zone
7. Buy zone is further supported on weekly chart by lower trendline of Bull Flag

So with all of the above parameters, here are the resulting charts: 

HFT buy zone
(click on images to enlarge)


Thursday, November 17, 2011

Charts, charts, charts...

Today I would like to share a few charts that I am watching. They are a visual representation of current market conditions. I strongly believe that while charts show us where we came from, they also tell us where we will go in the near future. I suspect that my long-awaited pullback in SPX to 50 dsma is finally coming to fruition. I am going to build a case here through other trading vehicles that are closely correlated with SPX, which will show confirmation of this risk-off move, but also keep the overall bullish year-end direction in equities intact, with major support levels underneath.   

First lets look at what many traders call "Dr. Copper". It is a metal with Ph.D. in economics. Copper represents world's economic growth, because of its wide applications in construction and manufacturing. This is my go-to commodity chart, with current highest emphasis on fast-growing emerging countries. Last week I pointed out that when 3.46 broke, the next support below would come in around lower trendline (currently @ 3.18).

Copper Futures
(click on image to enlarge)
 Australian Dollar just came 10 pips short of my 0.9970 target, which I also pointed out in the same post last week. Aussie can not rally without copper. It is too dependent on commodity exports to China and other growing economies. AUD/USD will now try to stay above 0.9930, and will do its best to scoop the stops in preparation for possible inverted head and shoulders bottom. This currency is the ultimate risk-on among majors. We will see money flow back into it as the equities try to bottom.

(click on image to enlarge)

Probably my best conviction on how this pullback culminates, is in the following 4 charts. These are the "generals" of US stock market. These companies are cash rich, big part of fastest growing market segment, blue chips of technology sector, heaviest-weighted on NDX and Dow. Fund managers have their resting orders to buy these stocks at confluence of gap fills and major daily moving averages. This, in my opinion, is how the year-end rally will have to begin.
(click on image to enlarge)

(click on image to enlarge)

(click on image to enlarge)

(click on image to enlarge)

Tuesday, November 15, 2011

Trading Thoughts on Nov 15

1. EUR/USD is weak again. Multitude of the same reasons: problematic peripheral debt (spreading to core now), and slow growth to compound that. It looks like Q4 EZ GDP growth is going to be negative. Traders are positioning themselves ahead of possible and final whoosh of the 2011. Or maybe it will be a slow sliding like the last two days. Who knows? Just take profits, trail your stops, and reload at higher levels if stopped out. Should be 2/3 out by now, with stop at just above 50dsma, and trailing.

2. "Buffett bounce" IBM short is working. Time to take 1/3 off and trail the stop down to your entry. Easy, and very low risk trade it was - double top with open gaps below. Thank you, Oracle of Omaha.

3. October US Retail sales did not disappoint. How could they? I do my usual weekend driving around my local malls and shopping centers. Past weekend I saw a lot of traffic everywhere. Granted, the seasonal strength is expected. But still, BIG, TJX, ROST, BBBY, KSS, DDS, DSW, PLCE, DG, DLTR, WMT, TGT, and GME were the ones I visited, which were all at full capacity. Amazing? Not really, I say. I attribute this strength to a few unorthodox reasons:

a) More women are employed than men at this time. Hence they are out there shopping more and men are at home watching their big screen TVs. No wonder I saw less traffic at BBY, HGG, and RSH. There was also a big screen "mom-and-pop" TV dealer, which was entirely empty - not a customer. Bummer!
b) Speaking of homes, less folks are paying their mortgages lately. Banks are not foreclosing on all of them, just can't keep up. So disposable cash ends up in the retail store. Simple and very wrong, but it's true. (I am going to get some angry comments now :))

Even with all of this bullish data, RLX is trying its hardest not to double top. There is an open gap 5.5% below @ 512. My view is if price does not take out Oct 24 high, we may see that gap filled soon. In order for that to happen, price would have to slice through 50 and 200 dsma on the way there. Final fakeout of 2011??
Should this happen, SPX will follow RLX down, without a doubt in my mind.

Update Nov 15 @ 11:20 pm
EUR/USD - too far too fast? It is @ 1.3460 as I type. At this session's low, we have fallen 374 pips from Monday's high. I am very satisfied with this trade. I am now trailing my stop down to just above the hourly 8 ema. Do not want to give any of this significant profit back at all :)
Higher levels for yet another short may present themselves.

Monday, November 14, 2011

EUR/USD Trade Update

Those who used Fri bounce to short should take 1/3 off and bring their stops to just above today's high. Nobody ever went broke taking profits. Resistance now comes in at 50dsma. It is all about quick and emotionless trading here. Do not fall in love with your positions and take what market gives you. I still see a trip to 1.3150 in the next month or so. This said, EUR/USD has been anything but predictable, so take your profits and thank trading gods for this quick trade. If we get stopped out on some "breakthrough technocrat promise", we will use those higher levels to sell again. Overnight we will see what EZ Q3 GDP looks like. Anyone wants to take a guess?? LOL

Update on Nov 15  9:30 am
Time to take another third off and bring your stops to just above 50dsma and trail it. 

Buffett - Bathtub Again?

Traders are having a field day with Buffett's latest love - IBM. Oracle of Omaha discovered another hidden gem under his bathtub, and bought a few shares :)

Like I said, traders are loving his play as well - to the downside. Sorry Mr. Buffett, we do not fall in love, we date and break up. Reason? Double top @ 190. Close enough for unfilled gap @ 190.53 (incidentally all-time high), and now open gaps below @ 183.35 and 177.24 remain.

I am not going to bet against the smartest investor on the face of the earth in a long term. But his picks are usually stinkers in the short term. "Buffett bounce" is a short for a swing trade (days to few weeks), especially when the chart says so. Reward to risk ratio here is so great, imho.

Friday, November 11, 2011

EUR/USD Rally is Suspect

I understand the whole risk-on trade today. I am not fighting it, but have to say that out of all risky assets Euro rally makes no sense. It will be weighed down by austerity and recession. Why is it going up? Massive short positioning amongst the hedge funds is my answer. They are covering their shorts today I bet. Other than that, I see nothing else that would make EUR/USD go up this big. Lets look at fundamentals and technicals:

1. EZ growth is slowing to a crawling pace. EZ commission projects GDP to grow paltry 0.5% in 2012. This is a rounding error for annual GDP for that huge economy on any given day. EZ is in recession already, some top economists say.

2. ECB started to cut rates. What used to be a somewhat attractive and fairly safe spread between the euro and the dollar in the last few years, has now become more risky carry trade with EZ debt problems and now a lower spread due to 1st rate cut by ECB to reverse many prior hikes. Also ECB is buying more PIIGS bonds in the open market and is potentially getting ready to do it unsterilized (not mopping up the extra liquidity) to prevent Italy from becoming Greece, therefore further diluting the Euro's value.

3. Technicals do not look too hot. EUR/USD is in a well-defined downtrend from May 4th. It is in a consolidation mode, currently backtesting 50 dsma from below, to which it has been kind of glued the last week or so. All moving averages are pointing down. Unless EUR/USD breaks above 200 dsma and stays up there for more than 2 days, I would say sell all rallies - they are a gift.

Conclusion: I understand that market has to clean up some of the late shorts. It is undoubtedly painful process and will come to the end in a very near term. Those shorts who have a little more conviction and a better entry will win in the longer term. My idea is to keep selling into rallies with a target of 2011 low around 1.3150 or so.

Thursday, November 10, 2011

TNX is on the rise

Is there something brewing in bond land? Today we got a second weak bond auction of the week. Is this a fear of Super Committee not coming up with enough cuts? Or is this simply the fact that risk appetite is getting better and is about to rise further? This could also be the fact that rates are very low and are unattractive to investors. We are to watch this development closely. If TNX goes up, it will take all risk with it. Not going to do any good for my long-awaited SPX pullback to 50 dsma.

Technically speaking, TNX is above its 50 dsma as I type. There are open gaps above which will provide some magnetic draw. They are @:


There have been no daily closes above 100 dsma since 4/15/2011. 100 dsma is currently @ 23.53 and is laminated with upper daily BB. Daily Stoch is oversold, and showing a little bias towards crossing into a buy (not there yet though). Will be a good signal, if happens.
Bernanke sounded somewhat dovish in his speech today, and overall Fed tone is pro-QE3 lately. This will be an interesting TNX rally, if it happens. Probably because it is so unexpected by many. Keep your eyes on it...

Market Thoughts and Technicals on Nov 10

Sometimes traders just have to tune all the noise out, and look at charts to see the message. As the matter of fact, when noise gets really loud, like it did the last few days, this is the only thing I can do to gauge where the markets are going.

1. Gold is not on "treasure stop hunt", it is on demolition derby assignment. This latest stop scoop is going to test a resolve of quite a few bulls. There was really no major resistance at 1800, but this thing just became weak and weaker. I am going to say this - if you are a bull, you better have a helmet on if we get a daily close below 1730. In reality, it has broken out of symmetrical triangle to the upside and is now backtesting the apex. Remember what I said earlier in the week? Symmetrical triangles are the biggest fakes lately. Thought to be a trend continuation, they sometimes lure the bulls in, only to dump on them on breakout and reverse hard below the apex. Watch it!!

2. Copper is having a bit of a tough time last few sessions. Not sure if this is China related or overall world growth slowdown weighing on the Ph. D. metal. Now that bull flag and 3.46 support is broken, it has about 6% to fall from here (3.35 as I type) before the trendline and lower BB @ 3.15, where the next support comes in. This will not sit well with equity and FX bulls.

3. So due to copper and risk-off environment, AUD is very weak. Yesterday it broke below the box, and on confirmation bears jumped in. I have a projected 0.9970 target, sorry mate.

4. I have a theory how this pullback in equities may end. Let me spell this one out. Technology has become the laggard here. It is definitely not acting well and the "generals" are leading the underperformance. So I will use the tech to see where possible bottom of this p/b comes in.
Lets look at the generals and where their supports are. I have a strong feeling that gaps below are the "unfinished business" magnets, and once filled, may provide support and reignite new bulls' interest. What is even more interesting is that those gaps are laminated with major daily moving averages.
Here they are:

AAPL - 369.80 (trendline and 7 points above 200 dsma)
AMZN - 198.40 (200 dsma)
GOOG - 577.20, 558.99 (50/200 dsma), and a "scary" gap @ 515.12
IBM - 177.24 (50 dsma)

5. So what gets us to those levels? Now that it looks like EZ debt problem is subsiding somewhat (on technocrat govts in Greece and Italy), I think it will be home-grown problem that takes us to 50 dsma on SPX. Super Committee is about to decide what we need to do not to become Greece and Italy (I am exaggerating). But really, this is one of the biggest reasons why we took a dive in August.
Let this not escape your radar. Only days left before the crunch time for them.

Wednesday, November 9, 2011

Market Thoughts on Nov 9, 2011

I am patiently observing this long-awaited pullback in SPX. What I really do not want to see is many traders and fund managers wanting to buy a dip below 1200. If they all want to do the same thing it will not happen. I sure hope they all get really scared by Italian govt collapse. Way too many started to feel comfortable above 1250, lets wash them out. Healthy pullback to 50 dsma is much needed (shhhhhh, do not tell anyone).

Speaking of collapse... Remember what I said just short 6 days ago, when Greek govt was on the verge of collapse due to parties bickering? - "Can you folks imagine what would happen in Italy if Berlusconi is gone?" - Well, we are seeing a total uncontrollable havoc in EZ today.
Due to this, EUR/USD has cratered to the bottom of its 260 pip range. As the matter of fact, it broke it and is backtesting from below as I type. There is also a broken 160 pip channel extension. Watch a rejection in 1.36 area and a trip to 1.3450 - 1.3350 or so.
BTW, on this EUR and SPX weakness, AUD/USD is now below its 240 pip range as well. So keep your eyes on the possible AUD range extension, it backtested and got rejected, (just like EUR).

With all of this, why is gold not flying to the moon? Your guess is as good as mine. 1800 is a major psychological level, but I see no major technical resistance here. I am not doing anything with it, too complicated above 1775 (which was my target from Oct 25th). Could just be a short-term consolidation and "treasure stop hunt" before yet another move to 1840 or so. Watching...

And finally, oil. I have been quiet about it lately. Very frankly, I am dumbfounded why it is up here @ $97 on WTI. I am not arguing with market. I am the one who said earlier in the year that "geopolitics will come to forefront" sometime later in the year. This could be the only time I do not want to be right.

Big Guys Make Big Mistakes

Small traders are always envious of big traders. They say that if they had the money, information, and resources that are available at big trading houses - they would succeed for sure. "This is not a level playing field", "the game is rigged", "it is a loosing proposition to trade against the big guys" - are some of the small traders' remarks about this business.

I have a saying - big guys make big mistakes. Other than that, they are no different than us, small traders. They have stops, targets, make stupid mistakes and brilliant trades as well.

Read this article to understand and realize what I just said is very true.

Tuesday, November 8, 2011

SPX Update

I would like to reiterate my view that this upside symmetrical triangle breakout in SPX is yet another head fake. With so many this year, why should this be any different? I am not sure on the timing, perhaps tomorrow, or on Thursday, but I think that reversal - possibly due to ES failure to take out WR1 - is coming. No reason to fight this though, as this thing can just rip higher like nuts. Just waiting for my pullback to 50 dsma. 

This said, I still think that market is in bullish mode into the end of 2011, just needs to come back for more big longs to join. My intention is to reload with them at lower levels: at 50 dsma and just below that on the stop scoop. Lets see what happens...

Update on Nov 9 @ 11:50 am
So head fake it was. Price sliced through triangle apex, and is backtesting from below as I type. It will take some time to sink the decline in, but it is bound to continue should the close below SPX 1250 occur. Next level of support is 1230, followed by 1215. Helmets on!

Monday, November 7, 2011

Market Update on Nov 7

1. In never-ending EZ saga, we went from Greek govt collapse to Italy's possible govt collapse in a matter of days. This is just another one of many gifts for those who will be buying every SPX pullback on the way to 1320 - 1350 (in my view). Simple fact is that more monopoly money, which gets printed to reverse EZ political imbeciles' mistakes, will make stocks go up in the end. Even a slight hint of EZ debt crisis resolution will give the final push to the upside break out of the trading range on all risky assets.

2. Speaking of which, there are quite a few ranges in FX to discuss. Practically sideways box (for the last 4 sessions) has developed.

EUR/USD - 260 pips
AUD/USD - 240 pips
USD/CAD - 175 pips
GBP/USD - 200 pips

Box is one of my favorite plays, which extends by the same (inside the box) amount on breakout. Wait for confirmation of the breakout though, fakes are aplenty in this case.

3. Speaking of fakes, stock index futures are in symmetrical triangle. This chart formation creates the most confusion on breakouts. It is a sure nail-biter to the very apex, resulting in powerful move, but one to really wait for and not anticipate. Absolutely no idea where this thing goes yet. If I were to be guessing, whichever way we will break out of the triangle will not be the way we go, it will be a fake. There, you got an educated guess out of me :)

4. Gold is breaking above 1775 (my target from Oct 25th). Germany said that it will not touch its gold reserves for any bailouts in foreseeable future. I guess we are to believe them, GC is up 36 as I type. You want to trail this baby, because it can crater back to 1775 overnight, as it often does on "treasure stop hunt", as I call it.

5. And the last interesting topic for this post...
I am getting some ridiculous comments, probably from those who disagree with my view on markets. I respect everyone's opinion, and will publish comments from those who disagree with mine. This said, angry, idiotic, incoherent, unconstructive, abusive, non-market-related, and personally-directed comments WILL NOT GET PUBLISHED. It is that simple and I hope very understandable. Lets remember that this is my blog, in which I express my view on markets that I trade, and it is my duty to keep this place sane and clean. This means that I have to moderate and, unfortunately (or maybe fortunately), censor all of the comments. I would love to hear from other traders who would like to interact with me, even if they disagree with my view. But this is not a venue for fights between bears and bulls, not a place of hate, and definitely not a bashing wall for utter nonsensical remarks by those who perhaps lost their money and have nothing else to do but complain. We all trade at our own risk. This profession is not for everyone. Taking a stab at me will not help anyone's pain. Study and trade smart, or find something else to do!
I hope this clears up any misunderstanding.

Update on Nov 8 @ 10:05 am
We have an upside break out of symmetrical triangle on stock index futures. It is not a surprise for many, I guess, since symmetrical triangle is supposed to be a trend continuation pattern. But somehow I think in this uncertain environment it will be a fake. I think we see a failure and a turnaround in the 1270 - 75 area on ES, followed by a plunge below 1250, 1230, 1215, and eventually 1200. Just another one of my wild educated guess outlooks :) 
I will be buying with both hands below 1200.

Friday, November 4, 2011

Oh Canada! What happened??

NHL season began in October, so many Canadians are glued to their TVs until the wee hours of the night, and are not coming to work next morning. Jokes aside, what a crappy Canadian employment report this morning!

Manufacturing and construction employment took the biggest hit. It is not going to get any better, judging by -4.9% drop in building permits, and lower-than-expected Ivey PMI, both reported this morning as well.

This very poor data explains why Carney is on the wires on daily basis chastising EU for the world economic mess they created. Look for some dovish comments from him in the next few days. Canada's GDP is gonna take a hit I bet.

Lets also remember that RBA cut rates earlier in the week. Australian economy, commodity-driven just like Canadian, was revised downward in the latest RBA's growth outlook (released last night).

I say USD/CAD is to be watched closely for possible trip to 1.0335 on this bad economic data. But first it will need to get though 1.0220 though.

Update on Nov 9 @ 4:20 pm
It is very interesting that with today's sell-off in risk, with EUR and AUD breaking below their established boxes (ranges), USD/CAD is still in the box, and refuses to break above 1.0220
Of course just as I say this, sucker will rip higher :)
Still looking for USD/CAD 1.0335 or so before the end of this week.

Thursday, November 3, 2011

Gold Trade Update

On October 25th I wrote about why and where Gold is going.

This week's central bank meetings added more conviction for precious.
Today ECB started its easing campaign (just as I predicted).
RBA also joined the central bank feud earlier in the week with its own rate cut.
At FOMC meeting Bernanke has done his part to ground the hawks and let the doves fly high. In the statement and at his presser he hinted more on QE3.

It looks like my 1775 target will be reached tomorrow.

Mid-day Thoughts on November 3

Do not know where to begin.

I am amazed at what mess EU is in. Just when you think they have everything under control, they collapse in a matter of days. I think the biggest problem (which I am still not hearing many people talk about) is that it is inter-country dispute between parties in Greece which can derail the whole EU. Can you folks imagine what would happen in Italy if Berlusconi is gone? The most interesting thing is that PASOK was the party for bailout and steeper austerity, and opposition party was against. Now the opposition party leader is for austerity and bailout. This is so convoluted, to say the least. One can go absolutely insane following this saga.

I welcome Mario Draghi's decision to cut the rates. I know that he is taking a bit of a gamble, since EU inflation is at 3% or so. He did say that it will subside and will average about 2% in 2012. And the most important comment in his presser was the R word. Mr. Draghi said that EU is heading into a mild recession. Brave man!
Gold is now in heaven due to ECB rate cut.

In US the Chain Same-Store Sales for October were up 3.9%, which was a bit lower than 4.5% expected. We do need to monitor and see if usual October and weather-related weakness is to be blamed for the miss by more than half of the stores reporting. One of the reasons for the miss in October could be the fact that real personal income has fallen for the past 3 months. FOMC did not even mention this in the statement yesterday. Why? 

Speaking of FOMC, I wanted to express my view on yesterday's decision. I strongly think that the fact of a single dissenter on the dovish side tells us QE3 is near. There were 3 hawk dissenters at previous meeting - and 0 now. Bernanke all but hailed the notion at his presser, going out of his way to explain why he would buy more MBS. We get it sir, we know, all we have to do is look around us and see empty and abandoned homes.
Once again, gold has a bid underneath due to QE3 in the air.

And my last thought of the day is what I already said in the last few days (including last night) - be greedy when everyone is fearful. The European debacle is far from over, but it has reached a controlled state again. Last night Merkozy told Greek leaders to clean up or leave the EU. So bulls got the gift again. Market wants to go up.

Wednesday, November 2, 2011

Be Greedy When Everyone Is Fearful - Part II

We are going to get some seriously bearish headlines in the next 24 - 48 hours. I am already reading some commentaries on how we are going to hell in a hand basket due to Greek default. Folks, we survived 2008, we will survive 2011.

This said, we can't dive in blindly. Know your levels and place some silly bids beneath. Market will sniff the bottom when all bears are in.  Remain calm, do not let those, who's business it is to scare you out, take full control of your actions. But again, do not just place a market order, thinking G-20 will bail you out. If they had a solution, they would have presented it already. I think that members just want to defend their own turf, and special self-interests are precluding them from acting together.

I am remaining in bullish camp into the end of 2011. October 4th was the bottom, now we go down to wipe out easy 20% in 18 sessions money. Listen to yourself and find your comfort level. Do not overreact, be patient, wait for market to come to you, it will.
I am ready for this. Are you??

S&P 500 Revised Outlook

Previously I have outlined why I went from bearish to neutral on intermediate-term outlook, but now I am becoming increasingly bullish on SPX in the short-term.

Prior to today my short-term (end of 2011) target for SPX was 1250 - 1300. Since 1292 was reached last Thursday, I have to say that I may have underestimated the resolve and strength of bulls and weakness of bears. Most importantly, chart formation in short-term looks more favorable to slightly more bullish bias. Many resistance levels and moving averages were pierced, with multiple closes above them.
So I have a feeling that rising 50 dsma (1192 currently) is going to be very supportive for price and may become a floor on this decline (in progress), which will be roughly 50% fib retracement of bull run from Oct 4 low.
Obviously, there are risks to my assessment, some of which are Greek Referendum and US Debt Super Committee. If those event fears push SPX below 50 dsma, remaining unfilled gap at 1156 should provide further support. I think that exogenous event-driven pullbacks will be gifts to US stock market bulls.

My year-end target goes up to 1320 - 1350, based on my fib extension projection and confluence of trend lines.

Tuesday, November 1, 2011

American Consumer Put

So what is the most important piece of data and/or event this week? It is not central banks' rate cuts, not Chinese PMI, not Italian bonds' yield, not EUR/USD quote, not G20 meeting, not even NFP, it is US Chain Store Sales.

Traders around the world got spooked by European debacle on Halloween. Today they are continuing to sell hard. But there is one large group of people who still do not care about what is going on in Europe - American Consumers. Like drunken sailors, they are spending their way out of emotionally and financially depressed state. Sentiment and Confidence numbers are at their lowest levels since the end of last recession in 2009. But retail sales are rising and showing no signs of abating. This morning weekly chain store sales are showing a healthy gain. On Thursday we will get October monthly figures for chain store sales. I bet they will show a respectable gain as well.

So I ask why is this happening? The multitude of answers could apply:

1. 91% of folks (or more correctly 84% looking at U6) are still employed.
2. Housing has absolutely no affect lately, as people are defaulting on their mortgages and moving into rental properties, if anything, they have more spare cash to spend due to that.
3. Prices on goods and services are not rising, no inflation anywhere, as the matter of fact the discounts are increasing towards the holiday season, as retailers want to blow out the inventory they have.
4. And the most important reason (in my opinion) is there is still no major systemic crisis event to keep the consumer away from the stores, like Lehman bankruptcy in September of 2008.

Lets remember that it was Lehman bankruptcy and financial debacle that ensued which sent retail sales into the negative column on consecutive YoY monthly basis for about a year. Retail sales have been rising since Fall of 2009 on relentless 2-year shopping spree to satisfy the insatiable demand of tireless American Consumers.

So it is with the above notion I would like to conclude my thesis: unless there will be another Lehman-like event, which will cause US retail sales to go down and continue on the downward trend, US stock market will have American Consumer Put underneath it, because consumer spending represents 70% of US GDP.

Be Greedy When Everyone Is Fearful

Market is finally pulling back. It is giving the patient ones the opportunity to buy the pullback they were waiting for. The rally of last two weeks was very painful for shorts, they (those who are still in) will cover to reduce their pain or to break even. Those longs who were out early (yours truly included) will get back in. Levels of support are quickly being sliced through in volatile futures session. This is the time to watch the market like a hawk. Traders will use the time of highest fear to reload the longs. Use all of your indicators for gauging the entries wisely.

Update Nov 1 @ 9:45 am
ES 1238 and 1209 gaps have been filled. Power of charts!