Is the top in?

The market turned bullish today as I was expecting but not bullish enough to break thru resistance. Also, today's high came in low volume so while there is still a chance we see 1370+, the odds are much lower. The market is ridiculously overbought and overdue for a correction, everyone knows that at this point and it's just a matter of a little bit of bad news to set off a selling stampede. And by that I don't mean a crash but the start of a healthy correction, something more than a 1% red day (which we haven't had this year at all). So perhaps the top is in finally and I am looking for closes under the Trend Average to confirm this. I predicted correctly we would have a Santa Rally back in November but I never thought would see a wave like this one.

And if the top is in, I managed to short at the very top at 1368 so we'll see how that works out. I basically bought back the SH shares I sold couple of days ago. I also went on margin to buy the VIX and that was one excellent trade as it went up 5% from the time I bought it. So I cashed out on half and retaining half hoping we will see a sell off next week. If everything goes well, I am going to close out the month strong.

Today's trades were logged as follows:

TRENDING WAVES PORTFOLIO

Have a great weekend!

Going for 1376?

The market looked as if it was going to go down early morning but instead it it tested the Trend Average successfully and it reversed and now the 1370+ area looks very possible. As I said yesterday, the lack on impulsive bearish waves in this correction raised the possibility of another leg up, so we might just get a gap up tomorrow morning to the target area. I am not 100% of how to label these waves just yet until I see what the next bullish wave looks like. If we get a strong one tomorrow, we might just see 1400.. yes if we assume Wave 1 was from 1340 to 1367 and the wave 2 bottom was at 1351. Also, considering retail investors are probably about to jump in the market now, it would make a lot of sense since retail usually are the worst timers.

Is the Smart Money Heading for the Sidelines?

However, as I've been saying for a while, the risk is to the downside so better to play defense at this point. I am all cash but I bought and sold VIX today as I saw a good set up. This trade was not as short as the one a few days ago but it was still only 45 minutes.. you can see the trade at my twitter account.



Today's trades were logged as follows:

TRENDING WAVES PORTFOLIO

Inverted Head and Shoulders on the 10min

Intraday observation.. I did my trade for the day already and although is very tempting to buy the VIX again, if this pattern plays out then VIX will go down even more.

Going for 1376

I usually expect higher degree corrections to have some impulsive waves in them and so far the waves I've seen look more like consolidating waves, which signals the potential base for another launch. Also, I noticed this minor correction so far has found support at the Fib retracement levels so this would favor more upside. And while the megaphone top is still very viable, I am leaning to see at least a test of the 1370 level put in pre-market on Monday. This is a market that just refuses to go down hard, so one just has to be patient for trading opportunities. So today I closed my short at a loss but minimized the loss with some VIX trades. It is my first "willing" loss (meaning not stopped out) in almost a month of trading but it is technically more of a position trade as I will be buying back those shares if the market goes higher.

I am all cash on my portfolio and the trades today were logged as follows:

TRENDING WAVES PORTFOLIO

1337 or 1376?

So Greece got its bailout and European markets sold on the news. However, the US market battled hard to stay above 1360 and technically speaking it got to 1370 (in the cash market equivalent). And now it's time to see if the much anticipated correction is coming finally or we are just correcting a little to launch on a final wave to the 1376. Looking at the chart I see the market running into strong resistance at 1370 in a very overbought condition, so odds favor a sell off from these levels. But as I said last week, overbought can get more overbought and no matter what tools or wave labels I use, if the market wants to continue higher it will. But this run up will be limited, of that I am sure. And the best thing one can do as a trader is to play defense at this time. I am maintaining my 1355 short and early morning I executed the same plan as Friday, I bought volatility and then cashed out. And should we get more gaps up, I will continue to do the exact same thing. So today I made a good trade (could have made more had I not fallen asleep) and the portfolio is looking as follows:

TRENDING WAVES PORTFOLIO

Lastly, I wanted to add that on the bearish wave that started today should give us a clue on the next wave. If the wave fails to make a new low or stay above 1337, higher prices or test of the 1370 top is very likely.

E-mini SP500 Update

I see a 5 wave move in progress in the e-mini sp500 so I am assuming the fifth leg will be put in overnight or early morning. So my plan is to buy volatility or short on margin at the open unless this wave truncates. The 1370 has technically been reached but it would be ideal to see this in the cash market, actually the perfect top would be 1376.

Megaphone Top

The market made it to the 1360's and it looks like it really wants to go for 1376 (1.618 of W1 or A). And although I am not surprised at the level we are in, the lack of normal corrections is what makes this leg unique. But as I have been saying, the odds favor a substantial correction so I am looking for this leg to start the correction in the next week or two. Also, there is a clear megaphone top or broadening top pattern in place. In fact, it's almost textbook so we'll see if the market topped today or wants to make that 1376 number and then go down. I executed my trade as planned and I bought the VIX at the open and sold it within 20 minutes, so that was the quickest 1% profit I've made in a while. And I remain short over the weekend. My thinking is if we go down Tuesday then it's good, if we gap up then I'll do the same exact thing I've been doing during all these morning rallies which have been working out pretty good considering the amount of successful trades vs negative ones as shown on the portfolio:

TRENDING WAVES PORTFOLIO

Also, somebody asked me to post my trades real time on twitter and I get lazy with that. However, I'll post the intraday trades as they happen on Twitter so everything is time stamped. The reason I write for this blog every day is to force myself to be on top of the market more than anything else, to tweet my trades on the other hand doesn't really have a return on my "investment" so I'm much less motivated there. If anything, it just shows that technical analysis and wave counting does indeed work. If technical analysis had no value, my trades would probably 50% successful and 50% negative (the odds of flipping a coin). But as of today, my "batting average" if you will, is about 92% which is not that bad considering I've been mostly shorting a persistent rally and wrong on anticipating the top since I started trading this year.

Last but not least, compare the chart I posted to the textbook megaphone pattern below. Sooner rather than later, the market will sell off.



Have a great weekend!