Friday, June 21, 2013

A Leg completed?

I had a very busy day today but I finally found time to post. I expected an A leg after the market broke out of its wedge yesterday but I wasn't expecting a big sell off without giving us a chance to short! I had projected 1590 yesterday as a target for the A leg but I thought we would get there in an more orderly way, not in one day. Technically speaking I can see 5 waves already on this bearish leg so I would say it is finished or close to being finished. Also, the first A leg of this double zig zag correction was 62 points and this leg is 71 points so it would look good proportionately speaking. In addition, my "VIX formula" was triggered to buy exactly at 1584, so I am looking now for a B wave to rally about the same as the last B which was about 40 points. Which in turn takes the market to the level that first showed up over a month ago.. the now famous 1623-26 area which should act as resistance at this point and a good place place to hedge or short. If the market stops its counter rally there, we can expect another bearish leg to the 1540-1560 area before resuming another rally.

I didn't place any trades today because most of my trading funds are tied to FXI, which in the past worked great as a way to go long while providing a cushion against bearish waves in the American markets. This time was different as I caught a falling knife and now I have to trade my way out of it. Had it been an instrument tied directly to the index, I would be in a very good position right now. But you can't always win, you live and learn. So my plan now is to buy VXX on the B wave and hedge my long China position which sooner or later will have break out.. the SSEC in China is one of the most undervalued indexes in the world today while its real estate market is massively overvalued. To give you guys an idea of how ridiculous that market is, the PE for the SSEC went from 50 in 2007 to 8 today (the cheapest it has ever been), while their real estate went from 10 times annual avg household income to 30 times today in larger cities. That in America would be equivalent of an average house selling for $1.5 million in a larger city (avg household income=$50k x 30). So I think it's just a matter of investors over there maturing so investment capital can be allocated proportionately. Sooner or later that market will double and I will be there to cash in on it.

Last but not least, as expected yesterday the TA has gone red and let's see how long it takes the market to test it.

Main S&P 500 Trends*

Short Term Trend = Bearish
Medium Term Trend = Bullish
Long Term Trend = Bullish 

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

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