1570-1575 level

The market staged a decent bounce today with the exception of the DOW which was dragged by IBM and I think there is a good chance the market will challenge the 1570-75 level, which will be important as failure to overcome this level will likely result in further lower lows. As I mentioned yesterday, this level coincides with the right shoulder of an Head and Shoulders and that targets 1480, so perhaps we will get there in a double Zig Zag? I've seen some bearish calls on the mainstream media and on some blogs but I maintain the view that as long as the US economy grows, the market will maintain current levels and go up accordingly. It almost seems like they all forgot the market has gone up almost 20% in less than six months without much of a correction.The next few sessions should get interesting..

Have a Great Weekend!

Main S&P 500 Trends

Short Term Trend = Bearish

Medium Term Trend = Bullish

Long Term Trend = Bullish 

Short and Long Term Trades

Zig Zag?

The market put in another lower low today and this confirms 1597 as a significant top of some yet to be determined degree. I originally had 1589 as the "ideal" top for the 5 waves from 1343 but when the market made a significant peak at 1563, I figured that level would be best suited for the end of W3 of W3, since 104*1.618= would have been 1566. So I assumed another wave in equal size to W1 at 104 would start from the 1538-39 level, which was greatly supported by that massive bullish wave that started after an abrupt bullish reversal at 1539. But now that the market managed to retrace all its gains and breach support,  the question is 1597 the end of a 5 wave count from 1343 or is 1597 the real end of W3 of W3. It would have been much easier if the market followed the count as it would have made it more predictable. But I am sure we all enjoy a challenge, so we'll just have to figure this out as we go along. The Short Term Trend is officially bearish and this bearish wave from 1597 looks better now like a ABC than a 5 wave count as it did yesterday as the "C" leg is almost the same length as the "A" leg. I could still label it a 5 wave count but the 5th wave is by far the longest and the W4 correction highly pronounced and disproportionate to W2.  So I will label the end of this apparent Zig Zag a W, which assumes a double Zig Zag and a correction into May before the resumption of another Int bullish wave.

If the market found a bottom today, this could serve well as the neckline for an  Head and Shoulders targeting approximately 1480, which could be the level where the 200 DMA rises to taking into consideration this correction will take a few weeks. So my plan is still buying back VXX around the 1570 level assuming further downside. However, should the market stage a mad rally from here to recapture the trend, then that will imply 1597 will be challenged.

Main S&P 500 Trends

Short Term Trend = Bearish

Medium Term Trend = Bullish

Long Term Trend = Bullish 

Short and Long Term Trades

5 Waves Down

The market invalidated the count I had yesterday and put in 5 waves down to 1543 in a somewhat odd looking structure. But the count is clean so I am now assuming this is an A leg or a bearish W1 and now we have to see what the bullish response will be starting tomorrow. If we get a stronger wave to the 1570 level again, the market could be repeating the Inverse Head and Shoulders pattern we've seen a few times this year already. However, if the market bounces to the Trend Average and fails to capture it, then it might be setting the market for another bearish wave to break the 1538-1539 W4 low. As it is now, the fact that there is a significant higher high and a higher low points to a correction and until support is lost, the assumption is the market is just consolidating.

I will be buying back VXX on the bounce so I am hoping a good entry point at the 1570+ level.

Main S&P 500 Trends

Short Term Trend = Neutral Leaning Bearish

Medium Term Trend = Bullish

Long Term Trend = Bullish 

Short and Long Term Trades

Correction Over?

The market seems to have put in a bottom at 1552 and if my assumptions are correct, then the ideal target zone will be around 1585-90 before the market corrects again. I think as long as the market keeps the Trend Average positive, the market should start trading above 1600 soon. If the market surprises (me) to the downside then the number to watch will be 1539 as I mentioned yesterday. For now, 1552 just serves as another higher low and key support.

I am on the sidelines on my short term trading account as I am waiting for higher prices but I'll set my automatic trigger at 1588 for now to buy back the VXX position. I think if 1588 hits then VXX should trade around $18 and that would improve my position substantially, we'll see if my assumptions are right..

Main S&P 500 Trends

Short Term Trend = Bullish

Medium Term Trend = Bullish

Long Term Trend = Bullish 

Short and Long Term Trades

C or W3

The markets put in a C wave as I had been expecting, what I didn't see coming was the market losing the 1570 support and the Trend Average in one shot. But as impulsive as this bearish wave looks, it is still a C wave until 1539.50 gets broken. Until then, my assumption is this is a correction that will end in higher high to put in a bullish W3 to line up with a May high. Technically speaking, we could be seeing the start of a rising wedge for the final 5th Int wave but it's too early to tell at this point. The cause for the sell off was initially the "softer" data from China and then commodities panic sell off driven by Gold. Tomorrow we'll have to see how the market reacts to the terrorist incident in Boston. Terrible that we have to deal with this kind of crap so often.

As you guys probably know, I had a small position in gold last year but I sold that and exchanged them for FXI. I never really broke down the waves for gold but considering the price went from $800 just 2-3 years ago to $1900, it's not all that surprising of a correction. However, unlike a stock, there is no "PE" to gold as its value is primarily sentiment driven. So who knows where the bottom will be for that.. and on China, I find it interesting how 7.7% GDP growth is a "disappointing" number for an economy that size. To put that into perspective, 7.7% growth on an economy like China  creates an economy the size of Switzerland or Saudi Arabia every year andd an economy like Spain or Australia every 2 years. So being 100% long on China and enduring the correction is completely ok with me as I directly own businesses that make money in a continuously growing market priced at an historical low PE. If I had cash, I would buy more Chinese shares but I am maxed out at this point. I know someday I will look back and ask why this was not obvious to others.

For trades, I sold VXX again at the TA and improved my cost avg to $19.50. If the market goes below 1539.50, then I'll be forced to close the position and take the loss but I am assuming I will be buying back below what I sold today so looking for market upside to reload. Even if I took the loss, I would still be ok considering all the trades so I'll take whatever the market has. Lastly, I did not win the lottery so I guess it will have to be another time..

Main S&P 500 Trends

Short Term Trend = Neutral Leaning Bearish

Medium Term Trend = Bullish

Long Term Trend = Bullish 

Short and Long Term Trades

Target for final W5 1642-1668.

A few days ago I posted a revised target for the end of the entire wave from 1343 at 1617 after seeing confirmation for Int W4 and the initial strength of the first bullish wave. The day after I posted this target, the market broke out decisively out of its trading range and put in one of strongest bullish waves for the year, making my revised target somewhat easily attainable. But now that we had the top of this wave confirmed, I can go back and re-calculate the optimal target.  Looking at the charts, I think is very likely that Int W3 topped at 1563 and the two bottoms (1538 and 1539) were Int W4. The previous top I had for W3 at 1530 was actually the top for W3 of Int W3, just like 1485 was W4 for Int W3 and not "the" Int W4 I originally thought when I projected 1589 as the ideal target. So now that the picture seems more clear, if we add the length of W1 to 1538 then we get the ideal target if 1642, which would line up with the May time frame. The one thing that remains to be seen is how the wave from 1539 will behave, if it breaks into a 5 wave count then I have a higher target at 1668. So a general target range for the end of the entire wave is 1642-1668. With that said, the structure could be complete as it is if we use the initial assumed parameters but all trends are supporting higher prices so I'll go with the new targets.

Today the market started its correction and I am assuming an ABC ot a double Z. If the correction tests the Trend Average or enter its Fib retrace territory, I will assume we are seeing a 5 wave count and now a SAW3. I ended up position trading my VXX bag and improved its cost by 35 cents, so my cost avg has dropped to $19.86 which is not too terrible of a price. And I will exit the position if we test the TA and buy back in the 1600's.. that is of course assuming the TA test holds.

Have a Great Weekend!

Main S&P 500 Trends

Short Term Trend = Bullish

Medium Term Trend = Bullish

Long Term Trend = Bullish 

Short and Long Term Trades

Target for 2013

The market has continued the bull run and now the bullish wave from 1539 is 58 points, almost matching the strongest bullish wave put in initially by the Fiscal Cliff resolution. And I suspect what is driving the rally after the break out is all the short covering after the all time high was taken out. I talked about this around the time when a solution was found for Cyprus. I figured if that level from 1565-1576 was taken out it should theoretically make shorts run for the hill and I guess I was right on that one. They were just holding out strong until the moon screwed them over.. and since I am assuming this is a short covering rally, I don't see much of a pullback given the fact that there are people like me with shorting instruments (VXX in my case) that will be selling on the dip to get rid of these positions. So perhaps we'll see some sort of sideways correction to digest gains and more short covering before nailing 1600+.

So now that the 1600 target I had for 2013 has been technically met, I'll be looking at the charts over the weekend to see what other possibilities are there after we see a significant correction. Fundamentally speaking, the US economy is doing better but I wouldn't call our current growth optimal by any stretch. I think the best question is will the US economy gain enough traction on its own to survive without any more liquidity infusions. The idea is similar to loaning out money to a money losing business until it can regain its footing, think General Motors.. will it work on the US economy? that remains to be seen as this I believe is a first ever in history. If it does, Bernanke will be immortalized and the markets will go up substantially until the next recession comes.

Btw, that screen cap from Twitter yesterday was the 1589th picture on my phone. A picture of 1589, on the day the market topped at 1589 that just so happened to be 1589th picture on my phone. I was calculating the odds of that happening and it is 1 in the hundreds of thousands to millions (depending on what parameters I use).  So I will be playing 23 lotto tickets (1589 added together) using a combination of these numbers. Maybe that will accelerate my trip to Easter Island! my grandpa won the lottery after all (in 1930's Cuba) and I wouldn't be here today had it not been for that lottery ticket that someone else gave him.. so who knows, maybe I'll get lucky.

Main S&P 500 Trends

Short Term Trend = Bullish

Medium Term Trend = Bullish

Long Term Trend = Bullish