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.

Another Zig Zag coming

The market broke out of its wedge today and confirmed the count was complete yesterday. So now I am expecting a test of support again and perhaps a bounce back to the 1640-1646 level before resuming a stronger bearish wave. The marker closed before the TA and needless to day, the ST trend will turn red again if the market follows the path I mentioned. I'll try to project downside once we a clear bearish W1 finalized but for now should the market bounce from support and head up to resistance, the downside projection is about 1590 more or less for what should be the second A wave of this double zig zag correction that started at 1687. So this WXY structure should be complete in July  or August at the latest and then see the resumption of a LT Int W5 to 1800 according to the LT count.

I bought back FXI today and improved my cost there and I am planning to buy VXX and position trade again on the bounce.

Main S&P 500 Trends*

Short Term Trend = Bullish trend being challenged

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.

Possible Wedge for X wave

The market broke the 1649 resistance level I had been watching today as I was expecting. However, this W3 seems to be lacking momentum and it is looking like a wedge is being put in. So if we get a mild correction starting tomorrow that holds around the lower green trendline on the chart, then there is a good chance we'll see one more bullish wave to the 1670 area before falling back again. This set up lines up well with the X wave of a double zig zag from the 1687 top and this should give the market enough time to form a good base to rally from. Should the market break out in a strong wave then we could forget about the rising wedge but for now that seems like a very likely outcome which should make both bulls and bears can profit from it. With today's close the short term trend turns green, so that will be a good level to watch when the market corrects.

I ended selling XIV at a loss (which I bought when the market was in the 1620's) and I am position trading FXI overnight. In the past, fear in the market usually dissipates as the market rallies. But this time there are many traders who are not convinced, thus the lack of progress on the XIV. Going forward, I think I will stick to VXX to hedge and UPRO to long the market along with some FXI.

Main S&P 500 Trends*

Short Term Trend = Bullish

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.

Break out?

The market gapped up and broke the W(1) high on the chart and came in very close to breaking out. But since the market enjoys shaking out weak hands, the wave corrected quickly and then bounced right back to near the opening price. I thought maybe the market was going to touch the TA but it bounced hard before testing it and closed comfortably above it. And with that, another close above the TA will probably turn the ST trend green thus providing support for the bullish case. The correcting triangle is technically still in place but its chances look dim as failure to put in lower lows adds pressure to a  bullish break out of the range. So I will be looking at the break of 1648 to confirm a bullish breakout that could result in a bear stampede should the market gap up hard again. The question then (if the market breaks out) is whether the market intends to put in a flat (nested 1-2 targets 1680-90) or if the wave is indeed a W3 going to the 1700+ area. I am remaining long until there is a reason not to be.

Also, I added a disclaimer to the trends posted. It seems like some people take these indicators as trade signals but they are not. If you have been on the site for a while, you'll understand how I use them. But to people unfamiliar with my way of trading, here it is:

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.

Main S&P 500 Trends*

Short Term Trend = Neutral leaning bullish

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.

Bullish Nested 1-2s or Triangle?

The market made a marginal new high today for the wave I have marked as W1 and corrected 50% to support in the 1623-26 area for what would be an ideal W2 and a shoulder of yet another IHS. So the nested 1-2 bullish setup seems complete or close to completion and we should see a strong break out wave early next week to confirm the pattern. Now, because of the nature of these set ups and the wave from 1687 to 1598, there is also a possibility of a triangle which is marked in red. Should the market stay within this triangle or break to the downside then that will be a signal to go defensive, specially if the TA keeps trending down. I am sure next week is going to be interesting.

Also, my post yesterday about a weak Yen benefiting the Japanese got some attention, so I will post some data for those of us that enjoy economic data.. it's weird, I know. My argument is that an advanced export oriented economy needs to have a reasonably priced currency. In the case of Japan, a strong Yen is great for people exporting to Japan but not all that great for the Japanese themselves. Japan was the economic miracle of the 60's and 70's  doubling their economy every 7 years. But then came the Plaza accord in the mid 80's that basically made the Yen go from 250 to 1 USD to 80 to 1 USD last year and here is what happened to the Japanese economy in the last 20 years.

Data from the IMF

1993 Japanese GDP in Yen = 482 Trillion Yen
2012 Japanese GDP in Yen = 486 Trillion Yen

Which means, Japan has managed to grow less than 1% in Yen terms in 20 years! in dollar terms their economy looks like it grew 30% so to an exporter, that's 30% more to sell to. But in reality, it is an stagnant economy to a Japanese resident. Now compare that to neighboring China, which up until recently had been accused of keeping their currency too weak.

1993 Chinese GDP in Yuan = 1.9 Trillion Yuan
2012 Chinese GDP in Yuan = 17 Trillion Yuan

That's an economy that grew 800% in 20 years in Yuan terms. In USD terms it went from $390 Billion in 1993 to $7.2 trillion in 2012 or 1,700% growth. This is the primary reason I am invested in Chinese shares in the first place, it is a fast growing economy.

IMF Japan GDP Stats
IMF China GDP Stats

So when Japan rallied 80% in less than a year on expectations of a weaker currency, they rallied for good reason as they need to change their economic environment in order to really grow again.

Anyway, enough economics.. Have a Great Weekend!

Main S&P 500 Trends*

Short Term Trend = Neutral leaning 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.

Bullish Engulfing Pattern

"However, the bullish count is still  very much alive and so is the IHS I have been tracking but time is running out so bulls need to step in force starting tomorrow. One thing I forgot to mention yesterday was the 50 day moving avg, where the market found its bottom today. Every single time the market has tested the 50 day ma this year, the market has managed to mount a strong rally within a day. In addition, the NYMO is now again in a territory where the market usually finds a base to rally."

Just when things started to look dim for the count, the market came through today. So just as yesterday, the IHS target remains and so does the bullish count and what we have to pay attention to now is whether this is the start of a C wave of an X or a W3. The market put in a Bullish Engulfing Pattern, which people who have been on the blog for a while have seen already. This particular pattern is found at bottoms (look at the chart) and a follow though day will make the W3 scenario the most likely. Also, look at how much the daily MACD has reset (last time it was this low was in December) while the market is just 3% off its all time high. Should the MACD make a bullish cross, there will be a very good chance the market will be headed past 1700 comfortably. Now, the only issue that remains unclear to me as there are no rules on this and no precedent that I can personally remember is what happened in the futures market. The whole Japanese excuse to sell tanked futures after hours to just a fraction below June 6th (so I have been told, have to check it myself) so technically a W3 would be impossible. However, since this was not reflected in the cash market, then W3 remains a possibility. I guess we'll deal with it when the time comes and adjust the count as needed.

Now, the next point on the whole Japanese sell off. Personally, I think this has to be one of the most absurd reasons for a sell off for markets outside of Japan. If Japan has a much stronger currency, their products become less competitive in the world and in turn the Japanese market is bigger for imports for countries that export to them. So our economy benefits from a strong yen NOT the other way around. The only ones that benefit from keeping a low yen are only the Japanese and nobody else. So the Nikkei selling off, has more to do with how traders are emotionally affected than anything else. More often than not, traders feel but don't think much which is why counting waves works in the first place. Warren Buffett said it best: 

"Be Fearful When Others Are Greedy and Greedy When Others Are Fearful"

Main S&P 500 Trends*

Short Term Trend = Neutral

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 or recommend them to initiate or close positions in the market.

Short and Long Term Trades

Make or Break Time

Futures were up 10 points last night when I went to bed but to my surprise the market was near the days low by the time I woke up. The market lost key support at 1623 and 1614 which took a while for the bears to break. However, the bullish count is still  very much alive and so is the IHS I have been tracking but time is running out so bulls need to step in force starting tomorrow. One thing I forgot to mention yesterday was the 50 day moving avg, where the market found its bottom today. Every single time the market has tested the 50 day ma this year, the market has managed to mount a strong rally within a day. In addition, the NYMO is now again in a territory where the market usually finds a base to rally. So while the market is getting close to retracing most of its gains from 1598 and invalidating the bullish pattern, these last few points (to put in a lower low) might be a challenge to the bearish side.  The Trend Average has turned solidly red again and that is a flag to anyone holding long positions (like me), also futures are not looking too good as I write this so we'll see. My plan is to evaluate how the market rallies to the Trend Average on the next bullish wave and evaluate my positions at that time.

Main S&P 500 Trends

Short Term Trend = Bearish

Medium Term Trend = Bullish

Long Term Trend = Bullish 

Short and Long Term Trades