Short term trend back to bearish

The market's true intentions were clear today as it sliced right through support without blinking despite "good" news about a budget compromise. The market has now been in an correction for the last couple of weeks but it still doesn't seem long enough to be the higher degree W4 my long term count is looking for, so my assumption is the market will continue to correct in time or in price. At the same time, this could be a "flat" correction of a lesser degree W4 so another W5 from here would not be all that surprising. Whatever the case, the market is correcting and working out the overbought condition from rallying almost all year and these moves are normal and expected. I am watching how 1779 holds but even if that were to break, there are several layers of support from the 1745 level (including the 50 DMA at 1758), which btw coincides with the still viable larger Head and Shoulder target. Lastly, today's move was so abrupt that it managed to reverse the short term trend back to red with just today's close. So now the ball is officially back in the bear court.

I sold my VXX position right at support (1780) and I will buy it back on the bounce or test of the Trend Average. Obviously, if the market puts in some sort of bullish engulfing pattern I will just stay with the longs I bought couple of days ago. Too bad that bullish wave made it 1 point higher than resistance on Tuesday as that is what prompted me to hedge, ideally I would have gone long today when I sold the VXX just as I did last week. You can't win them all.


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. 

Market Update

We finally got a bearish wave today but it bounced right off the Trend Average and failure to make a significant lower low tomorrow will bring back the momentum back to the bullish side. Also, one could argue for a bigger IHS forming that targets 1845 so we'll have to keep an eye for key resistance levels and see which one breaks decisively first. The upside level is 1813 and on the downside is 1800-1802. In the meantime I am still hedged but will get out of VXX should the market not go down decisively tomorrow and close under the TA, I will just buy it back later when the picture is more clear and hopefully at a lower price.

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. 

TA signal back to green

The resistance level I mentioned last week was challenged and broken by just a point today but the lack of a bearish wave has returned the short term trend signal back to bullish. This TA signal has only been whipsawed once this year so now we have to see if the market will hold above the Trend Average on the correction or slice through it. I ended up buying back my longs when resistance broke so now I am hedged and will be selling one of the positions depending on how the market handles the TA. I am still hoping for a bigger correction and technically speaking we could see a nasty sell off wave this week but you guys know I respect the TA so I am turning cautious on my short term bearish inclination.

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. 

1808-1810 Resistance

The market put in the wave to challenge the Trend Average as I had been expecting but we now have to see if this is just a completed B/W2 wave with a bearish C/W3 coming as soon as Monday or this is part of a 5 wave impulse. As I mentioned earlier in the week, there is that Inverse Head and Shoulders potential and this pattern targets 1820, which is about the same target I have if I were to count the wave from the 1779 low as a bullish 5 wave count. I think the key to this move will be the 1808-10 resistance level, if the market manages to break that resistance then the IHS is highly likely but if that level holds then I am expecting the 1779 level to be challenged at the very least. As it is, we have the larger Head and Shoulders with a 1743 target and the market bouncing off after 4 days of selling.  The ST  bearish confirmation signal is now being challenged so if the market is indeed planning to go down, we should see the market close under the TA again and stay underneath it. I 'd be somewhat surprised if the bigger correction ended already but one has to be open minded and ready to act on what the chart is telling us.

 I find it almost funny how the taper talk is being used to sell or buy like in the case today. First, it was taper was bad for stocks but somehow today it meant that the economy is recovering so taper doesn't matter anymore! I haven't talked much about QE but basically my take has always been that QE basically saved the economy from a Japan style deflationary recession/depression. I think of QE as a loan to a business that is having a hard time, if the business can regain its footing and be profitable again then the loan did its work. And the US government is no different, it is a business! the difference is the government gets its revenue from Tax payers and it is in the government's best interest to make sure we can be productive again to pay more taxes. And what better way to do that than by giving consumers ridiculously low interest rates so we can buy lots of stuff using essentially free money and lower the cost of corporate debt so profits are maximized (so the gov can tax more of it)! This was the vision of Bernanke and it has worked very well so far and as long as business is good, the markets will keep going up and up! this is not about QE, it is about the economy gaining growth momentum.

Anyway, I sold my longs at 1800 and bought back VXX so I am back to a bearish position. This was a good week to trade for me so we'll see if the streak goes on.

Have a great weekend!

Short Term Trend = Bearish 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. 

Short Term Trend is confirmed bearish

The market retraced a good portion of the bounce yesterday and one could make an argument for the Inverse Head and Shoulders I mentioned yesterday as a possibility. However, I am labeling the retrace today a B Zig Zag with a bullish wave to come as soon as tomorrow to challenge the 1800 level/Trend Avg. If we add the length of A to the low today, we get that challenge to 1800 (1803 to be precise). Alternatively, the market could be triangulating in another bearish W4, which would imply one more lower low before making a bounce to challenge the TA. I was very tempted to sell my longs but I am holding until we get a TA test. Last but not least, the Short Term trend has turned red so it's time for bears to make their case. We haven't had a bearish ST signal since September and this proves again that wave counts can actually predict correction. I am adding again the LT chart I posted in May when I was then calling for a top at 1650.. the odds of this being a W4 to fit the chart are astronomical if these were random guesses.

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 Head and Shoulders in the works?

The market was very volatile today but we got that 5th wave I was talking about and I now see a complete 5 wave count. The bounce from the low could possibly form a right shoulder for a bigger Head and Shoulders that targets 1743, so I will be watching 1802 very closely as that area will be the key for the next big move. At the same time, there is the potential for an IHS but it's too early to tell. I am assuming this completed 5 wave is either an A or an W1 with more downside to come. The Trend Average is still rising despite today's lower low but if we get another close under the TA tomorrow the trend will likely turn bearish. The last option, which I don't think looks likely (but one never knows for sure) is that these 5 waves are part of another W4 correction, similar to several W4's we've seen this year. If that is the case then we should see the IHS form and have enough notice to position ourselves accordingly.

I couldn't resist today and sold all the VXX at my target and bought longs for the bounce. If we get to that 1802 level, I will be locking in profits and buying back the VXX. But in the meantime, I have set my stops on the longs to break even as I am comfortable ahead. Who said the markets couldn't be possibly timed :)


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. 

Close under TA

The market followed through on the Head and Shoulders set up and its target was met today and some. This is the first close under the Trend Average in almost one month so this might be the start of the correction I've been talking about. The short term trend has not been bearish since September and it remains to be seen if the market will make a turn this time. I'll start looking at potential correction targets once we get a change of trend confirmation to keep it simple. The low for today was 1787 and very close to the 1785 projection I had yesterday so I could technically label 5 waves completed on the micro count. However, the wave today was so steep that I will assume it was just the W3 that ended at 1787 with a zig zag move to 1795 being a W4. Therefore, I am looking for another leg down to put in a lower low for what could be either an A or a W1. If that is the right count then we might see a bigger Head and Shoulders forming with a strong bounce  coming to form the right shoulder before a bigger sell off.

I am sticking to my plans so I haven't touched the VXX position as tempting as it was today. But if we do get another leg down I might not be able to help myself. Maybe I'll sell half or buy a long position for the bounce.. we'll see.

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.