Market Update

The market spent most of the day consolidating its gains from yesterday's rally and it looks like it is preparing to break resistance. However, until that happens we just have to wait and see so I am still waiting before I start labeling the waves. I ended up selling my VXX again for a small profit and I am waiting for the next set up to go in long or hedge. I'd like to see the TA tested and see how the market handles the pullback, if the TA holds it will be very likely that we get a Santa Rally. I already have about half of my fence paid off so just need the market to cooperate a little more.

On a side note, something very important for the economy that might have been missed among the main headlines of taper is the Feds willingness to keep interest rates near zero. This encourages spending and keeps debt costs low for companies, a formula that has worked very well since the financial crisis. Obviously, the risk is we might see asset bubbles by keeping this policy but that's something another Fed Chairman will have to deal with down the road. I know some people dislike Bernanke's policies but I for one am thankful he was in charge when the financial crisis occurred as I think he implemented a policy that saved the country from a very long recession/depression. That and the fact that I have a 3.5% 30 year mortgage and couple of 0% loans floating around thanks to his vision. So I wish the man well in his future endeavours and hope Yellen will do just as well.

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. 

Taper is good!

If there was any doubt speculative news are used as excuses to move the market, today's move should leave no doubt. Looking at that ridiculously bullish wave in the last couple of hours of today's session, one would think the Fed decided to announce a surprise QE5 as a Christmas gift. But then Bernanke announced what the financial mainstream media was most afraid of, the beginning of the end of QE3 and the market loved it. The market knew what it wanted to do since it started correcting 3 weeks ago but people needed an excuse to rationalize the correction. The real reason was the market running out of waves but normal people don't know that :)

And now that we got this bullish wave from the 50 DMA, I see a Right Angled Descending Broadening formation. Basically, it's an inverted Ascending Triangle and the target is 1850 should the market break the 1813 resistance. The odds of a bullish break out is about 60% so this pattern favors the bulls. However, there is also the possibility of a bearish reversal out of this pattern but the odds are about 20%. From the wave perspective, the bounce from the initial 50 DMA test are a mess so I'll try to label them once I get a better idea of what to label this new bullish wave. So far it looks too bullish to be a C wave so it might end up being a W1 or a Stand Alone W3(which implies a sideways correction before impulsing much higher). Also, the Trend Avg was reversed today to the bullish side given how high the market closed so it looks like Santa might be coming after all.

I ended up going long at support through XIV and was comfortably ahead at the time of the announcement. However, that initial reaction ran through my stop at break even so I made no money despite being right. Had it not done that, XIV would have paid for my fence and more by EOD..lol I did however make some Starbucks money using VXX on the short side and then I bought VXX again at the close and I'm now hedging my long position taken last week. So I am hoping for a test of the TA but not really counting on it at this point, so anything less than a strong sell off and I will be taking profit (hopefully).  If the market continues to run, it will mean the LT W3 is continuing and extensions are very hard to predict so I am going with the TA until I see another top..

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. 

One more TA test?

One thing I forgot to add yesterday was the possibility of the corrective wave that showed up today being a B wave, so we have to keep an eye on another high and then the possible scenarios I posted yesterday. It would have been better if the wave from yesterday finished a 5 count but instead it put in a zig zag to higher low at 1777 and if the labels I put on are correct, we should see a bullish wave to 1797. Whether or not the market will be able to stay above the TA is another question, we'll just have to wait and see. I didn't trade today as I am looking for a set up, if we get close to 1797 or if support gets tested again then I'll initiate positions. Christmas is coming soon but Santa might not be coming this year if the market fails to gain bullish traction in the next few sessions.

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. 

Trend Average Test

On Friday I posted the market could be in a Triple Bottom Reversal set up or a consolidating Bearish Triangle that would bring another leg to the 50 DMA and today we got both of them today. The market broke out of its triangle in pre-market by as much as -14 points and then it magically bounced right off the 50 DMA and rallied hard from there to test the Trend Average at 1791. With the counter rally today to the TA, both IHS and TBR targets were met and the market could technically start dropping again as soon as manana. But I am going to assume there is a 5 wave count on the cash market with another high to come before seeing the bearish response, so I labeled the low today as the a W4 and we will get an idea if this correction will continue on the coming wave. If I assume the wave from 1810 to the 50 DMA (counting pre-market levels) is W1 of W3 then we're looking at 1680 more or less (or basically a test of the 200 DMA) for a complete 5 wave count. If we get anything less than a strong sell off after this wave tops, then we could be seeing an X wave of a complex correction or a W2 of a bullish count that is going way past the all time high. I put up the long term count so we can see where the market is at and how this is all fitting the bigger picture. If that count is correct, we should see a deeper correction but even if we don't get a stronger W4 one thing the count has right about are the turning points labeled in the spring. Call it coincidence, magic or voodoo but this chart has been very profitable so far.

I executed my trading plan at the test the TA, so I sold XIV, bought back VXX but then sold it to take profits (Surprisingly,  I made more money on the VXX I bought in the morning than the XIV from last week ). Not quite enough to pay for the fence just yet but making good progress. I am assuming the market has another bullish leg left so I will be buying back VXX then. And btw, the fed meeting, taper talk, etc. is just noise. Look at where the market is relative to the TA, that's all we really need to focus on.

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. 

Triple Bottom Reversal or Triangle?

The market did not rally today as I was expecting and instead tested the low from yesterday twice before closing the day in a neutral position. However, the test of the lows were higher than yesterday's by a thin margin which means the count to the Trend Average is still valid and in play. Looking at the pattern, there is a potential for a Triple Bottom Reversal which calls for a bullish Monday. At the same time one could make the case for a triangle that implies another leg down to test the 50 DMA. I lean towards a counter rally since I see enough waves to call the entire structure completed and that is how I am trading it. So I am holding on to my XIV and my other short term positions. The whole taper thing is just an excuse so it will be thrown around next week as the reason for market moves, not that it is the real reason imo since taper in itself is a sign the economy has gained enough traction to be taken off support. But markets need excuses and this is the only one they can think of for now to scare off people and get the bears excited only to trap them again. When you see the likes of Doug Kass, Prechter, Marc Faber or one of those always bearish "experts" on the media telling people why the world sucks then we'll know the bottom has been reached.. works like clockwork.

Have a great weekend! 

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. 

Counter Rally to Trend Average

The market put in a lower low today which I have now labeled an extended 5th and the bounce so far could be labeled an W1-2 or an A-B, which calls for another bullish wave as soon as tomorrow to target the Trend Avg which is now at 1794. There is also the Inverse Head and Shoulders set up that targets 1791 and once the market gets there we should not if this will end up being a complex correction with another  zig zag to come or if it's a W2 of a W3 with the bulk of the selling about to come. Whatever the case, I'll get a better idea by seeing on the market deals with the TA. Last but not least, the lower low today could be the head of an IHS and that would call for a rally all the way up to 1810 again so don't be caught by surprise if that happens.

I couldn't resist the lower low today so I ended up buying XIV to complement my previously long position. Once we get to resistance, I'll be switching sides again. Volatility is going to pay for the fence I am currently building in front of my house :)

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. 

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.