Thursday, September 30, 2010

Elliott Wave Update - September 30th

Whenever the market reverses hard on a gap up it's usually indicative of change of trend. But we still need confirmation to call 1157 the top of the rally so a close under 1140 would confirm a leg down. And given the fact that fund managers are now allowed to lock in profits (they are not allowed to sell until the quarter is over), the odds are in for a pullback to the 1110 area at the very least.

Wednesday, September 29, 2010

Elliott Wave Update - September 29th

Prices have been in a narrow range and I am speculating this has something to do with end of the quarter. But selling might start tomorrow or the beginning of October as traders will try to lock in profits. The low volume and deteriorating internal point to an end of the rally. However, the charts do indicate the possibility of an Ascending Triangle that targets the 1170 area so if we "great" news the market might just get there. But I favor at the very minimum a pullback given the fact this has been a ridiculously bullish month in the absence of any good fundamental news. I've been reading that the expectation of a weak dollar and inflation is what might be fueling the rally and from that perspective I can see why the market will continue to go up. Obviously, our purchasing power wouldn't really be going up (in US Dollars) but nominally we would have "bullish" numbers.. just like the Zimbabwe stock market looks very bullish in worthless money, it made Zimbabweans multi billionaires overnight.. in Z dollars (Interestingly enough, the Z dollar was at one time worth more than the US dollar)

Elliott Wave Update

Tuesday, September 28, 2010

Elliott Wave Update - September 28th

I forgot to renew my subscription to my chart software so I am waiting for them to re-issue access to my saved charts, so I'll put one up when I have access again. But basically we had what seemed like an impulse wave down in the morning only to reverse back and making another high( I doubt any nasty sell off will happen before the end of the quarter). And by looking at the charts, it looks like the market is setting up an Ending Diagonal or Rising Wedge which is usually found at the 5th leg of a rally. So as a short, I am just being patient until the market resolves itself. The market might continue to put aside all the bad news (and there have been many, including the Consumer Sentiment reading today) for a few days more. But just like we're seeing investor optimism at an extreme, we will soon see pessimism again.. that's just the way the market works.

So the bottom line is that we might still make that new hight in the 1160 area and then go down or the market stops here.

Monday, September 27, 2010

Elliott Wave Update - September 27th

The market did not do much today but it does seem like it might make an attempt at the upper trendline of the broadening top around 1165-1170. Since this is the end of the quarter, many fund managers would like to end with quarter with good results so they'll probably wait until the 1st to start distributing. If the high today was the "B" then we should see a sell off tomorrow. However, considering the big rally on Friday, today's waves look more like a consolidation/correction.

Friday, September 24, 2010

Elliott Wave Update - September 25th

Here is a count I put together with today's market action. I am not too sure this particular structure because the market is becoming more volatile and unpredictable. So this count can be validate if we turn down hard below 1127 on Monday or Tuesday. It's been a rally with no news for the past 3 weeks and today it managed to rally on bad news! I've read things like the elections, to the end of the quarter window dressing to electronic trading for being the reason. Whatever it is, the bigger picture is not pretty as we do not the economy we need to sustain growing profits.

Another way to look at the market is that it is going for the upper trendline of an Ascending Broadening Wedge, basically a tilted megaphone pattern that usually reverses to where the pattern started. In this case, the 1115 area. So maybe we'll get higher highs next week after all with the possibility of 1158 to 1170 by the next Friday.

I improved my cost average today on my shorts by 4 points and I am going into the weekend fully leveraged short.

September 25th Commentary

The only count I have for a rally this strong today is either a W3 of W1 for yet another leg up to 1200? or a B of an expanded flat. Whatever it is, I think we'll get an answer Monday. This rally so far has been based on the fact that the market was oversold and not much more. We had bad to mixed data that points an ongoing possibility of a recession so going up 2% on news like that is bizarre. Then again the market fell 1000 points and recuperated all of that in less than 10 minutes. In the long run, the market will find equilibrium.

Here is an interesting article on the "rally" this month.

Thursday, September 23, 2010

AAII Sentiment Survey

September 23: 44.97% 29.63% 25.40%
September 16: 50.89% 24.85% 24.26%

The market got a little less bullish this week but given the still high bullish/low bearish ratio, odds favor a significant pullback. Fundamentally speaking I am not so sure why anyone would be bullish right now. We have a persistent unemployment problem, a double dip in housing in progress and under 2% GDP growth. The fundamental barometer for stock prices is profits and I am not sure where are they going to come from without any sort of stimulus or an upswing in the economy. With that said, I am not going to fight the charts.. I'll go wherever the wind blows.

Elliott Wave Update - September 23rd

So we got a close under 1127 like I was speculating yesterday and now it's time to see if this is a correction to the Fib trace of the entire rally or the beginning of a strong sell off. The key to this is probably how this current wave behaves. If the bears are lucky, the wave I have labeled as "C" is a W3. But if the rally to the 1250 area is real then we'll see the market find support in the 1090-1100 area. I will be adjusting my stops as we go down to the Fib retrace area. Today I was day trading SDS on margin and got in at 1133 before the sell off in the last hour, so I am holding that still just in case it goes to 1000 :)

Wednesday, September 22, 2010

Elliott Wave Update - September 22

There is confirmation on the candlestick patterns of a change of trend and we just need to close under 1127 to solidify that confirmation. I think most Elliott Wave Counts I've seen are calling this a IV Wave but I am sticking to my count and my TA which indicates the rally was finished yesterday. If I am wrong and this really does turn out to be a IV Wave then we'll probably one last wave to 1155. But if the count I am putting up is correct then we will probably just go up a few points to finish the 2W and then go down hard or just gap down tomorrow morning and close below 1127.

I am still holding my SDS positions with a cost average of 1092 and no longer hedged. I might use margin to day trade on the short side any move under 1127.

Tuesday, September 21, 2010

Elliott Wave Update - September 21st

Seems like the market put a top of 5 waves on the sub-minuette at 1148 today, it still has a chance of being a W1 of a 5 but if 1136.22 gets taken out then it should confirm the end of the rally and make the wave down an A. The trend on the daily is still up and we would need a close under 1124 to confirm a trend change.

Monday, September 20, 2010

Elliott Wave Update

I was expecting a rally to the upper trendline of the broadening top but I wasn't expecting this strong of an upside. I will have to revise the count but from the look of things we had another 3W of a Minute wave. The wave count is actually exhausted at this point as we've seen multiple 3Ws in 2 weeks time and Elliott Wave has become less reliable of a predictor. In addition, pretty much all Technicals are overbought so as a trader, I can't do much other than set my stops accordingly. I went short on margin today at 1134 and I have my stops for all short positions at 1150. There is resistance at the 1146-1148 level so we'll if we can get a pullback this week. I think once we get a pullback (perhaps to the E point of the Ascending Wedge?), we'll see a big rally for the rest of the year to new highs.

Multi-month Ascending Triangle Pattern

We've seen several Ascending Triangle's lately and we have a potential forming right now at the multi-month time range. This pattern calls for a pullback to complete the "E" at the rising trendline around the 1070 area and then start a strong uptrend. So I will be looking at this trendline for future opportunities.

Sunday, September 19, 2010

Three Peaks and Domed House Pattern

I think there is an interesting pattern being set up that is not very well known. And that is the Three Peaks and the Domed House pattern, which you can see the first peak on Sept 13th. Whether the "Dome" is in place remains to be seen on Monday but it's worth pointing out. Before the crash of 2008, this pattern was seen at a higher degree starting the first peak in 2003 and forming the Dome in 2007 before crashing in 2008.

Friday, September 17, 2010

Elliott Wave Update - September 17th

The market did gap up as I was speculating but it did not reach the upper trendline (marked green) on the broadening top. So there is a possibility for the market to make a run to that trendline before reversing. I sold my hedge and traded my SDS positions and improved it 1.5 points. So I am going into the weekend short and unhedged. Normally, I would have kept some of the hedge but the last few minutes of the session had an impulsive wave on the sub-minuette (second chart), so I am trading assuming that was a W1-W2 of a "C", which would make the market gap down on Monday. Whatever it is, optimism is reaching an extreme based on no news. If we make another high, I will use margin to short.

Thursday, September 16, 2010

Elliott Wave Update - September 16th

The market is triangulating again and there is another ascending triangle in the works that points to 1137. I am hedged as of 1120 and have been day trading my short position to better my cost average. I was only able to gain 1 point today because I missed the late run up but will cover if the lower trendline of the triangle gets tested again. So tomorrow the odds are a small dip before a break out or a gap up to the target.

On a side note, the AAII sentiment survey has hit over 50% bullish, last time it was this high but below 50% we went down. However, last time we had a this big of s spread between bulls and bears (26% in the last week of December 09), the market went up for two more weeks gaining 3%. So while, we might continue to go up a bit more, progress will start stalling as this contrarian indicator shows buyers exhaustion is eventually reached. Actually, one could almost set up a trading system of buying when there is a negative spread extreme and shorting when there is a positive extreme. I'll probably sit down one of these days and do the analysis on it.

Ascending Triangle

There is an Ascending Triangle pointing to 1137 which also coincide with the upper Megaphone trendline and a inverse H&S pattern. So I am day trading short positions now and maintaining my FXI hedge.

Wednesday, September 15, 2010

Elliott Wave Update - September 15th

When I woke up this morning I had thought the market was in the middle of a w3 on a 5 wave structure of an A or a W1. But as the market bounced from the lower trendline of the Megaphone Top possibility I posted yesterday and then breached 1121, I went hedged as it seems the market is following the Megaphone pattern that points to one more high. Going by the trendline, we might see the market barely breach 1131. I have the low today at 1114 as an "a" and for the Megaphone scenario to play out then "b" would be part of an expanded flat.

The rally is interesting as I can't really pin point the specific catalyst for it. Some say that it is the prospect of a "Double Dip" in the economy decreasing but I don't think couple of sets of data in couple of weeks reverses a trend. So I just think it's euphoria after being depressed for months. And since euphoria is technically a temporary bout on insanity, there is not point in fighting it. So I am guessing we will see a pullback to the 1080-1090's area and then we will resume another big rally possibly to the H$S target of 1250. If 1080 doesn't hold, then the bearish case still has a possibility.

Tuesday, September 14, 2010

Elliott Wave Update - September 14th

Here is the updated chart with today's price action. Going with the assumption the top was 1127. To confirm this count, we would have to gap down tomorrow and break the wedge and the 200 MA in the process, which is around 1116.

Other signs that we are at a top are:

- Long Legged Doji: This pattern is a significant reversal pattern at tops and we got one today. A sell off tomorrow confirms reversal.

- Low put/call on SDS options which points to a significant move (SDS is 200% an S&P short)

- Investor's sentiment is the most bullish since the April top. Click here to see the numbers from AAII

Elliott Wave Update - September 14th

I'm basically posting the chart from yesterday. The 5th wave landed exactly at 1127 where I had marked it and the action that followed is either an ABC move or a w1-w2 with w-3 in progress. If we gap down tomorrow and we break the 200 MA, it will confirm a 5 wave structure of an A leg. If not, then we're still in the topping process but odds are this rally is done for now. Had I followed my own advice from yesterday and shorted at 1127, I would have made good extra money at the end of the day. But I went in too early and had a cost average of 1126 and in the last few minutes of today's session, there was some jerking around that took out my break even stop. Last time this happened was with my SSO position taken at the very bottom at 1041, I got stopped on the cent and the next day the market zoomed 30+ points.

I'll post an updated chart showing today's action and some sentiment readings that points to a top a bit later.

Megaphone Top

We're now almost at the end of the rising wedge and we have a megaphone top pattern forming in the minuette.

Monday, September 13, 2010

Elliott Wave Update

The market did exactly what I posted on the Elliott Wave Update on Friday and I ended selling my hedge today. I was able to improve my cost average of my main position to around 1090 so I'll hopefully make some profit at least on the pullback. I haven't missed a swing trade since July and I don't want to make this the first one. Today's price action basically completes all 5 waves of the count that I have and I expect at least a pullback to the 50 day MA currently at 1087 starting tomorrow or Wednesday at the most. I think the high will probably occur tomorrow (unless the high was in today) in the morning, so I am looking to short again intra-day on margin at 1127. Actually, the risk/reward favors staying overnight short on margin at this point with a stop at 1135. So if there is an early pop in the morning, it will be ideal to short more. If the pullback starts then it's fine with me, either way I am looking to make money out this set up.

Also, I should add that the rising wedge posted this morning is a reversal pattern with an average pullback of 50-55%. So whatever points the rally is, cut it in half and subtract from the high. If we go by that number, then we'll probably see high 1070s/low 1080s so the target matches the Fib retracement.

Rising Wedge

I sold my hedge at 1120 and went short for a day trade on margin. By my elliott wave count, there isn't much left in this insane rally (how we went from 1040 to here is baffling) and we now have rising wedge in place. I am looking for a sharp sell off later today or in the next couple of days.

Friday, September 10, 2010

Elliott Wave Update

I modified the count to reflect what seems like an imminent move to the 200 MA per my post this morning on the ascending triangle forming. I went hedged at 1108 as it seems to be obvious the market want to challenge the 200 MA and possibly the gap at 1116-1122, so we'll probably see a gap up Monday morning to reflect the 3w of the 5th. I'm looking to sell my hedge at one of the levels mentioned and short (intra-day only) with additional leverage to my short positions. The longer this goes on, the harder the drop might be as these rallies without pullbacks can cause massive selling as traders want to lock in profits as soon as they sense others will be selling.

Ascending Triangle

Seems like the market is still attempting a new high as it seems an ascending triangle is forming with the target of 1118.

The trendlines are clear so I will be hedging in case of a break out but I am betting the market will roll over very soon but I went hedged at 1108 just in case.

Thursday, September 9, 2010

Elliott Wave Update

The early morning structure looked like 5th wave in the morning but the retracement of initial impulsive wave retraced into the W1 territory and thus invalidating the count. I suppose we could call it a failed 5th wave but I think it'll be better to stick to 1105 as the orthodox top and treat the impulse today as an expanded flat, with B happening today at 1110. It seems like there is a lot of resistance in the area and given how far up the market has gone up in a matter of days, we'll see the pullback very soon. I sold my SSO hedge at a small profit at 1104 and staying leveraged short until the pullback. I am looking to make a small profit from that position or break even at the very least.

5th Wave

This last 5th wave has kept everyone guessing but now I think it's clear. So far we've reached 1110 in what I count as a w4 of a w3 in the sub-minuette. So This rally is not done yet and I think we will hit the 200 MA. I bought SSO at 1101 to hedge yesterday and planning to sell at the 200 MA or at break even.

Wednesday, September 8, 2010

Triple Top Reversal?

It seems as if the market is doing exactly the same thing as last week where it reversed suddenly. I posted the chart with the pattern and the target zone.

Tuesday, September 7, 2010

Elliott Wave Update

I seeing a complex correction in the minuette count and the market is retracing to the target retracement area marked on the chart. We might get a day or two like today and perhaps then the market will be ready to start another bullish impulsive wave. I haven't made any trades to the EW portfolio.

Friday, September 3, 2010

Elliott Wave Update

So we got the 5th wave extension on "less bad" news. The fact that only 67,000 new private sector jobs were created, it's a bad sign for an economy that is supposed to be recovering. And as a businessman, I can tell you business is indeed slow.

On the chart, I see 5 clear waves completed and I expect a correction to retracement early next week. However, given that we are so close to the 1115 200 MA, I wouldn't be surprised if traders push it to that level to suck more people in. The 3rd wave is 35 points and if we add another 35 points to [4} it would project to 1110. I am holding my SDS positions until retracement and I'll be lucky if I can make a small profit from them. I don't think even the most bullish person could have predicted a 4 day rally that would take us from support to the tip of resistance in less than a week but as it is now, the market is bullish again and overbought and ripe for yet another sell off.

Elliott Wave Update

So the 5th wave is now extended and at this point I highly doubt there will be any hard sell off. So looking to break even or make a minor profit(or loss) on the pullback and then I will be going long. I find ironic that just when 1010 was being called for with an "imminent P3", a 3 day rally wipes out all recent bear gains. Now that 1131 top is looking like it's going to be taken out and that will point to 1150 as the next stop.

This is the very reason why is not a good idea to short based on long term counts. Elliott Wave is a predictor investment mood and not a predictor of events.

Thursday, September 2, 2010

Elliott Wave Update

Today's chart is basically yesterday's chart. The 5th wave did happen as I expected and it closed a hair over the 1089(1090.10) level I had projected on the chart. And now we will put Elliott Wave Theory to a test, since the structure is complete we should see a retracement tomorrow. But since tomorrow is no regular day due to the job numbers being announced, we're in for either a big sell off in a 5 wave impulsive Minute wave or we get a zig zag Fib retracement which will translate into 1131 being challenged again by another bullish Minute wave. And obviously, if the numbers are so good tomorrow we keep on going up without retracing tben the 5th will be extending but sooner rather than later a Fib retracement will be coming.

This week's rally has many "orthodox" EW practitioners scrambling for new counts and which count is the right one in the larger scheme of things is really anyone's guess. As a trader I focus on Minute waves and try to label impulse and corrective waves only. Trying to label waves of higher degrees makes people develop a bias and I don't think EW would be as useful as a trading tool used in this manner (That's what MA and EMAs are for). This thinking goes against the whole "fractal" theory of the Elliott Wave Principle and this is where I differ with pretty much everyone I know of practicing Elliott Wave Counting. I believe EW is a predictor of human emotion and NOT a predictor of prices, they are both co-related but it would be wrong to assume that emotional panics of the same degrees that are years, decades apart, would result in the same prices. Economic and social conditions have to be factored in and that is why I don't agree with higher degree labeling. One of these days I'll get into this subject when I find the time.

With that said, we continue to be in a bear market and I am now fully leveraged short until we get an answer of what the next Minute wave has in store for us.

Portfolio 1:

100% SDS

Portoflio 2:

100% SDS

Wednesday, September 1, 2010

Elliott Wave Update

"The rally we saw today has the strength to become a real rally, so I am expecting a further rally to challenge the 50 day MA at 1086"

This is what I wrote last Friday after Bernanke spoke and seems like this is exactly where the market is headed. The difference is that the 50 day MA is currently at 1081. However, it seems like the market still has one leg left and if w1=w5 then that projects to 1089. The triple bottom reversal projects to 1085, the 13 day EMA is at 1087 and the 34 EMA is at 1093. So we'll probably see the 5th leg stop in that price range. I sold all my longs today at 1075 and took a full short position. However, by the close it seemed clear the market wanted to go higher so I sold half the SDS position I had taken at 1078 and looking to buy it back around the levels I mentioned.

EW Portfolio Update

Portfolio 1:

1/2 SDS

Portfolio 2:

1/2 SDS

Combined return 19% since 07/10 vs 1% for S&P 500 long or -1% short.

Triple Bottom Reversal indeed!

Just like I had suspected.. I went leveraged short at 1075 because I see 5 waves finished but the reversal points to 1085.