Next week

The market didn't really do much today but it did manage to form a head and shoulders pattern that targets the low 1420's. So the count I've been posting is still valid and hopefully we'll see that bearish 5th wave early next week. Once we get a low for this bearish wave, we should be able to see if the market is indeed going for 1500's. The markets do look bullish and as I mentioned few weeks ago when gold broke out, if gold makes new highs so will the stock market. Also, there is an impending long term trend change to the bullish side on emerging markets. This means the "risk on" trade is in and I will not be all that surprised if what we are seeing now is just a correction (on the SP500) of an ongoing bull market that will challenge the all time high. Also, I've been loading on emerging market ETFs and I am turning the rest of my cash into equities early next week on my long term portfolio. There are some international markets that are likely to double or triple in the not too distant future and the deal I've made with myself is that if I am right on the emerging markets (specially China and Hong Kong), I will post pictures of my vacation to the Easter Island on this blog.. that will basically mean yours truly is for all intent and purposes retired :)

Have a good weekend!

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Hedged with VXX @8.98 as of 09/13

50 Day Moving Average ?

I just realized the post I wrote for yesterday was never published. My starbucks wifi connection stalled so I am going to blame it on that.. anyhow, the market seems to have put in a W3 bottom yesterday and today we saw a W4 counter rally. And if this pattern turns out correct, we should see a W5 bearish wave and see a lower low. What I am watching for is the test of the 50 day ma, which doesn't seem likely with this wave structure. That would be a great level to close my hedge but I'll probably start locking on profit when if this bearish 5th wave appears.

Short Term Trend Change Imminent

The market finally revealed itself today and we can officially label the 1475 a "top" for the wave that started from 1329 back in late July, so my target for 5th wave was accurate and hedging profits when I did was the right thing to do. What I am looking for now is a test of the 50 day MA currently at 1408 and rising and maybe even a test of the 200 day MA at 1356 if the bears get lucky. It all depends on how pessimistic the market will get and I think if we see follow through selling tomorrow, we'll see the trend average start acting as resistance on counter rallies. Adding to the bearish side, a "handle" (from the cup and hold pattern) should form in Gold and I think that goes in line with the stock market. Additionally, there is a bearish cross on the daily MACD so as long as the trend average gets respected, I expect downside.

I'm glad I stuck with the TA yesterday and not on the pattern. My hedge is finally paying off..

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Hedged with VXX @8.98 as of 09/13

Short term trend being challenged

The market finally closed under the Trend Average after closing every single session above the TA since late July so perhaps it is finally time for some pessimism in the market. And another closing under the TA tomorrow, specially in a stronger bullish wave would change the short term trend to the downside. With that being said, the pattern I posted on Friday about is still there and now we have a bullish cross on the MACD. So the market is aligning itself for a rally. Had the market closed above the TA, I would have sold me hedge to stay long as it would be an almost for sure rally. But I am sticking to my hedge until the market trades above the trend again.

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Hedged with VXX @8.98 as of 09/13

The market put in a slight higher high on Friday and it formed an inverse head and shoulders that targets 1482. However, there is now a bearish crossover on the MACD so we have a similar situation to Thursday where there are cases to be made for both bulls and bears. However, the main indicator I use which is the trend average continues to climb and like I said a few days ago, if we get the TA tested (which it did on Thursday) and it holds then it leaves the market room to go up. I am hedging still as I think a more substantial correction is due in order to bring people on the sidelines on board.

Have a great weekend!

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Hedged with VXX @8.98 as of 09/13

Bearish W2 or new high?

The market gapped down this morning to 1449, which was close to the level I was looking for on a correction. However, the market recovered right away and this is one of those scenarios I find hard to predict. Looking at the pattern, the wave this morning was clearly bearish impulsive and the bounce could well be a W2 counter rally, which would lead to a very bearish wave next. However, I see a bullish cross on the MACD and a comfortable close over the trend average so this could be a wave that will challenge the 1475 high after a correcting for 5 sessions. And as I've said before, whenever we see these mild corrections that correct mostly in time, it gives the market time to consolidate and launch a strong bullish wave. So no idea what tomorrow will bring.. I am maintaining my hedge mainly because the 38.2% Fibonnaci retracement for the wave was not hit at 1444 but I have to admit I'm not too comfortable holding the hedge

so we shall see what tomorrow brings.

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Hedged with VXX @8.98 as of 09/13

Corrective B wave

The market retraced in what looks so far like a corrective B wave and if today's high was the top then we can expect a C wave to the 1445 area or just below the trend average and right around the 38.2% Fib retrace. However, if we get a strong wave that behaves more like a bearish Wave 3 then I'll change the count and assume this is going for the 50 day MA. But for now, the bears seemed scared to come out so if the TA holds I wouldn't be surprised to see 1500. Also, I wanted to point out that gold is forming a nice "cup" for the cup and handle pattern. I didn't get in gold this time but if we get a confirmed "handle", it will be a nice trade.

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Hedged with VXX @8.98 as of 09/13

Correction over?

The market made little progress to the downside today and looking at the MACD and the wave count we could see a bullish wave as soon as tomorrow. I currently have the move from 1475 to 1456 as an A wave so we should be able to verify this if the next bullish wave behaves like a B wave as opposed to a yet another 5th wave. The trend average is rising fast and it is now at 1446 while the 50 day MA is closing in on 1400. The longer the market makes insignificant moves to the downside, the more bullish this market is going to get.

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Hedged with VXX @8.98 as of 09/13

Correction

The market corrected as expected today but has yet to enter the Fib retracement area or tested the trend average. If the market for some reason does not continue its correction tomorrow then it opens the possibility for yet another bullish wave to another new high. Ideally, I'd like to see a full Fib retracement to get an idea if the market is setting itself up for a big bullish wave. But until we get that retracement, we are just seeing a series of W4s or sideway corrections that result in higher highs in small bursts. I am ahead on my hedge so I feel ok either way but if we get another bullish wave I will be adding to my hedge.

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Hedged with VXX @8.98 as of 09/13

Extended 5th Wave

Bulls followed through today in making an even higher high and in turn extending the 5th wave, which is in line with my earlier prediction for an extended 5th wave. But I think this is really it for this bull leg and now we should head down to Fibonacci retracement area and test the trend average. And like I said yesterday, if we get a successful test then higher we go. Which, I wouldn't be so surprised considering the implication of QE3 on the economy.

And again, I'll use my personal situation to illustrate how QE stimulates the economy. I currently have a mortgage with a 4.15% rate, which at the time when I got it was historically low. With this QE round, mortgage rates might go down to the low 3% or even high 2%, which is almost absurd considering the long term CPI is about 3% and likely to go higher after the QE is done. So let's say I get lucky (along with million of other homeowners in this country) and I refinance to get 1% off my current rate. That 1% equates to about $4000 a year or about $335 per month in my pocket. That's money that I will probably end up spending on goods and services along with millions of others that will ultimately stimulate the economy. So anybody who thinks this QE doesn't do much, is simply wrong IMO. This is similar to the Bush administration plan of sending every household a check for couple of hundred dollars back in 2007 but every single month! So if you are looking to refinance or simply have debt with a variable rate, we will have more money to spend thanks to Ben Bernanke.. so now going back to the market, how could something like this be correctly be priced into the stock market? it's impossible to know at this time but the direction is definitely UP. That's why the crash predictions are making a lot less sense now days.. even Robert Prechter from EWI threw in the bear towel, apparently he gave up his cataclysmic theory that the market was going to crash 95% (which has always sounded absurd to me) after shorting the market on leverage from around summer 2009.

So the 12 year sideways move might be over and we might be witnessing a new multi-year bullish wave. Time will tell but I'll post the chart on my next update for a likely count.

Have a great weekend!

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Hedged with VXX @8.98 as of 09/13

The trend is your friend :)

The Feds delivered the 5th wave and a much higher high as I predicted yesterday and now the market will be looking for a top. I initially posted my target range for Wave 5 last week at 1459-1500 and the market seems to be paying attention to my posts..lol. All those sideways trades above the TA have been W4's and with today's high of 1464, I see 5 Waves completed from 1396. However, as I mentioned from my post from last week, this 5th Wave could extend so the next clue will be on the test of the Trend Average which today is 1427. If the TA holds, EXPECT higher highs. Someone asked me a few weeks ago if I expected the market to reach 1423 and my answer was that as long as the market respects the Trend Average, I could guarantee 1423 would be taken out. And the same applies now, if the market can not change the Trend Average the market is headed to 1500 guaranteed! And yes there are many divergences, bearish calls by market "pros", etc. but as I have been saying since I started testing the TA more than 2 years ago, the trend is your friend.. and trading the trend beats anything and anybody as I've shown for the last 2 years.

Now on the Feds buying mortgages, I love it.. specially if it spills over the stock market. As an example, I'll use my own situation. If the long positions I hold double in price and the mortgage rates go even lower, then not only do I refinance my house and get a ridiculously low rate ahead of inflationary times. I'll go ahead and buy a second house as an investment. This stimulates the US economy and in turn the world economy. I can only assume the value of the dollar will go down and in turn lose its purchasing power due to inflation but as long as one is holding assets such as real estate, gold (which btw is forming a possible cup and handle and challenge its all time high), and STOCKS then we are good. The ones that won't necessarily gain in this scenario are people who don't understand the effects of inflation on purchasing power.. which is most of the population unfortunately. BUT the economy will be in a good shape and we'll have full employment again, so it'll be a wash for the general population.

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Hedged with VXX @8.98 as of 09/13

New high tomorrow?

The market made a slight higher high today but for all intent and purposes it is still within the sideways Wave 4. So it's up to the Feds to put in that bullish Wave 5 tomorrow. The market thinks there will be an positive announcement based on recent price action and the market is lined up for a rally. How high this final W5 will be is anyone's guess so I'll keep a close watch to find a safe spot to hedge. This rally is 100% based on the Feds so I am sure there will be profit taking once the announcement is made official. One interesting fundamental factor (to me) to watch is what will a higher stock market do for consumption. To my knowledge about 27% of US households hold stocks so if they feel richer, they will be likely to spend more and in turn stimulate the economy. This makes sense in theory and we'll get to see this first hand in the next few consumer confidence reports.

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Shorting intraday extremes, closing same day

Wave 5

The SP500 continued its Wave 4 sideways movement and it looks ripe for a Wave 5 rally at this point, so we should see this bullish wave come soon. Also, the DOW reached a 4 year high today and in turn eliminating doubts about the DOW "not confirming" a new high like the SP500. And while I keep reading about market skeptics on mainstream sites and blogs, I am starting to see some bullish articles calling for 1500, 1550 and 1600 (different articles) so perhaps the bears will jump on the bandwagon soon and then we'll get the proper Fib correction sell off. Usually works like that, most investors are skeptic about "counter rallies" than end up being real rallies. But slowly they realize they are missing out and decide to jump in. But by the time they go long, all those that rode the market will be selling so guess who gets stuck with the bag.. the market is lined up to target the levels I mentioned last week so we'll see if I am right. I will be loading up on my hedge again when the bears throw in the towel and when everyone is convinced there's no way to go but up :)

Wave IV consolidation

The market seems to have put it the top for Wave 3 earlier in the day and now we are in Wave 4 until proven otherwise. The market could consolidate sideways or could trend down but not violate the W1 peak before launching on the final W5. The obvious catalyst is the Fed, so we'll see what they say about Q3. The next wave should be the final bullish wave before a more substantial correction, the question is if it plans to extend or not. We shall see..

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Shorting intraday extremes, closing same day

Bullish Wave 3 finished?

The market closed higher again today as expected but not sure if the bullish W3 is even done. Looking at gold, which I mentioned last month as an indicator of a possible stock market break out is going up in a strong bullish wave. So this market might go into overbought territory and stay there for a while, which fits well with the target I posted yesterday. Also, I posted a chart for the daily and we have a bullish crossover on the MACD. Last time there was a crossover on the daily, the market went up 100 points. I keep hearing about the divergences, expert Elliott wave counts, oscillators, Dough Kass, Marc Faber, Goldman Sachs, Bobby Prechter, blah.. etc. that there will be a sell off very soon. But yours truly is keeping his 100% longs and riding the trend until we get a confirmation of an actual sell off IF that even happens. I think all these people jumping the gun at this point is pointless given then fact the market is breaking out.

Have a great weekend!

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Shorting intraday extremes, closing same day

1459 target.. for now.

I posted last week about a potential rally coming and about the possible break out today and the market did just that. With this break out we can continue the 5 wave count on the intermediate chart I posted. And going by the wave length relationship, if this W5 equal W1 then we are looking at 1459 as a target. However, because W3 was not particularly long, W5 has the freedom to extend to 1500 (if 1.618 of W1). So after a few weeks of consolidation and "disbelief" by many, the market is here and higher highs are very likely. My guess is that eventually those people who missed the rally will either start jumping in right now or wait for the 50 day MA test which I can almost guarantee it will come after this wave is finished. The question is will the 50 day MA be 1400+ by then?

I covered my hedge per my TA rule and I'll re-take the position when this is over.. I should have followed my instinct yesterday! And to those folks that are short, use the trend average as your guide to GET OUT. People that keep shorting the bullish short term trend are going to get their accounts decimated.. I learned my lesson a long time ago and would hate to see people make the same mistakes I did.

Last but not least, I posted a few charts today.. the long term chart just highlights a possible scenario. I don't trade on it obviously but it's interesting to keep track on likely long term outcomes given the intermediate and long term trend.

Breakout coming

I think this sideways move is about done and unless the 1391 level breaks, I think we will see a rally that has a good chance of putting in a new high. Right now we're in a market driven completely by QE expectations and if Europe pleases the market, we should see a strong rally. I think it was interesting that Fedex pre-announced and the market did not even care, usually Fedex performance is directly correlated with the economy and in turn earnings for companies. I personally rather see a market that rallies on positive economic prospects than liquidity, but at the end of the day the result is the same so it seems like I'll continue to be 100% long for a while. I am currently uncomfortably hedged as my instinct tells me we are about to break out to the upside but the market continues to trade under the trend average.

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Hedged with VXX @ $11.40 as of 09/04/2012

More of the same

The market continued its sideways move today giving no indication of what direction it wants to take. However, the slight lower low and lower high plus another close under the trend average favors the bearish side. Also, the bullish patterns in place from last Friday were negated so the wait continues for the next big move. To be on the safe side, I bought my hedge back today and will un-hedge only when the TA gets breached.

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Hedged with VXX @ $11.40 as of 09/04/2012

Rally next week?

So the Bernanke finally spoke and again he made it clear that Q3 will happen if things get worse, which is not really all that different than what he has been saying. So now it's up to the market to guess if we will have bad job numbers so Q3 can be unleashed. So far the market seems to be holding well around support and on Friday it tested the trend average in the last minute of trading before closing 3 points lower in less than 60 seconds. And despite closing under the TA, the chart looks bullish with the inverse head and shoulders set up and a possible W1-2 in place. So next week we might see 1426 challenged if the market can capture the trend average. I was very tempted to hedge again just because of the close below the TA but I decided to just leave it as is because of the pattern on the charts so we'll see if rolling the dice pays out this time..

Have a great and safe weekend!

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Shorting intraday extremes, closing same day