Market Update

The market put in the W4 I was hoping for today, just too bad it had me confused with the triangle yesterday. And technically speaking, that triangle was actually the W4 for the W3 with W5 coming in pre-market. So the the initial drop today could be labeled as the A of this W4, B at 1616 and presumably the C ending near or just at the 1597 resistance. The alternative to the W4 is obviously a completed ABC from 1560 with intense selling to come on Monday but I lean towards the completion of the 5 wave structure before a bigger bearish wave. Also, if anyone is wondering why the index closed down so hard in the last few minutes it is mainly because of the annual Russell Reconstitution at the end of the day and perhaps end of the quarter activity. Which in turn might trip orders Monday morning that will allow the market to go to the 1597 area and finalize the W4?

After completing its ranking of stocks above, beginning on June 14^th, Russell publishes a preliminary list of the additions and deletions to each index.  Updates to these lists of additions and deletions will be made on June 21^st, with the final list of changes published on June 28^th.  Between May 31^st and June 28^th, indexers will begin to adjust the positions in their portfolios based on expectations for the reconstituted index.  The trading volume driven by these changes will be spread out over several weeks, but we can expect a significant concentration of volume on June 28^th, especially going into the close.

http://exchanges.nyx.com/parasnand-madho/2013-russell-reconstitution-what-you-need-know

I didn't enter any positions today as I rather wait for a higher probability set up plus I'm already long enough. I think there is a good chance July will be a turn around month, we'll find out soon..

Have a Great Weekend!

Main S&P 500 Trends*

Short Term Trend = Bearish Leaning Neutral

Medium Term Trend = Neutral Leaning Bearish

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.

Gap to be challenged?

The market made it to the 50 DMA today as I had been speculating before quickly reversing. But the reversal came in form of a triangle so the most likely move now would be for the market to close the gap from last week in the 1625-1630 area. If we assume the triangle today was a completed W4, then the target will be 1638 assuming W1=W5. I was assuming we would get a deeper retracement for W4 but that's not what the market wanted to do. In fact, there is also a possibility that this triangle is just part of the W3, so this wave might get tricky for people who want to short it. Obviously, should the market sell off from here then it will mean this was just an ABC but usually C waves don't top and then move on to a triangle, they reverse quickly.

I set my automated trade trigger today at 1617 and went short with SDS but ended up closing the position near the end of the day when the triangle started to look likely. So made just enough for a few cups of joe but I will be looking for the gap or perhaps a strong close tomorrow to buy back shorts.

Main S&P 500 Trends*

Short Term Trend = Bearish Leaning Neutral

Medium Term Trend = Neutral Leaning Bearish

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.

Going for 1623-26?

The bulls finally showed up today and now I have something to work with. The wave today looked like a W3 of a bullish count which easily broke the previous 1597 resistance level and now it is in the original target range I first posted couple of days ago. So assuming this is a standard 5 wave count the structure should challenge the 1623-26 level  before going into another bearish wave. However, should this wave fall short of that target by being stopped before 1614 then there's a good possibility we are looking at an ABC structure. The market has now officially corrected almost one month and a half and my guess is that we are getting closer to the end of the correction. We are still getting mixed economic reports, with the latest GDP number coming in below expectations and that will put aside the main excuse for the correction which was the end of QE. But if you guys remember, there was no excuse the day the market topped and reversed hard at 1687(other than the fact the 5th wave had ended). The end of QE became headlines after the fact, so this market will make a sudden turn to the bullish side and then the financial media will give us good reasons why the market is rallying but in the end we know it's because there was a 5th wave left :)

I was tempted to short near the high today but I figure the market is likely to challenge 1614 so I'll probably load up on some shorts there just in case this is an ABC. At the same time I'd be surprised if the market makes it to 1614 and doesn't challenge the 50 day ma and attempts to close the gap in the 1620's area. So I guess I'll get up early for a change and micro count whatever is coming.

Main S&P 500 Trends*

Short Term Trend = Bearish

Medium Term Trend = Neutral Leaning Bearish

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.

Weak counter rally so far

The market rallied to the 1590's area today but the wave looks weak so it might not even get to the level I mentioned yesterday. The counter rally doesn't look like a 5 wave count and so far it is looking like a zig zag but I rather put labels once it once we see how the coming bearish wave evolves. To be safe I took profit on the SSO I bought yesterday and I'm waiting to see what the market does in the next couple of sessions. I will short it if it gets up to the 1597 or 1614 area or go long at support again (1577, 1560). The intermediate trend is probably going to turn red by the end of this week if we don't see a rally past 1614 so it is just another reminder that one has to set tight stops with long positions. If you are trading short term that is.

Main S&P 500 Trends*

Short Term Trend = Bearish

Medium Term Trend = Neutral Leaning Bearish

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

The market chose to put in one more bearish wave and with it another lower low so now I have the structure finished at 1560 (as a stand alone W3) and I am expecting a bounce to the 1597-1614 (the 50 DMA ideally) area before possibly seeing another leg down for another low. The combination of stimulus tapering and the artificial credit crunch has negatively affected sentiment and my guess it will take a few more weeks of this before the market finds a bottom. My position in China is officially underwater but I'll just be patient and wait it out, in the end it will all pass eventually.

Also, the intermediate might turn negative if the market does not recover strongly from here so that will be something to watch for. I bought some SSO today and position traded FXI.

Main S&P 500 Trends*

Short Term Trend = Bearish

Medium Term Trend = Neutral Leaning Bearish

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

Not really much to add today as the market has the same count as yesterday despite a lower low at 1577. The market seems to have started its counter rally so we'll see how the market deals with resistance as it goes up. Should the market put in one more bearish wave then it will just mean the bounce today was a W4 but at this point I favor a rally. Also, as regulars on this blog are aware, I only follow counts that have the highest probabilities in materializing based on the trends I track as many of us are trading these waves. So I wanted to address the most bearish count out there, which is the one by Elliott Wave International. First, I'll admit that anything can happen in the stock market as nobody really knows the future. With that said, the long term bearish bias by EWI is based on some deflation scenario that Prechter (Psychologist by training and NOT an economist) came up with in order to justify his DOW 400 target which is 50% less than the DOW's annual earnings and less than 1/10th of the DOWs book value (Why would you sell your belongings, your house, your car, etc. at a 90% discount?). Which economically speaking, it is a delusional target as the lowest book value ever recorded on the DOW was 1.7. Secondly, the Feds will not let that happen in this lifetime, this is why we have all those QEs in the first place. But many traditional EW folks follow the EWI scenario and keep on betting on some market crash that is very unlikely to happen anytime soon. So I am going to take a guess on this one and say that bearish count they have with a W1 that looks like a zig zag and the supposedly W3 currently taking place will end up like every single major bearish nested 1-2 count they have posted since August 2009 (which have been so many I've lost track already). And once we see new highs, they will move the bearish count one notch up and tell people to keep shorting. This crazy type of advice has led many people over the last 4 years to lose a fortune and this is the reason I've pulled all their ads off my site. So yes there is a probability the market is going further down but chances are pretty close to 0% on the DOW reaching 400 by 2016 as predicted by Prechter.

Here is a link for a good laugh:

June 2010

"The topping process is over for the countertrend rally that started in the first quarter of 2009. The next leg lower that commenced in April should now deliver a decline that will ultimately be bigger than the 2007-2009 sell-off. ... Gold poked to a new high, but in doing so, likely completed a pattern in mid-May that will lead to a multi-month selloff. ... The U.S. dollar index DXY +0.82% is fulfilling EWFF's forecast for a strong advance."

All of which fits right into Prechter's repeated predictions of a massive coming deflation."

http://www.marketwatch.com/story/elliot-wave-predicts-triple-digit-dow-2010-06-17

If I had a penny for every dollar that was lost on that call, I would probably have millions.

Also, I appreciate the comments on the FXI. Some have been right in pointing out there is a potential Head and Shoulders on this ETF. But the issue is FXI is made of Chinese stocks from the SSEC and the SSEC is technically finishing its C wave of a W2, so the H&S on the FXI is not reflected on the SSEC at all. In fact, there is an Inverse H&S on there. I forgot to add that if we applied the current PE for SSEC to the S&P500, we would get 730 and 740 using book value. And since I missed my chance to more than double my capital from the 2009 lows on the SP500, this time I am going to be patient and stick to my call. Had I known then in 2009 what I know now, I would be more than retired.. but as I said yesterday, you live and learn.

Have a great weekend!

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.

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

Inverse Head and Shoulders Pattern

The market put in the right shoulder for the Inverse Head and Shoulders pattern I have been tracking at the expected 1623 level, which btw has been in the picture for about a month now. A bullish W3 wave breaking 1649 resistance would confirm a break out for this pattern and the all time high will likely be challenged. As you guys know, I like pointing out these patterns as they appear and if I am not mistaken, every single chart pattern I have posted this year has reached its target.  I might be forgetting one or two but I don't remember any failing when they are on the chart as stand alone (meaning without conflicting patterns going the other way). Obviously, patterns do have a failure rate so we'll see how this one turns out. If 1623 support is lost, the next support level is 1614 which happens to be 26 points  from the 1640 high today or the exact length of the wave from 1649 to 1623 so the market could also be working on an ABC. Close under the TA is bearish and if not reversed the trend will go back to red, so a bullish wave has to appear in the next session or two. Last but not least, I know some would like to label the wave from 1649 to 1623 a bearish W1, problem with that is that there are only 3 waves on the micro count and then what could have been a W4, was invalidated when the bounce (1640) overlapped W1(1639).

I ended up selling the VXX position at a nice profit today and picked up XIV at $21.74, which at some point looked very good when it was over $22 but then it went all the way back down. Crazy volatility but it's a good way to get my morning adrenaline rush. Also, holding FXI which I did not position trade today.

Main S&P 500 Trends

Short Term Trend = Bearish Trend Being Challenged

Medium Term Trend = Bullish

Long Term Trend = Bullish 

Short and Long Term Trades

Potential Inverse Head and Shoulder in the works

Before I add today's market analysis, I wanted to give an update on the shooting on Friday. Unfortunately several people died and this particular event happened right in my area, in fact the nut job lived half a block down the same street from my old address. It just goes to show that this gun issue debate affects everyone because no matter where you are in this country, there is always the danger of some lunatic going around shooting. And it is just sad that this is a reality we now have to live with. My area happens to be very strict with guns but when you can just drive a few hours and get an AR-15 and all the needed munitions legally, gun control doesn't mean all that much. I am just glad the gunman was neutralized before he could use what he had with him. People got lucky it was a Friday on a finals week with few students around, had it been just a week earlier it would have been a much bigger tragedy.

Anyway, the market.. as expected the rally continued to show its strength and I am hoping but not all that sure at this point the 1623-26 will be tested at all. As it is there is a good chance of an IHS forming that targets 1696. So bears better show up tomorrow or else we will see a break out to new highs and that won't be all that hard with all the short covering that will take place when key resistance breaks.  We've seen it several times already this year, so just be ready to position yourself accordingly. The TA is still neutral/bearish but it will turn bullish fairly soon if a reversal doesn't come soon.

I ended up buying VXX at $19.25 last Friday and I position traded FXI to better my cost to $35.97. Both positions underwater I might add but as I've said before, I enjoy a good challenge so I will try to make them profitable with the coming price swings.. we shall see.

Main S&P 500 Trends

Short Term Trend = Bearish Trend Being Challenged

Medium Term Trend = Bullish

Long Term Trend = Bullish 

Short and Long Term Trades

Corrective or Impulsive Rally?

The strong rally I posted about couple of days ago is here and now that the market has put in a strong wave, the main question is whether this is W1 of a 5 wave count or an ABC. Barring any surprises, an ABC move should take the market to the 1662-1674 level I mentioned couple of days ago and maybe sell off again 90 points? However, if this is a 5 wave count then I expect the all time high to be taken out and possibly end around 1700-1710 more or less. The market closed above the Trend Average and one more close above it will most likely turn it bullish again. So the TA might get whipsawed but when everything is settled, we'll have a good idea of where the market is headed next. But do keep in mind all those quick and simple corrections we've seen this year, this one might turn out to be just a bigger version.

Now I've got to go and talk to my ex since there was a mass shooting couple of hours ago at the library where she was just yesterday. Which happens to be the library at my old school and a place where I spent countless hours in my college days.. I hope nobody was critically injured and I wish there was a way to stop all these idiots from hurting innocent people.

Main S&P 500 Trends

Short Term Trend = Bearish Trend Being Challenged

Medium Term Trend = Bullish

Long Term Trend = Bullish 

Short and Long Term Trades

Rally to the Trend Average

The market started to rally today as I had been expecting but it decided to first test the 1597 level I mentioned a few days ago by putting in a low of 1598. And with that the original target of 1590-1600 I had when the first bearish appeared and the head and shoulders target have been met. Just too bad the market got there in a zig zag and not in the 5 waves I had been hoping for as I would have made a lot more holding VXX. Nonetheless, I will enjoy the ride on the way up and will load back up on VXX for perhaps another round of selling? But before I get ahead of myself, the market needs to get back to the TA level and overcome it in order to put in a decent rally. The TA is currently at 1637 and perhaps the market will find resistance and retrace on a W2/B wave then. If the market makes it to 1646 without a pause , then there is a good probability the all time highs will be taken out. As I said yesterday, I am labeling this bullish wave an X but we have to keep in mind the market has already corrected enough and gotten close enough to the 1580 ideal level, so it is free to zoom its way past 1700. The answer will be on the next bearish wave.

Main S&P 500 Trends

Short Term Trend = Bearish

Medium Term Trend = Bullish

Long Term Trend = Bullish 

Short and Long Term Trades

Strong Rally Coming?

The market broke the 1623 support today and as expected it sold off as there isn't much support except the 50 day ma at 1604 and 1597. At this point the market might start to stage a counter rally or test the 50 day ma/1597 first and then mount a potentially strong rally. The market is very short term oversold so I wouldn't be surprised if we see a rally back up to challenge the 1662-1674 area only to start another round of selling. The NYMO is at the most oversold level in the past year, which is interesting considering we had events like the Fiscal Cliff, Cyprus, Italy, etc. which were good excuses for a sell off. Right now, I don't think anyone is very clear as to the reason of the correction other than change in sentiment. The Feds cutting back QE is supposedly an excuse but with weaker economic data, I don't think that's happening. The Nikkei sell off is also in the background but considering that market rallied 80% in less than 12 months, why would a 20% sell off be a big deal? so in my opinion, this is just an opportunistic correction that was well predicted and it is just a matter of time when sentiment will switch again and then all of a sudden good news will be good news and bad news will be great news. Also, I should add that I am expecting the next wave to be an X wave but given the fact that the 50 day ma has been technically tested and the low today comes somewhat close to the "ideal" 1580 level I first talked about before the correction started. The coming bullish wave might turn out to be a W1 but I still think it'd be better for the market to rally after another round of selling so we'll be keeping an eye on the main indicator, the Trend Average.

I ended up selling VXX again for a profit early morning and went long FXI (China ETF) at $36.08 but before 1623 broke. But again, profit is profit so life is good. I also initiated and closed a small XIV position, which I will take a small loss should the market start the rally from here. If not, I will be buying back at support.

Last but not least, another sign a bottom is near..

Main S&P 500 Trends

Short Term Trend = Bearish

Medium Term Trend = Bullish

Long Term Trend = Bullish 

Short and Long Term Trades

Market Update

The market continued its bullish bounce this morning only to be almost completely reversed by late afternoon by testing the 1623-1626 level again. It remains to be seen just what the market intends to do but so far it's looking like a double zig zag correction. So there's a good chance the markets will move sideways or trend slightly bearish for some time and setting a base for another multi-month rally. At times like these, the best is to be positioned according to where the Trend Average is.

I ended up day trading and made some money. I was planning to stay out until seeing a good trade set up but I bought 1/4 of my normal VXX position for the thrill of it (and the fact that the TA is red), so we'll see how the market holds if 1423 gets tested again. If 1623 breaks, there isn't much support until 1597.

Lastly, as I mentioned couple of weeks ago when the correction started. When we start hearing from fear mongers on the news, it will be a sign the market will be getting to rally.. here is Marc Faber who has recently popped up again on the news (as predicted!). He was "100% sure" of a worldwide recession for 2013 and scaring everyone last year.

http://www.cnbc.com/id/100788714

On this interviews he doubts there will be new market highs.. which means, there WILL be new highs. Also, he says China is a bubble and is not growing as fast. But then at the end he says he is planning to buy Chinese equities? .. I have been 100% long on Chinese equities and will remain so for quite some time. We'll see who is right in couple of years.

Main S&P 500 Trends

Short Term Trend = Bearish

Medium Term Trend = Bullish

Long Term Trend = Bullish 

Short and Long Term Trades