Wednesday, June 5, 2013

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 

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