Saturday, April 27, 2013

Here we come again

Somebody please help me take the foot out of my mouth! Another bad call from my part, here is the second whip-saw in the row (third actually but I didn't fell for the first one) during this crazy rally. It never happen before, I mean yes, I've got whip-saws but not three of them during the same rally. This is the most volatile rally I've seen in years. OK, bulls, I understand you are very confident, very powerful these days but why are you letting SPX slipping 60 points in a matter of days? Just to annoy me? 

I guess I have no other choice but rely on 4 hour chart which, once again, did not get whip-saw. Or even better I should forget about making money on the downside and focus on the next rally whenever is going to happen. 

The most interesting chart at the moment is the weekly chart. There is there a very nice support line that was actually crossed during the fake plunge but only for one day. Some people may argue that market is developing a "head and shoulder" with the support line I mentioned above as the "neckline". Well, this pattern is possible with one condition, that the "neckline" to be crossed before SPX making another all time high. 

It doesn't look like a textbook "head and shoulder since the right shoulder it is supposed to be shorter than the left one (not the case here) like it was in the case of AAPL which predicted a drop to 360 (AAPL actually dropped to 380, but this was a good enough prediction).

All the best!


Friday, April 19, 2013

Really frustrating

After getting a sell signal yesterday, there was no continuation today and SPX is now once again above SMA 50 on daily chart. Even worse, bulls managed to push SPX just above the support level on weekly chart.

So, despite EMAs bearish crossing, bulls remain slightly in control. Another bullish day on Monday with SPX climbing above SMA 120 will cancel the sell signal.

Let's look now on a longer time frame, on 4 hours chart. As you can see EMAs are not crossed on this time frame and price is above rising SMA 120. EMAs are closer to each other than was on February when I've got the fake sell signal, meaning that indeed there is more bearishness this time around but not enough to call the game in bears' favor.

Let's wait for Monday to see "from which direction the wind will blow".


Thursday, April 18, 2013

Sell signal

The correction seems to be here! Another day on the downside and  EMAs are giving a bearish crossing on two hour chart. We've seen EMAs crossing before and the market refused to correct but this time bears also managed to push SPX slightly bellow SMA 50, an event that didn't occur during the 5 months rally. 

SPX broke bellow support levels on both daily and weekly chart. In general, the most valuable support levels are those seen on weekly chart. Unless tomorrow is going to be a very bullish day I think this is the beginning of the highly anticipated correction. 

It will be really annoying to get the third whip-saw in the row during this rally. While a whip-saw is not impossible, I think won't be the case this time. Bulls should not be too upset if a correction happens here. They are in control on longer time frames and corrections are followed by powerful rallies. 

All the best!


Wednesday, April 17, 2013

Some bearishness

Monday was a pretty bearish day with SPX losing over 30 points but there was no continuation since on Tuesday market regained 2/3rd of previous day loses. Yet today was another bearish day letting one wondering what is going to happen next. Are we going to have another fake move on the downside or this time we are going to have the long waited correction? 

EMAs are almost about to give a bearish crossing but we saw that before without seeing market crashing. I must say this time is technically looking just a little bit more bearish than before. Compared to the last few instances when EMAs gave a bearish crossing and price moved bellow SMA120, we have now a pretty flat SMA120. During this rally SMA120 was crossed 3 times, but every time SMA120 was rising. 

I am not going to make a big deal about this, more important I think is to see if market manages to stay above or plunges bellow the support line on weekly chart. Also pay attention to SMA 50 (SMA10 on weekly chart), a level that was not crossed during this 5-months rally. Actually, in the morning, SPX moved bellow SMA 50 but ended the day above this level.

Obviously, there is a 5 months uptrend line that was not crossed during this rally. A move bellow this uptrend line may send a very bearish signal, even more bearish than EMAs crossing. SPX is actually slightly bellow this uptrend line but not enough to consider it significant. If tomorrow is going to be at least as bearish as it was today we may see all these support levels on all time frame charts being conquered. 

The daily chart doesn't give up too many clues, just another support level, somewhere in the 1,547 area.

Gold was hammered this week and has lost now more than 20% since its top around 1,900, meaning that we should expect further move down. I made a little bit on money by shorting GDX (via options) but unfortunately I closed the transaction way too soon. Options are a different kind of "animal" compared to stocks, you can win or lose 20-100% in a matter of days, or sometimes in a matter of hours. I was glad I made a 100% profit in a couple of days. Today the same "put" was valued 10x my initial investment. Wow! 

The key support level on GLD was $152. Once this level was surpassed the gold was in free fall. We are most likely to see fake rebounds but overall gold and silver are going down. At least for a while. 

AAPL suffered another set back today but I don't understand why are people surprised. The stock is in a bear market so moves like this should be expected. I don't venture in guessing where AAPL could stop declining, I am just repeating something I mentioned before, the "head and shoulder" pattern predicts a drop to $360. I mention this because the it was a very clear (text book) head and shoulder.

In conclusion, market remains strong on long term but shows signs of weakness on short and intermediate time frames. We may have an answer about market direction as soon as tomorrow. If this is going to happen I am going to let you know.

All the best!


Sunday, April 14, 2013

All time highs

Another extremely bullish week (36 points gain) and SPX has reached all time highs. As you can imagine there is no resistance ahead since SPX is wondering now in uncharted territories. This doesn't mean market will go up forever. It will correct, of course, but nobody knows when this will happen. As for the bear market ... there are no long term bearish signs so far. 

Weekly chart looks very bullish. The only bearish signal is a negative divergence in MACD. Notice the downtrend line on MACD diagram (since the beginning of the last rally) while SPX is making higher highs. 

Daily chart is also bullish. Daily DMI turned negative two Fridays ago when SPX slipped bellow 1,540 in the morning but now, once again is positive. From 1,540 SPX rallied 55 points to 1,595 in only four trading days this week, giving up just 5 points on Friday. 

Needles to say that SPX also looks bullish on the two hour chart.

Contrarians say that market is going to correct when nobody is talking about correction anymore. I must say I hear less and less people talking about correction so maybe we are close to one!

All the best!


Friday, April 5, 2013

One day up, one day down...

... this was the pattern in the last 13 trading days! Yet the gains were a little bit larger than the drops that allowed SPX to climb to all time highs(1,571). However, with today's drop SPX is just slightly above the level seen 3 weeks ago.

Once again the EMAs on 2 hours chart look like are about to give a bearish crossing. The last two bearish crossings turned out to be fake moves on the downside. Is the market really going to give a third whip-saw in the row? That remains to be seen.

Talking about whip-saws let's look on 4 hours chart, a time frame that didn't give any whip-saw in the last 18 months. I hate to go to this time frame since the "buy" and "sell" signals are coming quite late compared to those on 2 hours chart but keeping in mind the last two whip-saws, especially the last one that took a bite of my overall profit I might consider.

Alternatively, I can blindly obey the crossing on two hours chart without trying to outsmart my own system when it gives a "buy" signal just a few days after a "sell" signal. Looking back, the whip-saw was not that bad, "sell" signal around 1,490-1,495 and a new "buy" signal around 1,515 for a 20-25 points whip-saw. Unfortunately, I waited until 1,540 to cover my shorts. Emotions, emotions, emotions! Emotions are my great enemy when trading.

Daily chart looks a little bit bearish; notice the lower low (not that clear) and also the fact that daily DMI has turned negative.

Weekly chart also shows a lower low but weekly DMI continues to be positive.

It's hard to draw a conclusion when market goes one day up and the next day down. Some people may argue that market is overbought. The thing is, during a rally, market can stay overbought for a long period of time. Just because market needs a corrections doesn't mean is going to get one. It needs a catalyst, some bad news to move down for good. Let's see if market manages to break down the pattern (one up, one down) on Monday. today it went very bearish in the morning but afternoon bulls managed to push it up. It actually went bellow rising SMA 120!

Take care!