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!

babaro

Slightly down

SPX closed slightly down this week but the bullish momentum remains unchallenged.

Bears could probably argue that market is making lower highs and lower lows on daily chart and that daily DMI is just a little bit positive but the action remains bullish. Bears pushed market down a few times this week but bulls recovered nicely.

On intermediate time frame SPX remains bullish, the two hour chart shows a bullish EMAs crossing and SPX above rising SMA 120.

Cyprus crisis is not over yet but it doesn't seem to affect the US market too much which is bad news for bears. In general just a rumor of a crisis pushes SPX down, but it doesn't seem to happen this time. SPX remains just slightly bellow all time highs around 1,565.

It is possible that market refuses to correct because the Cyprus crisis may end soon (as soon as Monday). If Cyprus fails to negotiate an agreement with the Euro zone lenders we are probably going to see market moving down but it remains unclear how much the US investors are scared about this. The well anticipated correction may still refuse to occur despite Cyprus.

All the best!

babaro

Bulls claim the week

It's never funny to lose money but this is exactly what happened this week. After a "sell" signal that looked pretty convincing bears couldn't not move SPX further down allowing bulls to re-claim the trend. 

The whip-saw was pretty bad because I waited for bulls to close above the most recent high (1,530) to cover my shorts. The new "buy" signal was actually not that bad, around 1,515 for a 20 points whip-saw but I didn't believe it and waited for a few more days. 

This is not the first and certainly not the last whip-saw I am going to encounter. Now I need to move on  and reinvest on the long side. It's easier saying this than doing it since after such a whip-saw and market advancing 200 points since the last bottom I am not that confident that the rally will continue. According to TA the rally is going to continue but at the emotional level I find it hard to accept this fact. Emotions are always bad when playing the stock market but what can we do, they are part of us and we cannot get rid of them just by snapping the fingers. Last time something similar happened, in 2010, I hardly had the courage to re-invest on the long side and lost a big chunk of the new rally. Eventually market corrected bellow the level I exited but on short term that was a lost opportunity. 

What is curious about this rally is that the dollar also rallied since the beginning of February. A strong dollar is usually bad for the market but exactly the opposite happened this time.

In conclusion, I am out of the market right now but not long yet despite the fact that all the charts are screaming bullishness. I may go long a little bit but most likely I am going to be a spectator for a while and re-invest on the long side after a real correction.

All the best!

babaro

Nasty whip-saw

What I was afraid it did happen, SPX closed above the previous high, 1,530. It looks like we have a whip-saw here, "sell" signal followed immediately buy a real "buy" signal. I don't think bears will turn the market in their favor from here since everything seems to go in bulls' favor, positive weekly and daily DMI, higher highs on both daily and weekly charts. 

Time to give back some gains. As for changing the pair of EMAs here... I don't know. This is the second time in five years when EMAs failed me this way. I've got other whip-saws before but in the end it turned out that the initial signal was for real. 

I have three options here regarding the time frame I am trading, I can leave thing as they are, I can go to hourly chart or alternatively to 4 hours chart. The 4 hours chart looks tempting in the current market conditions since it gets rid of all the whip-saws I had in the past but the "buy" and "sell" signal will come slower than on 2 hours chart which will make harder to make money especially on the short side. 

It's not impossible to see SPX moving down from here (there is no such thing as "impossible" in stock market) but you know me, I am trying to play "the highest probability game" and the highest probability is that market is going to go up from here. In bears' defense I haven't noticed, neither yesterday nor today, a huge volume which questions a little bit the new highs seen especially those in Dow. SPX is still 25 points shy of the "all times high". 

I'll be back on Friday with more details.

All the best!

babaro

Another flat week

SPX didn't move too much overall but the week was extremely exciting. After a huge drop on Monday, that onset the "sell" signal, bulls recovered the lost ground and managed to finish the week 2 points above last Friday's close. This is the 4th week in a row with SPX finishing more or less at the same level but the last one was the choppiest of all. 

This morning bears pushed SPX to the level were the "sell" signal was generated but once again bulls managed to recover nicely.  I had a thought, for a split second, to cover my shorts but I resisted knowing that most likely market is going to go down for good relatively soon. I've seen this move before and I know that once the sell signal is generated market is going down no matter a few bullish days in between. As I mentioned last time, only once in the last 4 years I've got a "sell" signal and market moved up a couple of weeks later and advanced another 100 points until the next correction arrived. 

The bad news for the bears is that SPX found support in the morning exactly at the rising SMA 120. Also I noticed a small bullish EMAs crossing but again, this happened before so I am not really concerned. I will freak out if I see SPX closing above the previous high (1,530) but until then we are still OK. 

Daily chart shows SPX making a new high, but not too convincing, just  2-3 points above. Daily DMI is neutral at the moment. 

All the best!

babaro