Friday, May 29, 2009

Transports were the tell

I'll post some bigger picture charts later this weekend, but for now just wanted to take a quick look at today's crazy tape.

This morning I said, "Watch $TRAN and IYR here, how they react to this resistance is important" and included these charts. In my view, the day's bullish bias was hinted at when the Transports took out that diagonal resistance with ease, and was confirmed when it busted that yellow fan line by lunchtime. It took IYR and everyone else a while to follow, but eventually they did.

I'm well aware that in reality the Transports lack the significance they once did in the time of Charles Dow, and therefore shouldn't be seen as any more of a bellwether than any other sector. Nevertheless, the mouthbreathers take Dow Theory as gospel truth -- so at the very least I try to keep an eye on them.

Secondly, yesterday I postulated that we might be nearing the end of Minor X of Intermediate X, and that I would be tempted to short a gap up to my price target on XLF. We did in fact gap up to my target but sold off in less than 2 minutes -- too fast for me to even enter an order.

However, if that gap up was indeed the end of Minor X, we should have seen substantial selling pressure on XLF as we began Minor Y. When it didn't come, it was clear that something else was taking place (below is a chart of one possibility). That, combined with the extreme bullishness of $TRAN, was enough for me to forget about shorting anything today.

However, there are plenty of other counts that are valid, including that we've already finished Intermediate X and just kicked off a massive rally into Intermediate Y. Or a slightly less bullish scenario would be this alternate count. If I seem uncertain about the short term picture, it's because I am -- which is why I continue to spend much of my time in cash as far as short term trading is concerned.

Have a good weekend.

Watch $TRAN and IYR here

Their reactions to this approaching resistance is important...

Thursday, May 28, 2009

XLF - Minor X of Intermediate X almost complete?

This would mean Minor Wave Y down is next to complete Intermediate X, before Intermediate Y takes us to new highs. The good thing is that we should find out very shortly if it's accurate!

This is merely something to keep in mind, not bet the farm on.

UPDATE: Here's how we ended the day. I did not short the close as I saw no compelling reason to do so besides this speculative count. Tomorrow's open should provide some clarity as to it's accuracy. A nice gap up would be tempting to short, but not automatic.

Wednesday, May 27, 2009

FAZ trade 5/27/09

The Chicken Oscillator once again delivers cash money. I expect the downside to continue tomorrow, but I closed the trade at EOD anyway. I'm interested to see whether the support I mentioned here holds. If it breaks, there will be plenty of time to jump back on board the train. Frankly, I've done extremely well lately by not holding overnight and I see no compelling reason to change that right now (although I hope that changes soon).

Range is tightening

So we did in fact end up turning at the levels I pointed out yesterday. Now once again it looks like we're headed to test the support that's just below us.

The good news is that the range is tightening and should be broken, one way or the other, soon. Here are updated charts:

$SPX got rejected at it's controlling fan and is now headed back towards its lifetime fan at around 880-ish. A close below that level is significant, obviously.

$TRAN is headed back to The Alamo. A sustained break is huge in my book.

XLF has that yellow magic fib fan a few nickels below. If it breaks, the target is the next green line.

Keep a peeper on IYR the rest of this week. It's range is ridiculously tight so it should be easy to spot a break and get an important clue about the overall market direction.

Just to be clear, I have no idea which way this thing will break. I'm merely pointing out levels to watch in determining the direction of that move.

Tuesday, May 26, 2009

Intraday update: Pausing at resistance

These are all fairly significant levels... we could be hitting a wall, or we could just be catching our breath...

UPDATE: We ended the day at these levels so that's what I'll be watching tomorrow.

Friday, May 22, 2009

Weekly Charts

This past week was a great reversal for the bears. It began with bulls in control of the key levels I'm monitoring on the indices and ended with the bears scoring significant wins.

$SPX has lost its lifetime fib fan, which puts right back into The Gap of Misery. Hopefully it will be less miserable this time.

$INDU got rejected at key resistance then fell through key support.

XLF is the most stubborn of the group -- it refused to break below that yellow fan line.

But QQQQ and $TRAN are the charts I'll be paying the most attention to this week.

$TRAN looks like it's caught the swine flu. For weeks I've been blabbing about the support zone I've dubbed The Alamo for the bulls. Thus far the bulls have defended the Alamo as expected -- but it looks like Santa Anna has called in the reinforcements for another attempt to storm the garrison. Previously I've said that my gut feeling was that the support zone would hold until P3 -- I'm not so sure after last week's action. In either case, it's the canary in the coal mine so keep an eye on that zone.

What's most concerning to me about the Transports are the daily readings on the Chicken Oscillator.

QQQQ looks woozy as well -- it's 0 for 4 when it comes to a weekly close within the confines of that descending channel. How many more chances will it get before the market sends it lower to regroup? Also, this is the second consecutive weekly close below that key fib fan.

But again, it's the daily readings on the Chicken Oscillator that have me on high alert.

Wednesday, May 20, 2009

More on the Transports

$TRAN sure looks sickly here. With major support above and below, I think there's potential here for a nice, wide trading range to develop. More ranting about $TRAN here.

Fool Me Once

After I missed out on a huge short signal yesterday, Ms. Market gave us a rare shot at redemption this morning with a big gap up on XLF. I was instantly reminded of the wise man who said:

Truer words have never been spoken.

There were a number of things that made me jump all over this.

1) XLF gapped up but stalled well below one of our ridiculously accurate fibonacci fans.

2) She immediately started forming a triangle. According to EWP, triangles almost always occur in B's and 4's - meaning it was likely that the larger trend would soon reassert itself. Admittedly, my Elliott Wave kung fu isn't the best (read: frequently wrong) but at least it gave me another clue to watch.

3) Most importantly, my oscillator showed the same sell signal as yesterday -- the faster moving blue line backtested but failed to breach the slower moving white line. This is my favorite set up as it usually portends a hard move coming.

During the day I mentioned that my target for XLF was $11.60, which was the yellow fib. Today's low was $11.64.

Here's today's chart of XLF. My trading vehicle was FAZ, which I bought at $4.78 and sold at $5.45 once we neared the target. It could run some more tomorrow but there is just too much monkey business these days for me to feel comfortable holding any leveraged vehicles overnight. Lately when XLF gaps around one of these fib fans, it will usually try to retest it before continuing the move -- so if she gaps down tomorrow, hopefully I'll get a chance to reenter the trade.

Tuesday, May 19, 2009

+1 / -1

Sold the remaining portion of the FAS I bought yesterday when XLF failed to hold the green fib fan in the chart below.

When we didn't gap up above that line on the open I was suspicious. As I said this morning:

I don't like XLF hanging around underneath this fib fan... it needs to bust a move and get above it or it's going to bring out the chicken in me...
Shortly thereafter I ran for the henhouse. So +1 for me for making a good exit and completing a profitable 2-day trade.

BUT... -1 for me for failing to reverse the position. The chart below shows a very clear short signal that I just plain didn't see, though it's painfully obvious in hindsight - especially when combined with the failed retest of that green fib. In fact, it was a very similar set up to May 11. No good excuse, just wasn't paying close enough attention as I had other things going on today.

The chart below is XLF. As always, I use the leveraged ETF's (primarily FAS and FAZ) to exploit its movements.

Monday, May 18, 2009

Updated Look at Key S/R Levels

Over the past few weeks I've pointed out key support/resistance levels that I am monitoring on various indices. Today, they all paint a clear bullish picture. Could that change tomorrow? Sure. But as I keep saying, this is Primary 2 -- the bulls are in charge until it's over. The onus is on the bears to change the intermediate term trend - not on the bulls to continue it. Bulls continue to get the benefit of the doubt in my book -- and much more so now that they've taken control of all these key levels:

QQQQ has once again reclaimed its initial descending channel.

$COMPQ has reclaimed its lifetime fibonacci fan as well as it's initial descending channel. $SPX has bounced hard off its lifetime fib fan.

$SPX has reclaimed its intra-day Controlling Fib Fan.

$TRAN continues its up trend after testing the 50% line of its lifetime fib fan, which in my view is "the Alamo" for the Transports.

Finally, XLF appears to climbing its fib fans like stairs. It has now cleared the yellow 23.6% fan line after a successful retest of the green 50% line. In my view, a close above today's high of $12.37 will likely send it to the next green line at around $14.20. I do not think the retracement at $13.07 will stand in its way a third time.

Obviously my intermediate term outlook remains bullish. The good news from a risk perspective is that we remain relatively close to all of these key levels -- so if a bearish reversal is indeed imminent, it shouldn't take us long to figure that out. In either case, I will continue to play it small throughout Primary 2.

Second Verse Same as the First

This was literally a shot-for-shot remake of May 6. Gap above the yellow fib fan, pause, run for green fib fan. I played it the same way with FAS, but this time I closed 3/4 of the position at EOD instead of the entire position. I actually gave serious consideration to shorting the close but ultimately chose not to.

Here's a wider view of these fib fans that I originally posted on May 5.

Sunday, May 17, 2009

Key S/R Levels

On Friday $TRAN successfully defended the key support level I mentioned while the broader indices declined. I expect the Transports to continue to fight to hold this line but I would not be surprised to see it breached if $COMPQ accelerates to the downside.

That certainly seems like a possibility given that the Nasdaq lost control of its lifetime fan last week.

$SPX, on the other hand, is hovering just a few points above.

I'll be watching to see who is going to blink first as that should provide a simple way of confirming the short term direction of the market. Since the $COMPQ has been leading, I expect $SPX to follow but will wait for confirmation.

Bottom line: we seem to be at an inflection point and the short term picture should become clearer early this week. I'm leaning towards more consolidation but am in cash over the weekend. The mid term picture remains the same: this is Primary Wave 2 and the bulls remain in control until it's over. The long term picture is still horrifyingly bleak.

Thursday, May 14, 2009

$TRAN finds support

Please take note of this important support level on the Transports. As I predicted, $TRAN reached a significant turning point last week and has since retraced almost to the 38.2% fib off the March low. Today it's descent was stopped by, of course, it's lifetime fibonacci fan. This is the line that stopped the 1987 crash, the 1991 mini crash, the 2003 tech bubble crash, and Wave 3 last November.

In my view it is extremely important. The bulls need this line to hold and I expect it to be defended vigorously.

Wednesday, May 13, 2009

$SPX resting on controlling fib

$SPX closed either right on or slightly below the 61.8% line of its Controlling Fib Fan -- a line that the bulls have aggressively and successfully defended 6 times since the March low. This could get nasty if it is breached -- there's a lot of empty space below.

I can't believe I forgot to mention that $SPX also closed right at the 50% line on its lifetime fib fan (drawn from the 1932 low to the 2007 high). This definitely raises the stakes even higher for bull and bear alike. I've been monitoring this thing for weeks but I would have completely forgotten about if it weren't for T. Waffle reminding me tonight.

Mind the bloody fibs!

These 2 fibonacci fans continue to provide excellent set ups on XLF.

This morning we had very clean gap below the yellow fan line. Shortly thereafter we retested and failed. At that point, I sold FAS short, set a stop above the line -- and walked the heck away, unlike yesterday! I covered near the end of the day as we are already approaching the next fan line, and I'm not holding anything overnight during OPEX.

And here's my FAS short trade based on XLF:


As it turns out, I am not the Sofa King...

My initial instincts yesterday were correct and I was right to take a small profit on long FAS -- had I held overnight I would have taken it in the chops. :)

Tuesday, May 12, 2009

I am Sofa King...

Hey kids, can someone remind me what comes after 5 waves up and 3 waves down? I can't believe I sold my FAS... ARGGGHHHHHHHHHHHHHHHHHH!!!!!!!!!!!!!!!

Monday, May 11, 2009

Cubes hanging on to that old channel

QQQQ is really battling it out in defense of that initial descending channel that it has reclaimed. I'd want to see this broken hard before I put too much faith in the bearish case.