Thursday, July 22, 2010

July 22 EOD Update

Short and sweet (or bitter... )

Rally today did cause a major dent in bear camp. But i really wouldn't give it 100 points yet. Since we are still more or less close to our entry prices or a barely negative, we did NOT close our positions yet. We will watch the next few days and see how it shapes up. 1105 is the key level we are watching. Well, 1100 is ahead of it. Unless we break through both and stay comfortably for at least 4 hours, we will continue to hold onto our shorts.

It was definitely a brutal day for shorts. But again, you just accept it and move on.

Here's the trade...

Monthly Trend - Down
Weekly Trend - Down
Daily Trend - Today it turned to neutral-to-bullish
Hourly Trend - extremely bullish with extreme overbought conditions with NO divergence created since we shot up from 1050's.

Since our time frames are NOT intraday or a few days, we will go with what the higher time frames are telling us.

Regardless, risk management is important and hence we won't fight the tape if things get nasty for the bears.

Also, i have been extremely busy lately and hence would be only updating if our stance changes.


Wednesday, July 21, 2010

Observation on SPX movement

A very simple chart with very simple notations.

There are two zones here... One before the plunge in early may and the one we are currently in.

Zone 1 is in BLUE and Zone 2 is marked in brown.

Similarity in pattern between zone 1 and zone 2 CANNOT be a coincidence. This chart is much more scarier than it looks. Chart pattern we are currently in, looks horrifically similar to what we saw before the early may decline that wiped out 210 points.

However what we see now is that the size of that consolidation/distribution has increased by almost 4 folds. And the coincidence just doesn't end there. The actual numbers too match up just fine...

2nd trough from zone 1
1218.26-1183.71 = ~2.8%

2nd trough from zone 2
1130.89-1014.39 = ~10.3% (~4 times)

3rd trough from zone 1
1208.57 - 1183.71 = ~2%

3rd trough from zone 2
1097.66 - 1014.39 = ~8.2% (~4 times)

4th trough from zone 1
1204 - 1188 = ~1.5%

4th trough from zone 2
1083.49 - 1062.13 = ~2% (~ the same)

Basically we have 2 exact troughs and one minor one which didn't even make it as much as the previous one.

What followed was a massive 210 points down. Does this mean we will get something like ~4X210 = 840 points down on SPX? That cannot and will NOT happen. Not at least practical. And since i am NOT a big proponent of "gloom and doom" and "crash theories", the only thing that i can say is that the above chart is too coincidental to be ignored. This suggests we are going to see BIG moves to the downside.

Now, whether this actually happens or not is a different story.

PS: The above article is NOT related to our investment/trading methodology and charting. It is merely an observation that was just too much to be ignored and hence i thought of putting it up for others to grab.


July 21 EOD Update

Breadth and Breadth. Guys, this is what i have been repeatedly stating for a while now. Market is a TOAST, Literally. What you are seeing is just exhuastion plays by MM's to chicken out as many as they can. If you were long or short in the last 3 weeks, you would have probably wiped out your account had you been trading heavily the 3X etf's. A/c wiping out in 3 weeks???

Yes, this is what they did. Nothing changed and as you can see from the above chart. All of the Trendlines are pretty much intact and doing pretty good. All those who were able to double down or add more shorts to their existing position, you were one of the extremely lucky folks i'd say. :-)

If you look at ANY 3X Bear ETF, you'd see that they are almost all in a HUGE consolidation within a tight range for the past 2 months. They are ALL ready to breakout. Once they do. I can almost guarantee you that they will DOUBLE within NO time and will actually consolidate at those prices before making any further moves.

Hold onto your precious shorts guys. You will be handsomely rewarded.

PS: Do NOT play options unless you know what you are dealing in. These whipsaws, ups/downs remove any profits that you would have otherwise had.


Breadth Trading - ONLY thing you would ever need

What is breadth trading?

If you just follow one single stock or a sector, it is extremely likely that you will be whipsawed. Because at any given point in time there will be "some" sector or "some stock" that is going against the entire market trend. Hence, to reduce further whipsaws, you should inculcate "breadth trading".

Instead of just following one stock or sector, follow the bullish/bearish signs across ALL the sectors. One single stock or sector can never move the entire market. It needs some company. Hence, the bottom line is that there ought to be at least 2-4 sectors that are "outperforming" other sectors.

How do you figure out breadth? You can always just monitor ALL the sectoral ETF's on a carpet. OR, you could use Bullish percentage index on

BP as it is referred, is a culmination of ALL the bullish Point and Figure charts for a specific sector/index.

For example, $BPSPX is S&P 500 Bullish percentage index. What that means is, it shows how many stocks in S&P 500 are showing bullish Point and figure charts. Point and figure charting is completely different from candlesticks and you can read more about it on itself. What we are trying to address here is "breadth".

If BP rises and continues to do so, it is undoubtedly a confirmation that the trend is UP. If BP is NOT rising or struggling hard, that literally means MORE stocks in that umbrella are broken beyond repair and are unable to reverse their course.

Always check BP for confirmation of whether a specific move is being supported by the entire market participants or not. Market markers can pump ES/futures/spy and move the market if they like, but if there is NO support behind them, then market will go nowhere but where the majority is.

Put it in simple terms. Just because you have the BEST soccer player in the world in your team doesn't mean you will always win. Why? At the end of the day you would need support from ALL the other players to make it happen. Likewise, just because one stock or sector makes new highs doesn't mean it will take the entire market to new highs.

Breadth trading is something that i learned the hard way. And am very comfortable sticking to it.

Very simple explanation of BP, can be found Here.


Tuesday, July 20, 2010

July 20 EOD Update

In all our earlier updates, we have been showing this inverse chart and stating how bearish things are. Today, we thought let us for once hear out our friend Bulls and use the Bullish case instead.

The above is a "go long" chart and is inverse to what we present all the time.

As you can see, we are just making lower highs and lower lows here. Indicators are mostly balanced out as there are divergences on both sides of the coin. Negative as well as positive.

Since today's action was "extreme", we do expect some sort of follow through tomorrow. But we still are sticking to our theory of 1000 and below before we even try any attempt at 1100. Stocks do NOT just rocket higher without first creating a) divergence and/or b) higher highs (if it were to move even higher).

In our case, we have NEITHER at this time. Hence, our case of 1000 and 950 still stays strong. Today was a "dream come true" for all those who either wanted to go short or were able to play the "massive" swing by closing shorts early in the day and then going short again at EOD. :-)

Not ignore the "bulls", most of our indicators have turned neutral now, as opposed to extremely bearish. What follows through in the coming days will dictate which way we end up.


Monday, July 19, 2010

July 19th EOD Update

Once again, a very lackluster day. Nothing really changed as you can see from the above chart. Still short and strong. All we did was cycle back some of the extreme oversold conditions on hourly charts. As you can see from the above chart, we even have not yet BEGUN diverging. Which means there is a Looooooooooooooong way to go (down that is).

Stay put. Unless something changes on the above chart, and explicitly stated on this blog, it is safe to assume we are still LONG all of our portfolio of ES short (1088), FAZ, DRV, SDS and TZA. All of them bought between 12 and 14th of July.

PS: Stay tuned guys, a BIG move is coming to the downside. We will take out 1000 and even 950 shortly.


Friday, July 16, 2010

How is our Indicator doing?

We have been SHORT since ES 1070 and 1098. Just browse through our blog and you will see each and every day we have been strongly advocating Shorting for the last 4 days. 12th morning is when we started shorting and are currently sitting on a neat profit on all of our holdings, namely, ES, FAZ, DRV, SDS and TZA.

Is this story over yet? Without going into the technicals or macro-economics, just simply look at the above chart. We are clearly making Higher Highs and Higher Lows on this chart. Which means we are going to make a lower low than what we recently did on SPX.

Also note that the PACE of this advance/decline has been on the rise. Look at the angle of the first higher high line and the second one. BOTH, the duration AND Pace has increased. This is owing to the underlying volatility.

Bottom line is, We are going to make a NEW high and that NEW high will probably be dictated by the upper TL from the recent high that is parallel to the new lower TL with higher degree.

Things will clear out sometime in the next 7-15 days.

PS: I see a lot of folks saying that we are oversold and that things just don't go straight in a line and that we will see some upside moves. Since i just go with the above chart, all the ups/downs is noise to us. Unless the above chart tells us, we don't trade otherwise. The above chart has successfully tracked the Last to up/down moves ranging from 7-10% moves.
Adding to the above. A great analogy is "Climbing Stairs". When you are climbing, it takes a whole lot of effort for you to climb up. Climbing down the stairs is always with lesser effort and MUCH faster. Likewise, for all those who believe that we won't go down faster, please at a minimum have Strict Stop loss in place.

Have a nice weekend