Wednesday, May 26, 2010

Bear Market Resumes???

Please take a moment to look at the Weekly SPX chart above. This chart has been a great precursor to the market direction and as you can see from the circles marked on it, it has been pretty reliable. There are two proprietary indicators that i have developed in the last 2 years that have worked pretty well in predicting long term direction of the market.

If we take BOTH indicators together, the reliability factor zooms even further. This chart has for the FIRST time since march 09 rally, has given a Long term SELL signal. The upper indicator is racing down even faster. This adds credibility to the lower indicator, which is the primary indicator. Now, BOTH of them are in SELL mode.

As you can see, each time this indicator went to 1/-1, trend changed. If the upper indicator too accompanied properly, then we have winner on hand.

This indicator does NOT give targets. It just provides cues to market direction. Currently we have a clear SELL signal.

What does this even mean?

In short it means, if you buy put options or short stocks and come back in say 4-5 weeks or few months, chances are that you will be GREEN by huge margins. Probability of this thing going against you is extremely low as you can see from the chart yourself.

As always, take what it is worth at the face value of it. :-)

Good luck.

The Game - How the big boys play it

Stock market at least until last decade (1990's) used to be a real investing place where folks used to value companies based on their balance sheets and then park money for long term on the faith and belief that they had in companies.

Today, it is merely a game. Let me explain how it is played.

  1. Game begins with identifying the trend.
  2. Say, the trend is down.
  3. Volatility and IV is extremely high in that case.
  4. So you make up a FAKE rally and thus crushing on volatility.
  5. When that happens, options are priced at peanuts.
  6. Load up all your puts at rock bottom prices.
  7. Continue your descent and that doubles your investment in a day or two. How/why? Not only price is with you during the descent, but IV also works in your favor.
  8. Next is. Rinse/repeat until you have a fool proof way of playing this game and making money out of the casino.
Gone are the days when fundamental investing used to be "the in thing".

By the way, this game works both ways. Just 2) above changes and accordingly the play.

And please, do NOT take my word for it. Go ahead and check or even monitor this for yourself and you'd know what i am talking about.

Good luck.

Tuesday, May 25, 2010

IWM - Fib Price and Time Cluster

IWM has the MOST fibonacci price confluence around the 55 and 66 levels. Since we are currently trading below 66 and are most likely headed down, the next solid support would probably be found around 55 levels.

Time wise, the next major Time cluster confluence is on June 7th. It is possible that the current downtrend ends on that day around 55 or that it ends around 66.

Our Fib Price/Time clusters just gives the major confluence areas. Direction is something you need to figure out yourself. IMHO, 55 looks extremely odd at this time within about 10 trading days, so is 66 as well. Let's see how it shapes up.

Short IWM.

Good luck.

GDX - A Buy

GDX has given a clear buy signal today. Next stop could be around the 50 mark where it has a gap that it needs to fill up. If it crosses 51, it will retest previous highs of 54+ in the near term.

Long GDX June 50 call @ 1.65 with a target between 50-100%. 2.6 is the next resistance (gap), 3.12 is the final one after which all hands loose.

Good Luck.

FIb Confluence and Time Cluster

Per my analysis, SPY has the MOST fib confluence around 950 and time cluster is around 6/21. Does that mean we will reach 950 around that time and that is when we should even consider going long? Not really. It just means that lot of fibonacci numbers get crowded around that area and time. And hence there is a lot of weight and importance given to it.

We may and will definitely bounce back in between. However, i do not see any solid evidence of bouncing before that area.

This bodes well with my earlier call of 920 on SPX. Along with that XLF has major support around 13 (lower TL), which too works out well with our 950 SPX call.

So, as you can see, there are too many forces that are coming together and aligning around the 950 area to be ignored. Whether we get it or not is a different matter altogether. But something to definitely bear in mind.

Good Luck all.

Monday, May 24, 2010

Markets and how they work

Please see the above image and we will discuss this further. The above chart shows Trin/arms index (Black line) and S&P 500 (Red line)

From -
Trin/Arms Index

As a ratio of two indicators, the Arms Index reflects the relationship between the AD Ratio and the AD Volume Ratio. The TRIN is below 1 when the AD Volume Ratio is greater than the AD Ratio and above 1 when the AD Volume Ratio is less than the AD Ratio. Low readings, below 1, show relative strength in the AD Volume Ratio. High readings, above 1, show relative weakness in the AD Volume Ratio. In general, strong market advances are accompanied by relatively low TRIN readings because up volume overwhelms down volume to produce a relative high AD Volume Ratio. This is why the TRIN appears to move "inverse" to the market. A strong up day in the market usually pushes the Arms Index lower, while a strong down day pushes the Arms Index higher.
So as you can see above, BOTH SPX and TRIN have been moving up as siblings. And you call folks at Zerohedge conspiracy theorists from outer planet?

As they say in LV, Place your bets.


Update around 11:20AM.

Welcome to Palazzo, LV. :-)

Sunday, May 23, 2010

Weekly close negative - S&P will never see 1100+ again

This is going to be a bold statement. But if we close this week (week of 24th May 2010) below previous week, then there is a more than 85% probability that we will NEVER ever see anything above 1110 again during our lifetime.

This analysis is based on lot of trend dictating factors including treasuries/currencies/yields/risk taken together into account. Such analysis on a WOW (week over week) basis has turned negative and we only await confirmation this week.

In fact, some of these indicators/charts are currently at a 9 month low even though we are yet to make a 6 month low on S&P. This coming week is very crucial and unless we hold the 6 month low, we will clearly test 9 month low and on our way to 950 area in a flash.

Another influencing factor is that historically last week of every month has closed lower than previous week. This week adds more spice to the equation because if we do follow this pattern and close lower, then we have the potential of bear market hovering over our heads.

Let's see how it pans out.

Good Luck all.

Thursday, May 20, 2010

S&P - Downside Target 920

From the pattern matching system, the current downside target is expected to be around 920 and if the pattern fits well, this target will be achieved around mid July.

From mid july until mid sept, S&P will rise again from 920 to test the likes of 1100. After while we will resume the downtrend and potentially take out previous dubious lows of 666.

Of course, this is a very long term and stretch goal and there are lots of variables and hurdles along the way and hence this information should only be considered, informational. :-)

Things may change as we progress along.

Good luck.

Pimco - Why market is collapsing

Why market is collapsing

Bill Gross, the co-chief investment officer of Pimco and manager of the firm's Total Return Fund, told Reuters that "fiscal tightening momentum" is increasing in almost every corner of the world.

That comes as financial markets are exhibiting "a mini-relapse of a flight to liquidity as hedge funds and other leveraged positions are liquidated to preserve capital," Gross said.

Indeed, investors dumped everything, but Treasuries to raise cash. All major U.S. equity indexes dropped over 3 percent mid-Thursday while Treasuries rallied with the two-year note at only 0.7 percent.

Cash is still the King. :-)

Bear Market - Confirmed

In my earlier posts i stated that we need to hold the key level of 1110 on the S&P. 1100 at the least. But it was decisively broken today. I also clearly stated that we need to close reasonably UP even after having gapped down to have any bullish implications. However, the last hour left it's mark in history IMHO.

We have now clearly broken all supports and IMHO entered the bear market all over again. One of my charts has now broken the TL. Early april of last year it broke out and gave the long term buy signal. After a few weeks of struggle, it finally gave up.

The reason i was bullish was for the fact that we may actually kiss and move up. That is why i was stressing on TODAY being the action day. Today we decisively broke this TL, the last known support.

Look out below.

Good luck all.

Exhaustion run?

Dow lost almost 300+ points and most of the industries actually made new lows vs. S&P which did not. Could this be the exhaustion run that will turn around things. At the face of it, it feels like that. It is just an hour into trading and we still have whole day with us.

One thing is for sure. If we do close with minimal losses, then we are in the process of making true bottom. With the oversold nature of equities and also market wide indicators, it is only a matter of time before we pick up.

Another observation is that almost all of the stocks/etfs are today trading OUTSIDE of their major Put/Call action. This does not bode well for either those that are shorting or going long as equilibrium is lost. Hence, even more evidence that this will correct itself to the upside sooner than we can imagine.

Another major factor. During a real panic attack you'd rush to safer instruments. Dollar is barely positive. Gold is negative and so is silver.

One could argue that in a true bear market everything sells off and probably we are there. But are we there yet? Not sure. But the current action is definitely not good for bulls. Price/action needs to correct itself either ways.

Time will tell which way it is going. Today IMHO is the decision day. Either we close in such a fashion that will force us to think we have re-entered bear market or that we have made a significant bottom. I say the latter. :-)

Good luck.

Wednesday, May 19, 2010

10 more reasons - Stock Market Bottomed

Treasury yields (TNX) looking good.

  1. Crude extremely oversold and is about to turn around.
  2. Copper led the downside rally and it is now up 3 days in a row while market kept making new lows.
  3. CPC/NAMO/NYMO are all at extreme levels.
  4. EUR found a bottom potentially. This is the Beast. The number of shorts on this trade are so much that a counter short-squeeze will be much larger than anyone can imagine. It will take $$$ down and equities will make new highs.
  5. Extreme Pessimism all over the place.
  6. VIX at levels not seen since Lehman collapse, yet the current economic structure is nowhere near that level.
  7. Junk bonds have held on pretty tight all along the collapse of S&P from 1220 to near 1100. Junk is what folks sell out initially before they look out to equities.
  8. Almost everyone is a $$$ long right now.
  9. Look out at the blogosphere, everyone and everywhere is talking ONLY of downside action and not the other way round.
  10. Positive divergences on almost all indices and stocks on almost all of the indicators that are out there.

Having said all of the above, risk is still there. We MUST hold 1100 and actually close above 1110 for us to maintain the bullish bias. However, regardless of this, we are pretty close to forming a bottom if we have not already formed one via the above analysis.

Good luck to everyone.

ERX - Long

Though ERX is sitting just below a major support line, whipsaws are common. With extreme oversold nature of Crude and energy, expect a retest of at least 38+. 48 if we continue trending higher.

SDS - Good Short

One should consider taking profits in SDS or place tight stop loss as it is dealing with Huge resistance above as you can see from the chart below.

AMR - BUY with good risk/reward

AMR a GREAT buy right here. It is sitting right here on a very strong support. Markets will rally from here, best risk/reward ratio in AMR right now. You barely are losing 5% in lieu of over 15% gain.

Markets Bottomed out

Markets have today bottomed out. We have perfect positive divergence among many other things. Expecting a retest of 1150 - 1200 within the next month or so.


EUR Long call coincides with LONG USO call. EUR rally will take $$$ down and commodities up.

Long EUR

EUR has over 95% short interest and very little long interest. It has given a nice buy signal on daily charts today around 1.2345. :-) Nice number huh~~~