Thursday, August 20, 2009

SPY Purple Crayon Elliot waves

I rummaged through by desk drawer and found the biggest purple crayon I could find to do some Elliot waves. Using Fibonacci time extensions I found that September 18th would be the 38.2% extension from the October 07 high to the March 09 low. this could be a proper time for a near-term top in the market. This corresponds roughly with the 8 week pivot highs we have been getting as well.

Not much to hang your hat on, but it does tell us that the run-up from March is not excessively long or large from a percentage standpoint in the grand scheme of things.

Tuesday, August 18, 2009

My Rant on "Sentiment"

I'm not picking on Eric, but there seems to be this obsession with trying to determine "sentiment" based on news stories or bloggers' entries. How can anyone determine if the market is overbought or oversold based on a few cryptic remarks by random people?

Every individual trader or investor is an isolated bubble of sentiment, a conglomeration of fear and greed... except that one guy at Goldman Sachs who decides to buy a zillion dollars of RIMM and then the Nazzy takes off with AAPL and MSFT following. Also, if Newsweek, with a circulation of tens of million, has a cover stating the recession's over, or Barron's talks up a stock, sure this might have a material effect for a while... but blogs? and Stocktwits? Come on, dude. I'm absolutely at a loss to figure how some jamoke on Stocktwits, or Slope of Hope, or IBankcoin, who trades maybe 2000 shares a day can be any indication as to how "the market" will move. Are they indicative of some large population of market-movers? Doubtful.

I think this is why technical analysis was invented. There is no way to predict anything based on an individual's biases, especially an individual who 1) you do not know and 2) trades too few shares to matter, and 3) influences almost nobody, and 4) might change their mind in 30 seconds.

There is no way to really "know" where the market is going. To chase alpha, one has to play the odds: 1) buy high and sell higher, or 2) short sell low and buy back lower, or 3)perhaps hardest of all, find the elusive reversal. That's it. Those are the only three ways to make money in the market. Which scenario has the highest percentage? Certainly not throwing money at reversals... fighting the trend is a fool's game and the odds are stacked against it.

Sentiment cannot be determined any reliable way except to look at charts. Period. And even then, it's really playing percentages. If a stock breaks above it 20-d moving average, or above it's 50-d high, what are the odds it will tick up still more? 51%? 70%? That's the game traders play.

Reversals can be found, but for every successful call that makes $1000, there might be 5 false calls that each get stopped out for a loss of $198. Can you make money? Sure, but it takes eternal diligence and you have to take every reversal call on the chance it's the "big one."

Sentiment can be determined, but is it actionable? Was the NASDAQ euphoric in 1999? Absolutely. It was euphoric in February 1999 at 2300, and it was euphoric in July 1999 at 2800, and it was definitely euphoric in December of 1999 at 3600. If you had shorted that market looking for the elusive reversal in February, you would have been sweating bullets with a 100% loss by March of 2000 when the Nas hit 5200.

So where are we now? Sentiment cannot be determined with any confidence. Some people are really really bullish--- buy the dips! the recession is over!-- and others are really really bearish-- we're going bankrupt! the Fed and Treasury are incompetent!

The way to trade this sucker is to look for a trend and follow it. If there is no trend, then hedge or go to cash.

Other than that, just try to find safety in beta.

Monday, August 17, 2009

Renewed Belief in the Negatives

It's time to uncrumple the Justin Mamis model that I jettisoned about three weeks ago. The Bloomberg headlines tell the sentiment story: Renewed belief in negatives. The goldilocks economy is showing some gray hair and bald spots. No positive stories. We have a jobless, consumer-less recovery, and the rest of the world is even worse.

The mamis chart depicting market bottoms and the corresponding sentiment puts us at Point DD.

Then we plug in the Points on the SPY and see that the sentiment of shitty news matches perfectly with the beginning of Point DD. Target is SPY 80-85. The 38.2% time retracement is from the market high Oct 07 to the bottom of Mar 09 and ends at 38.2%, or Sept 09. I'm not sure if this would be Point E time target.

Having said all that, we'll probably bounce tomorrow.

Dollar is the key...

Robert Prechter, the Elliotician, says it goes higher as new wave of deflation hits.

Jane Foley at Forex says Euro weakness will lead to dollar strength.

Only time will tell. Continue to look at UUP 23.73. (Chart here.)

DRR is the double short Euro etf, and that may be another way to play it.

SPY Elliot waves

Currently we are in a Wave 3 of a downward impulse. And now we are in wave (4) of that larger wave 3. I'll look at exact targets, but wave 3 should get us to Eric's target of 96... what he is calling the potential "bear trap". This fits the model because the wave 4 may get some bulls back on board.

UUP near resistance

UUP strong today as the risk trades abates... but it is still below resistance and the a-b-c correction is still in play. Prechter and other technicians have called the bottom at 23, but let's watch this level of 23.73.

XLF Target with Elliot waves

XLF breaking through supports. Target on wave 3 is 13-ish. Next horizontal support is 13.71

Kaboom! Futures murdered.

China down 5.8%.

Eric's moccasin's are (finally) getting wet.

Dip-buyers today? We'll see who has the balls to buy here.

The risk trade is on the ropes.

Thursday, August 13, 2009

Wednesday, August 12, 2009

XLF downward motive on Elliot wave

On my Elliot Wave Theory analysis I see wave 3 from the downward motive ending at 14.15 (Push #2 of the 3-push down), which should be the maximum height of Wave C assuming we are completing an ABC "correction"... I said 14.21 for wiggle room and that's a recent day high. If this goes above 14.30, the thesis is off. IMO.

XLF and Fed day

Waiting for Bernanke....

XLF fell thru support yesterday and now is testing that level as resistance (of course). I'm net short. Also looking at WFC to fall apart.

Eric and Traderfeed's 2123

Always looking for the Holy Grail of buy-sell indicators. Eric was viewing Traderfeed's 2123 4-week hi/lo indicator as an oscillator. Just playing with the chart, I added a 5-day MA to this.

When the "oscillator" crosses the 5-d MA, this has given a fairly reliable buy or sell reversal signal... maybe not on the day, but pretty close. I'm kinda new to the, so I haven't figured out how to superimpose the SPY yet, but these inflection points do come right at intermnediate-term reversals.

Monday, August 10, 2009

XLF: bull flag or beakdown?

XLF is playing at crucial levels. Look for 14.10 to fail...

Thursday, August 6, 2009

Low Volume + NFP = short opportunity

No volume today. Everyone is happy right where they are with the jobs report tomorrow.*

That guy that JUST bought VNO for 58 bucks is very satisfied, I suppose.

I'm totally hedged right now. Beautiful day. Going golfing.

When the birth/ death adjustment gets corrected, the NFP will lay this market to waste... but no rush, the take-down will be orderly, so keep your powder dry.

* Crudele on NFP:

"The Labor Department doesn't screw around much with the July jobs figures that'll be released at 8:30 a.m. tomorrow.

"Last year it added only 25,000 jobs that small companies are supposed to be creating. It'll probably add something like that estimate this year.

"That compares with 185,000 phantom jobs added in June; 220,000 in May, 226,000 in April and 114,000 in March.

"So tomorrow's number will be the purest of the year. Viewing the July employment data will be like seeing a Hollywood starlet without her makeup. Be prepared to have your illusions destroyed."

AZO short entry set up

AZO has been in a downward move longer term and has now completed a shorter term corrective ABC. This is a low risk strategy in a toppy market. Short here with tight stop at high of day. This could break down and if it goes lower than 145.50 on any kind of volume, I will hold this as a swing trade. Otherwise my target is 145.10 to 145.50.

Wednesday, August 5, 2009

The funny thing is...

... I stole this chart of SPY from this guy, and I think I understand it (and agree with him).