SPX overbought; AAII bullish

This is not favorable for bulls, short term. Gentlemen, start your hedges!

GLD, DBC shorts covered at target

Gold and commodities (discussed previously) have corrected and shorts were covered today. I had also gotten short silver with the ETF ZSL. Now I'm flat on precious metals. At the close today, with the market oversold on short term indicators, I opened small long positions on CAT and PBR.

Size. I trade f*cking SIZE. Bitch

Hilarious.

(hat tip barry)

Gold and Commodities overbought

Update on SPX Bearish Wolfe Wave

Yesterday I presented the targets and stops for the bearish Wolfe wave that developed. Target is the 1168.20 level and stops are the red trendline. The numbers on the chart are Wolfe numbers. Not drawn would be Elliot wave numbers, and by my calculation we are currently in Elliot Wave 4 since this morning and Wave 5 should start before the close today.

Disclosure: I am long FAZ, UUP, DZZ, QID; short WFC, AMZN. These holdings may change before the close today, but UUP is a longer term holding.

$SPX 30-min Bearish Wolfe wave

On short term basis the SPX is bearish. Stop is the red trendline.

Update of GLD Bearish Wolfe wave

A couple weeks ago I showed that GLD was giving us a test of top. As of today, the weekly is showing a bearish Trader Vic2B reversal which is consistent with a developing Wolfe Wave.

I sold all my longs since January and even starting a tiny position in DZZ (ultra-short GLD). Shorting individual miners could be another strategy-- many are exhibiting bearish patterns as well.

QQQQ: Bearish Wolfe Wave

QQQQ on 65-min chart is showing a developing Bearish Wolfe Wave and also a double top formation. If trendline breaks, enter short (or long QID) with target 48.80. Stop 51.75

Dow Dogs Update: 19.5% Gain

I've been holding the four Dow Dogs since February and yesterday sold the three holdings with the greatest stock price appreciation. I realize this subverts the buy-hold strategy, but I'm gonna take my double digit gain and go to cash til January.

Dupont (DD) and Verizon (VZ) have been beasts, sporting over 4% dividends and outperforming the SPY in style. As I mentioned in February, my experience is that one holding will make up most of the gains, and this year DD has been the driver, with a 46% gain. Kraft (KFT) was sold as well with gains similar to the SPY at plus 10%. Only MRK has underperformed the index, breaking even for the time period, but it's 3 dividend payments have assuaged the pain.

As of today, the four holdings have returned 19.5% including dividends, versus the SPY which has returned 8.8%. Remember these were bought at the February market dip, so the returns are a bit better than YTD.

Since I'm always looking for an easier, cheaper way to get returns, I compared the Vanguard Dividend Appreciation ETF (VIG), and this was up 11%, and although the management fee is higher than SPY, the returns are similar or slightly better. The Dow Dogs strategy is really not going after index gains, however, it's trying to find the racehorse with a low risk portfolio. This year's Secretariat has been Dupont (DD).

With a nice gain for the year and elections coming up, I think it's a wonderful time to sit on some cash.

___________________________________

As an aside, if the Dow Dogs were chosen today, the picks would be ATT (T), Merck (MRK), Pfizer (PFE) and Kraft (KFT). Remember we throw out the highest dividend producer with the thought that there may be something fundamentally wrong with that company. In Verizon's (VZ) case, however, the higher yield is due to a recent dividend raise and not a stock price drop, but don't try to overthink it-- the strategy is designed to be simple and safe.

Gold: Bearish Wolfe wave...

developing on weekly? Do not short this too early, but here are the targets if it breaks down. This works like a test of top. 127 would be a point to consider lightening any long positions.



Disclosure: I'm long GLD.

Dogs of the Dow Update

In February I funded my IRA and split the total among the 4 Dow Dogs. After six months, they are up cumulatively 7.8% plus 2.1% dividend over that period for a total return of 9.9%. This beats the S&P index handily. The best performing holding has been Dupont (DD) and the worst has been Merck (MRK). Verizon (VZ) and Kraft (KFT) have been near the index performance.

IWM Bearish Wolfe Wave developing?

SPY Weekly- Doji did not confirm for bears

Last week we were seeing some uncertainty with a weekly doji, and were looking to see whether it would confirm with a weekly down bar. It did not.

They don't ring a bell at the top, folks...

...we need confirmation next week.

SPY short: Worth the trade? UPDATE below

For intellectual pursuit, let's look at the Elliot Wave and Wolfe Wave hybrid set-up for an intraday short on SPY. We had a nice upward motive followed by the a-e "corrective" phase on Elliot wave. Bulls would say this is a bull flag, but this does show a moment of indecision in the trading, it could go either way.

If someone wanted to enter short, the down sloping white lines would be the targets, based on Wolfe Waves. But is this tradable? Odds are that this will end in misery for shorts, but heck, maybe the 37th time is the charm.

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UPDATE 4-15 at 3:53 pm

Here's the result. Yes, shorts scalped a bit, but was it worth the trade? What's the target?

More bearish Wolfe Waves: XLF

See previous post for explanation.

Sell the Earnings News?

Bearish Wolfe Waves have not triggered very often for this latest uptrend since Feb 5th, but the set-up has reappeared yet again. On April 7th to 8th, the Bearish Wolfe triggered and got to the second target area for a small profit.

Now, on the 65-minute chart, we had an evening star doji Monday at 3pm and a bearish confirmation into the final hour. This is similar to any test of top with a blow off that comes back into the trend channel: the same idea as a Trader Vic2b. With this relentless low-volume rally, only the first or second target has been met on these small pullbacks. My "feeling", however, is that this bearish Wolfe can give us a deeper pullback this time... and Eric has sentiment pegged. Newsweek even gave us a beautiful cover!

Let's review: Fundamentals are fair value or slightly overpriced; Technicals call for a pullback (we are even at Wave 5 from teh Feb motive impulse); Sentiment is wild, bordering on ejaculatory.

I'll go short and take one-quarter profits at each of the specified four targets. The stop will start at 120.05 and be ratcheted down accordingly to protect profits. Stalking a top like this takes discipline and patience or you'll die the thousand cuts.... be faithful to the stops! My longs are still running, btw, with Teresa Lo's Dollar Core Portfolio fully funded and my IRA has the four Dogs of the the Dow.

SPY: Bearish Wolfe Wave

This is my most bearish scenario.

Update: Dogs of the Dow

Eight weeks ago I allocated my IRA into the four Dogs of Dow and so far, so good. February 5th was the swing low and my holdings have cumulatively appreciated 8.6%, although under-performing the SPY which has gained 10.6%. The best Dog gainer has been Dupont (DD) which is up 16%, and the worst of the four is Merck (MRK) with a 3% gain. Verizon (VZ) and Kraft (KFT) have intermediate gains. Only Verizon (VZ) has not gone ex-dividend since the purchase, and the cumulative yield of the Dogs is 4.5% annually.


I am pleased with the good performance of the Dogs so far; while they have not done as well as the SPY index, they should be a safe haven for my stock allocation for the remainder of the year.

Stating the obvious: Shorts are nervous

SPY: bear pattern in trouble

Last Friday the 65-min had a textbook head and shoulders pattern with negatiave divergence. A short was entered with Thursday's high as the stop, which was the "head". A less aggressive stop would be the top of the "left shoulder".

We reached the less aggressive stop this morning, but Thursday high also looks in jeopardy. The target of 1155 is miles away. This week will be interesting since a big NFP number comes out Friday and the stock markets are closed that day.

SPY: head and shoulders. Really.

Many bears have been imagining head and shoulders patterns for months, and they have been punished because they were actually seeing higher lows on the "right shoulder".. On the 65-minute I see a true head and shoulders. Bulkowski says this has a #1 rank out of 21 patterns in predicting success. Maybe this is why everyone is looking for the elusive head and shoulders pattern!

Today we have one. And it's the first one I've seen in a long time.

SPY is a puzzle (or a mystery)

Which indicates it may not be trade-able here. Last week, we correctly indicated a Wave 3 and now is into a flattish Wave 4. This could churn going into Wave 5. The other scenario is Trader Vic 2b if it breaks below 115 with volume. The danger is that shorts could get trapped below 115, so be careful.

Sectors may be more prudent here than attempting to trade broad indices.

UUP: Completing Wave 5

Last week, I noted that UUP was completing Wave 4 and ready to make an upward move. Now we may be getting ready for an Elliot Wave a-b-c corrective, but overall this is a strong basing pattern on an intermediate time frame.

US dollar-- UUP-- ready for upswing

Using Elliot waves, the UUP is completing Wave 4. The US remains the "leper with the most fingers" as far as international currencies. Anyone who believes that the Eurozone can dissociate itself from Greece is dreaming. Of course, we have California to worry about.

Bonds and Asset Allocation

I admit I never looked at a stock table, the WSJ or even knew what a mutual fund was until I finished my ob/gyn residency in 1994. Once out in the real world, the surgeon’s lounge had no text books or journals and only the WSJ to read between cases. I began reading books by John Bogle, Charles Schwab, Charlie Munger… I got addicted. The fact that the “tech boom” coincided with my peak accumulation years only fueled the fire. I socked away a ton in mutual funds and did well.

It's all about 'volatility-adjusted' returns. In the 90’s I rarely beat the market but it was okay because I had double digit returns year after year. I lagged the market returns but did so with very little volatility. When the crash happened in 2000 I survived because I had bought into Bogle’s principle of diversification with bonds which decreased my volatility. Since 2000 I’ve handily beat the market every year until 2009. This is ALL because of the bond allocation.

Nobody leaves the casino happy: the losers wish they never came and the winners wish they had put more on their bets. The important thing is to not worry about performance and comparisons… but enjoy the process. If I lose money but did everything correctly, oh well. When I stop enjoying the process– *the game*– then I’ll take my ball and go home… I can always dump my assets into a balanced fund (or follow Teresa Lo’s allocations) and go golfing.

Elliot Ending Wave 3; Vic2 B test of top

Interesting charts. This market is is showing several signs that a significant pullback is imminent... which, of course, means that it won't happen. In the last post I showed bearish Wolfe Waves in two time frames. Today, we had a successful Trader Vic 2B test of top with a bearish hammer, if it confirms with a down bar Friday.

Also, we are nearing the end of Wave 3 upward motive. Apparently the Elliot Oscillator can be used to differentiate between Wave 3 and Wave 5-- always a problem for me. It will reach its extreme at the end of Wave 3 and Wave 5 is less extreme on the oscillator.

Finally, the market is extremely overbought here and due for a pullback (although never a guarantee.)

SPY Wolfe Wave-- Bearish view

On the daily chart, I can see a Wolfe Wave pointing to a bearish target. I'm not sure of the statistical success of this scenario, and entry is tough (see lower chart).




On the 65-min, I see another bearish Wolfe wave (lime green). The entry is below the lime green trend line and it looks like it's beign defended today. No weakness in this market (so far). Be nimble.





FWIW, IWM and other indices look similar.

Update: SPY Wolf Wave

The Nonfarm Payrolls this morning came in okay at -36K and futures, which were up already, are acting favorably. Traders like this number! This is a classic melt-up on this swing high and correlates very well with the Wolfe Wave. Looking at 130-min, I think it's time to start stalking a down bar for a short entry-- go short 1/2 position below previous bar low and add another 1/2 short position below the swing low (about 112).

I'd still hold tight buy-stops on short positions at the high of the previous 130-min bar or daily bar, but a correction will be fast and furious, so set your entry sell-stops now.

Spy Wolfe Wave says higher...

...short term, then we fail a test of the top. We are at significant resistance here on the 61.8% retracement level.

Update: IYR Wolfe wave bearish

Earlier today I presented a trade set up. So far, so good:

IYR Bearish Wolfe Wave

SPX Elliot wave targets

Eric wanted me to explain my crazy thought process on Elliot waves.

There were two potential Elliot Wave scenarios until recently; now the only valid one is the white lines and numbers below. I'll keep the green lines and numbers in only for argument sake and I'll explain why this isn't operable anymore after the chart.

The white lines show Wave 1 from Jan high to Jan 29 low of 1071.59 (that was a key level to remember, hence the red line.) We swung up for Wave 2 and then rolled over into Wave 3.

Wave 4 could be no higher than the 1071.59 level from Jan 29 or that would have violated the Elliot Wave mechanics. I know this sounds weird, but it works nearly every time: Wave 4 cannot swing higher than the lowest point of Wave 1. This is why I was stalking this level so closely today looking for a short entry... and it happened at around noon when it began to roll over.





For a while I was thinking that the green numbers were operable, but this was violated on Feb 2 when Wave 4 creeped above the low of Wave 1, so that told me that Wave 1 extended down to were (3) is and we were actually still in Wave 2.

The Wave 5 target for the white Elliot waves is between 1011 and 1030. Wave 3 cannot be the shortest wave, so Wave 5 cannot go below 1011; a more likely target is 68% of Wave 3, which would put us at 1030... game theory.

Even if this were an ABC (green lines), the most conservative target is a test of the low at 1045... game theory was a target of 1050 for today. We didn't make it, but I had to close out my day trade (TWM long) since I'm away from the computer tomorrow. I set my target for the day on TWM at 27.95 with an entry at 27.42. The 27.95 corresponded to the 2-d vwap on IWM, whcih Brian Shannon had tweeted this afternoon. I thought this would be a good exit since buyers might come in on the 2-d vwap.

I'm still net short with swing positions is RSX (short), FXP (long), TAO (short) among others. Small long positions in XLV, XBI, SYK are my hedges.

Dogs of the Dow

Today I funded my IRA and employed the the Dogs of the Dow. This is something that I had done with regularity in the 1990's with success, but got away from it the last few years for various reasons. The thesis goes like this: The Dow stocks represent a varied cross-section of the stock market and the "Dogs" are those members who are most undervalued using yield for valuation.

Instructions: Take the top five yielding stocks, drop the top yielder since it may have some fundamental problem, then invest one-fourth allocation into each of the next 4 in rank. The ranks will change almost daily and the picks should be held for one year. One variation is to use only those stocks selling below $30 per share, called the "small dogs", with the thought that stocks with higher share price are not as desirable. Since the current four doggish stocks are all near $30, I didn't use this screen.

Therefore, I put one-fourth allocation into each of Verizon (VZ), Dupont (DD), Kraft (KFT) and Merck (MRK), with an average yield of just under 5% which is better than long term Treasurys. In my experience one or two will largely outperform the others, and since it's completely unpredictable a buy-and-hold discipline must be respected.

One unintended bonus: I went long on these four names at 2:00 pm which inadvertently pegged the day's bottom; it's always good when a long term holding gets a 1% gain in the first two hours you hold it. There, now I jinxed the strategy.

Greece's "hidden debt". Oops.

Hilarious. You heard it here first, folks.

From January 6, I said:

The ECB has stated emphatically that they are not willing to forward any more bailout money to Greece and in response the Greek Finance Minister has said that he doesn't need any more help, thank you. “Hopefully what they will be seeing will be reassuring them that indeed we are moving in the right direction and they should continue funding our large debt,” he said. Hopefully? Think about this. What was he supposed to say in response to to the ECB's hard line, Well, then we're bankrupt? Not. The market seems to think this is a bullish statement, up over 4% today... I would be wary.

From today's UK Telegraph:

...a commission of experts in Athens told the country's parliament that it had uncovered €40bn (£35bn) of "hidden debts" during an investigation...

Huh. Who woulda thunk it?

Is Toyota a buy?

Down 12% last week and now rebounded 3.2% on news of a "fix" for the accelerator. Pro: Toyota has a lot of brand loyalty and this is their first significant recall. Con: Toyota is purchased for safety and reliability, not image, and this is a big blow to that brand. Also, macro environment for autos is suspect and it trades at a 24 forward PE, well above competitors.

Daily shows nice bounce... or is it a bear flag?

On the 10-minute, we see a bottoming pattern and gap that could be filled.

Buy above $80, but by macro market view is still bearish.

ES_F: Trader Vic or A-B-C ??

Update on the developing pattern. 1127.75 is key level for bounce or breakdown.

TLT and the Mamis bottom

Long bonds had an excellent auction today showing that the smart guys are pricing in a bit more deflation as the speculators are still chasing new stock highs. Bottoms form like this.

Jobs worse than expected, December retail sales worse than expected, gas prices tick higher, inventories tick higher, China a seething pit of corruption. Do the math.







Reminder: this is the classic Mamis bottom:

Trader Vic 2B vs. A-B-C ??

Either way, we should pull back to the trend line. A break below the horizontal would be bearish. A break above the recent swing high is bullish.

SPY Ascending Wedge

Above 114.22 would damage bear thesis.

Be Careful Bears

I went over some bearish Wolfe waves yesterday on SPX and EEM. Today we are seeing a respect for the longer term trend. My take is still short term bearish, but the indices must break prove themselves by breaking below the trend.

Bearish Wolfe Waves: SPY and EEM

Chorus of Positive News: January 1930

In January 1930, exactly 80 years ago, the news of the recovery was all over the press. TIME magazine reported:

Editor Marcus A. Rose of The Business Week: "Business will be good in 1930 for the lean, hard firms..."

Editor Richard H. Edmonds of the Manufacturers' Record: "I anticipate a gradual but marked improvement throughout the country."

Editor Ralph C. Busby of India Rubber & Tire Review: "Distributors everywhere in looking to 1930 have legitimate reason to be conservatively optimistic."

Editor Lester W. W. Morrow of Electrical World: "Electrical manufacturers are in splendid shape..."

President Louis Fairchild of Fairchild Publications: "A late Easter is expected to aid sales of men's, women's and children's apparel accessories."

Editor A. C. Saunders of Furniture Manufacturer: ". . . the business, valley will not be deep and will be crossed during the first quarter of 1930."

Editor Peter A. Stone of American Contractor: "During the year 1930 the volume of building construction work materializing will be greater than in 1929. . . ."

Editor J. S. Warren of Hotel Management: "During 1930 hotels should prosper as a result of the intensified sales efforts that most manufacturers and others will make, in that more salesmen will be on the road."

Editor Carl W. Stocks of Bus Transportation: "The year looms bright for the industry."

So how did we do with all these glowing predictions?

Yellow shade is the calendar year 1930 which started out at 267 and ended down 38% at 160.... and proceeded to bottom in 1933 at 50 points.

Dr. Pangloss never dies, and deflationary cycles tend to rhyme. My guess: we are at about April of 1930 today.