Tuesday, March 30, 2010

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.

Friday, March 26, 2010

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.

Thursday, March 25, 2010

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.

Tuesday, March 16, 2010

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.

Monday, March 15, 2010

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.

Thursday, March 11, 2010

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.

Friday, March 5, 2010

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.

Monday, March 1, 2010

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.