SPY technically oversold

...and due for a (little) bounce. No question, there are structural problems in the macroeconomy and some major technical damage to the indices, but bears would do well to claim a small victory, take some profits and either go to the sidelines or reverse gears for a day or two.



It's time to get your list ready of stocks you want to own: GS, MSFT, PFE, KMB are some safe names. The last two have dividends larger than the 10-year Treasury. Even MCD and PEP have yields that are safe, although their stock price may pull back. For more aggressive investors, HCN, FTR, NLY are high yielders.

Remember that company earnings are still healthy regardless of what employment and other economic indicators may say.

Don't listen to me, these are not recommendations to buy or sell anything.

What the Cool Kids are Watching:

We are at support on the daily. See if the dip buyers come in here. MA's are still positive, but it could get ugly. Momo traders are all "talking about" going to the sidelines with lots of momo names getting taken out one by one. Today it's retail's turn. Transports are also at support, finnies have been dead for a while... altho Doug kass bought Goldman Sachs a couple days ago, so it might be a bottom, or Kass is wrong (again.).

Looking at the SPY (just to be more like Brian and to piss off Eric.)

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.

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.

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.

--------------------------------------------------------------

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?

Stating the obvious: Shorts are nervous

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.

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.)

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.

SPY Ascending Wedge

Above 114.22 would damage bear thesis.

The "Other 1-2-3"

...also called the "exhaustion pattern", is differentiated from the classic trader Vic 2B pattern, but is an attempt at calling a top nonetheless.

Looks upward, but a bearish case could be made with some type of 1-2-3 "exhaustion" pattern, or what T.Lo calls the "other 1-2-3" since this does not follow the classic Trader Vic 2B pattern.

If this were the case, the short-sale would be entered here or at the LOD from yesterday (= 110.60) with yesterday's high (= 111.784) as the buy-stop. Of course, the risk is that we keep trying to call a top and keep getting stopped out and die the death of a thousand cuts.

It seems the "other 1-2-3" is really as much a sentiment call as a technical set-up.

SPY: Where's the resistance?

Alright, Eric has pointed out that we have multiple levels of support, but where is the resistance?

1. Near term high (today) of 111.69
2. After that, we have 112 (the 50% retrace from Oct 07 highs to March lows).
3. Then we have the red bar high from Oct08, 2008: 119.34
4. Finally, the 61.8% Fib retrace: 122.41

SDS day trade [Updated]

Anatomy of a day trade. Big gap up today so looking for a short entry. Eric's pointer (from T.Lo) is to look for an inside bar on the 5-minute. Entered buy on SDS at 10:10 bar price 35.60.

Sell-stop is the previous bar low which is also low of day. Target is just below the biggest gap down bar or the 2-bar EMA, whichever comes first.

Sold half at 35.76 (below the 9:55am bar high) at 10:36am
Sold 1/4 at 35.85 (20-bar EMA) at 11:30am
Holding 1/4 for now.



--------------------------
Update 1700hrs 11/23

Sold remaining 1/4 near the close for $35.97

SDS scalp this morning

I'm pretty sure I did this wrong, but I got lucky for a small scalp. Using the 5-min chart at the open, we opened weak (strong on the SDS), so I waited for it to come back to support-- in this case the 20-bar EMA.

Once it hit that trigger, I waited for the buy entry at the previous swing high (36.92) to buy. The target for sell is resistance, in this case yesterday's HOD 37.10.

Sell-stop was previous bar's low and target sell was 37.08 to take profits. It worked for a 16 cent scalp.

SPY: Bullish vs Bearish?

We've had 5 up days after falling below the 50-d MA and the general upward trend from March has been respected. The case can be made for a bearish scenario as well as a further bullish move.

Bullish indicators: SPY is still above the 50-d MA. The trend is upward with a higher low made last week. The previous uptrends were 7-9 days and we are currently on day 5 of this one.

Bearish case: The uptrend is decelerating as evidenced by negative divergence on MACD histogram. SPY is now below the 20-d MA. Today we continued the uptrend with a higher high and IF this is a right shoulder of a bearish H/S, then we need to have a red bar or two.

SPY: Bullish Wolfe Wave?

This is what keeps bears up at night: the appearance of a suspicious Wolfe Wave bullish pattern. I still remain net short, but this warrants close observation.

SPY: Falling through support

Let's look at the longer view on the weekly. Last week was a big red pepperoni and this looks like a subtle warning ala Mamis. Strength in the US dollar was required for such a move lower in the stock market, so we continue to watch the DXY to stay above $76.00 and preferably $76.30.

The chart is necessarily busy and shows Elliot wave 5 resolving the motive with last week's high. Also, both Fibonacci price retracements and time extensions are depicted. Eighteen weeks passed from the March low to the July low. The July low resolved upward after the fake out a-b-c reversal. November 13 will be exactly 18 weeks from the July lows, so following the Fib time extension, this should be a significant date.

In July, the pullback was less than 38% and this pullback should be in that neighborhood if we follow Fibonacci rules. That would give us a target of about $95 on November 13th, which sounds like an aggressive pullback. We'll see.

The dotted red trend line is from the March lows as is the solid red trend line.

It's all about the dollar

OK, I'll chime with other traders who are harping about the latest market moves being inversely correlated to the US dollar. The longer term move from March lows, however, did not start out nearly as correlated to the dollar decline.

As the first chart shows, the SPY (red line) has risen 55% while the US dollar has declined 15% (the blue line is the UDN, the inverse dollar ETF)... correlation in direction, but not in the degree of movement.

The next chart shows the market for the last nine weeks, with the dollar and SPY showing near perfect inverse correlation in direction and magnitude. If the dollar shows regression to the mean over the next few weeks, or a short squeeze in the shorter term time frame, this should bring the SPY back to end of August levels of 104 or below.

Ambrose Evan Pritchard has an excellent commentary on dollar sentiment and economics, the news of its certain demise may be a bit premature.