Saturday, December 24, 2005
Wednesday, December 21, 2005
As i mentioned on Monday, the 120-min on NDX was in a deeply oversold condition and a bounce was overdue. Today we bounced hard but reversed nastily into the close, creating a bearish backkiss on the hourly EMAs and a zero line backkiss on the MACD. This suggests that there's more work to be done on the downside. Today's high should remain intact for the bearish case here. If today's highs are taken out, it would confirm a reverse divergence setup on the daily charts, which would lead to new recovery highs on all the indices. I doubt that's the case given the rally failure today, but it helps to be open minded when it comes to trading.
Overall we remain in a overlapping choppy market. So these days i tend to trade the 15-min and hourly charts to maximize gains. Trading is not really a sophisticated game that requires one to use Fractal geometry, Parabolic curves, Gann angles, Neural networks Fourier analysis, Spiral calendars et al to make money. They all look sexy on the charts, but not add much to the trading bottom line. Throw in a bunch of EMAs to follow the trend and moementum indicators to signal the reversals and you are all set.
Good luck trading and happy holidays.
Monday, December 19, 2005
The hourly went on a sell on all the indices today - DOW, SPX, NDX and RUT on both momentum and trend basis. There were no-brainer setups to go short today, if one followed the 15-min charts. Here we are in a seasonally bullish period and technically awful looking markets.
The e-wave count on NDX got invalidated as soon as we broke below the lower trendline of the triangle. That's why it pays to watch the momentum indicators and not get married to the wavecount. The 120-min on NDX tells the story for today, which is extremely oversold. A -300 reading on the CCI(20) and it has hooked back above it. The Full Stoch is almost oversold.
The daily on the NDX suggests two possibilities, either a slingshot reversal from here or a trip to 1640-1645 where it meets the 60 EMA, just to get everyone beared up and another attempt at nominal highs. If we were to make any nominal new highs on the indices here, the upmove have to be swift i.e a slingshot kind of move. Instead if we churn sideways after the decline, the bear has started....
The daily CCI on the SPX is right near the zero line, where a reversal can start anytime. I am not too beared up on DOW and SPX at this point as far as swing trading is concerned. Both are right at the support zones. If we fail here, then 1240 (SPX) and 10680 (DOW) would be next major support zones.
Saturday, December 17, 2005
Friday, December 16, 2005
There's been a lot of top picking and top calling in the stock market. Let's examine what the markets are saying.
SPX Weekly - Momentum buy, Trend Buy
The weekly picture is very clear. We have a weekly breakout and the market is consolidating above the breakout line. Look at the CCI, which is yet to show divergences with the price. This most likely means the top is at least another 1-2 weeks away. The weekly Full Stoch is also rising and no crossover there.
SPX Daily - Momentum Buy, Trend Buy
The daily trend is up as evidenced by the EMAs and the trendline itself. The daily chart is a bit of concern in the ST term. The price is perched on the trendline, break of which could lead to the retest of recent lows. So far we have had 4 failed breakout attempts. Again we need momentum divergences here, which has not yet been established.
SPX Hourly - Momentum Sell, Trend Buy
Hourly chart is suggesting some sort of expanding formation here. Look at how the CCI is going from extreme to extreme, which is typical of an expanding environment. In a contracting environment, the CCI keeps oscillating around the zero line. Hourly is on a momentum sell, but is still a buy on a trend basis. If we take out the trendline from 12/8, we could see some serious selling, causing the EMAs to slant downwards and create crossovers, issuing a trend sell. Until the Trend and momentum are both on sell, it's a weak sell and one tends to accumulate a lot of false signals in the long term by taking those weak signals.
So for VST, i will go long on Monday, if we get a hourly momentum buy. If the hourly trend turns down, i will go short.
Thursday, December 15, 2005
The intraday pattern on DOW seems eerily similar to 10/3. High at the open and a nasty selloff and a sideways flag. We'll see if we get a big 2:00 PM EST selloff. Intraday pattern looks very similar, but the daily configuration is very different though. Just an observation.
I am looking to go short here, if i get a sell signal on the 30-min.
1:30 PM PST
Except for the initial spike and the thrust down (one buy and another sell program neutralizing each other), nothing else transpired today. I don't expect much to happen tommorow either, being a OPEX day, other than some crazy intra-day spikes. The hourly and daily trend remains intact so far and the bias continues to be to the upside.
Wednesday, December 14, 2005
I admit this rally is long in the tooth and can reverse nastily anytime. So swing trading on the longside is a risky proposition. One can make 20 points on SPX and give it all back in a day. Or worse enter at the top and lose big money. Best strategy is to wait for good 15-min or 30-min setups and daytrade the market with tight stops in the direction of the hourly trend. For instance today on YM, at 10920 there was a good 15-min momentum buy setup, the 15-min EMAs were pointed up and it required a 13 point stop. Took it and traded for a 50 point profit (almost 1:4 risk/reward).
There were inter-market divergences today between NDX and SPX/DOW - warning signs that a top is getting close. As for the targets, i still beleive SPX 1285-1290 is in the cards.
I cannot provide the signals from my system for entries and exits, as that would constitute buy/sell advice. But i will try to post the Daily and hourly trend/momentum and trend turns as i get signals from my system. My goal for this blog is to continually remind myself of the underlying trend and at the same time share it with others. Comments are always appreciated and if you have any ideas or analysis you would like to share with me, e-mail me at email@example.com.
Tuesday, December 13, 2005
This move looks like a headfake, but that's what the final leg up is supposed to look like. I think the market will rally with poor breadth and volume with the shorts fighting all the way up. I will better be a bit late and let the downtrend establish itself again before jumping on the short side. Me thinks SPX 1285-1290 is in the cards. If the hourly turns down here anytime, i will be quick as lightining to change my bias and join the shorts. Until then, long is my song...
Look at how nicely they created the zero line reversal on the CCI(14).
My preferred scenario for tommorow is probably a gap up and then come down retest the 1274-1275 on ES (1264-1265 on SPX) and then take off to the upside. If SPX 1261 is broken kiss a goodbye to the uptrend.
Monday, December 12, 2005
It's a tinderbox situation. The hourly EMAs are flat on the SPX, which means it doesn't take much to create a hourly buy or sell here. Since the daily CCI is barely below zero, it doesn't take much to create a zero line reversal and a daily buy here. So keep your powder dry and follow the big money, after they push the buttons post Fed announcement. I am completely flat here.
Sunday, December 11, 2005
As mentioned on Dec 07, we got our gap filled on ES at 1252.50. Now do we race up to new highs from here ? Purely from a e-wave perspective we never got a wave C (clean 5 waves). So the downside appears incomplete at this point.
SPX appears to be squeezed in a possible bearish diamond formation. SPX 1250 is the key now. Is 1250 gets taken out, the next minor support is in the 1241 area and major support around the 1230 area. My expectation is for a test of the key 1230 area, get everyone sufficiently beared up and then take off to the upside for the year-end rally.
From a momentum perspective, the CCI(14) has broken below the zero line. The Full Stoch has rolled over, suggesting there's more work on the downside. But given the size of the decline relative to the thrust out of these oscillators suggests that this is not the beginning of the next major leg down, instead a correction in the uptrend.
For now the daily and the hourly trend are down. Go with it. Shorting the bounces on the intraday charts would be the theme for the next few days, until the hourly turns up.
Wednesday, December 07, 2005
Based on how the e-wave pattern is emerging, it's looking more like a high level consolidation rather than a topping process here. Here's some interesting Fibo relationships
The first leg wave A on ES (1272.50 - 1250.50) = 22 points.
Irregular Wave B (1250.50 - 1274.50) = 24 points.
Wave C (1274.50 - ??) = 22 points
?? = 1252.50, which would make wave A = wave C
The whole structure here looks more like a irregular flat which should end tommorow at 1252.50, which will also fill the last thursday's gap-up. Then a run to new highs around SPX 1285-90.
If 1250.5 gets taken out, then it could turn out be an expanded flat correction with a target of 1245. If we break below 1242.5 on ES, then something more bearish is in works and we might have seen an important intermediate top.
Anyway bottom piciking is always dangerous. So it's better to wait for a 30-min or a hourly buy signal and get aboard the train. If one were to bottom pick here, the safest instrument would be options and definetly not futures.
As i said yesterday, if ES takes out 1268, then we should make nominal new highs. We did make nominal new highs which ended in a sharp reversal. The inter-market divergences were telling a story for those who wanted to listen. NDX and SPX made nominal new highs while, the DOW coudn't. SPX has still not issued a hourly sell, although it's on a 30-min sell. If 1263 (channel support) gets taken out on the ES, there could be some serious selling. For now 1263 is the key. If it's taken out, my strategy would be to short the bounces.
Tuesday, December 06, 2005
The daily is close to a sell, but not confirmed. The hourly was on a sell on all the indices - NDX, DOW and SPX at yesterday's close. With the gap-up work, they have managed to move the SPX hourly to a buy, but the DOW still remains on a sell. Still short from 1267 on the Dec ES. If we take out 1268.25 on the Dec ES, i will stand aside. If we take out 1268.25, then we could see a double top at 1273 or slightly higher highs.
Thursday, December 01, 2005
Yesterday's hourly sell on SPX was good for 13 points, if one covered at yesterday's close. If one held it till today morning's big gap-up, it would have been a breakeven to slighly profitable trade, depending on where one exited. Had they not created that monster gap up, it would have taken quite a while for them to turn the hourly up. The shorts would have sensed the hourlies turning up and start covering thier positions at lower levels, without leaving much fuel for a breakout. On the other hand a huge gap up ensures that the shorts will start covering at higher levels rather than lower levels, causing a breakout.
This is smelling like a false breakout for now. So far the price action has kissed the broken trendline from below. A failure here could mean a retest of yesterday's lows. I would call this another good shorting opportunity with a hard stop around 1273.25. If 1273 is taken out, i would stay away from the short side until another good setup comes up.
Wednesday, November 30, 2005
Going forward, i will share the signals from my Momentum/Trend trading system. The signals from my system never comes at the exact tops or bottoms for a simple reason, because tops or bottoms can never be identified in real-time and are known only in hindsight. When a market is at or near the top, for instance, the moving averages are pointed upward and the momentum is up (although the the rate of change of momentum is slowing down i.e a divergence). As long as the momentum breaks and the moving averages turn around, the market is essentially in a uptrend. If someone catches a top, it's just luck. There's a price to be paid for top and bottom picking. Tops and bottoms can be picked with multiple probes with tight stops and stop outs. The multiple stopout losses can add up and at the same time, one would also lose the opportunity of participating in the uptrend. My hourly trading system is designed to give a sell or buy signals about 5-10 points from the top or bottom and the signals could be valid for anywhere between 1-5 days and sometimes even more. I will try to post the chart with buy/sell signals from my system everyday on ES (E-mini S&P 500) and Gold, with stop loss levels. Today morning i got a sell on ES at 1263 and so far remains on a sell. I will not try to preempt my system by attempting to closeout my positions before the signal reverses. If the market makes an extreme move, i may opt to take partial profits. So it's essentially swing trend trading, but exiting and reversing when the trend changes.
Wednesday, November 23, 2005
There's been comparisons of this rally to the 1998 rally. Both the rallies started after scary decline into Oct lows and a strong reversal from there.
Look at the position of the MACD during 1998. Weekly MACD made a new high during April 1998 which clearly suggested that new price highs will come down the line. Once the MACD peaked in Jan 99, we started seeing a series of higher highs in price and lower highs in momentum.The present MACD configuration looks eerily similar to 2000 April rather than 98.
Tuesday, November 22, 2005
If we break above that hourly channel, that's gonna be a massive breakout. If this is a genuine trending move, this is what we should expect. Typically wave 3 of 3 starts from these kind of setups. The daily CCI is still comfortably high above 100.
On the other hand, if we are in a range bound enviroment, what better chance to short, right at the top of the channel ?I don't know at this point which one's true. So will wait for the market to answer.
Monday, November 21, 2005
After much analysis, examining the relationships betwen the different waves in the wedge, i have come to the conclusion that what is transpiring here is not a wedge, but a double zig-zag from march 03. Ending diagonals have specific relationship between waves i.e wave C=.618*wave A and wave E = .618 * wave C. Not only do we not see this relationship here in the wedge (which has become a popular count among the e-wavers), but also the current structure from the Oct 05 bottom is looking pretty darn impulsive. Based on this new wave count, there are two potential targets for wave C (1254 and 1308). This wave C should conclude the first leg of the Bull market from the March 03 bottom, leading to a large decline into 2006 and 2007.
Saturday, November 19, 2005
Daily - buy Weekly - buy Monthly - buy
My sell signal got invalidated when we took out 1237 on SPX cash and got stopped out on my shorts for a 5 point loss. Now SPX 1260 is a magnet for various reasons. The declining tops line was taken out, which almost gauranteed that we would make new recovery highs in the index.
Now if we rally in the next few days without a pullback,1255-1260 is where the upper trendline of the hourly trendchannel is for the next couple of days. 1260 is where the upper trendline of the wedge on the daily charts is. 1260 is the exact measured move target from the rectangular consolidation on the hourly charts is.
Given how well all the technicals are pointing to 1260 and the underlying bullishness, i think we will end up exceeding the 1260 target. There is no low risk trade at this point given how overbought the market is. My strategy will be to try to buy the pullbacks with close stops.
Wednesday, November 16, 2005
Tuesday, November 15, 2005
I said yesterday that if we convincingly close above the declining tops line, the upper trendline of the wedge would be a magnet. Instead we have had two consecutive failures at the decling tops line and SPX had an outside reversal day today. Also my system generated a sell signal on both SPX and NDX at the close. DOW is still on a buy and will probably crap out tommorow.
I will go short the market tommorow morning on any retracement with a stop above today's highs. This is as good as it gets for the bears.
Monday, November 14, 2005
Daily - Buy, Weekly - Buy, Monthly - Buy
So far the price action is very constructive for a bullish up move here. The breakout of the rectangular consolidation last week has a measured move to spx 1260. However the daily and the hourly are very overbought here. So a sideways consolidation and another breakout to 1260 appears very likely. The breakout above the downtrend line will almost assure that the A-C-E trendline will be tagged. I am not married to the measured move targets here. Given how the weekly and the monthly are positioned here, any daily sell signal here should be treated with respect.
The weekly Full Stochastics never got anywhere near oversold in the recent down move. It still remains on a weekly sell. We could be in a fake up move like the one we saw during June 2004. This indicator warrants caution on the bullish side ! Any failure here will end up as a backkiss and could lead to swift price decline.
The 20ema continues to provide support for the monthly uptrend. As long as the price action is above 1170 (breakout above the 2002 highs), the monthly structure remains bullish. However the fly in the ointment is the price broke down from the upsloping channel from the 2003 March lows. While the price has been grinding up in a belaboured manner in a wedge, the momentum oscilators have been going sideways. Look at the Monthly CCI which is stuck in a sort of bear flag oscillating back and forth. Even more telling is the Monthly Full Stochastics which has been flat-lining for nearly an year. Wow, that's an incredible acheivement, thanks to our program trading folks for having squeezed the volatility completely out of the market. I went back and researched 70 years of price data and could never find a similar Stochastic configuration for that length of time. Once we break down from the bear flag on the CCI and a decisive break down below the 80 level on the Stochastics, we should start a multi-month bear decline in earnest. Right now all the indicators are flashing warning signs on a monthly basis, but remains on a buy nevertheless.