Friday, March 10, 2006

Be careful out there...

I coudn't post yesterday as i had problems accessing the blog.

However, i posted this at forum yesterday

Based on channelling, SPX cash 1286-88 seems like a strong magnet right now. Even time wise, the correction is not complete. My guess is either we go up straight and test that area today noon or decline in a wave B and do the wave C up tommorow to satisfy the time requirement.

Now the first part worked out fine. My opinion has not changed even given the ugly close today. I think we rally in a wave C to 1286-88 area tommorow and then continue with the downtrend.

This forecast worked in a picture perfect way. I went long at ES 1283 and got out around the 1294 level. I was looking to go short in a big way around the ES 1296 level. But as we rallied to the 1295 area on ES, the hourly oscillators were barely overbought, which suggested more upside. More importantly DOW gave a daily buy signal at that point, while the SPX and NDX daily remained on a daily sell. Something was clearly wrong and i didn't go short. Then we had a scary decline and an equally sharp rally thereafter.

Strictly from a technical perspective, if we were to put in a solid intermediate bottom, we need to decline here to retest the 3/08/06 lows, which would create a nice divergent bottom. From all the technical evidence i have at this point, the bottom is not in. I think the internals have put in a bottom as of yesterday. The strong breadth we had today can be treated as accumulation and a snapback action towards the zero line. So we still need to see the price bottom, which always follows the internal bottom. Going by this strict intrepretation of the current scenario, we should see a scary decline next week to test the price lows of 3/8. That would create a nice "W" bottom both on the price momentum and the MCOs, which would give a solid fondation for further rally.

On the other hand DOW issued a daily buy signal today, suggesting a "V" bottom might be in place. I don't trust the DOW and NDX daily signals for i think SPX is the proxy for the U.S markets. SPX and NDX remains on a solid sell. Remember this market is all about tactical trading. My above mentioned technical scenario may or may not work, as the whole world knows how to pick a divergent bottom, creating efficient markets, if such a scenario were to pan out. So from a tactical trading perspective, we are at the right juncture to mount an assault on the bears. There are tons of bears out there with huge stops above the SPX 1300 level. And SPX is just 15 points shy of the 1300 level. So if we were to rally and take out the 1300 level, there should some massive short covering. Also NDX is perched just below the declining tops line from 3/3/06. If we were to gap up above that trendline on Monday, a lot of trapped NDX bears could get scorched badly.

So technically speaking no price bottom yet, but from a tactical viewpoint, we might have seen it. Bottomline i will still look for shorts on SPX next week, but will change my opinion in a heart beat, if the price action proves me wrong and i get a daily buy on SPX.

Be nimble ! Have a good weekend...

Wednesday, March 08, 2006

Run for roses or Run for exits

Let's throw the emotions(one day rally), fundamentals (BOJ decision) and funnymentals (Wierd Wollie Whatever..) aside.

Let's look at basic TA. As i mentioned yesterday, the hourly Full Stoch was putting in a complex bottom, which suggested a sharp rally for a day or two. So today's action did not surprise me. The daily momentum is still on a solid sell. CCI(14) on the daily SPX went to -190. When the daily CCI reaches this low levels, it's hard for market to rally without putting in a divergent bottom. CCI(20) failed to turn up even with today's rally and is forming a shelf from which it can fall off rapidly. CCI(20) also has more room to run on the downside. The only way the market can rally in these kind techincal scenario is a straight run without pause which can create a V shaped bottom. Typically when a V shaped bottom happens, the rally out of the bottom tends to be very sharp and we see a 2%+ day. Had we got a 2% rally today and the CCI(14) had hooked above 100 and the CCI(20) had hooked above 0, that would have been a good indication that a reverse divergent setup was confirmed and a V shaped bottom is behind us. But today's action had none of those characteristics.

What is in the bulls favor though is a series of High TRIN days and High P/C ratio days. When the market is trending up and a couple of high TRIN days occur, it could be a sign of a ST bottom. When the market is already in a downtrending mode and we see the high TRIN days, it generally is a precursor to a capitulatory kind of selloff, which has not happened yet.

My own take is we run for the exits before we start the run for the roses. Will look for shorts tommorow, if we don't see a strong run up in the morning.

Tuesday, March 07, 2006


My system remains on a daily and hourly sell signal, since 3/2/05. The SPX hourly put in a complex bottom on the Full Stochastics today, which suggests that some kind of snapback rally should be expected here to releive the oversold condition. But as far as the daily goes, there's nothing to suggest that a bottom is in. The first dynamic support on the SPX cash at 1271 held today. If 1271 gets taken out over the next couple of days, the next support would be around SPX 1255.

The NYSE and the Nasdaq A/D stunk today !

The NYSE MCO took out the Feb 06 lows, while price broke the tredline from Oct 05. The 10% component of the NYSE MCO went decisively below the zero line, while the 5% is close to doing it.

The Nasdaq broke it's trendline from Oct 05 lows. The Nasdaq MCO also plunged below the Feb 06 lows. Both the 5% and 10% components of the MCOs on Nasdaq are now decisively below the zero line. The weekly cumulative A/D line on the Nasdaq looks ugly, to put it mildly. So Nasdaq is the index, which is more vulnerable to a severe price decline here.

Bottomline, i will be shorting every bounce going forward.