Wednesday, November 29, 2006

Big whipsaw days

Today caught me by surprise. I was expecting that ES 1391-1394 would offer serious resistance, to be followed another leg down. Instead the market displayed some unusual strength and as soon as 1395 was taken out, i knew that the gap at 1403 would be the magnet. Got stopped out for 5 points loss. These kind of multi swing action is typical at the tops/bottoms and is a harbinger of trend change to come. I think it was George Soros who said the market becomes choppier at the turning points. These kind of moves are bull-bear tug of wars at turning points, which eventually results in range expansion and a change in trend. I am still of the opinion that the top has been seen. There's a remote chance that we could do a marginal spike to 1415-20 and then breakdown. That is low odds at this point.

As for the larger picture, take a look at the chart.

Look at the MACD indicator (my custom MACD), which did not produce one single sell all the way from the bottom to 1388. That is why i was bullish all the way up to 1388!

I hope you remember my call on 10/26, where i called for a decline to ES 1367, which was precisely hit. That was the primary sell. Then we made a secondary top on 11/22, which produced that selloff off of that terminal, which i again called last Sunday. Note the huge divergences betwen 10/26 and 11/22. It's not just the divergences i am trading on, but i do have a momentum break on the daily as well. And then the internals - Nasdaq MCO took out the Nov low and the nasdaq summation is now pointed down. NYSE summation was also pointed down yesterday, which recovered today as the MCO made it's trip to the zero line. Last but not the least, if we close below 1377 SPX, i will also have a weekly sell signal. When the daily and weekly combo goes on a sell, then you can be assured that the IT top has been seen.

Tuesday, November 28, 2006

Oversold bounce

Nothing to add here and my ST target remains at SPX 1360. Reshorted ES at 1389.50. Will add to shorts, if we gap-up tommorow morning

Monday, November 27, 2006

Very Nasty internals

From Nov 24

We should see a fast selloff to SPX cash 1360, virtually giving no opportunity for anyone to position short. This is a unique point in the price structure where the pattern, price-action and the momentum are all converging to a sell !

The selloff came right on schedule and as i said the nastiness gave very few people a chance to position themselves for the decline. The only folks who probably profited from today's decline were those who were already short. Many would have thought i was nuts when i made that call on Nov 24. I don't make these calls until everything in my work lines up.

Now what was noteworthy today was the nasty breadth and the heavy volume on the selloff. In the first hour of trading 400,000 ES contracts changed hands. I think for anyone who watches the tape, it was a no brainer that the day was going to end badly, closing at the low tick of the day.

The NYSE A/D line was 12% : 78% and so was the Nasdaq A/D. The Nasdaq volume A/D was 7% : 92%. That pretty nasty internals folks !. Also noteworthy was the fact that the Nasdaq breadth MCO broke below the November lows, which means this is not going to be a one day affair. So we are in a ST downtrend. The VST selloff should end in the next 1-2 days after making a complex bottom on the hourly momentum, before we see any sustainable bounce. My ST target remains at SPX cash 1360.

I actually covered my shorts today, half at 1390 and the other half at 1383.25. All posted in real-time on

So far, no IT pivots are broken. So Bottomline ST bearish, IT/LT bullish.

Sunday, November 26, 2006

We are likely headed into a recession !

The fake poke !

When the 10-year yields made a monthly close above the long term channel from 1982 (back in June 06), i was convinced that we were entering into an inflationary environment. Boy, was i wrong ! That was a massive headfake. Now that we have reverted back into the channel, it's sending a powerful message that we are likely headed into a recession. Nothing is gauranteed in the markets. But when the markets send out powerful signals, we just gotta listen or endure financial ruin. If T-Notes breakout above 108.75, then the yield curve inversion would steepen beyond any economy bulls' threshold level. Is the economy strong now ? You bet !. Was the economy strong in the spring of 2000 ? You bet !

What does this mean to the equities ? Well, i don't like mixing market analysis. Right now it's ST bearish and IT bullish for equities. That could all change. I will update if and when any major IT pivots get broken. Stay tuned....