Saturday, February 07, 2009

IT Update and the upcoming 9 month cycle top

This week's action was mildy surprising to me from a ST timing standpoint. I did not expect this bounce. Or to put it differently, i did not expect this size a bounce. I had thought we were consolidating between SPX 810-840 on the hourly charts. The breakout above 840 came as a surprise to me.

This is called trend trading hell !. The hourly starts uptrending. You look for a pullback to enter long and the pullback goes so deep that it starts downtrending. Then you look for a bounce to short and then the bounce goes so higher that it starts uptrending. Rangebound traders rule this kind of market.

Now the SPX hourly has started uptrending. But the daily charts of most indices SPX, DOW, RUT and the XLF are all downtrending, with the exception of NDX which is uptrending.

Now here's the dilemma. If you beleive a new upleg on SPX has started, then you look for the next pullback on hourly to buy on the SPX. If you have faith in the daily downtrend on SPX, you short the next overbought condition on SPX. Now which one is safe ? Looking at this bear market over the last one year, shorting hourly overbought has been more rewarding then trying to buy the pullback on hourly. Again, the next pullback on hourly, if it falls below 840, then the hourly uptrend is history.

This looney sideways chop can go for another 3-4 weeks wearing out most traders trying to trade the trend, which is down. The reason being that Nov was the 9 month cycle bottom in my work and the next 9 month cycle cresting would come in the late Feb to early March period. Now the downtrend is fighting against this upcycle which is moving into it's crest, which is producing a sideways trendless market. Until the 9 month crests, this sideways cause building can continue, before another large collapse. I still beleive that the 9 month cycle top will be a secondary top below 1/7/09 on SPX.

From a ST timing perspective (daily charts), the current momentum has about 2-3 days of rally power left. If that rally tags SPX 880-900 area, i will be looking to short that area. Or if we breakdown from here and take out SPX 840, then i will be shorting into weakness.

One of the commnets on my blog last week was from Greenie as to how Gold is rallying in the face of a deflation. I disagree. Gold is not rallying, but is in a large sideways consoldiation on the weekly charts. Well Gold is certainly not collapsing as it would in a traditional deflation. Because, it knows that the morons controlling our financial destinies will start monetizing this mountain load of debt. This will surely happen at the bottom of the deflation when desperation will overrule sane thinking. Then i think, GOLD will have one of the biggest rallies of our lifetimes !. I also think we will witness the greatest bloodbath in the U.S treasuries, when the monetization starts in earnest. Gold is topping both in the ST and IT and should make a trip below 700 area again based on my work. Dollar index is headed to 100 in the IT.

Good luck !