Saturday, August 15, 2009

LT Time-Momentum confluence

LT: Down

The context still remains a bear market as i explained in my last week's post. There's a lot of noise that a new bull market has begun. All we have done is a 38% retrace i.e a 350 point rally, after a 900 point drop. And the bull crowd is back in the town crowing their acheivements !. My last LT sell signal came on the break of 1380 and since then we remain in a bear market.

LT Sell in 2008

Now this market juncture reminds me of the June 2006 when most bears were convinced that the bull market was over. Then we began one of the most spectacular advance over the next 12 months. I think we are near the same juncture in this bear market where most bulls are convinced that the bear market is over. They were sending me hate mails on this blog calling me a perma bull then. Now they have started calling me a perma-bear. This is a funny business.

LT projection to SPX 1620 in Sep 2006

While the jury is stil out on that, let's look at some intereting facts here. My time-momentum model expired this week i.e both time and momentum have reached a equilibrium here. The last CCI overbought peak in April 2008 to the oversold bottom in Oct 08 took 24 weeks. Then we double bottomed on March 2009 and we reached the overbought condition last week. This week marks the 24th week of the rally. So we have oscillator symmetry, time symmetry and a 38% fibonacci retrace of the rally.

The Oscillator at the bottom is close to the zero line i.e a bull-bear demarcation point. If we breakdown here for a few weeks, then we won't likely take out this top for a while and would confirm the next leg of the bear market. The sentiment here is ripe for the resumption of the next bear leg. Bullish arrogance is back in the town. Folks who had dissapeared for years, closed business, deleted their blogs in shame are now back on the message boards and the blogosphere, twittering the bull theme. Now whether we take out the zero line and start a new bull market, i have no idea. I will leave that to the prophets who can see it coming. Odds are we are ending a bear market rally here. I will give the market a +/- 1 week tolerance on that 24 weeks count. That means either we topped last we week or we should top by the end of next week. We shall see...

IT: Firmly Up and reaching an exhaustion.

VST: Down.

1018 is a VST swing peak. Until we remain below that level, i will keep shorting and covering. My VST hourly trades typically yield anywhere between 20 - 60 SPX points. My last 5 trades have all yielded below 10 points, which tells me that the market is not yet ready to go down in earnest. Sooner or later we are bound to see some real ugliness hitting the markets. We could see a gap up on Monday to SPX 1012-13 area, which would be another good shorting opportunity. Only a gap-up above 1018 on Monday will get me bullish VST.

Good luck trading !

Sunday, August 09, 2009

Still a bear market

I am not arguing here. But just posting the same chart i have been posting for years. The indicator i have shown in the chart has called most bull/bear markets of last few decades. While pundits are arguing about the beginning of a new bull market, peppered with their usual caveats and equivocations, it always makes me wonder if these folks have the tools necessary to call bull/bear markets with conviction and objectivity !. Now why the anxiety ? If it's a bull market it's not going to end after a 5 month rally. It will last a few years. So i will wait patiently until my indicator crosses the zero line.

I need to see three things to happen before calling a new bull market.

1) My indicator crossing the zero line (has not yet happened). Ideally for strong odds this indicator need to start with divergences, although not strictly necessary.
2) Weekly uptrending (we are currently uptrending on the weekly)
3) Potentially completed wave pattern (optional)

We are pressing against the weekly BB on the SPX, which is usually the area where we get IT sells. As for the ST, the daily RSI is cautioning a sell approaching. We got close to a ST sell last week, but the setup got busted after the jobs report. We may get that ST selloff starting anytime next week. NDX not making a new recovery high with the SPX on friday was another warning shot. Not to mention that the emerging markets like India and China are already showing cracks. We may get a hourly/daily combo sell on the SPX sometime next week, with a possibility of that being a IT top as well. Stay tuned....