Friday, April 30, 2010

4/30 Daily Commentary

It was a good day.  Recap:  I1 peaked yesterday and is down through 5/10-5/11.  Went into the day 20% short stocks and 20% long bonds.  Bought another 5% QID at 15.45, sold that at 15.93 and 5% SDS at 29.80.  Sold 10% TLT at 92.15.
Currently 15% short SDS and 10% TLT.
Reduced exposure because I believe that the stock market completed a 5-wave from the top and a rally is due.

DJI, SPX, and Nasdaq Composite are setting up a head-and-shoulders
All of the above are the reasons for my lightening up near the close.
a)  A completed 5-wave from the high implies a tradeable bounce
b) The H&S neckline is not far from today's close (10, 970 in DJI). 
c) DJI closed at 11,004 for round-number support. 
d) I don't like going into weekends with big positions.
Is there anything more than a bounce ahead Monday?.  Doubt it.  I1 is down and all of the moving averages I care about are above the market or very far below it. 
Psychologically, have the market down sharply and close on it's lows ahead of a weekend scares people.  So, a 100-point rally would make people kick themselves because they sold on scary day and they will buy on relief day.  Let it be so! 
:Here is the DJI H&S:

4.30 3:42

Sold QID at 15.93
Sold 5% SDS at 29.80.
Sold 10% TLT at 92.15
Currently 15% SDS
               10% TLT

4.30 3:30

Changing profit-taking to DJI 11,030.

4/30 3:20

Bonds are in a short-term 4th wave, so will sell half of the bonds on the 5th wave spike.
Waiting on COMP to decline to 2469.  Will reduce shorts from 25% to 15% on this event.

4/30 3:00

Selling QID when COMP hits 2469 to complete a 5-wave from the top:

4/30 2:46

By not rallying into 1200 the SPX wave count is extending and the counts from the various indices are converging.

Did not increase short exposure to 30%.

4/30 2:00

Still waiting to increase short exposure on strength (SPX 1200). 
Stop 5% at DJI 11130.

4/30 1:00

Market just completed a 5-wave decline.  I got a break of the SPX 15-minute, 54-unit M/A which allowed me to increase 5%, but I will hold off increasing short on the retracement of the decline up to 1200 SPX or better.

4/30 12:50

DJI/XMI, SPX, and Nasdaq all sport different counts from this morning's high.
SPX is in a 5-wave decline:

A good target for the v bottom is right past our short trigger, currently 1193.75.  Another reason to wait for a bounce to increase short exposure to 30%.
Target to take some profits is SPX 1182, DJI 10,980.

4/30 12:30

In previous post I wanted to go short another 5% at SPX 1193.50.  The new number is 1193.70.  This is in a support zone, so I will expect a bounce from there and will go short on that bounce.  This will bring stock shorts to 30%.

4/30 noon

The stock market is in a trading range.  SPX is down 4, yet gold is up 13 reflecting Europe's quandary with it's juvenile delinquents.  Do we let them go to the reformatory or do we pay off their debts?  Should we have adopted them in the first place?
Oil is up as well.  When money stops flowing into inflationary havens and into safe havens then stocks will resume their decline.  Treasuries are having a good day and will benefit on the unwind of the junk credit spread.  So, money flowing into gold assumes that the dollar will suffer and inflation will commence (any day now...).  If the dollar rallies and inflation remains dead then the extreme bullish sentiment will unwind.  This money will flow into safe havens like treasuries.
How can treasuries be safe with buffoons at the helm???  It is all a matter of price (yield) and alternatives. 
Ooops,  stock market just fell out of the trading range,  back to work.
OK, I'm back.  5% short will be put on at SPX 1193.50.  Initial stop for 5% at rally above DJI 11,188.

4/30 10:30

Bought 5% QID double-short NDX at 15.45.
Market has hit support and a bounce-back is expected, but nothing too severe.  Simultaneously hit the SPX 15-minute, 54-unit and DJI 5-minute, 380-unit M/As.

4/30 10:00

Will buy 5% QID when Nasdaq Composite trades below 150-minute M/A - 5 points. 
Will buy 5% SDS when SPX trades below 15-minute, 54-unit M/A - 6.7 points.

4/30 pre-open

Stock market and bonds unchanged.  GDP up 3.2% on consumer spending.  Greece is fixed! 
See what propaganda the retail investor has to contend with.   
GDP went up primarily on inventory build.  Greece is in a liquidity trap and must eventually default or restructure (mini-default).
Support on the way down are 11,144,  11,120, and the SPX 15-minute, 54-unit M/A.  Since I am already 20% double short stocks I will increase to 30% when the SPX M/A is broken by .56%.  If I were not already 20%, then I would short at 11,144.
Currently the SPX support break would occur at 1191.30 but will be rising throughout the day:
Stop at DJI 11,274

Thursday, April 29, 2010

4/29 Daily Commentary

Bought 10% TLT long bond near the close @91.05.
Bought 10% SDS double-short SPX at close @ 28.90.
Exposure 20% SDS and 20% TLT.  Today was I1 peak day which is bearish the following day.  The DJI and S&P futures broke critical support Tuesday near the close, but I did not short on the weakness due to the I1 advancing into today's high.  I shorted 5% at SPX 1196.25 on Wednesday and 5% at DJI 11,145 late this morning.  10% short occurred 2 minutes prior to the close. 
Long bond was bought at TLT 5% 91.08, 5% 90.71, and 10% 91.05.
Positions will be expanded on breaking short-term support tomorrow since we are already on a sell signal from the break of critical support at DJI 1-minute, 380-unit M/A.  The stop associated with this M/A is 10,240 but since this is so close to the old high I will stop out at 11,258 +.15%, or 11,276.
The moving average used to expand the stock shorts is the DJI 150-minute -.31% which is 11,144.  Any break of 11,144 will trigger another 5% short add-on. 

The bond position will not be expanded.  The high in 30-year futures of 118-24 completed a 5-wave up sequence.  Momentum support is at 117-16:

All-in-all I am in a good place and the market has blessed me with an I1 high within a sell signal, so that follow-on shorts do not have to wait for a decline through the DJI 1-minute, 380-unit M/A -1.2%.  This means our average entry is at a higher price and the stop-loss is closer than it would have been otherwise.  In other words, by declining Tuesday and breaking support, the rally off of those lows and into the I1 peak day has given me a better entry point than if the market rocketed into the I1 day.  Thank you, Greece!
I just hope that the market breaks the 150-minute M/A during tomorrows's day session rather than overnight by plunging.

4/29 2:30

SPX made it's orthodox high of 1207.28 at 10:53 and has been ABCing since then.  DJI made it's orthodox high and actual high of 11197 at 12:44.
From here on I will short 10% SDS at DJI below 11,144 or the close whichever comes first.

4/29 11:00

Bought 5% TLT at 90.71.

4/29 10:45

Yesterday I stated that my expectation is for the stock market to rally today.  It is still on a sell signal with broken support.  That will remain in effect until DJI 1-minute, 380-unit M/A +1.2%, in other words 11,240.  I don't expect the market to get near that, but I1 is peaking today, so more rally can be expected. 
Bought 5% SDS at 29.03 when DJI 11,145 was hit.  The count looks complete:

4/29 pre-open

This is it, the I1 top day.  Bonds unchanged, stock futures up 7 points.  Ideally, I want to short near the close.  However, I am placing an order to buy 5% SDS when DJI hits 11,145, up 100 points.  The M/A that I use to calculate critical support is DJI 1-minute, 380-units simple, which is currently 11,100.  If I had a declining I1 I would sell at this M/A.  Since I have an advancing I1 I will sell 45 points beyond it, thus 11,145.
Looking to increase shorts at the close or a break of 60-minute M/A near the close.  Also looking to buy long bond late afternoon.
Yesterday, I entered tiny positions in each.  I look to be short 20% stocks and long 20% bonds at the close.

Wednesday, April 28, 2010

4/28 Daily Commentary

OK, the stock market on Tuesday broke critical support in the cash and futures markets.  It did catch bids at the low Friday 4/16.  Yesterday at 10,974 and today at 10,965.  My short entry on weakness was at 10,957 so I just waited for a rally to take prices up.  I took a small position when SPX hit it's 15-minute, 54-unit M/A and I don't particularly want to be short stock with 1 day left in I1.  Small position.  I am also long bonds in a tiny position (relative to beta).  I expect stock market to rally and then hold up into late afternoon tomorrow at which point I will substantially increase exposure. If this is the case then I will show minor losses in my leg-in positions but I have a place at the table if Europe implodes (small price to pay, eh?).  The following charts can be used as reference for the above narrative:

The important points are:
1)  The top is in
2)  Critical support was broken
3)  I1 tops tomorrow and is then a formal sell (trough < 3.25) with initial trough date 5/10-5/11 at which I will get out of half of the shorts.

Here is the I1 as of yesterday's close:

4/28 3:30

Bought 5% SDS 29.55 when it tapped the SPX M/A:

4/28 2:00

Had to create a Picasa environment in order to upload images.  Blah!
Shorting at DJI 11,099:
Also shorting on decline below 10,957, which is .15% below yesterday's low.

Shorting at SPX 1197:
Serious resistance is at Monday's high (11,258):

4/28 1:00

Action points still 11,099 and 10,957 for 5%.  Trying to allow I1 to buoy market until tomorrow.
Holding 5% long bonds with intent to increase to 20% tomorrow.

4/28 11:30

Selling short 5% by purchase of SDS at DJI 11,099.  If filled stop at 11,274 for now.

4/28 10:00

Short entry points remain on strength at SPX 1198.25 and DJI 11,110.
On weakness, DJI 10,957.

4/28 9:40

Bought 5% TLT, long bond ETF at 91.08.

4/28 pre-open

Putting on initial short positions(5%)  in U.S. stock market today.  SP futures 30-minute, 92-unit M/A is initial entry point.  Futures discount is 2.70 so add 2.70 to the current value is 1198.25 cash SPX value.

Second entry point is DJI 1-minute, 380-unit M/A, which currently is 11,134 for another 5%.

These values will be coming down during the session.
I1 is still ascending into it's high tomorrow, so do not want to go short greater than 10% until it peaks.
Blogger is making it difficult to upload images into the posts so I am posting without images until it is resolved or I can find a circumvention.

Tuesday, April 27, 2010

4/27 Daily Commentary

The top is in.  DJI found support at 11,074 at the old low.
However, on the way down it broke 11,015 which is a sell signal.   Likewise, S&P futures had an hourly close lower than 1185.50.  So now we have confirmation.  Holding open the potential for a completed 5-wave to morph into an extended 5th is no longer an option.  The completed 5-wave is THE completed XYZ from the 3/9/2009 low.
I await a rally back to resistance in order to begin the shorting process.  How can we rally here?  I1 still has not peaked and I1 means that the market finds support at support levels.  This is the final support level.  My first shorts go on at DJI 11,110 or 10,957 (low - .15%) whichever comes first. 
The DJI short-term wave count looks like 1 more low to complete the 1st 5-wave downleg.  Then the bounce.  The SPX counts complete and ready to bounce.

Hopefully it takes it's time so that the I1 runs out, but the market appears to be on a serious downleg.

OK, worst chart first, the SPX which traded below support (but only by .17%):
Next, the Nasdaq Composite:
Now the DJI:
The following wave count indicates one more low to complete the 5-wave downleg:

The market is absolutely famous for tripping lows/highs by a few points, then turning around.  My approach is to distance my action point by .15% past DJI lows/highs.

4/27 3:00

Reviewing the critical support level.  Why not place the shorting point on the other side of 11,000?  There is an important low at 10,974.  Any price under that would force the market to break 2 additional levels of support and it is only 40 points beneath the computed value earlier posted.  I want to give the market a chance to carry into Thursday afternoon.

4/27 2:30

The stock market has held at critical support.  If the market can hold up through Thursday before turning down in the face of the incredibly bad news affecting Greece and Portugal then I1 will have proved itself yet again.  I personally do not see how the market can hold up until then, but I1 has surprised me a number of times in the past. Critical support is still at 11,015.
S&P futures also have a critical support framework that I use.  The 85-hour M/A less 1.65% on hourly closing basis is just as important as the DJI support mentioned above.  Currently this level is 1185.50 on an hourly close.:

The S&P is the only major index that broke last Thursday's low.  All of the others count a completed 5-wave from Thursday, but this only opens up a potential extension into new highs.

Greece has unethically misrepresented it's financial condition for a decade.  Watching congressional grilling on TV has brought on the following thoughts:

I don't believe that GS did anything unusual during the mania. Even though I believe that GS is a pool of unethical sharks they were merely the smartest sharks in the pool and gamed the system better than their peers. The Community Reinvestment Act, Fed policy, and the absence of any credible regulatory agency created the environment. The eventual financial reform legislation will do nothing to cure the cause, but it will remove tiers of assets from the world money supply. The collapse of ethics has gradually redefined money as debt. This is the biggest scam of all and the longest to play out.

The reason that ethics is important is that societies do not survive the collapse of their ethical foundations. The U.S. has been on the slippery slope for 75 years, with an accelerating rate of decline. I'm watching the testimony and any ethical question receives the same baffled, stammering reply. The GS execs testifying have no ethical framework and therefore perceive the questions as from a different planet. However, they are no different from the questioners, who play financial games on a much larger scale. The ethics of fiat money is this: fiat money leads to the eventual collapse of the ethical foundation of the society.

Another act will be passed to nudge people to do incredibly stupid things until the government is forced to change. The regulations you speak of and the life-support that FHA is providing are the next incarnation of the Community Reinvestment Act and will end badly as well. Health care, anyone?

4/27 12:30

Greece downgrade to junk hit the markets.  DJI low 11,020.  Should be the low.  This is the outer envelope of critical support surrounding DJI 11,150.

4/27 11:00

Currently, critical support would be broken at 11,015, based on DJI 5-minute, 380-unit simple M/A minus 1.2%.  This would force me short.

4/27 10:00

Changing SPX count to conform to DJI.  Here is cash DJI:
The completed ii leaves enough time for the remaining waves to complete the 5-wave structure by the close 4/29.  It is important to have an accurate count going into the afternoon Thursday.

4/27 pre-open

Futures have declined into support for Nasdaq.  Blue chips are only down slightly.
DJI futures has completed wave i of v allowing for extension into Thursday's close.  Strong support at 11,100 futures and 11,150 cash.
Nasdaq  has declined to support here.

Monday, April 26, 2010

4/26 Daily Commentary

The stock market is completing 4th wave for Nasdaq Composite from last Tuesday's low.  I expect stiff resistance in the 2540-2550 area, with the close today 2523.  I expect more rally into the 4/29 close as indicated by I1.  (See Weekly Commentary).
Here is the SPY count:

Whatever the count, the stock market should hold up into 4/29 late afternoon.
While waiting for 4/29 I want to unveil a data series that is as important as the I1 because it measures sentiment in a market equal in sensitivity to the stock market and equally as important to the world economy.  The U.S. bond market.  The data series is almost as accurate as the I1 for the stock market and has been very profitable for me in the past.
In addition to potential bond trades, analysis of the bond market provides the counterpoint to stock market analysis, as these markets usually move conversely.  Fear buoys the bond market and suppresses the stock market.  Greed flows into risk assets including the stock market and out of the bond market.
The history and trading rules are in a new page, titled Bond Market US1 Trading Rules.  Using the rule set within this page I interpret the bond market going forward:

The bond market is in the incipient stages of an extended rally, with US1 peaking above +2 in mid-November.  The 2010 forecast for the stock market using I1 bottoms 11/15, so these markets confirm the probable bottom date.  The bond market US1 is indicating a shift in sentiment away from greed, is ready to rally now,  and will reinforce the stock market decline.  It is incredible that the bond market could rally from here, given the government profligacy.  The only way I can see that happening is with a stock market collapse, which would make investors desparate enough to seek safety in government debt, even if that government were managed by unscrupulous politicians (no, not all politicians are unscrupulous).
As far as Elliott wave goes the bond market has completed an ABC downward correction from the 12/08 high. Remember when the world got all scared and bonds spiked?
So, fundamentals aside, bonds will rally.  Will go long bonds on 4/29.  Expect to catch jeering comments on that.  Mid-May will be a short silver trade.  Jeers will come with that, too.  Yes, America is going bankrupt but the process will take time,  plenty of time for solid moves in the counter-intuitive direction.

4/26 3:20

The count for the DJI and XMI is different than for Nasdaq and S&P has changed.  Nasdaq count shows a completed a 3rd wave from last Tuesday's low.  All counts allow for more time to rally into the 4/29 anticipated high.  The DJI I expect to form an extended 5th wave off of last Thursday's low.
Here is the count for the Nasdaq Composite:
Expect strong support here for the next leg higher.

4/26 noon

Posting an important analytical tool in the Daily Commentary after the close today which accurately forecasts the bond market.  I have used it profitably for 2 years but it was not ready for publication.
Current count of 5th wave out of last week's triangle, which should be the final wave of the triple-zigzap for the rally from 3/9/2009.

4/26 pre-open

Silver is not a short until 5/17 according to it's forward gauge.

Will short silver on the intersection of the above forward gauge and the I1.  When they are both declining then I will short.  Otherwise I will stay out.                                                                                             

Crude is not a short until August:
Crude has rallied with the stock market in the past couple of years.  I believe that the stock market will put a cap on the crude rally implied in the above chart.  Thus, crude is not a long trade either.

Critical support will be broken at 10,970 DJI:

Saturday, April 24, 2010

4/24 Weekly Commentary

Currently flat all markets.  In the stock market I am awaiting the 4/29 top.   Once the top is in then I will have the green light to begin shorting commodities and going long the dollar.  Patiently waiting is hard work!

We got the breakout mentioned in the 4/21 Daily.  We have 4 sessions left.  This is about the right amount of time to rally 150 points by close Thursday.
Now that the 4/29 sell date is approaching, an Elliott wave count is appropriate.  The following is Nasdaq Composite from the 2/5 low:

Here is the S&P 500 (SPX) on a closing basis:

Pretty clear we are in a 5th wave breakout from a 4th wave triangle in both cases.  The completion of this 5-wave will complete the triple-zigzag from the 3/9/2009 low.  So, I1 kept me from shorting early and now, with a clear wave count, I can count my way to the top. 

Initial downleg from the I1 4/29 top targets 5/11 bottom.  Since the bounce from 5/11 is less than .50 I will not liquidate the entire short position, but hold a small short through this minor I1 uptick all the way to the 6/8 bottom.

Got flat silver when May futures hit 18.13.  .7% beyond the 90-minute M/A:

The top date is 4/29 for initial decline into 5/11.  The longer-term trade is short into 6/8.  The raw I1 points the way into the turn dates in the 2010 Forecast.  The current I1 chart:

I slow the I1 with a 55-day simple moving average to isolate longer-term moves.  Because of the smoothing the turn dates are late, but the turn dates should be derived from the raw I1.  The smoothed I1 indicates that this final rally is accompanied by a flat smoothed I1 and is followed by a 3-month decline.  The bottom of this decline in the raw I1 is July 5th.  However, due to the July 4th holiday and the strong seasonal advance on the day prior, I will be liquidating shorts 7/1 for a rally into 8/13.  As can be seen on the smoothed I1 chart, the decline after this rally is steep and is not due to bottom until 11/15 in the raw I1.
The smoothed I1:

Any wave counts are my own. Elliott wave theory is an integral part of my trading. For information/training/books on Elliott wave see Elliott Wave International.

Notes on the chart labelling:
My labelling of the waves does not include the appropriate numbers and letters due to the restrictions on the blog editor (and my keyboard). Circled numbers and letters are not possible in this environment. Wave labelling is strictly for clarity in analyzing the short-term structure.  If interested, wave degrees are on page 27 of Bob Prechters's book "Elliott Wave Principle".

Friday, April 23, 2010

4/23 10:30

Stock market making new highs in accord with I1.  I don't think this is a runaway move, but that the market will chop higher through next week (figure 200 points DJI).  Hopefully this will swing the technical composite to -22.
If the market breaks support before 4/29 it will signify a major move because I1 will not have been able to hold it up.  I will be swinging for the fences during declining I1 from here through 11/15. Will go long into the projected 8/15 rally top if the market collapses into July 2.

Thursday, April 22, 2010

4/22 Daily Commentary

Here is a chart showing resistance at 11,150.  This is a 880-day simple M/A:
There are multiple M/As across market segments that show resistance in this price range.  I will not fight an up I1 but will wait for the break in support to put me short.  DJI 10,950.
As far as targets for the downward move I look for initial support at 9000, then 7000 for the November bottom.   9000 could be hit by July.

4/22 10:30

Stock market is burrowing into critical support.  Break point is 10,950, 80 points away.
I still hope that the market makes a minor new high before the 4/29 sell signal.  Plus side, I1 up into 4/29 and Momentum.  Downside, the atmospheric forecast mentioned last week.  Volcano corrupting atmosphere and dampening enthusiasm even more.  It is hard for this market to rally now.  We are seeing the best news we are going to get but so far the top is in.  If the market breaks support before 4/29 it will signify a major move because I1 will not have been able to hold it up. For the first time in 30 years I am looking at a small options position in addition to the short ETFs.  Premiums are low now and SPY June options are building in 30 points premium.   By the 29th that could fall to 25.  In the upcoming move we will see multiple 25-point down days.  I will be swinging for the fences during declining I1 from here through 11/15.  Will go long into the projected 8/15 rally top if the market collapses into July 2.
Not much more to say, said it all for weeks.  Just watching and waiting.


Wednesday, April 21, 2010

4/21 Daily Commentary

Unchanged today.  Weakness after close due to ebay. 
7 trading days to the peak I1.  Market will more than likely not stay in trading range that long.  Which way?  I never fight I1 in normal times.  Plus, I have not gotten a technical sell signal.  The technical composite reached -20 which is 2 shy of a signal. So, odds favor further upside, new highs.
Holding powder dry for commodity shorts until 4/29 as well. 
Critical support break point at 10,950 as of the close. 

4/21 2:30

Currently 1.5% short silver, a trivial position.  Stop is 90-minute close in May futures above 18.21.

In order to generate a sell signal the stock market needs to rally further. Critical support will break on a decline below 10,950.

4/21 1:30

Currently 1.5% short silver.  Will not add until 4/29 or stock market breakdown.
I don't fight I1 so 4/29 remains a target high date.  In order to generate a sell signal the stock market needs to rally further.  Critical support will break on a decline below 10,950.
I am tired of listening to talking heads on the Goldman Sachs issue.  They are missing the larger picture.
The focus on the street has shifted away from Goldman Sachs, as it appears the SEC case is weak. According to the Bank for International Settlements, the total outstanding notional amount is $604 trillion (as of June 2009). The market value is $25 trillion. Of the total notional amount, the vast bulk are interest rate contracts and 36 trillion (6%) are credit default swaps (CDS).    On a market value basis CDS are only $3 trillion out of a total of $25 trillion for all derivatives. It is unknown what proportion of the CDS were for CDOs, and the CDO implosion prompted the swaps to become active. So, less than 6% of the market created world-wide havoc. The amount of CDS fell by 50% during the crisis but has stabilized. Estimated current CDS at 36 trillion notional value.

Because OTC derivatives are not traded on an exchange, there is no central counter-party.  Many OTC derivatives trade through a clearing house, which accepts the default risk.  Most do not trade through clearing house.  This is the realm of investment houses and the investment side of big banks. The larger picture is that the derivatives trade will be regulated and most will be forced into clearing houses by government regulations. This will take away the incentive for investment houses to deal them (make market).  So, sell the investment houses as their proprietary trading will be far less profitable than in the past.
Currently Goldman Sachs legally front-runs trades on the NYSE by using purchased data feed to inspect each trade by its computers before it enters the NYSE trading computers.  While this may be legal it is highly unethical for the NYSE to sell and Goldman to use this data. 
The discussions on the financial networks indicate the level to which right and wrong is blurred within the minds of the financial community.  We have had the concept of money twisted for so long that money is whatever we desire it to be.  If you accept the precept that money is whatever we desire it to be then you are infected. 


CDS is the market that the government will seek to regulate, but CDS are tailor-made. The blow-ups occurred is the CDO and that is a function of lax credit extension. In other words the entire problem was due to excessive credit extension to unworthy borrowers.

Monday, April 19, 2010

4/19 Daily Commentary

If the high is already behind us then the stock market would turn south from this level.  I will stick with I1 and sit on my hands until support is broken.  So far all we have is a 3-wave downward correction. If it turns down here to a new low then it will become a 5-wave (unless the downleg is itself a 3-wave).  In either case breaking 10,930 in the day session would also confirm an impulsive down-wave. A futures break of 1178 would confirm during the night session.   I1 peaks 4/29 but powerful downward forces will probably prevent the market rallying to a 4/29 high.

Silver has given a sell signal.  I am short a little and am awaiting a further upward correction to 17.95 to add shorts. Silver is incredibly sensitive to liquidity flows and is warning of a stock market breakdown soon.

4/19 pre-open

S&P futures need to decline to 1178 on hourly close to trigger sell (85 hour M/A less 1.65%).  This is 1181 on a cash basis.
DJI needs to decline below 10,925 to trigger sell signal.  I will short at 10,920.
On the road today until late this afternoon.

Friday, April 16, 2010

4/16 Weekly Commentary

IF the SEC case is shown to be a good one then the derivatives game winds down to a lower level.  Goldman Sachs ran a trillion dollar derivatives game, creating and brokering product around the world.  The example in this case is not the worst offense, by far, but is the only one that the government can prove with a smoking gun e-mail.  
GS paid and guided the grading companies as to the investment risk associated with products that it packaged.  GS knew the actual risk composition of the product and also knew that it varied widely from the rating assigned.  GS marketed these products with fictitious ratings while keeping mum on the shoddy tranches within the products.  GS made tens of billions in the decade that it made book on mortgage derivatives.  GS was not the only deceitful packager, almost all of the major banks played the same game and are the second shoe to drop.  Which is why the market declined today.
The SEC does not have a good track record of proving fraud.  It cannot hire minds of near the caliber of GS. Back to the point:  IF the SEC case is shown to have merit the volume and notional value of derivatives will decline by at least half over several years.  Regulation of derivatives will dimish the potential profitability of new product and existing product of questionable quality will self-liquidate.  The money supply, based as it is on debt outstanding, will contract as the level of derivatives unwinds.  Just as the creation of derivatives stoked world economic expansion until 2007 it will serve as a brake on the world economy going forward.  Commodities are a short-sale now as the new reality sets in. 
Stocks were down but did not break critical support at 10,930.  Until this happens I will sit on my hands.  It is hard to break bullish psychology, even when a seminal event occurs such as today.  I expect a sigh-of-relief rally to carry stocks back to near the highs.  The high tick has probably already occurred, with topping action likely over the next week or two.  I still hope for I1 to levitate the market, even though I suspect that will not occur;  that within the next week the DJI will break support.
Posting the I1 chart:

There is a formal sell signal at the 4/29 peak because the trough June 8 is below 3.25 (actually 2.53). There is an intervening bottom 5/10 at 3.61 that peaks 5/24 at 4.01. Since this is less than a .50 move I am ignoring it for longer-term trades.
As I promised last week I will be posting the slow version of I1, which isolates longer trends:

Use of the slow I1 is:
1) Timing of tops and bottoms is precise only for major moves (15% in 3 months).  Minor turns are always late due to the moving average
2) Short-term tops and bottoms (moves less than 15% in 3 months) should use the normal I1 for pinpoint turn dates.
So, if the market is in a fast move use of the slow I1 is beneficial.

Silver was down a ton.  I bought ZSL at 38.40 when the 90-minute close on May futures declined below 18.15 (well below, which is why the fill does not provide me with the profit that the chart may indicate.  ZSL closed at 39.20.
Bought small and will wait for a rally to 18.00 in the may futures to add to position.

4/16 noon

Goldman Sachs deserves a large fine, at least a billion. 
Critical support will be broken DJI 10,920. 
Silver has broken it's support already.

4/16 10:00

First-level support is at SPX 1208.40 with support break at 1201.60:

This would not cause me to short at this time.  After 4/22 this level of support break will trigger me to start shorting.
What would cause me to begin shorting now is a break of critical support at DJI 10930:

This level will be steadily advancing as the top builds up to 4/29 (hopefully).
It appears I will be short silver before I short stocks.  Silver needs a 90-minute close below 18.15:
The I1 top 4/29 is the last stop before 5 years of low I1 values and is the event I have been awaiting.  The first leg down will be met with retail buying and professional selling.  The talking heads, brokers, and Certifiable Financial Analysts will convince retail investors to buy even as the market plunges.  Investors Intelligence bullish percentage of 75% is at a nose-bleed but market typically goes up a couple of weeks past the peak.  The vast bulk of newsletters are now reciting mantra.

Thursday, April 15, 2010

4/15 Daily Commentary

Investor's Intelligence bull % hit 75% last week.  I run a 5-week M/A and a sell signal registers at 68%, which factors into the technical composite (one indicator of many).  Currently it is at 65.2% but a reading over 70% this week will trigger it, or 2 weeks over 67%.  Since we are 10 market days from 4/29 this fits into the timeframe.
Nasdaq Comp closed at 2516 today, with my target range built on wave 1, wave 4 levels of the 2007-2009 decline being 2539-2550.  Getting into this range and the SPX falling beneath the 15-minute, 54-unit M/A by more than .56% will generate a first-level short (10% of capital).  Until then I am content to stay on the sidelines earning .2% on my money (thanks Uncle Ben, or should I say Uncle Tom?)
Starting tomorrow any decline below DJI 5-minute, 380-unit M/A - 1.2% would also cause a short.  While I don't expect this to happen for at least a week with an advancing I1, last night's commentary laid out a non-I1 factor that comes into play starting tomorrow that has a good record forecasting declines.  This is why I place 50-50 odds on the market holding up through the I1 peak 4/29.

In the interim silver looks interesting and would also indicate the reversal of liquidity inflows should price register a sell signal.  For me this involves a 90-minute close below it's 90-minute, 110-unit M/A -.7%.  Currently this is 18.13. 

The dollar will confirm resumption of it's bull market with a 90-minute close above 81.  This would undoubtably coincide with a silver sell signal.

Wednesday, April 14, 2010

4/14 Daily Commentary

I1 is advancing into 4/29.  Technical and cyclical forces may terminate this rally prematurely.  The only way I can deal with entering short in the face of advancing I1 is to enter on a break of critical support, which is currently below 10,900.  Nasdaq Comp 2540 is the wave 1 low off of the 2007 top.  2549 is the wave 4 high in the same impulsive wave.  This is my target range. A technical composite sell signal (-22) and Nasdaq in this range will cause me to shift to a shorter M/A support break for my entry point.  I would not like shorting in the face of advancing I1 but 4/15 through 5/20 has a complex of atmospheric forecasts that are outside of the I1 but have good track records for a declining speculative sentiment. 
Silver is rallying with stocks but it's move may be already over.  In any event a 90-minute close beneath 18.05 will be my short signal.

4/14 11:15

Shorted crude with stop USO > 41.37 on a 15-minute closing basis.  Stopped out for 40-tick loss.
Nothing to trade...going to play.

4/14 10:45

Nothing doing in the stock market until at least 4/22. 
Silver is topping but a decline below 18.06 on a 90-minute closing basis is required for the short:
10:55 Just went short crude buying DTO at 56.98. 

Tuesday, April 13, 2010

4/13 Daily Commentary

Today was I1 bottom day, but since it is a double-bottom I got flat at a target rather than waiting for near the close. Made a good profit shorting crude. 

I1 turns up from here but not enough to register a formal buy signal.  I1 will advance to 4/29, but I believe that the market will not hold up that long. From 4/15 on any decline below the DJI 5-minute, 380-unit M/A - 1.2% will cause me to re-enter short. If the market does hold up into 4/29 then I will re-enter short then. I normally do not post what I expect for the extent of upcoming moves but the decline from the late April high will be very sharp, 15- 20%, ending early July.  This will be an opportunity for big money to be made.

My goal is to avoid the twin horns of investing:
Horn#1:  Being short in a rising trend.  Elliott Wave International has been short since November and, no fault to them, are positioned to take advantage of the bear when it resumes.  Anyone holding shorts that long is taking a hit, depending on the proportion of exposure.
Horn#2:  Being out of the market during the initial leg.  The turn, when it comes, will be vicious because of the amount of leveraged money and trend-following in the market at this time.  While mutual fund inflows have been positive for 4 months the real inflow has been from hedge funds and individual traders, gaming the system.  Individual traders are very bullish and the Nasdaq and small-caps are leading the market higher, signs of speculation.
I accomplish this by using I1 to time my windows.  The turn will come within the I1 declining periods.  So, I am quite happy to break even shorting the declining I1s because I WILL be positioned and psychologically ready to maximize the return of the bear.  Thus my use of I1 is my method of implementing the Elliott Wave International recommended position without the loss exposure. 
More importantly, I1 is entering a 5-year declining window of sub-par values.  It enters this window from the 4/29 high.  As I have stated numerous times I am not convinced that the stock market can hold up into 4/29, but if it does I will short aggressively and hold long-term positions with wide stops.  After 4/15 and particularly after 4/22 any decline below the critical support level described at the top of this post will cause me to enter short.

I will enter short silver on any 90-minute close in May futures below 18.00.  Roubini was on Bloomberg and is definitely not bullish gold.  He believes the economy will stagnate as the stim runs out in second half.  What a surprise if the economy not only stagnated but ran through 2011 in contraction mode.  That would cause the Fed to engage in more mortgage buying right around Q12012 without exiting their existing mortgage portfolio.  The joke is that the politicians are actually declaring that they are making money on the programs they instituted.  The side joke is that they are itching to declare China a manipulator.  Wow.

4/13 Stock market from here

Today is I1 bottom day, but since it is a double-bottom I got flat at a target rather than waiting for near the close.  After the close I1 turns up but not enough to register a formal buy signal.
I1 will advance to 4/29, but I believe that the market will not hold up that long.  From 4/15 on any decline below the DJI 5-minute, 380-unit M/A - 1.2% will cause me to re-enter short.  If the market does hold up into 4/29 then I will re-enter short  then.

4/.13 10:37

Sold DTO at 59.75.

4/13 10:25

Sold SDS 10% at 29.84.
Putting in order to sell DTO when USO declines to 40.20.

4/13 10:00

Silver offers opportunity on a decline below 18.00:
Stop on crude is USO 41.35: