Thursday, September 30, 2010

9/30 Daily Commentary

I1 bottomed today. It was a clear bottom, so no ambiguity regarding double-bottom.  If the I1 turn date extreme has a day with a value within .35 then I'll consider both days as potential turn dates, favoring the extreme day.
The uptick into 10/7-10/8 is very weak and tops below 3.25 so longer-term hold rule would apply IF critical support were taken out.  This will only occur at DJI 10,675 (1.35% below the 5-minute, 380-unit EMA). 
I'll list the I1 values from 8/25 through 10/14:
20100825 31.94079
20100826 29.52879
20100827 27.68586
20100830 26.7774
20100831 25.81199
20100901 25.28408
20100902 25.06659
20100903 25.51281
20100906 26.69725
20100907 27.91625
20100908 29.58433
20100909 31.06375
20100910 32.49334
20100913 32.15619
20100914 31.46442
20100915 29.76997
20100916 27.14117
20100917 24.71507
20100920 22.96243
20100921 22.29074
20100922 21.8606
20100923 21.19671
20100924 21.17547
20100927 20.82228
20100928 20.55654
20100929 19.79494
20100930 18.6971
20101001 19.4164
20101004 19.8343
20101005 20.45848
20101006 20.9075
20101007 21.40699
20101008 21.63835
20101011 19.81698
20101012 17.54623
20101013 13.80057
20101014 9.866532
I don't normally post I1 results for a cycle, but I've gotten a few kids posting comments about what a failure I1 is because it didn't deliver minus net over the signal. 
From the August low the travel low to high close was 9.6% SPX over 20 days. 
From the low to 9/13 close was  7.6% over 11 days (.69% per day)
From 9/13 close to 9/30 close was 1121.90 to 1141.06 or 1.7% over 13 days (.13% per day)
The weekend between the double-top I1 days produced the Basel announcement by 27-nation group-think regulators allowing banks to keep all the garbage on their books for up to 8 years.  This was very significant and tilted the investment world toward embracing risk which, of course, favors stocks and commodities. 
This was one reason why my exposure was so small initially and why I traded DJ futures rather than holding.  By trading futures I was able to recognize gains until the 30-minute M/A was broken. 
The facts are in the trade history.  This morning I had to bail out with 4-point SP futures loss and 10% SDS at 40tick loss.  This was made up at the noontime low.
All in all a frustrating period, but one producing minimal loss (approximating 1% of capital).  There is no need to change I1.  The silver lining is that the market is only 110 points away from breaking critical support at 10,675.  This is tough to do and will determine if the stock market has been in a 4th wave during the I1 decline.
I am long the dollar, switching out of short euro at no gain/loss into long the dollar index ETF UUP at 22.86.  Now that the world despises the dollar I looked at it starting several days ago.  The wave count is complete, the technical composite is on a buy, it's I1 while not hitting absolute bottom for another 2 weeks is flattening out indicating that it will have little effect.  Finally UUP is forming a head and shoulders bottom after an extended decline.  Currently at 5% I want to be in further before breakout.  

I'll be shorting the Euro in futures this evening.  While the Euro is forming a H&S as well, instead of a right shoulder building as in the chart below, it may form another head.

9/30 3:40

Sold 5% SDS 29.50 to go flat.  It appears 3-waves are forming a triangle.

9/30 3:00

It's a lot easier counting 3 up with larger degree waves in force.

9/30 2:20

My current plan is to go flat at end of today or a new low with 5 down. Whenever DJI crosses critical support (currently 10,675) then I'll go short. I'll monitor this closely next week.  I plan to use next week to do some research and coding projects. I'll still post, just not as frequently.

It will be interesting to see the SPX close and see how a poor I1 sell signal comes out.

9/30 1:50

I'm assuming I1 is bearish into the close.  I can count 5 down today, but it is not a clean count. 
The cash dollar index has a potential 5-wave up only if 78.75 can hold.  UUP equivalent is 22.83
For me to get in more it has to break this M/A on the upside.

9/30 1:32

I count 3 up complete here.  Bought 5% SDS 29.46
Stiff resistance at SPX 1145 and DJI 10,820

9/30 1:05

Shorting when SPX hits 1144.83.
UUP needs to hold 22.83 to keep a potential 5-wave alive.

9/30 12:50

Shorting again SPX 1143.98. 

9/30 12:40

I don't know if a 2:00 jam will kick in or not, but I'll short again at SPX 1143.90 and hold into the close.
I've got an order working to buy 5% UUP at 22.86.

9/30 12:10

DJI needs to break 10,675 to get me short again with I1 bottoming this afternoon.  This is critical support.

9/30 12:05

Sold final 6% SDS 29.84.   Covered 1% DJ futures 10,682.  Today is I1 bottom day and is not a potential double-bottom.

I1 9/1=2.528   9/2=2.507  close enough for double-bottom
SPX 9/1 1080.29
That's the bottom call.
Here is the top call.
I1 9/10=3.249   9/13=3.215  close enough for double-top.
SPX 9/13 1121.90     Basel released over the weekend leading into Monday.  A game-changer.
SPX 2pm today?
Figure the percentage and tell me if I1 did not stop this market in it's tracks.

It looks like the downside action in the stock market turned the tide for the dollar and invalidated the final low for the extension.  I will use a moving average of UUP to re-enter.

9/30 11:30

I'll sell 6% SDS and cover DJ futures short at SP futures 1132.25.

9/30 11:18

Sold 4% SDS 29.50
Sold 4% EUO 19.93.

9/30 11:05

The dollar index has extended it's final leg from my initial buy point (5 waves down).  The extension needs 1 more low to complete.  Selling 4% EUO at 19.83.

9/30 10:01

SP futures 30-minute close was 1148.50, 2 points over threshold.  Sold 10% SDS at 29.01.  Covered SP futures at 1148.50 for a 4 point loss.
This adjusts my risk according to money management rules.  10% SDS and short 1% DJ futures.

9/30 open

The 9:30 SP futures were at 1146.  I will need to cover SP futures and a part of short ETFs on 30-minute close beyond 1146.25 (1146.50 or higher).
Went short on the claims at 1144.50.

9/30 8:45

Shorted 1% SP futures 1144.50 on the jobless claims. 
This is I1 bottom day.  Look for return to middle of trading range today.  A 30-minute close beyond 1146.25 gets me out of SP futures.

Wednesday, September 29, 2010

9/29 Daily Commentary

Busy final hour.  Came into today with 28% SDS, short 1% DJ and SP futures and did not trade until final hour. 
DJI came down to critical support 10,816 at the same time as SPX 15-minute was meeting it's middle-layer support.  Having both M/A's meeting at the same point in time convinced me to lighten up a little.
Market at that point was finishing a 3-wave down.  Sold 8% SDS 29.54. It rallied a bit then went lower making a 5 down.
In the futures market I put in an order covering SP short at 1136.  However, DJI was hitting 10,800 at the same time so I covered at 1136.25.
Here is current wave count according to XMI.

SP futures registered their low near the 125-hour M/A but, as stated above, DJI was hitting 10,800 at the same time.  I got 1136.25 cover. 

DJI crossing it's 5-minute, 380-unit EMA, this critical support will not be broken until 10,655.  If the market can hit this number then I'll hold a portion of the short position through the I1 uptick through 10/7-10/8.  Otherwise I'll go flat expecting further upside in the stock market. 
I am now 8% EUO, the short Euro.  I'll go to a max of 12% on Euro weakness from here.  The dollar should be basing here:

9/29 3:44

Covered SP short 1136.25.  Low was 1136.

9/29 3:33

Changing SP order to cover at 1136.

9/29 3:21

Tapped critical support again.
I'm still short DJ and SP futures and hold 20% SDS.  I'm still bearish into late tomorrow.

9/29 3:18

Covering SP short futures 1135.75

9/29 3:15

Sold 8% SDS 29.54.  Still holding 20% SDS.

9/29 2:55

The stock market is still abc'ing.  Holding shorts until DJI>10,872.
The Euro completed it's final 5-wave up 3am EDT and has been in congestion since.

9/29 2:17

Stock market abc's both directions all day.

9/29 12:30

SP futures had an ascending triangle that met measurement.  Nasdaq has the clearest count of abc up.

9/29 noon

The upmove counts to be over.

9/29 11:25

Bought another 4% EUO at 19.85.  The dollar index has bottomed on the wave count.  See dollar charts from yesterday.

Here is current cash dollar index

9/29 10:55

We are currently on the sell side of the 30-minute M/A.  We are on the buy side of the critical support as shown here.  It will be broken by decline 1.35% below it.
This market cycle has followed the SP futures M/A as shown (light blue line).  The 30-minute M/A is the dark blue line.

9/29 10:30

DJI just tapped it's 5-minute, 380-unit M/A.  This makes the 4th attempt to crack it.  Let's see how deeply it can burrow in this time after the bounce.

9/29 9:55

I've been operating with the wave count in SPX requiring a low below last week's 1123.50 as indicated in this chart.

This is still my operative count. 
Last night I was investigating the possibility of a diagonal triangle in operation, but I cannot accept this because the area in the rectangle above means that there was no abc down last week. 
I1 bottoms tomorrow.  If critical support, currently at 10,660, is not broken by then I will step aside and allow I1 to uptick after that.

Tuesday, September 28, 2010

9/28 Daily Commentary

The pattern played out again.  This time instead of 2-2:30 we got a strong close.  All the market can display is 3-waves up, notching at slightly higher highs.  DJI, COMP, and SPX did double-zigzags up from the lows.  So the scenario for SPX to notch a new low below 1123.50 is still alive.  SPX keeps making 5 down and 3 up.  5 down on Thursday and 5 down ending this morning.  In addition, we are on a 30-minute sell signal that will only be revoked by a 30-minute close above 1146.25.

Here is the double-zigzag today.

The 2 on the above chart is a 2nd wave top to the 5 down ending this morning as well as a 2nd wave top to the 5 down last Thursday.  This imbedding of 5's within 5's is a windup for a powerful future move.  In this case the low Thursday should be taken out by a comfortable margin.  It does not matter what the wave structure is going into last Tuesday.  The smaller degrees will still play out below 1123.50.  This appears as activity within a 4th wave.  So the low 9/30 looks like it will be a 4th wave low, unless it really uncorks a decline.

I1 bottoms Thursday at the close.  Unless DJI takes out critical support, currently at 10,650, I'll stand aside from Friday on unless a decline breaks this moving average -1.35%.

I shorted the Euro earlier today.  For the charts surrounding this trade follow this.

9/28 2:55

Looks like sustained profit-taking.
3rd time hitting support and still the diving board has some spring left in it.  As to whether being POMO day had an influence on the stock market here are my thoughts. Fed NY conducts POMO.  The treasuries are bought in the AM and the funds are instaneously available.  Yet the effect supposedly only shows up in the last 45 minutes of the session.  Huh?  I've seen a pattern where for a number of days running the market rallied from 2:00 to 3:15, not the final 45 minutes.  So the effect is not as obvious as conspiracy theorists would have us believe.  Sustained rallies produce lop-sided effects, naturally.
If it were the FRNY that bought stocks associated with the POMO op then it would have to appear on their balance sheet if held past closing.  Why would they need POMO?  The Fed is buying treasuries so the cash flow is reversed if they want to use the receipts for market manipulation.  FRNY or any Fed bank can step into markets whenever they want as long as it is a day trade operation using magic checks.  POMO is counter-intuitive for Fed manipulation.  GS has plenty of capital to undertake a rig whenever they want.  POMO day is like payday for construction workers or end of month for Social Security.  The money flows in and is spent on Cheetos and other crap.  With money splashing around the system some of it goes into equities.  I believe that this is now an ingrained expectation on the part of traders that is self-fulfilling and GS and a lot of other traders may be trading ahead of it.  Remember how the money supply reports used to influence the stock market?

9/28 2:15

Where's the POMO explosion?  Traders positioned early expecting it.  If it doesn't come they will sell off in a hurry.  GS does not need POMO to squeeze shorts.  The Fed doesn't need POMO to squeeze shorts.  Nobody needs POMO to manipulate a market.   

9/28 2:00

Kept the short due to the wave count.  abc is complete. The market will do what it can to fool the most people the most times. 

9/28 1:50

Stop on SP short is 1142.75.

9/28 1:15

The dollar decision is across three disciplines, 
1) The wave count
2) The dollar sentiment gauge, it's I1
3) The technical composite for the dollar
The dollar's technical composite flashes a buy signal at +7, preferably +8.  With today's decline I am confident it will increase from +7 to +8 with tonight's data.
Finally, the I1 for the dollar is dishing out, the acceleration phase is done.

9/28 1:05

The chart of the day for the stock market is the SP futures hourly, which shows the bottom (sky blue) and the retracement to the 30-minute M/A (dark blue).  I expected a smaller retracement but this support is still potent.
Everybody expects POMO at 2:00.  A surprise downside reversal would shift a lot of positions.

9/28 12:25

It looks like the dollar has bottomed.  I bought 4% EUO double-short Euro at 19.95.

9/28 noon

Critical support is still potent after the 3rd attempt.  SP futures came all the way up to 30-minute M/A where I went short again futures.
I came in today at 20% SDS. I added to SDS at 29.68 and 29.38 bringing me up to 28%.  I've traded SP futures successfully overnight and today but had 1 4-point stop on the way up.  Currently short 1% DJ and 1% SP futures.
5 down and 3 up with a 30-minute M/A sell signal that won't be revoked until a 30-minute close .5% above 1141.25 (currently).  The retracement was bigger than I was hoping for but it is kaput now. 
The two charts in the 11:40 post tell the story. 
The SPX is still calling for a low beneath last Thursday's low 1123.50. 
I'm pretty well max'd out at 28% SDS and 2% futures.  Think I'll watch from here.

9/28 11:40

Big retracement of the decline.  Futures came back to overnight highs.   It was a 5 down and a 3 up in the cash and futures markets and the 30-minute M/A sell signal still holds. 
Bought 4% SDS 29.38.
SP futures came up to hit the 30-minute M/A

9/28 11:32

I count the move up here. 
Shorting SP futures 1141.25.

9/28 11:15

The market opened down at traded 56 points below critical support.   I traded out 4% SDS and in saving 16 ticks, but added to my short ETF position at SDS 29.68.   I also traded out and in SP futures saving 1.25 points getting short at 1135.
I'm treating this like it is the downwave that will take out critical support down to 10,640.  Therefore, instead of waiting for a big, bad rally off of the 5-minute, 380-unit M/A I'm trading for a 61.8% retracement of the decline.
Lots of resistance at SP futures 1137.  Placing stop at 1139.

9/28 10:44

SPX hit 1139.78.  Bought 4% SDS 29.68.  Shorted 1% SP futures 1135

9/28 10:30

Buying another 4% SDS at SPX 1139.78

9/28 10:28

DJI, SPX, and COMP came back to previous 4th wave high.

My target for this move is below SPX 1123.50.

9/28 10:24

Bpught 4% SDS 29.84

9/28 10:19

Buy 4% SDS at DJI 10,775

9/28 10:11

Sold 4% SDS 30.02.  Will wait for a bounce to short.

9/28 10:10

I'm short 1% DJ futures and hold 20% SDS.   This is the 3rd attempt to crack the 5-minute, 380-unit M/A.  It got penetrated at 10,785 but will only break below 10,640.  I traded out of my SP futures short.  I'll put it back on if we snap back here.

9/28 9:49

Covered SP short 1132.75.    DJI is burrowing into it's 5-minute, 380-unit M/A.  I short again on a bounce.

9/28 9:45

Market provided a setup last night.  The 30-minute close at 3:30am ET at 1132.75 was more than .5% below the 30-minute, 91-unit M/A which was 1140.72 at that time.  That was a sell signal for me allowing me to increase my short position.  The market then turned around and rallied to the 30-minute M/A, which I shorted at 1141.50.
I'll be covering the short SP at 1127.75

9/28 pre-open

The SP futures 30-minute M/A was broken in overnight trading. I'm currently short 1% DJ futures and long 20% SDS. I can now look for rally to increase short exposure, particularly carrying another 1% futures short.

Review of the money management rules:
a) I1 turn date. Put on 4%-12% double short ETFs and 1% futures shorts
b) Breaking the 30-minute,91-unit M/A SP futures. 15%-30% ETFs, 1%-2% futures
c) Breaking the 5-minute, 380-unit M/A. 40% ETFs, 2%-3% futures.  
The 5-minute, 380-unit M/A is currently at 10,780 and will be broken at 10,635.
Looking to short SP futures at return to 30-minute M/A, I shorted at 1141.50.

Monday, September 27, 2010

9/27 7pm

Market manipulation is the focus in a number of comments so I'll create a post to hang comments onto.
The conspiracy theory du jour is that treasuries are purchased and the banks receiving the funds leverage them to pop the stock market, ostensibly through either HFT or futures trades or both. The funds appear in the marketplace at 2:00.  The large banks, in my mind, now are reducing their proprietary trading operations due to new regulations.  Investment banks (those that are not chartered as commercial banks) don't have this restriction.  I believe Goldman Sachs is wildly unethical and would manipulate if they did not fear any repercussions. The government has no such fears and has the motive to make buy-side manipulation.  The only reason short squeezes exist is fear of getting taken out by forced delivery by the loaning broker and the smaller size of the short population.  This makes the short side easier to pop out of position. I would not put this past Goldman Sachs, but how would they 100% cover their tracks?  If they are found out they would lose their franchise to steal in less egregious ways.  The Fed and Treasury have no such fear.  So, GS is a possible for me.
Seeing the market pop up from 2:00 on so consistently has shaken my belief that the market is too big to manipulate.

9/27 Daily Commentary

The stock market closed right off of the SP futures 30-minute M/A on a completed 5-wave from today's highs.  I'm currently 20% SDS and 1% DJ futures, having traded 1% SP futures from 1145 to 1137.25.
Thursday at the close is a small I1 bottom.  If the DJI can crack critical support I will carry a small position through the very minor I1 uptick lasting through  10/8.  The range from bottom to top is less than .2 and I1 tops out at 2.16.  While this qualifies as a longer-term I1 hold profile, the inability of DJI to break critical support (currently at 10,640) would indicate an upside pop during the I1 uptick.
First things first, the market has to break 30-minute M/A by a 30-minute close below 1131.25.  Until then I can't increase my short exposure.
The following chart has guided me throughout the day.  Different moving averages work in different market environments. 

What you can take away from this chart are:
1) Head and shoulders with breakdown well underway and a target of 1134
2) Overhead moving averages defining potential stops
3) As the cash market was scaring the short universe, the chart indicates it was just burrowing into overhead resistance.
4) The white line is above the 30-minute breakpoint of 1131.25.  I will sell some SDS and cover DJ short at this M/A (currently 1134) because the throw down to the 30-minute break is short.  In other words, I can re-enter shorts 3 points lower.
Tonight, I'll be looking for a rally off of the complete 5-wave down to put a SP futures short back on at 1141 (green line above).

9/27 3:55

5-wave down to SP futures 30-minute M/A.  Covering SP futures short 1137.25.  Covered at 1137.25.

9/27 3:40

I'm showing 5 down from the high.
Pima posted a comment regarding bank buying of equities.  Here is how I see it:
The Fed makes the reserves available to banks to lend. If banks choose not to lend the reserves then money supply does not increase and money is not created out of thin air.  Lending is the only way to increase the money multiplier.  Banks are not lending now because they are maintaining low risk tolerance. 
That being said, banks can present securities to the Fed against which they can borrow.  However, banks don't need to collateralize loans with the Fed in order to borrow, they can go to the private market at ultra-low rates (compliments of the Fed) and obtain funds.  This used to be easier pre-crisis but is still available to banks today in that they can use the commercial paper market, inter-bank market, or securitize segments of their loan portfolios.  However, banks have low risk profiles nowadays so they leave it up to their clients to buy stocks. Trust departments are the only significant source of bank exposure to equities, other than investments in other financial instutions.  Banks don't want to use the Fed Discount Window because it indicates weakness in their financial condition and leaves them vulnerable to deposit outflows.

9/27 2:50

Still abc.
The close will tell.

9/27 2:30

SPX completed yet another abc.  It has been nothing but 3-waves since Friday morning.

9/27 2:00

Rally has carried back to SP futures resistance.

9/27 noon

Open Market Operations by the Fed are ongoing adjustments to how they want to manipulate you and me.  Currently they want us to believe that they are powerful and inflationary.  Their last FOMC statement indicated that they would intercede to regenerate inflation to counteract debt contraction.  Expansion of the Fed Open Market portfolio is a net increase of reserves. 
The following link is the latest available Fed Balance Sheet.  Looking at the report the following items are of interest to Open Market Operations:
Securities held outright are the SOMA, or the Open Market portfolio
Agency Securities are Fannie Mae, Freddie Mac and Federal Home Loan Bank

MBS Securities are guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current face value of the securities, which is the remaining principal balance of the underlying mortgages.
Buying Treasuries with maturing MBS is a wash as far as bank reserves and Monetary Base.
Securities Held Outright decreased by 2.7B in the week ending 9/22.  This is contraction of reserves. 
The bottom of the report is the Total Factors Supplying Reserve Funds.  This contracted by 2.7B for the week.
The Fed is reducing, not increasing it's net portfolio, but is shifting from risk assets to Treasuries.  The Monetary Base effect is contractionary.  Bernanke is speaking inflation while the Fed institution is moving to reconstitute it's portfolio to it's traditional composition.   It's moving too slowly if 2011 is to be a return to credit contraction.  It will eat some of it's MBS and this assumes that Fannie and Freddie are able to maintain par on their own securities.

9/27 10:45

Measures of internal velocity have been downtrending since the April high.  Eastern posted a link to a audio file of high-low deceleration @bamtrader.  Other weekly measures have been downtrending which invalidates the current rally as a new bull.  Once stat I follow is insider trades which have downtrended since then. 
Back to the current situation.  Retracement rally has returned to SP futures resistance.  Downtrendline and 3 M/As should protect the downtrend.

9/27 10:25

In case anyone is wondering how I got lucky getting SDS at 29.30 here is a re-post of the chart that I am focusing on, the SP futures 15-minute with the H&S neckline.  The latest return to the neckline was trigger.

9/27 10:10

I'm currently short 1% DJ and 1% SP futures.  I held 16% SDS coming in.  Just bought 4% SDS 29.30.
I just broke my money management rules.
My money management rules state that before I can increase short ETFs beyond 16% I must see the SP futures 30-minute M/A broken again on the downside. Currently at 1134.75, the break would occur on a 30-minute close below 1129.  This is a long way down.

9/27 9:40

By virtue of the decline from overnight futures' pop Friday's SPX wave count remains unchanged. 

9/27 pre-open

Breakout from Friday's ascending triangle was terminal.  Re-entered SP futures short 1% at 1145.  Breaking the neckline at 1142.25 will also break the 15-minute, 98-unit M/A and confirm the top.

Sunday, September 26, 2010

9/26 9:45

The 15-minute SP M/A has caught up with price, so 2 points below this 15-minute, 19-unit M/A minus 2 points will be the short point.

9/26 8:25pm

SP futures breaking 1146.75 will get me short 1% SP futures.

9/26 7:35pm

Here is the 172-week M/A which comes in this week at SPX 1158:

9/26 4:30

Covered 1% DJ futures 10,839

9/26 4:15

Shorted 1% DJ 10,839.

9/26 4:02

Covered 1% SP futures 1143.50, leaving 1% DJ futures short.

9/26 4:00

Covered 1% DJ futures 10792, leaving 1% DJ futures and 1% SP futures shorts.  I'll short again when SP futures decline 2 points beneath their 15-minute, 19-unit M/A.

9/26 3:00pm

Got back home this morning.  Home is where the tools are.
As posted Friday the SPX count appears complete abc.  Here is the SP futures chart which is also abc upward. 

The green line -2 points is my signal line that the rally has ended.

Friday, September 24, 2010

9/24 Daily Commentary

I am keeping my futures shorts and cutting back my ETFs from 32% to 16%.  I can trade the futures Sunday night, but not the ETFs.

9/24 2:40

We've got enough price history since the orthodox top to adjust stops.  We have had a double-zigzag so far since then and a trendline will project where I would expect a triple zig-zag to stop.  Since a triple is the most we can go, this can be used for stop orders.
So 1150.2 is the earliest I can get out.