Friday, September 17, 2010

9/17 Weekly Commentary

I1 continues down. 

The longer the congestion lasted without breaking the SP futures 30-minute M/A the greater the probability of a spike.  I warned yesterday afternoon that it looked like the spike was coming and we got the spike last night.  It ran up to 1 point beyond the June high (adjusted for nearest futures), which was the first high point in the abc off of the June low.  The trendline in the chart below intersects highs and lows backward for a decade.
That is why I kept my futures short on overnight.  I know that it was difficult and stressful for you watching futures take off but there were few bears left when the spike reversed.   One of the goals of a successful speculator is being the last one standing in the room.  The fact that the upside spike reversed to an unchanged closed is very significant.  I came into last night with 11% SDS and now have 10% SDS. This does not sound like much but I rarely put on more than 12% double ETFs on an initial (unconfirmed) position.  The SPX, DJI, and XMI formed candlestick hammers, while the Nasdaq formed a hanging man.  Down opening Monday will give more force to these patterns.

I managed to trade to skip 30-point segments of the rally and exit the short at Dec DJ 10,537.  I am currently flat futures for reasons that I will explain now.
While the congestion has been going since last weekend the moving averages that I use to trigger increased positions have been moving up to the point that, apart from the final 5-minute, 380-unit M/A they all have envelopes that are just below the market.  Currently none of the key M/As have been broken to the downside.  Hence I'm only 10% SDS. 
The first is the SPX 15-minute, 54-unit EMA which has a trigger level of 1117.30.  This is the cash SPX.
The next is the 30-minute DJ futures (blue line) expressed on an hourly chart.  This has a trigger level of 10,478 on a 30-minute closing basis.  Note that this is also below the yellow line which has acted as support for the lows over the past 2 weeks.  This level would also take us below the upward trendline over the past several days.
I don't like carrying heavy ETF positions over the weekend.  However, I will look for either a rally or a break of 30-minute M/A to put the short futures position back on.
Finally, the critical support is the 5-minute, 380-unit EMA.  This has been moving up as well but the break will only come when 10,415 DJI is broken.  This will be moving up during the cash sessions.
This was the first day in 8 that a rally did not develop between 2:00 and 2:30.  I don't know the source of the buying but it has been orchestrated.  This lack of heavy buying late today may be a harbinger for next week that buying power is exhausted.  The reversal of the spike caught a lot of bulls by surprise.  The Nasdaq, which has been leading the rally, is coming right up to strong resistance.  When the speculative indices stop then the whole market will reverse because of technical deterioration and because the AAII and Investors Intelligence and hitting extremes of bullishness.
I'm going to expand this commentary once all of the data is available for the Daily Technical Composite and if the results are significant.  As of last night we were on a -10 minor sell signal which, nonetheless, has tended to stop stock market movements in their tracks.


  1. The SPX appears to have triggered a Butterfly sell signal and may well follow the downward channel established by the pattern. ES and NQ have completed an AB=CD sell signal as well. Good luck!

  2. Friday was also candlestick hammers in SPX, DJI, and XMI. Any follow-through Sunday evening will confirm. I'm going short futures at open Sunday evening.

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  4. The Nasdaq rally ended with a hanging man. Again, follow-through Sunday/Monday will confirm. NDX has lots of upside momentum, so it would take a strong man to short it here.

  5. 99er
    I'm not familiar with Butterfly signals.