Saturday, April 30, 2011

4/30 Weekly Commentary

Update Sunday afternoon.  I'm slowly getting cycles back and am starting to update charts.  My machines are still monopolized with cyclical baselines and I have to allow them to finish in order to reboot the configuration that I use to generate the normal data series. 

I began shorting at the close 4/19 and the market rallied for 6 more sessions.  I'm currently 4% SDS, 2% TWM, 2% QID, 1% SOPIX, and 1% UCPIX.   I put on the TWM and QID late so I'm OK there.
Over the past week the relative performance of DJI(+2.5%) has been striking vs. NDX(+.9%) and SPX(+1.9%).  Small caps will ordinarily outperform DJI by a handful, but just kept up this week and mid caps underperformed.  The Russell 2000 has come back up to it's 2007 highs for the nominal high at 860, but what I am counting as an irregular flat has slightly exceeded them.

I'm using the mid-caps for wave counts since they are clearer than the Russell but achieve the same outlook.  

The current rally is a c wave.
A close-up of the c wave.
The midcap count, if correct, should have wave (v) less than or equal to (iii) making the limit of the rally 1018.
SPX, while it could count complete, I'm labelling as 1 more high.
While I keep wave counts, I don't hang my hat on them but use them as guides within an existing strategy.  While raw I1 has developed an 8-day lead since the quake, this phenomena has occurred in the past.  Rather than using the lead, which signalled today as the peak, I am focusing on the 30-day I1 which has not been disturbed by short-term distortions in it's history.  The parallel with today's environment is 1987, where loose money and a declining dollar preceded the crash.
The current 30-day I1 chart peaked this week:
The 1987 30-day I1 chart will be posted here soon:

Here is the latest optimized cycle chart for DJI.  There are 2 things to consider when looking at these cycle charts:
1)  They make the past cycle highs and lows look good because the data is optimized to do so.
2)  They make big price lows generally coincide with big cycle lows.  We cannot infer that a medium-sized future cycle low will only correspond with a medium-sized price low.  It could be a big one!

Friday, April 29, 2011

4/29 Gold

Gold is behaving the same as the DJI.  It is perceived safer than silver, just like the DJI is perceived safer than SPX or Nasdaq.   The daily chart shows (v) in progress.

The 90-minute chart shows wave sub-minuette iii of v of (v) ending shortly.
 So were within a day of gold finishing up.

4/29 2:05

Do you have your long exit strategy in place?
Silver fell $5 an ounce in a single day off the 49.80 high.  What if the same were to happen in the stock market?  Silver hit it's high overnight.  It was down $3 before the stock market opened.  It was down $1.60 before ARCA opened and allowed ETFs to trade.
I think the stock market could be in for a similar environment, where the first steep step down traps the ETFs overnight and leaves them deep red at the ARCA open, twice as deep when the cash market opens.  This is why I am in early.  Normally I trade short-term positions and balance with small futures positions.  This time I'm out in front because I believe that when the risk-off switch is thrown the public, hip-deep in stocks and ETFs will be thrown to the wolves right off the bat. Their confidence that they can hit the sell key will be shattered. Certainly I expect this after mid-May when the I1 sell signal hits. 
There is something that has changed in the response behavior to environmental conditions since the Japan quake.  Since this is reptilian response I am not sure that it can be isolated, at least not in words.  The lead remains and thus far has not decayed.  I am certain that it will disappear but cannot predict when at this time.
DJI 12,270 will be the first confirmation of trend change.

4/29 1:20

I'm holding 2% ZSL on the 5 down from the 49.80 high.  The PM1 peaked yesterday.
I counted the midcap index MID and project wave (v) = wave (iii) at 1018.    This count is cleaner than the Russell 2000.

SP futures are still not acting impulsively upward, but advancing in abc's.  Both SP and midcap show 1 more high.

4/29 1:00

I follow a solar/lunar composite that is but one part of I1 but accounts for 50% of it's short-term movement.  This series developed an 8-day lead to the market after the Japan quake. 8 days from the latest peak is today.  The same lead exists in raw I1 but it is even clearer in this series.

4/29 11:45

The amazing dichotomy between the DJI and the rest of the market continues.  SP futures are forming abc's to marginal new highs after completing their 5 up on Wednesday.

4/29 11:05

Here is I1 30-day, which completes it's rounding top today.
SP futures high yesterday was 1358.50, currently 1357.50.  This wave count is complete to the upside with an irregular flat in progress. 

4/29 pre-open

I am carrying 4% SDS, 2% TWM, 2% QID, 4% ZSL, 1% SOPIX, 1% UCPIX.
SP futures did not impulse upward yesterday, to join Nasdaq and the Russell as holding back from the DJI impulsive rally.  I'm waiting for SP futures to break their blue line by .5% close below.
This makes 1356 the nominal high for the SP futures and a completed 5 up still in force.
Nasdaq is far from it's highs.
I1 30-day topped Tuesday or Wednesday.
Wave count for DJI appears complete 5 up:

Thursday, April 28, 2011

4/28 Daily Commentary

The disparity amongst the stock indexes is striking.  Nasdaq remained well under last night's highs and Russell stayed below but got with a point to 860.40 vs. 860.80 last night.  SP futures got above by 2 points but closed off the highs and is currently right at last night's high 1356.25.  SP going below 1355 will confirm that today's rally was just an abc forming an irregular flat.
If all we look at are the cash indexes then today was an extension of the rally with the DJI pacing the pack.  However, looking at the futures, we see the broader market lagging badly.
Here is the Russell futures:
Here is the Nasdaq futures:
Here is the SP futures:
You can see that SP futures coming back below 1355 will confirm the irregular flat and alarm a fake-out breakout.
I normally don't post daily stats, but today's breadth does not indicate a 72-point DJI rally.  NYSE 2419 advancing with 1537 declining including preferreds which did well today because bonds rallied.  Nasdaq 1402 advancing, 1233 declining.  No preferreds here and gives a good picture of common-only.
So I'll be watching futures for new highs in ND, Russell.  If they don't come and SP gets back below 1355 this could be a good set-up for renewed shorts in the morning.
I had to reduce SDS by 2% when the DJI finally broke through it's M/A envelope.  However, this could be a sale I will need to buy back higher if the broad market re-asserts itself.  I'll know tonight.
The raw I1, turns out, has a full 6-day lead and it has not decayed as I expected so far.  The peak I1 on 4/19 counts 6 days forward to today's bar.

4/28 3:45

The DJI is outperforming the other indexes.  Russell 2000 futures high last night was 860.80, versus a high moments ago of 859.80.  ND futures overnight high of 2415.75 vs. 2409 high this afternoon. 
Selling 2% SDS at 1980 when DJ futures 1:30 close 12,695.  However, the SP futures appear to be forming an irregular flat, not impulsive like the DJI. 
Keeping TWM and QID.
Cash RUT beyond 862.45 will get me out of TWM.  This will be making a high beyond last night's futures.

4/28 3:20

The DJ futures will just not break their envelope.  Latest close 10-minute close 12,690.  Russell has completed a 3 up and is below this morning's high. SPX double-tops as well.

4/28 3:00

DJ futures have risen to test the envelope of their 10-minute M/A.  A 10-minute close beyond 12,690 will cause me to lighten up, but so far it has held.  DJI has relative strength due to perceived safety. Normally I would attribute DJI strength to big money buying.   However, when the tide ebbs away from risk assets all the indexes will fall together.

4/28 2:00

Russell 2000 has completed a double top or an Elliott irregular flat against it's high April 6.
The big picture is complete:

Even if there is one more high, it will still be part of the correction of the decline.  Small position, hold for several months is my strategy.

4/28 1:15

Silver just confirmed it's downtrend by breaking 48.00.  I'm 2% ZSL which is very volatile, so I'm comfortable with this as an alternative to futures.   The decline from Sunday's high was a 5 wave and I took a bunch of money out of that decline.  Last night and today I took 5 cent losses attempting to short but finally decided to tone down the leverage by buying ZSL instead.  Currently at 2% ZSL but will increase it as the decline develops.
The tide is going out on risk assets.   The DJI has been leading the pack up as traders became convinced it was relatively safe and were uncertain of the future.  Overnight DJ futures broke their 10-minute M/A by a 10-minute close lower than 37 points under the M/A.  Today DJ futures tested to the limit this M/A by a 10-minute close 37 points above the M/A.  That was the end of it.
The next step, before I expand my stock exposure, is for SP futures to have a 30-minute close .5% below their 30-minute M/A.

4/28 12:39

I covered the silver short even and bought another 1% ZSL at 13.14 instead.  Much less leverage.

4/28 12:15

The precious metals sentiment gauge, PM1, is just past it's top.
I have an order in attempting to short July at 48.899. Confirmation of the breakdown will be when it breaks the 10-minute M/A blue line by trading below 48.10.  The sharp wave down counts as a 5.

4/28 11:55

I did not get a piece of the silver short.  Order in selling at 48.97.
This morning SP futures tapped their 30-minute M/A and launched a mini-rally.  This M/A will only be broken on a 30-minute close .5% below it.  All measures of I1 have topped.

4/28 11:45

The count up is complete.  The breakout was a fake-out.  Order in shorting July silver 49.07

4/28 11:35

Looks like silver is just finishing a 3rd wave up from it's overnight rectangle.  Form a triangle and break up and we are done. 

4/28 11:15

Stopped out silver short at 49.291, 4 cent loss.  This could be a false breakout because it was a 3 wave up that preceeded the move. 

4/28 11:05

Moved silver stop down to 49.291

4/28 10:15

I've got a stop based on DJ futures.  These broke their 10-minute M/A to the downside last night.  They will break to the upside 37 points above, currently at 12,704.
I'm short July silver with a stop at 49.39.

4/28 9:45

I'm shifting to July silver as it's volume has caught up to May.  In addition to covering the silver short I sold my 1% ZSL at 13.71.  I shorted July silver at 49.25 and repurchased ZSL at 12.98.

4/28 9:00am

I covered silver short when it became apparent silver was going into a rectangle.  There are now 5 complete internal waves, so if it plays to form there is a breakout toward the 49.80 high on Sunday night. 

4/28 8:45am

Yesterday's FOMC:
No change in statement vs. last month. Ben is not going to cut short QE2. The monetary base rate of change will be immediately affected by the end of QE, regardless of rolling over maturing garbage into treasuries. Markets respond to rates of change. QE2 is bulling up the base. Here is 26-week rate of change monetary base vs. the DJI.

SP futures just hit their 30-minute M/A.  I expect a bounce here but no new highs.

4/28 pre-open

Silver is in a rectangle.  I shorted at 48.17, covered at 48.22.  Shorting again using the green line M/A.

Wednesday, April 27, 2011

4/27 11:00pm

Holding silver short stop 48.77.

4/27 8:00pm

I shorted May silver at 48.17 with a stop at 48.52 using green line - 21 cents.  July will become the front month on Friday.

4/27 Addendum

I'm putting this out to indicate that I will be updating the Daily Commentary until 7pm ET.  I just wanted to get it out early. 

4/27 Daily Commentary

The circus came to town.  Yesterday was the parade and today was the big top.  The dollar carry trade wanted to hear no change in policy so oil and precious metals took off.  I used SP and ND futures as keys to reduce stock ETF positions.  The count in the Nasdaq resolved to complete 5 out of a triangle breakout so I re-entered QID at 47.88.  Russell 2000 old high is 859 and change on 4/6 vs. today 858 and change.  I re-entered TWM at 40.01.
Here is I1 30-day.  I drew in today's bar since my data downloads are not yet available.  Today is top day using this gauge.

The raw I1 has 5 trading sessions since it's high 5/19. 
Nasdaq tipped it's hand yesterday and today, forming a rectangle and indicating another leg up.  That breakout has completed it's wave count.  Here is a chart published shortly before the close.  Nasdaq peaked and turned down after this was posted:

The DJI also completed a 5 up:

With today's rally the stock market is too far away from meaningful moving averages to reduce exposure and wait for an imminent break.  Even the DJ 10-minute M/A is 70 points below market, so we'll see in the morning.  I was able to reduce exposure this morning because the market marked time last night. 
As far as the big ones, the DJI critical M/A is currently 320 points away from it's downside break level.  The SP futures 30-minute M/A is currently 1340.40 and a break occurs with a 30-minute close .5% beneath the M/A. 

It appears that the silver rally ended at 48.30.  This completed it's 3 up.  However, from it's high Sunday night it completed a 5 down, so this is a big clue that this 3 up is final.  I'll be going short silver May futures when the 5-minute M/A (green line) is broken by 21cents.

The rally in metals and oil gave wind to the sails of the stock market, as they responded to the punch bowl remaining on the table, as if there was ever any doubt.  Here is today's PM1 chart:

Nobody asked Ben about the dollar carry trade.  This is the root of international commodities' price explosion and contributes to the misery of the third world.  By carrying rates at 0, speculators borrow for free and throw the money, leveraged, at anything non-dollar.  They don't stay in the dollar because with 0 rates it is depreciating.  Ergo everything physical and non-dollar goes up.  Hedgies have lines of credit and can borrow in whatever currency they desire.  With rates at zero they borrow dollars and buy oil, grains, metals, hides, whatever, and so we export dollars overseas.  They also benefit from dollar depreciation due to this rate policy.  Nobody asked about this.  What the heck is going on?  Have we collectively dropped IQ's?
Due to the surge in stocks, oil, and metals the dollar hit a new low today.  Hedgies are cleaning up.

4/27 3:45

Bought 2% TWM at 40.01 on RUT double-top.

4/27 3:40

Nasdaq approaching top of 5th out of triangle breakout.

4/27 3:27

I bought back 2% QID at 47.88 subject to ND futures 2409 holding.

4/27 3:20

No-new news market should peak today.  I scaled back until the close. 
Bought 1% ZSL 14.15.

4/27 3:10

SP futures>1347.50 caused sale of 3% SDS at 20.10 and 2% TWM at 40.35.
ND futures>2404 caused sale of 2% QID at 48.04.
Holding 3% SDS, 1% SOPIX, 1% UCPIX.
1 more high to complete this 5 up.

4/27 2:00

15 minutes until the pony show.  Market has rallied up to this enlightening event.  Rally up, give it up when it begins...

4/27 1:55

I posted prices that I would lighten up my longs.
SP futures > 1347.50
ND futures > 2409
I'll use ND futures > 2404.

4/27 1:45

Covered silver short 46.40.  Sold ZSL at 15.01.  Upside breakout from rectangle.

4/27 1:00

Bought 2% QID at 48.21.

4/27 12:40

Bought 2% TWM at 40.45.  Looking to buy 2% QID 48.14.

4/27 12:10

I am short silver futures and 1% ZSL.  I think there is 1 more rally within a 4th wave rectangle to complete it.  A rally beyond 46.40 alters the assumed 5 down in progress.  Silver is testing hourly support.

4/27 11:50

All right, so let's say Nasdaq returns to top of range.  Is an upside breakout from rectangle assured?  In Elliott it is a one-way street in the direction of trend. I guess it depends on where it is going into the announcement.  Can we expect a spike and reversal?

4/27 11:20

I count 5 down in Russell 2000 from yesterday's high.  A rally up to 853.80 would be a good short.

4/27 11:00

Here is the NDX.  If a rectangle has formed it has finished it's 5th internal wave and will rally to an upside breakout.  If it continues down then the pattern never completed.
Time has run out for the bull market.  Today is top day, according to 30-day I1. 

4/27 10:45

My target to cover May silver short is 44.65, stop at 46.45.

4/27 10:30

The Nasdaq is in a rectangle, so I expect it to return to the top of range.  A breakdown before the announcement will be highly unusual and a tip-off.