Does 810 count as a touch over 800? I admit it is a stretch, I was thinking of closer to 806, but I'll take it. We clearly moved down in the last 15 minutes of the day. All of the momentum indicators are now pointing down. I am watching for a five wave structure for this move down. I am looking for a low in the neighborhood of 750. It is possible we end the move at 775 and it is also possible the move extends towards 725. As the move unfolds the actual target will become clearer.
I remain fully short and will scale out on the way down beginning possibly in the 775 area. It depends how the move down takes place.
One important thing to note. Both the SPX AND the XLF closed today under EXTREMELY important prices. Both closed on a quarterly basis under the lows of the 2002 bear market. In trend analysis the closing and opening prices on the larger timeframes are of extreme importance. This close does not jive entirely with my views for a multi-month rally.
Due to this I will use more caution in playing the wave 3 up until it appears safe that it is indeed taking place. That is I will most likely scale into long positions and become fully long at higher prices than I anticipated earlier today. For example if we finish the next wave down at 750, I will not be 100% long until we close over 830. If I am correct this should not matter too much since I expect this move up to go well into the 900's.
Tuesday, March 31, 2009
Getting Ready for the last Little Push Down
I feel like I am getting my mojo back. We should be close to ending this little move up. I am still shooting for a touch over 800. Technicals suggest we are running out of juice on the very short term up move. After this we should make one more move down. This move should take a five wave structure similar to the move from Friday's open to yesterday's close. This move could take several days and maybe the rest of the week. This should take us to 750+/-. When we are approaching this area I will watch closely the technicals for exhaustion for the downward movement.
I believe still and very strongly that when this next move up begins it will be very strong in both price and speed. It will take us up around 200 SPX points over several weeks to months. I will be using my nightime research over the next several nights to find some good long candidates. I will most likely purchase a large basket of stocks that I feel have the potential to triple or more in the upcoming move. some of these will be short squeeze plays and others will be institutional favorites. I will also put some cash into long etf's. I will post all of these names on this blog.
I believe still and very strongly that when this next move up begins it will be very strong in both price and speed. It will take us up around 200 SPX points over several weeks to months. I will be using my nightime research over the next several nights to find some good long candidates. I will most likely purchase a large basket of stocks that I feel have the potential to triple or more in the upcoming move. some of these will be short squeeze plays and others will be institutional favorites. I will also put some cash into long etf's. I will post all of these names on this blog.
Monday, March 30, 2009
Expecting Clarity This Week
I expect some clarity this week in regards to the two scenarios I laid out last week. The large drop in the markets were not a surprise. This drop should continue for a few days and end with the SPX in the neighborhood of 750.
In reflecting this past weekend I have reduced the chances for the bearish scenario. I am now 75% behind the bear rally scenario and will be playing this. I expect that prices will reaffirm this view later this week and into next giving me clarity and confidence to play the long side going forward.
Also as we complete this wave we will begin to get some relationships that can provide us with likely targets for this bear makret rally. As is stands right now, I am targeting anywhere from 950 to 1150 and a time frame lasting through the end of the summer. Since the first wave became extended in price, I lean toward the lower end of the targets. I am leaning toward somewhere in the 975-1050 range. This will become more clear as we complete wave 2. Also note that we have major resistence near 950, 1000 and 1050. So these price levels are all logical ending points.
Keep in mind that according to EWT wave 3 is the most profitable and easiest wave to play. If this is the case we need to be properly positioned once the current wave down ends. It could be as early as next week that we begin wave 3. During this week I will be making a list of long candidates to ride up in wave 3. I will post this list when I make it.
In reflecting this past weekend I have reduced the chances for the bearish scenario. I am now 75% behind the bear rally scenario and will be playing this. I expect that prices will reaffirm this view later this week and into next giving me clarity and confidence to play the long side going forward.
Also as we complete this wave we will begin to get some relationships that can provide us with likely targets for this bear makret rally. As is stands right now, I am targeting anywhere from 950 to 1150 and a time frame lasting through the end of the summer. Since the first wave became extended in price, I lean toward the lower end of the targets. I am leaning toward somewhere in the 975-1050 range. This will become more clear as we complete wave 2. Also note that we have major resistence near 950, 1000 and 1050. So these price levels are all logical ending points.
Keep in mind that according to EWT wave 3 is the most profitable and easiest wave to play. If this is the case we need to be properly positioned once the current wave down ends. It could be as early as next week that we begin wave 3. During this week I will be making a list of long candidates to ride up in wave 3. I will post this list when I make it.
I hope you took my buy recommendations last week.
These were the stocks I recommended and their prices and their current prices.
FAZ - $18 - $23.50 - 30.6% gain
SKF - $90 - $107 - 18.9% gain
SRS - $51 - $60 - 17.7% gain
The good news is that I expect further upside in these stocks over the next several days. We could see the increase %'s double before the market turns up.
FAZ - $18 - $23.50 - 30.6% gain
SKF - $90 - $107 - 18.9% gain
SRS - $51 - $60 - 17.7% gain
The good news is that I expect further upside in these stocks over the next several days. We could see the increase %'s double before the market turns up.
Friday, March 27, 2009
Second less favorable possibility
I came across another possible scenario for the intermediate term that is rather intruiging. This scenario suggests we are in a complex ending pattern for this bear market. It suggests that the high for this leg up CANNOT exceed 840. If we basically drop from here we would go straight down to new lows and end the bear. I place lower odds on this than my previous post. The reason is that I am a believer of the fact that simpler is usually correct and this ending shape is very rare and usually only seen to end BULL markets, not bear. However I must acknowledge its possibilty.
This scenario certainly fits much better with the dissconnects I have previously mentioned with the bond market, no capitulation bottom and market fundamentals. This acenario also fits better with the fact that this rally has been led by retail investors and NOT institutions and the fact that it appears that institutions are trying to prop this market up until the end of Q1 which is next Tuesday. However I give this only about a 25% chance. If we breach 840 than this scenario is dead.
Fortunately both scenarios have prices falling from where we are now. So I can initially play them both the same and hopefully get clarity as we go down.
I really like this new scenario as it fits better with the environment, however DO NOT underestimate the power of "hope and change". It is "hope and change" that have propelled us off the bottom and it is "hope and change" that could lead us to a mini bull market sooner than it could have.
The markets during the Great Depression killed many bears AND bulls with its many rises and falls that "should not" have happened. Just play the market that presents itself rather than the market that makes the most sense.
This scenario certainly fits much better with the dissconnects I have previously mentioned with the bond market, no capitulation bottom and market fundamentals. This acenario also fits better with the fact that this rally has been led by retail investors and NOT institutions and the fact that it appears that institutions are trying to prop this market up until the end of Q1 which is next Tuesday. However I give this only about a 25% chance. If we breach 840 than this scenario is dead.
Fortunately both scenarios have prices falling from where we are now. So I can initially play them both the same and hopefully get clarity as we go down.
I really like this new scenario as it fits better with the environment, however DO NOT underestimate the power of "hope and change". It is "hope and change" that have propelled us off the bottom and it is "hope and change" that could lead us to a mini bull market sooner than it could have.
The markets during the Great Depression killed many bears AND bulls with its many rises and falls that "should not" have happened. Just play the market that presents itself rather than the market that makes the most sense.
Two Possibilities
I was out sick again yesterday and did not spend much time watching the market. However I am on lunch and kinda caught up.
The most probable scenario for the upcoming months is the following: 858 max is the high for this wave. Then a wave down to 750, then another wave up, then wave down, then finally wave 5 up to end this bull market.
We might not hit 858. Yesterday's high could have been it. Either way the top of the first wave is almost in. The next wave down could retrace 38.2%, 50%, 62.8% or even 100%. I rule out the 100% cuz that would mean a double bottom and those tend to be long lasting (many years). I think we'll set new lows within 12-24 months. With a large move like we had usually the retraces are more significant so I am shooting for the 50%. 830-666=167, 830-167*.5=746 which is pretty close to 750. That is where I get my target.
Interestingly you can project approximate lenghts for the remaining waves based on the length of wave 1. They are only targets of course, but give you some idea. Based on this the minimum high for this bull market is the 950 area. Most likely top is in the 1050 area. Possibly could go up to 1150, but unlikely.
The way I'm playing this will be to scale out of shorts from 775-750. Then go long. Ride it up to the 950 area (target of wave 3), then scale partially out of longs and scale back into longs when wave 4 finishes. I don't know where that will be yet. It could be months away. Then go all long for the wave 5 finish to 4 digit SPX territory.
It sucks I missed the entire first leg of this bull, but it was a sneaky bull. From what I have read over the last few days it has been a bull market led by retail, not institutions. In fact the institutions are just now trying to figure out when to join the public like we are. My guess is in the mid 700's they will hop on and push us up through a long wave 3 in both time and price.
From a fundamental stand point we did not reach any milestones of a typical bear market. The PE did not reach historic lows, the bond market did not indicate a bottom, even companies did not indicate optimism for late 2009, just the opposite in fact. The only thing telling us this bear ended was price. We ran out of sellers. The public got all bulled up on "hope and change". This will have consequences when this bull market ends as we should get a horrific crash to purge the system, but that is months away.
The most probable scenario for the upcoming months is the following: 858 max is the high for this wave. Then a wave down to 750, then another wave up, then wave down, then finally wave 5 up to end this bull market.
We might not hit 858. Yesterday's high could have been it. Either way the top of the first wave is almost in. The next wave down could retrace 38.2%, 50%, 62.8% or even 100%. I rule out the 100% cuz that would mean a double bottom and those tend to be long lasting (many years). I think we'll set new lows within 12-24 months. With a large move like we had usually the retraces are more significant so I am shooting for the 50%. 830-666=167, 830-167*.5=746 which is pretty close to 750. That is where I get my target.
Interestingly you can project approximate lenghts for the remaining waves based on the length of wave 1. They are only targets of course, but give you some idea. Based on this the minimum high for this bull market is the 950 area. Most likely top is in the 1050 area. Possibly could go up to 1150, but unlikely.
The way I'm playing this will be to scale out of shorts from 775-750. Then go long. Ride it up to the 950 area (target of wave 3), then scale partially out of longs and scale back into longs when wave 4 finishes. I don't know where that will be yet. It could be months away. Then go all long for the wave 5 finish to 4 digit SPX territory.
It sucks I missed the entire first leg of this bull, but it was a sneaky bull. From what I have read over the last few days it has been a bull market led by retail, not institutions. In fact the institutions are just now trying to figure out when to join the public like we are. My guess is in the mid 700's they will hop on and push us up through a long wave 3 in both time and price.
From a fundamental stand point we did not reach any milestones of a typical bear market. The PE did not reach historic lows, the bond market did not indicate a bottom, even companies did not indicate optimism for late 2009, just the opposite in fact. The only thing telling us this bear ended was price. We ran out of sellers. The public got all bulled up on "hope and change". This will have consequences when this bull market ends as we should get a horrific crash to purge the system, but that is months away.
Wednesday, March 25, 2009
Quick update
I think we put in a short term top. Indicators are showing divergences across many time frames. Volume was fumes compared to last couple of weeks. Also the financials did not set new highs yesterday or this morning while the indices did. Yet another divergence. This is about as good of a setup as you can get. Very high probability that you make some decent money on the short side over the next few days and possibly into next week.
I would concentrate on shorting the financials and/or realestate. Go long SKF and SRS. If you are in need of a fix then buy FAZ, the crack cocaine of etf's.
I found a shocking report. Jay you may already have read this report, but when we talked out in Vegas I thought you said most of the RE had already been written off. This report is from GS and deals with CRE. Almost nothing has been written off yet by these banks. Shocking.
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSaOrL8etUvLw4WQeHgD7-fRXZLxo8RCoDEjYSezzijGkVw3fLLWGSsJ6Zb35RJSNikKw1yYVoQA2DytAmZAlFx_KOVQqL3uhyphenhyphenvjbuNoNbwzWCvFCytBlnF_6chhAAqwA5GqYdLI9jQefW/s1600-h/zero+hedge.jpg
I would concentrate on shorting the financials and/or realestate. Go long SKF and SRS. If you are in need of a fix then buy FAZ, the crack cocaine of etf's.
I found a shocking report. Jay you may already have read this report, but when we talked out in Vegas I thought you said most of the RE had already been written off. This report is from GS and deals with CRE. Almost nothing has been written off yet by these banks. Shocking.
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSaOrL8etUvLw4WQeHgD7-fRXZLxo8RCoDEjYSezzijGkVw3fLLWGSsJ6Zb35RJSNikKw1yYVoQA2DytAmZAlFx_KOVQqL3uhyphenhyphenvjbuNoNbwzWCvFCytBlnF_6chhAAqwA5GqYdLI9jQefW/s1600-h/zero+hedge.jpg
Daily Post
I expect today to close in the red. Probably not much. It is possible we put in another small candle today. When we get a large move in one direction it indicates much strength and can take a few days to turn momentum. Even if we end the day slightly green would not bother me. I would be nervous if we set and close highs above yesterday's highs.
A few random notes of importance:
1 - It is becoming clear that the bad bank plan may never get off the ground. Banks need the asset prices to be very high. If the price is significantly lower than the stated prices, banks would need to write down incredible amounts. They would then need to raise cash to remain capitalized. They cannot do that. Alos investors are rumored to be not interested in paying prices that are not well into their favor. This leaves the taxpayer to hold the bag. How much political capital is the Obama administration willing to spend on this? The public is against more bailout money. I'll stay on top of this.
2 - A truly terrifying statistic: Japanese exports dropped 49.4% YOY. YIKES! That will put any exporting nation straight past economic slowdown, through recession and into depression!
3 - The UK had a failed bond auction last night. Not sure exactly what to make of it yet. I did not read any details about it, only the headline. However I do know that the US has a large bond auction at 2:00est today.
4 - Durable goods numbers came in better than expected. January's numbers were revised significantly lowered. Many believe that the lowering of Jan. numbers was intentional. Reporting of better numbers in Jan makes Jan seem better. Lowering of those numbers than comparing them to Feb numbers makes Feb look better. A little game of trickery by our friends at the FED. Will Feb #'s get lowered next month to help the March numbers? Possibly.
A few random notes of importance:
1 - It is becoming clear that the bad bank plan may never get off the ground. Banks need the asset prices to be very high. If the price is significantly lower than the stated prices, banks would need to write down incredible amounts. They would then need to raise cash to remain capitalized. They cannot do that. Alos investors are rumored to be not interested in paying prices that are not well into their favor. This leaves the taxpayer to hold the bag. How much political capital is the Obama administration willing to spend on this? The public is against more bailout money. I'll stay on top of this.
2 - A truly terrifying statistic: Japanese exports dropped 49.4% YOY. YIKES! That will put any exporting nation straight past economic slowdown, through recession and into depression!
3 - The UK had a failed bond auction last night. Not sure exactly what to make of it yet. I did not read any details about it, only the headline. However I do know that the US has a large bond auction at 2:00est today.
4 - Durable goods numbers came in better than expected. January's numbers were revised significantly lowered. Many believe that the lowering of Jan. numbers was intentional. Reporting of better numbers in Jan makes Jan seem better. Lowering of those numbers than comparing them to Feb numbers makes Feb look better. A little game of trickery by our friends at the FED. Will Feb #'s get lowered next month to help the March numbers? Possibly.
Tuesday, March 24, 2009
The Bad Bad Bank Plan
I told you guys yesterday that I'd give you my take on the Bad Bank Plan. This is one of the last ditch efforts by this administration. In summary the plan is a way to try to get the private sector to take some bad assets off of the banks balance sheets. The plan calls for the taxpayer, of course, to shoulder 93% of the risk and get none of the rewards. We've seen this before right? TARP, TALF, AIG, FNE, FRM,etc. ring a bell?
It is thought by many that that these assets are causing the banks to not lend. Therefore removing bad assets will allow them to lend. This is not true. The banks are not lending because there are very few who are looking to borrow. Who needs money to buy a new car? or a new home? or another vacation? or build a new strip mall? or open another nail salon? or another pizza hut?
Most homeowners and businesses are trying to recover from their debt induced hangover. Most of the people looking for money are already in debt up to their eyeballs and make for risky borrowers. The banks have no appetite, nor should they, to lend to these people.
All of the "solutions" involve stuffing the banks full of cash to try to get them to lend at bazooka point. Here is an exerpt from a book written by a fellow about the recent Japanese bout with deflation-
“The [Japanese] central bank's implementation of quantitative easing at a time of zero interest rates was similar to a shopkeeper who, unable to sell more than 100 apples a day at Y100 each, tries stocking his shelves with 1,000 apples, and when that has no effect, adds another 1,000. As long as the price remains the same, there is no reason consumer behaviour should change – sales will remain stuck about 100 even if the shopkeeper puts 3,000 apples on display. This is essentially the story of quantitative easing, which not only failed to bring about economic recovery, but also failed to stop asset prices from falling well into 2003.”
- Richard Koo, "The Holy Grail of Macro Economics: Lessons from Japan's Great Recession" (John Wiley 2008).
In the end I believe that there is really nothing that our government can do to solve the problem. Only time and pain will solve the problem. Government interference can make the problems worse, however, and probably last a lot longer.
On my to do list is to read the book by Richard Koo to find out exactly what Japan went through in their bout with deflation. I do know already that they never were able to beat it despite trying everything we are proposing to do.
It is thought by many that that these assets are causing the banks to not lend. Therefore removing bad assets will allow them to lend. This is not true. The banks are not lending because there are very few who are looking to borrow. Who needs money to buy a new car? or a new home? or another vacation? or build a new strip mall? or open another nail salon? or another pizza hut?
Most homeowners and businesses are trying to recover from their debt induced hangover. Most of the people looking for money are already in debt up to their eyeballs and make for risky borrowers. The banks have no appetite, nor should they, to lend to these people.
All of the "solutions" involve stuffing the banks full of cash to try to get them to lend at bazooka point. Here is an exerpt from a book written by a fellow about the recent Japanese bout with deflation-
“The [Japanese] central bank's implementation of quantitative easing at a time of zero interest rates was similar to a shopkeeper who, unable to sell more than 100 apples a day at Y100 each, tries stocking his shelves with 1,000 apples, and when that has no effect, adds another 1,000. As long as the price remains the same, there is no reason consumer behaviour should change – sales will remain stuck about 100 even if the shopkeeper puts 3,000 apples on display. This is essentially the story of quantitative easing, which not only failed to bring about economic recovery, but also failed to stop asset prices from falling well into 2003.”
- Richard Koo, "The Holy Grail of Macro Economics: Lessons from Japan's Great Recession" (John Wiley 2008).
In the end I believe that there is really nothing that our government can do to solve the problem. Only time and pain will solve the problem. Government interference can make the problems worse, however, and probably last a lot longer.
On my to do list is to read the book by Richard Koo to find out exactly what Japan went through in their bout with deflation. I do know already that they never were able to beat it despite trying everything we are proposing to do.
Today's Market Action
I must admit that yesterday's action surprised me. I did not expect so much strength. It is clear after yesterday that a trip to new lows in the near term is off the table. We will first make new highs well over 900 and possibly over 1050 before taking a trip back to new lows. The first bear run is over. 666 was the low. This low is an ominus sign for this country.
Today I expect a tight trading range as we digest yesterday's large up move. This will give us a doji candle and set us up for a few red days to end the week. I expect that by the end of the week we hit prices on the SPX under 750. It is common for the first retrace of a mini-bull to cover 50% to 100% of the total move up. I do not expect the 100% retrace as this would put in a double bottom that would be long lasting.
I put the biggest odds at the 50% retrace. This would bring us down to about 750. I am currently 100% short and will begin scaling out of my short positions near 775. I plan to switch to long positions near 750. I will closely watch the momentum indicators on the way down as they will give clues as to how far this retrace drops.
Today I expect a tight trading range as we digest yesterday's large up move. This will give us a doji candle and set us up for a few red days to end the week. I expect that by the end of the week we hit prices on the SPX under 750. It is common for the first retrace of a mini-bull to cover 50% to 100% of the total move up. I do not expect the 100% retrace as this would put in a double bottom that would be long lasting.
I put the biggest odds at the 50% retrace. This would bring us down to about 750. I am currently 100% short and will begin scaling out of my short positions near 775. I plan to switch to long positions near 750. I will closely watch the momentum indicators on the way down as they will give clues as to how far this retrace drops.
Welcome to T.O.P. Traders
Welcome to T.O.P. Traders. The hosts' intention of this blog is to provide a place where both traders and investors can exchange ideas to help enrich everyone. We offer a unique blend of both trading and investing ideas. The two hosts of this site have unique backgrounds. One is an outstanding investor with an exceptional track record of over 10 years of profitable investing. The other host is a passionate trader with about six months of trading experience. Our hope is to use both approaches to compliment each other and make profitable trades and investments. I hope you enjoy this blog.
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