Wednesday, September 9, 2009
Week One Thread
Here is the suicide pool week one thread. Everyone can post who they are thinking of taking prior to actually making picks. This may help others in deciding who to take. Or at least we can ridicule someone who wants to take the Browns.
Thursday, August 27, 2009
From Bad to Worse
I wrote on May 1 why I am a long term ultra bear. I wrote how I believe the stock market will crash in a P3 scenario sometime in the next few years based on the debt load our country has taken on. I laid the case out here:
http://top-traders.blogspot.com/2009/05/thoughts-on-my-long-term-view.html
I felt an update was in order after the CBO's updated forecast of future deficits. Well the news IMO went from horrible to gut wrenching. The numbers they throw around are nearly impossible for any human to imagine. You can try the "lay dollar bills to the moon" type analogies, but face it I have no idea how far the moon is away. Pick 'n Save OK. I can relate to that. I've been there. I have a talent for analogizing things in a way people can understand. So I will try to do the same here.
Mike Hunt makes a decent living and he is very handsome. He brings in $50k per year in a very steady job as head brewmaster at the Town of Delafield Brewhouse. He's had this job for years and for the sake of this analogy let's say he never gets a raise or gets his wages cut. Ole Mike lives within his means. He has two credit cards that he pays off monthly. Only a few times has he had to rack up debt that he could not pay back monthly and carried a balance for only several months. These purchases were for emergencies (new brakes, furnace repair, etc.)
Well for some reason Mr. Hunt decides he wants more things than he can afford. The 32" tube TV just is not the same as that 57" Plasma at Best Buy. So Mike asks his bank for a HELOC. No problem says the bank. He's got excellent credit, no debt besides his mortgage and auto loan and is not any risk at all.
Well that was so easy and only a few grand that Mike decides next year he is gonna take that trip to Cudahy he has always wanted. He'll do it on the cheap. Once again Old Mike heads to the local banker. A few grand, low interest like last time. He'll be sipping Old Style Pulaski Park in his new Packer Zubaz in no time.
For the next few years Mike Hunt gets a little bolder. Nothing too much. $2000-$2500 max. Then he has a mini emergency. Mike needs to remodel his basement. See he is so certain after two stellar preseason games that the Packers will be in the Superbowl. He wants to host a SB party. So Mike Hunt goes to the bank to borrow $30k.
The banker gives him a pause. Then he agrees that since Mike has never missed a payment he'll take the risk. Now old Mike only makes $50k per year and he has a mortgage and car payments like everyone else. This $30k will stretch him pretty thin.
During the basement remodel Mike realizes that he wants to add a porch to his house for another $30k. He just HAS to borrow for a downpayment on a second home in Cudahy since he fell in love with that city, another $15k. Pretty soon Mike has a list of ten projects each requiring $15-25k. This will last for the next 10 years at least.
What will the banker say when Mike tells him of his plan for the next decade? On top of this the banker knows Mike has two teeneage daughters (let's call them Social Security and Medicare) that will be attending college in the next five years. Mike Hunt will need thousands for this. And Mike's house may need cash for emergencies like a new roof or new kegerator.
Then Mike catches word that his hours are being cut by 5 per week and possibly more next year. What will happen to Mike when he can no longer make the monthly payments? When will the banker say "no more"? What will the banker do to Mike when the payments are not made in full each month?
Back to reality. You guys probably followed along with this analogy. The US Treasury collects about $2.5 trillion per year. We've had deficit spending almost every year since the early 80's. Nothing too much. Prior to 2009 the largest deficit was $400 billion. Compared to $2.5 trillion not much.
Then comes 2009 (note this is not an attack on the current president) and our deficit EXPLODES to $1.5 trillion! Yesterday it was announced that 2010 will also be $1.5 trillion in the red. Furthermore deficits in the $1 trillion range are predicted almost EVERY YEAR for the next 10!
It gets worse. Seriously! This is a "rosey" prediction by the CBO. To meet this estimate the economy must rebound by next summer! Like back to the bubble peak rebound. Unemployment back to 5%. Home values back to balloon prices. Second mortgage o'rama revisited! This is impossible given that the consumer is tapped out of credit. The maximum ability to service debt has been reached at already record low interest rate levels. Furthermore a much larger segment of our population will be leaving the workforce and will most likely enjoy a downsized retirement lifestyle lessening the number of those adding to the collective (taxpaying) workforce and further draining the gov through SS and Medicare.
It gets worse. Honestly! Also figured into this rosy scenario is a complete repeal of ALL of GW's tax cuts. $1000 per child tax credit. GONE! $75k depreciation for small business purchases. GONE! Lower tax rates and elimination of 10% tax bracket. GONE! Temporary raising of the limit for the AMT. GONE! IMO there is no way the Dems will not make an attempt to keep these in place. At least for those making less than $200k per year.
It gets worse. John shut up, we've heard enough! Sorry guys. The worst is saved for last. Remember Mike's daughters, Social Security and Medicare? Well guess what, they just got accepted to MIT and the older on is talking about a wedding. According to the CBO the ticking time bomb known as social security that was thought to become insolvent sometime in the 2020's will now be inslolvent as early as 2010! YIKES! See the graph on the first page.
http://www.cbo.gov/ftpdocs/104xx/doc10457/08-07-SocialSecurity_Update.pdf
Most likely sometime between 2010-2018 SS will be in the red. That means we will need to draw on the "reserves" from the last 70 years of SS. Phew! At least we have those reserves. Not so fast! We opened the "lockbox" of reserves buried in the back yard and found only IOU's. Looks like wifey borrowed the money and left IOU's in place of the cash. Guess where the money comes from to pay back the spent SS surplus. That's right, taxpayers.
It may be even worse yet! Huh? What? How? Well remember our good old buddy Ben Bernanke back in March when he announced Quanitative Easing by the Fed? Something like $1.5 trillion dollars to purchase things like bonds and mbs? Well we don't know exactly where that money went or when/if we will get it back. Here is the best I could fine representing what they own.
http://www.zerohedge.com/sites/default/files/images/Fed%20Balance%20Sheet%208.19_2.jpg
Could be yet another boat anchor around our necks.
Boy John you sound pretty gloomy. I sure do. I honestly do not see any way out without extreme pain. Perhaps in another post I will write about what I forsee as possible "solutions", but this has gotten lengthy enough already. Feedback is appreciated.
http://top-traders.blogspot.com/2009/05/thoughts-on-my-long-term-view.html
I felt an update was in order after the CBO's updated forecast of future deficits. Well the news IMO went from horrible to gut wrenching. The numbers they throw around are nearly impossible for any human to imagine. You can try the "lay dollar bills to the moon" type analogies, but face it I have no idea how far the moon is away. Pick 'n Save OK. I can relate to that. I've been there. I have a talent for analogizing things in a way people can understand. So I will try to do the same here.
Mike Hunt makes a decent living and he is very handsome. He brings in $50k per year in a very steady job as head brewmaster at the Town of Delafield Brewhouse. He's had this job for years and for the sake of this analogy let's say he never gets a raise or gets his wages cut. Ole Mike lives within his means. He has two credit cards that he pays off monthly. Only a few times has he had to rack up debt that he could not pay back monthly and carried a balance for only several months. These purchases were for emergencies (new brakes, furnace repair, etc.)
Well for some reason Mr. Hunt decides he wants more things than he can afford. The 32" tube TV just is not the same as that 57" Plasma at Best Buy. So Mike asks his bank for a HELOC. No problem says the bank. He's got excellent credit, no debt besides his mortgage and auto loan and is not any risk at all.
Well that was so easy and only a few grand that Mike decides next year he is gonna take that trip to Cudahy he has always wanted. He'll do it on the cheap. Once again Old Mike heads to the local banker. A few grand, low interest like last time. He'll be sipping Old Style Pulaski Park in his new Packer Zubaz in no time.
For the next few years Mike Hunt gets a little bolder. Nothing too much. $2000-$2500 max. Then he has a mini emergency. Mike needs to remodel his basement. See he is so certain after two stellar preseason games that the Packers will be in the Superbowl. He wants to host a SB party. So Mike Hunt goes to the bank to borrow $30k.
The banker gives him a pause. Then he agrees that since Mike has never missed a payment he'll take the risk. Now old Mike only makes $50k per year and he has a mortgage and car payments like everyone else. This $30k will stretch him pretty thin.
During the basement remodel Mike realizes that he wants to add a porch to his house for another $30k. He just HAS to borrow for a downpayment on a second home in Cudahy since he fell in love with that city, another $15k. Pretty soon Mike has a list of ten projects each requiring $15-25k. This will last for the next 10 years at least.
What will the banker say when Mike tells him of his plan for the next decade? On top of this the banker knows Mike has two teeneage daughters (let's call them Social Security and Medicare) that will be attending college in the next five years. Mike Hunt will need thousands for this. And Mike's house may need cash for emergencies like a new roof or new kegerator.
Then Mike catches word that his hours are being cut by 5 per week and possibly more next year. What will happen to Mike when he can no longer make the monthly payments? When will the banker say "no more"? What will the banker do to Mike when the payments are not made in full each month?
Back to reality. You guys probably followed along with this analogy. The US Treasury collects about $2.5 trillion per year. We've had deficit spending almost every year since the early 80's. Nothing too much. Prior to 2009 the largest deficit was $400 billion. Compared to $2.5 trillion not much.
Then comes 2009 (note this is not an attack on the current president) and our deficit EXPLODES to $1.5 trillion! Yesterday it was announced that 2010 will also be $1.5 trillion in the red. Furthermore deficits in the $1 trillion range are predicted almost EVERY YEAR for the next 10!
It gets worse. Seriously! This is a "rosey" prediction by the CBO. To meet this estimate the economy must rebound by next summer! Like back to the bubble peak rebound. Unemployment back to 5%. Home values back to balloon prices. Second mortgage o'rama revisited! This is impossible given that the consumer is tapped out of credit. The maximum ability to service debt has been reached at already record low interest rate levels. Furthermore a much larger segment of our population will be leaving the workforce and will most likely enjoy a downsized retirement lifestyle lessening the number of those adding to the collective (taxpaying) workforce and further draining the gov through SS and Medicare.
It gets worse. Honestly! Also figured into this rosy scenario is a complete repeal of ALL of GW's tax cuts. $1000 per child tax credit. GONE! $75k depreciation for small business purchases. GONE! Lower tax rates and elimination of 10% tax bracket. GONE! Temporary raising of the limit for the AMT. GONE! IMO there is no way the Dems will not make an attempt to keep these in place. At least for those making less than $200k per year.
It gets worse. John shut up, we've heard enough! Sorry guys. The worst is saved for last. Remember Mike's daughters, Social Security and Medicare? Well guess what, they just got accepted to MIT and the older on is talking about a wedding. According to the CBO the ticking time bomb known as social security that was thought to become insolvent sometime in the 2020's will now be inslolvent as early as 2010! YIKES! See the graph on the first page.
http://www.cbo.gov/ftpdocs/104xx/doc10457/08-07-SocialSecurity_Update.pdf
Most likely sometime between 2010-2018 SS will be in the red. That means we will need to draw on the "reserves" from the last 70 years of SS. Phew! At least we have those reserves. Not so fast! We opened the "lockbox" of reserves buried in the back yard and found only IOU's. Looks like wifey borrowed the money and left IOU's in place of the cash. Guess where the money comes from to pay back the spent SS surplus. That's right, taxpayers.
It may be even worse yet! Huh? What? How? Well remember our good old buddy Ben Bernanke back in March when he announced Quanitative Easing by the Fed? Something like $1.5 trillion dollars to purchase things like bonds and mbs? Well we don't know exactly where that money went or when/if we will get it back. Here is the best I could fine representing what they own.
http://www.zerohedge.com/sites/default/files/images/Fed%20Balance%20Sheet%208.19_2.jpg
Could be yet another boat anchor around our necks.
Boy John you sound pretty gloomy. I sure do. I honestly do not see any way out without extreme pain. Perhaps in another post I will write about what I forsee as possible "solutions", but this has gotten lengthy enough already. Feedback is appreciated.
Wednesday, June 3, 2009
Almost there
It's been a while since my last post. Work is getting busy so I haven't had as much time. Plus the market was pretty bring during May. June, however, is a new month and things are getting more interesting.
I have a good reason to believe that this P2 wave up is nearing completion faster than I previous thought and much faster than most think. It occured to me the other day that the P1 wave down ended earlier than most were looking for. I thought maybe this P2 rally up could also end early. Since everyone and their mothers are looking for 1000+, perhaps we could fizzle out short of that mark. Then I went to work to see if it is possible.
From an EW standpoint we've hit the minimums for price. We've also hit the minimums for shape, that is the wave structure. This is actually what gave me the confidence to make this call. The structure looks almost complete.
From a trend analysis standpoint we have three very solid trendlines all converging at the 985-900 mark. According to trend analysis (TA) whenever there exists several lines all converging in one area you can expect a reversal or at least a significant pullback. We also tagged the 200 dma this week.
The momentum indicators also jive with my thought that a top is near. We have a clear divergence on the ROC, CMF, OBV, Accum/distr, MACD, RSI, CCI and the NY$I. That's about all of the significant indicators. The stochs still have room left to the upside, but not much. What these indicators are pointing out is that the participation of buyers is waning. Prices are moving from the inertia of the previous almost 300 point advance and not from aggressive new buying.
All of the sentiment indicators are at extreme bullish readings, many of them at levels not seen since the 2007 high! The DSI for SPX futures is at 86%, last seen in Oct. of 2007. The DSI for Nasdaq is at 85%, also last seen in Oct. 2007. European bullish sentiment is at 93% with traders only at 97%! When someone answers these surveys as bullish it means they are already long. When 85% or 97% of investors are long there are no more seats left on the bull bus. As they exit prices fall.
Banks have lagged. The financial index peaked on May 8. It has not come close to breaking this despite the fact that the major indicies have continued to put in new highs. The XLF has put in a triangle shape which suggests the move upward is almost complete. It could break the May 8 high, or fall just short. Also the banking index has been even weaker than the overall financial index. The pattern made by the banking index indicates the high has been put in and will not be broken. Since the banks led this market down this past winter and up this spring I believe it is telling us we are going down again sooner rather than later.
Furthermore we are nearing 2Q reports. It is my belief that 2Q will be disappointing. Those green shoots seen after 1Q have withered. The banks led the 1Q earnings surprises through mainly manufactured earnings. Most of the banks were counterparties to AIG and received billions from AIG (via us taxpayers) in 1Q. This money went straight to the bottom line. Also with the suspension on mark-to-market these banks were allowed to "write up" billions in loans previously written off. Well guess what those "write ups" count as earnings and also went straight to the bottom line. A few other one time items such as GS moving all losses to December as they changed their fiscal year so their first quarter, amazingly enough, was profitable while their December was disasterous. WFC made $1 billion off of the stock purchase of a company they bought the previous year. It was a great investment, but guess what that stock isn't gonna deliver $1 bill per quarter. My point is that the banks made tons of money through one time items, not a surge in new loans.
From what I gather the only thing keeping this market afloat is the inflation and weak dollar trade. That is shorting bonds (raising yields) and buying commodities. Sound familiar? That was the 2007-2008 playbook that gave us $4 gas and high grocery bills. The difference this time is that the world is in a deep recession so the fundamentals do not support higher commodity prices. If investors were to get spooked by these weakening fundamentals it could begin a race to unwind these positions, just like early 2009.
This is concerning though. It could be that the trillions of dollars that the Fed has pumped into banks is making its way into commodities as the banks are tired of getting no return on treasuries. It could also be that foreign central banks (ie China) have lost confidence in the US and are in the process of unwinding their long bonds in favor of commodities. Either way if the fundamentals do not support higher commodity prices (and they don't) the higher prices at the pump and grocery store and higher mortgage rates will absolutely destroy those little green shoots that Bernanke and Obama have been smoking for the last three months.
So this has been the evidence for a top. How could this play out? What I am looking for is a slight pullback to the 925-930 area possibly today and then one last push up to new highs, possibly 985. If this push up comes on low volume and further divergences it could be the short of a lifetime as that price will not be seen for years. We should trace out a large five wave move down possibly 100 points. This will be followed by a move back up almost to the 985 top. Then we get the fastest scariest drop in prices sometime this fall or winter. I have laid out some fundamental reasons for this drop in the past. If any of this actually plays out, things will never be the same.
I have a good reason to believe that this P2 wave up is nearing completion faster than I previous thought and much faster than most think. It occured to me the other day that the P1 wave down ended earlier than most were looking for. I thought maybe this P2 rally up could also end early. Since everyone and their mothers are looking for 1000+, perhaps we could fizzle out short of that mark. Then I went to work to see if it is possible.
From an EW standpoint we've hit the minimums for price. We've also hit the minimums for shape, that is the wave structure. This is actually what gave me the confidence to make this call. The structure looks almost complete.
From a trend analysis standpoint we have three very solid trendlines all converging at the 985-900 mark. According to trend analysis (TA) whenever there exists several lines all converging in one area you can expect a reversal or at least a significant pullback. We also tagged the 200 dma this week.
The momentum indicators also jive with my thought that a top is near. We have a clear divergence on the ROC, CMF, OBV, Accum/distr, MACD, RSI, CCI and the NY$I. That's about all of the significant indicators. The stochs still have room left to the upside, but not much. What these indicators are pointing out is that the participation of buyers is waning. Prices are moving from the inertia of the previous almost 300 point advance and not from aggressive new buying.
All of the sentiment indicators are at extreme bullish readings, many of them at levels not seen since the 2007 high! The DSI for SPX futures is at 86%, last seen in Oct. of 2007. The DSI for Nasdaq is at 85%, also last seen in Oct. 2007. European bullish sentiment is at 93% with traders only at 97%! When someone answers these surveys as bullish it means they are already long. When 85% or 97% of investors are long there are no more seats left on the bull bus. As they exit prices fall.
Banks have lagged. The financial index peaked on May 8. It has not come close to breaking this despite the fact that the major indicies have continued to put in new highs. The XLF has put in a triangle shape which suggests the move upward is almost complete. It could break the May 8 high, or fall just short. Also the banking index has been even weaker than the overall financial index. The pattern made by the banking index indicates the high has been put in and will not be broken. Since the banks led this market down this past winter and up this spring I believe it is telling us we are going down again sooner rather than later.
Furthermore we are nearing 2Q reports. It is my belief that 2Q will be disappointing. Those green shoots seen after 1Q have withered. The banks led the 1Q earnings surprises through mainly manufactured earnings. Most of the banks were counterparties to AIG and received billions from AIG (via us taxpayers) in 1Q. This money went straight to the bottom line. Also with the suspension on mark-to-market these banks were allowed to "write up" billions in loans previously written off. Well guess what those "write ups" count as earnings and also went straight to the bottom line. A few other one time items such as GS moving all losses to December as they changed their fiscal year so their first quarter, amazingly enough, was profitable while their December was disasterous. WFC made $1 billion off of the stock purchase of a company they bought the previous year. It was a great investment, but guess what that stock isn't gonna deliver $1 bill per quarter. My point is that the banks made tons of money through one time items, not a surge in new loans.
From what I gather the only thing keeping this market afloat is the inflation and weak dollar trade. That is shorting bonds (raising yields) and buying commodities. Sound familiar? That was the 2007-2008 playbook that gave us $4 gas and high grocery bills. The difference this time is that the world is in a deep recession so the fundamentals do not support higher commodity prices. If investors were to get spooked by these weakening fundamentals it could begin a race to unwind these positions, just like early 2009.
This is concerning though. It could be that the trillions of dollars that the Fed has pumped into banks is making its way into commodities as the banks are tired of getting no return on treasuries. It could also be that foreign central banks (ie China) have lost confidence in the US and are in the process of unwinding their long bonds in favor of commodities. Either way if the fundamentals do not support higher commodity prices (and they don't) the higher prices at the pump and grocery store and higher mortgage rates will absolutely destroy those little green shoots that Bernanke and Obama have been smoking for the last three months.
So this has been the evidence for a top. How could this play out? What I am looking for is a slight pullback to the 925-930 area possibly today and then one last push up to new highs, possibly 985. If this push up comes on low volume and further divergences it could be the short of a lifetime as that price will not be seen for years. We should trace out a large five wave move down possibly 100 points. This will be followed by a move back up almost to the 985 top. Then we get the fastest scariest drop in prices sometime this fall or winter. I have laid out some fundamental reasons for this drop in the past. If any of this actually plays out, things will never be the same.
Friday, May 22, 2009
It's all psychology
R. N. Elliot was the creator of the Elliot Wave Theory. He began his career as an accountant. He was forced to retire that exciting career after obtaining an illness in the early 1920's. He then dedicated his remaining 20 years to studying the stock markets.
What he discovered is that price movements are caused by natural laws based on basic human emotions. It is known in sociology that humans as individuals are capable of making many complex and unpredictable decisions. Yet when humans act as a group, their decisions become much more primative. Some call this group think. Anyway after dissecting 75 years of stock market history Elliot discovered that there existed some of these same primative recurring patterns in stock trading.
The fundamentals of his Elliot Wave Theory are based on how humans react to fear and greed as a group. These primative emotions have been played out for years in certain cycles. Some investors have used his theories to profit for decades.
If it is so easy why doesn't everyone quit there jobs and trade stocks accroding to EWT? Because EWT can ALWAYS show us why things happened, but it is difficult to predict exactly how things will play out.
The strength IMO of EWT is to give an investor a general idea of which direction is most probable for prices to trend and to give some price targets.
For example I had based my forecast of SPX prices in the 600's when the market was in the 900's in Dec and Jan based on EWT. I forecasted a bounce to 750-850 when the market's were sub-700 in early march based on EWT. As prices began to rise I was able to adjust my upper targets to well over 900 based on EWT.
What I need to improve on is trading successfully based on my price targets. It takes time and practice. One must use the EWT to look at all of the possible price movements and then set probabilities to each based on price structure and momentum indicators.
So where are we right now? According to the EWT The move from 666 to 930 was either a complete wave or the first leg of three off of 666. In EWT periods that we are in now are called "corrective" waves. These waves are the period where profits are taken off of a major move. The move from 1450 to 666 on the SPX is being consolidated, that is profits are being taken and new bull posiitions are being established. These periods can take a long time and can take many patterns. It are these periods that discourage many from using the EWT.
We should be able to determine if the move from 666 to 930 was the entire move or the first of three by how prices act in the next couple of weeks. If the move was complete then we will begin the scariest move down of the entire bear market. If not then we will get a small (100-150 point) correction and then another move back up. If prices in the coming weeks act choppy and we trade in ranges then we are preparing for another ramp up. If prices trend down steadily with little overlap then P3 has begun.
Since 930 on May 8 we've traded in a range with much choppy overlap. This is evidence for the probability of higher prices this summer.
What he discovered is that price movements are caused by natural laws based on basic human emotions. It is known in sociology that humans as individuals are capable of making many complex and unpredictable decisions. Yet when humans act as a group, their decisions become much more primative. Some call this group think. Anyway after dissecting 75 years of stock market history Elliot discovered that there existed some of these same primative recurring patterns in stock trading.
The fundamentals of his Elliot Wave Theory are based on how humans react to fear and greed as a group. These primative emotions have been played out for years in certain cycles. Some investors have used his theories to profit for decades.
If it is so easy why doesn't everyone quit there jobs and trade stocks accroding to EWT? Because EWT can ALWAYS show us why things happened, but it is difficult to predict exactly how things will play out.
The strength IMO of EWT is to give an investor a general idea of which direction is most probable for prices to trend and to give some price targets.
For example I had based my forecast of SPX prices in the 600's when the market was in the 900's in Dec and Jan based on EWT. I forecasted a bounce to 750-850 when the market's were sub-700 in early march based on EWT. As prices began to rise I was able to adjust my upper targets to well over 900 based on EWT.
What I need to improve on is trading successfully based on my price targets. It takes time and practice. One must use the EWT to look at all of the possible price movements and then set probabilities to each based on price structure and momentum indicators.
So where are we right now? According to the EWT The move from 666 to 930 was either a complete wave or the first leg of three off of 666. In EWT periods that we are in now are called "corrective" waves. These waves are the period where profits are taken off of a major move. The move from 1450 to 666 on the SPX is being consolidated, that is profits are being taken and new bull posiitions are being established. These periods can take a long time and can take many patterns. It are these periods that discourage many from using the EWT.
We should be able to determine if the move from 666 to 930 was the entire move or the first of three by how prices act in the next couple of weeks. If the move was complete then we will begin the scariest move down of the entire bear market. If not then we will get a small (100-150 point) correction and then another move back up. If prices in the coming weeks act choppy and we trade in ranges then we are preparing for another ramp up. If prices trend down steadily with little overlap then P3 has begun.
Since 930 on May 8 we've traded in a range with much choppy overlap. This is evidence for the probability of higher prices this summer.
Wednesday, May 20, 2009
Almost there
Sorry I haven't posted yet this week, but I've been extremely busy. I'll get right to it. My thoughts on Friday were wrong. It was apparent when we gapped up at the open. So the other options I had laid out on the table were now the ones to consider. I held my short positions from Friday and waited for a pullback to sell them. The pullback, as has been the case since March 6, never came. So now I will wait and add to them near SPX 930.
My current count (finally) fits great with what has unfolded in the last few weeks. The correction is nearing completion. We should move up from where we are now (910) to possibly test the highs from the other week. Once we peak near or over SPX 930 we will have one leg remaining, the C part down. I am targeting 850 for this right now.
The actions by the market over the past week is exactly why I always scale into and out of positions. No matter how confidant one is in their views, the market always seems to have its own ideas. By getting the general moves correct and scaling into and out of positions one can play without getting taken out. Staying in the game is the most important goal in trading.
Since I went about 50% short on Friday I have plenty of cash left to add to my position when I feel it has peaked. At this point I plan on going 100% short for parts/most of this C down.
My current count (finally) fits great with what has unfolded in the last few weeks. The correction is nearing completion. We should move up from where we are now (910) to possibly test the highs from the other week. Once we peak near or over SPX 930 we will have one leg remaining, the C part down. I am targeting 850 for this right now.
The actions by the market over the past week is exactly why I always scale into and out of positions. No matter how confidant one is in their views, the market always seems to have its own ideas. By getting the general moves correct and scaling into and out of positions one can play without getting taken out. Staying in the game is the most important goal in trading.
Since I went about 50% short on Friday I have plenty of cash left to add to my position when I feel it has peaked. At this point I plan on going 100% short for parts/most of this C down.
Friday, May 15, 2009
Monday could be ugly.
We are poised for a big fall on Monday. I sent out messages this week regarding my change of opinion from favoring one more push to a new high to the top was in last week. The action today added more evidence supporting this. I am now about 75% sure we're headed down sub-850 before revisiting the 900's again.
If my wave count is correct then we are perched right at the beginning of wave 3 fo this C wave down off of 930. This wave should be the longest and fastest wave of this move from 930 to 8??. I am about 65% short. If we get a flat open or small gap up I will add more shorts. If we get a large gap up then I am wrong and will reanalyze.
I have targets for this C wave of 847 and 817. We should be able to tell which will be more accurate when/if this wave 3 develops. I will, as always, keep you guys in touch.
Just to put it out there, there is a 25% chance that we are in a complex correction, which is a fancy way of saying we may test 900 again and continue this choppiness for another week. Let's hope it doesn't happen!
If my wave count is correct then we are perched right at the beginning of wave 3 fo this C wave down off of 930. This wave should be the longest and fastest wave of this move from 930 to 8??. I am about 65% short. If we get a flat open or small gap up I will add more shorts. If we get a large gap up then I am wrong and will reanalyze.
I have targets for this C wave of 847 and 817. We should be able to tell which will be more accurate when/if this wave 3 develops. I will, as always, keep you guys in touch.
Just to put it out there, there is a 25% chance that we are in a complex correction, which is a fancy way of saying we may test 900 again and continue this choppiness for another week. Let's hope it doesn't happen!
Tuesday, May 12, 2009
Three possibilites, one most probable.
From an EW perspective there are three clear possibilities right now and one is a major probability.
The most probable scenario has us putting in one more high (or at least testing the high from May 8. The EW count fits great. I have been playing this count successfully in short day trades for about a week. In this scenario we are entering wave 3 up of the last leg. Confirmation of this will be a large gap up open tomorrow or a flat to slightly down open and then a large, quick move up many points tomorrow. FWIW FAS is already up $0.27 in AH so far. This would support the wave 3 tomorrow scenario.
The other two possibilities are that we topped on May 7 AH and will (1) move down in either a shallow correction or a (2) new bear market low. If that is the case we should be in wave 3 of the first move down off of that top. Confirmation would be a quick, and powerful move DOWN tomorrow. If the SPX moves above 920 tomorrow this count would be dead.
I am playing scenario 1, but only 30%. I am confidant this is correct, but it could end at anytime so I am being cautious.
Once this last move up ends we fall significantly but the million dollar question becomes "Has the correction off of 666 completed or has just the first leg of three ended?" We will not know until the prices reveal themselves in the coming months. However I belive that we have not yet seen the top of this move off of 666.
IMO this move will end when EVERYONE thinks the bear market is history. Babyboomers will resume their plans for early retirement and begin riding their Harley's again. Obama will be hailed as the savior (again) for saving us from economic turmoil. I just don't see this yet. Don't get me wrong, I realize that the media has been drumming this beat since about SPX 700, but that is to be expected with a Democrat in the Whitehouse.
Furthermore I believe that to get a P3 drop that is forecast by EW we need another catalyst. Terrible earnings are mostly built in to the current prices. Yes I know we've climbed alot since early March, but we are still down tremendously from the 2007 high. We need an economic catastrophe like the one I laid out in my post last week.
Therefore my longer term forecast is for a pullback beginning as early as Friday back to about 800-825 and then another multi-month rally well into 4 digits. I could see us rally to 1150 before topping. THEN we begin P3 sometime in late 2009 or very early 2010 with a truly horrifying target later in 2010.
The most probable scenario has us putting in one more high (or at least testing the high from May 8. The EW count fits great. I have been playing this count successfully in short day trades for about a week. In this scenario we are entering wave 3 up of the last leg. Confirmation of this will be a large gap up open tomorrow or a flat to slightly down open and then a large, quick move up many points tomorrow. FWIW FAS is already up $0.27 in AH so far. This would support the wave 3 tomorrow scenario.
The other two possibilities are that we topped on May 7 AH and will (1) move down in either a shallow correction or a (2) new bear market low. If that is the case we should be in wave 3 of the first move down off of that top. Confirmation would be a quick, and powerful move DOWN tomorrow. If the SPX moves above 920 tomorrow this count would be dead.
I am playing scenario 1, but only 30%. I am confidant this is correct, but it could end at anytime so I am being cautious.
Once this last move up ends we fall significantly but the million dollar question becomes "Has the correction off of 666 completed or has just the first leg of three ended?" We will not know until the prices reveal themselves in the coming months. However I belive that we have not yet seen the top of this move off of 666.
IMO this move will end when EVERYONE thinks the bear market is history. Babyboomers will resume their plans for early retirement and begin riding their Harley's again. Obama will be hailed as the savior (again) for saving us from economic turmoil. I just don't see this yet. Don't get me wrong, I realize that the media has been drumming this beat since about SPX 700, but that is to be expected with a Democrat in the Whitehouse.
Furthermore I believe that to get a P3 drop that is forecast by EW we need another catalyst. Terrible earnings are mostly built in to the current prices. Yes I know we've climbed alot since early March, but we are still down tremendously from the 2007 high. We need an economic catastrophe like the one I laid out in my post last week.
Therefore my longer term forecast is for a pullback beginning as early as Friday back to about 800-825 and then another multi-month rally well into 4 digits. I could see us rally to 1150 before topping. THEN we begin P3 sometime in late 2009 or very early 2010 with a truly horrifying target later in 2010.
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