S&P 500 - Oct 30, 2008

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So much has been trumpeted through many a throat of financial pundits about the resiliency of American consumers. That they carry the American economy, and indeed the world, on their purses. Now, true to the myth, and discourse, American people are coming to rescue. In fact, generation after generation of them.

They guarantee survival of banks, brokers, car manufacturers; they are there for Brazil, Mexico, South Korea, and many more beggars that are sure to come hat in hand. You see, now that the FED has a balance sheet as atrocious as many other banks around the world, the onus is upon the Treasury Department (The American People) to rescue failing institutions, and countries.

Asian markets, liking it a whole lot, went to work and bid everything up. American future markets followed suit over night and markets opened higher and stayed put.


Breadth has been improving, indicators are acting as they should in order to establish some sort of a bottom, or a base for a bottom. Some beaten up sectors have been turning in double digit percentage runs from oversold levels of margin calls of a few days back.

There is a rather low reading on options put/call ratio (CPC), it may be construed as a sign of complacency and lead to a pull back. Also, there are negative divergences building on shorter time frames.

Despite all the benevolence and largess at home and overseas, what S&P did was recovering from the free fall in the last 10 minutes of Wednesday's market activity.

Things are looking OK at the moment. There is a lot of liquidity to support the market if those who have hoarded the handouts choose to do so. My feeling is that we get a pull back soon, and that pullback might tell us if we can change our trader’s hats for swinger’s coats. I have a sense that shorting this market may not be going to be that easy any more,

We are not, alas, dealing with a Jane Austen novel here, so, sense and feelings aside, my levels are 850, 912, 985.

S&P 500 - Oct 30, 2008

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Overnight, market futures have been rising steadily. It may all change by market open, or by the end of the 1st hour. Or it may just power on, and on.

I will be watching the area circled on this chart, and the 850 level.

If S&P handily beats that area and holds it, I will have to give the bulls the benefit of the doubt. If it pulls back, the depth and structure of that pullback may tell us how strong the money behind the market is.

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Today the reaction to the FED decision was very muted and delayed. It was as if people did not know how to take it for an hour so. Then the market rallied strongly (or was it fearful shorts running for cover?), only to fall into the last minutes.

Take a look at this chart, it is as if everybody’s following technical analysis to the letter of the book.

Market’s overbought on short time frames.

But on a daily chart things are perking up.

Are we out of the woods now? Things are working in the right direction. S&P 912 and 850 area are my must hold levels.

I should also remind myself that on a weekly basis, the charts still look awful.

It still is a trader's market. That may change soon, but until it does, patience is the key to find a setup and hit it and run. That seems to be what everybody has been doing these past days.

I hope the market relaxes a bit so that I can get to pick items off my shopping list, but before that, how about a couple of back-to-back positive closes for a change?

S&P 500 - Oct 28, 2008

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Good up volume rally, but again there are just too many stocks making a new low. This high number of new lows have been the bane of markets’ bullish ambitions.

MACD is trying to latch for a 3rd time. Let’s see if it does. 850 level held and the market rallied through 912, which I think is a very important level. S&P should really hold these levels. If it does, it will absorb additional selling and, by making a stand, signal traders that it is ready to run.


The short term can be counted in quite a few different ways

Here’s another

There is a chance that we have finished a Primary A with a wimpish ending diagonal. If that's the case, it will be a truly anticlimactic end to a very vibrant down wave.

Yesterday, I said that I sometimes monitor for a setup that I may be able to trade, and showed you a pretty setup. Here's another one

Tomorrow’s The FED Day. And like dutiful children at a circus, many and many are waiting to see whether they should laugh at the clown’s joke or feel bad for the sorrowful face.

Comedy and tragedy are the two faces of drama, and this show must go on.

S&P - Oct 27, 2008

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Take a moment, and read the dated comments on the following chart. I have dated them so that we can follow the progression of events. So many warning signs all along the way up to here. The chart should be familiar to our readers by now as I have been annotating, and displaying it very often.


I am not really a day trader but, since there is nothing else to do, I look for potential setups to maybe dabble at times. This is a beautiful setup. Look at the last 2 bars. Margin clerks at work? I think so, and why would anyone come to rescue?

I am seeing all the signs of a wave 5 to the downside. Watch 850 area (plus minus a few points) and volume pattern. 850+/- should hold, or I may bet on the 5th wave with some sort of stop.

That’s it: Short and Sweet.

S&p 500, Gold, Bonds - Oct 25, 2008

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Despite all the commotion around future limit-down halt in New York, and the parade of econo-bearish talking heads on TV, all S&P did was another test of the Oct. 10 low. Don’t get me wrong I am not saying market can or cannot go any lower. Frankly I don’t know, and I don’t believe any of those who say they do. I think my lack of indecision at this point has been clear through my writing on this blog.

It was not a pretty day, though. And if you twist my arm to take a bet, I will probably tell you that I like my money more than my arm. If you put a shooting device to my head, however, I may hold my nose and choose the downside since it still appears to be the path of least resistance.

I truly believe that it is not over till the fat cats decide it is over. Out of the circle of fat cats, no one really knows. The market has turned into a buyer’s market and masters of capital can wait, pick and choose.

I have never been a strong believer is fundamentals and numbers coming out of corporate execs. Less than that I trust what comes out of the analyst community. Least of all, I trust opinions of fundamentalist pundits and newsletter writer. That has left me with two things to use to navigate the markets:

1. Macro level financial and fiscal conditions
2. charts and technicals of the markets

At the macro level, I think governments have signalled their intention to use all fiscal tools available to them to grease the wheels of credit. Fiscal policy alone cannot bubble up anything, and we need global finance to get its act together as well. Whether governments will succeed or not is the vital question. I think they will, but even if they do, it will take time for credit conditions to return to some semblance of normalcy.

It does not help the short term when Argentina gets into what looks like an act of looting its people, and Russia goes to the brink of bank runs of gargantuan proportion.

Banks have to, at some point, start to lend in order to manufacture the spread that is their bread and butter. But as long as they cannot, or do not lend, no amount of fiscal stimulus can fill the void of decimated balance sheets and busted loans.

A look at the chart of any commodity will tell us that market perception is not one of inflation at this moment. Some claim intervention and manipulation of price of gold, but what about the price of copper, or steel, or oil, or nickel? It is the perception of future inflation that drives a speculator to actively seek future exposure to commodities to protect herself against paper depreciation.

As a final thought before looking at some charts, what if the amount of wealth destroyed is so huge that many billions of credit creation and money supply cannot supplant it for many, many months?

Commodities will rally at some point, the structure of that rally will tell us a lot more about the future expectations of the market than the panic selling that we see now.

OK, Friday’s action was not good. Breadth was pointedly negative, but the lows held.

Buyers seem to appear around 865 area on S&P 500. I may look at it as a possible trading level.

Gold did a bit of rally. Gold is the last commodity not yet decimated. If the action of gold miners is any leading indication for the metal itself, it may not take long before we see a full blown gold bear reasserting itself.

Remember gold is a bet against a few things

1. Future expectation of inflation
2. Political uncertainty
3. Financial uncertainty
4. US Dollar
   

With the markets acting like they do not expect inflationary pressures in near future, and with US Bucky recently acting sexy, and with no immediate political concern, gold is holding its ground mainly due to financial problems. If the markets start to think that the global credit situation will stabilize, but the economic picture will stay bleak enough not to create expectations of an inflationary environment, gold may suffer.

I read on some blogs that people say that gold itself is still in a bull market. Then I look at charts like the two below and I wonder where that bull is hiding.

Bonds are another instrument that the frightened souls run to.

Bonds are another instrument that frightened souls run to. It looks like TLT has setup a trading range - a wide and profitable one, indeed.

We should get a break out of this range soon. Falling interest rates are good for bond prices, but US rates do not have a lot of room to fall. Strength in US dollar also is supportive of dollar denominated bond prices. But, so far, the biggest factor, in my opinion, has been fear.

General Markets - Oct 23, 2008

I don't have enough time for post full of charts, so words will be. It was not pretty yesterday. Breadth was negative, volume was heavy. On NYSE, more than 400 stocks made a new low. Gold was creamed, and bonds are back in vogue.

And, of course, the media was having a fun day parading econo-bearish guests.

Despite all that, just looking at the charts, it was another test of the low in many markets and we don't know if they will hold or not. It does not look good, but looks can be deceiving and I just can't say at this point.

On S&P, short term oscillators are getting oversold and are yet to show signs of turning. Many are in either a crash camp or in the ascend-to-the-heaven-group. Possibility of a sideways basing period has to be taken into consideration as well.

I guess we will soon know if the lows of Oct 10 were any good.

We are so close to low levels that I may (just may) try to tap dance around it and see if I can get a trading position established.

In days like this, everyone's out there to get us. Media, Money Managers, Subscription Sellers, etc. They know emotions are tightly wound, and they try to take advantage.

I will try to let the charts lead me, and if they can't, cash is a position, too.

The Golden Massacre - Oct 22, 2008

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When we said that we thought the downside of Agnico Eagle (AEM) was not over, we were not expecting such a quick reward for our bearish outlook. It really wasted no time to plunge into depths not seen since 2006. It shows us what following the narrative of the day, or the conventional wisdom of gurus, and ignoring the message of the market may do to us and our hard-earned capital.

I am not saying that arguments put forth by those who cry and shout inflation or hyper-inflation are wrong or right or whatever. I am not saying those crying foul play and intervention meant to suppress gold and other commodities are baseless, they probably are not. All I am saying is that there is a time, and a price, and a trend for everything, and fighting those elements of the market, regardless of how expensive a market insight subscription is, can bring a lot of acid pain to a stomach that could stay healthy otherwise.

Let’s go through what happened and see if we can pick up a point or two for a future reference.

This is the big picture that many have recently tried to fight. Forget about the last big red bar, and concentrate on the heights of early 2008, and notice the diverging RSI, and, then, the MACD cross. Finally, the break below 34-month moving average was a last call to jump ship.

This is the daily chart

Notice the declining peaks of the Money Flow, the declining peaks of RSI, and the final break below 144 day moving average that had supported it all the way to the left end of the chart.

Notice how it retraced about 62% of the drop from its peak of July 2008.

Notice the support zone, and how the stock bounced up from the lower end three times, from August to October 2008.

Notice all the declining moving averages

This is the 60 min chart

Notice the first reaction that went close to 62% retracement, the second barely retraced 50%.

It has been compounding weakness all the way from the monthly chart to here.

This is the 15 minute chart. I am using the same US price chart that we saw before, just because I am too lazy to create and annotate a Canadian version.

The opening gap down of Oct. 21st was a beautiful short. Why? Stock had been weak, and getting weaker for weeks. The prior rise looked more corrective than impulsive, and had happened on lacklustre volume. It could not even muster enough strength to get to the congestion zone.

The opening gap of today was just the icing on the cake.

We can philosophize the future of money trends. We can speculate the outcome of decisions taken by central bankers. We can pick and choose from the history of the 70s, or the 80s, or whenever, and argue our cases. We can show diagrams of derivative books of this Wall Street house, or that, displaying their short positions in gold. We may be principally right on all of those points. But when my own money is concerned, these charts are all that matter to me.

Hope you all benefited from this drop, or were at least sheltered from it.

S&P 500 - Oct 21, 2008

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Despite the 30 point down, this was, in my books, another non-event, low volume, muted action in the broader market. Notice the MACD is latching.

This is the VIX chart we used to ponder the possibility of a top (in VIX) on Oct. 16. That proved to be correct. It's been falling nicely, still high, but encouraging.Will it bounce here? If so, will it make a lower high?

So, another day, another trade and nothing more.

Elliott & Triangles

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I read in quite a few places that market is breaking out of triangle formation. They show a chart like this
Well, why not do it like this?

Can we just pick any point we want to draw a triangle? That’s one of the areas where Elliott Wave has different ideas about a pattern than tradition technical analysis.

First off, a triangle is a 5 point formation a-b-c-d-e. Secondly it starts forming after a wave is completed. You can't just pick a point on a prior wave and make it part of the triangle. Thirdly, end point of the prior wave does not need to be on the triangle. Fourthly, there is no requirement for a triangle to be symmetric or contracting.

Also, I don’t think triangles are as common as people think, not under OEW any ways.

From an Elliott Wave point of view, a triangle is a correctional pattern. Correctional patterns are hard to predict. Best not start calling them early. We can muse the possibility of them. But when I see people say a triangle breakout has happened, and I see charts like above, I know they do not talk about triangles as I know them.

In the chart above, we do not have enough to make any triangle. Any line connecting points at this time is at beast a trend line, or a fan line. Also what I have marked as a can be part of a larger a wave of a bigger triangle.

Since Elliot Wave regards a triangle as a correction to the previous wave, and since previous wave was down, and since a correction is a pause before resumption of the main trend, we cannot have a triangle breakout to the upside in here, even if we had a triangle.

S&P 500 - Oct 20, 2008

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S&P 500 had a really good time today. All breadth measures were positive, but volume was kind of light. Why such lack of interest all of a sudden?

Credit conditions are showing signs of easing. VIX dropped handsomely. Still, today's advance has not changes wave scenarios we have discussed before.

To me, it was nice trading day and nothing more.

AEM - Oct 20, 2008

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Gold stocks had a very good day today. Agnico Eagle (AEM) rose 9.7%. Is the correction in AEM over? Have we hit the bottom for another secular bull? I don't think so. Stock is still in a down trend. today's volume was very light, so was yesterday's. The daily count is still intact.

But who cares what I think? Market certainly doesn't. What price does matters.



It is, however possible that stock has completed an intermediate a-b-c set for a major a. There are some daily divergences buing built.

As we can see from the 15 minute chart, the rise does not look very impulsive, just compare it to the previous drops. Also look at the 15-minute volume, we have had 2 days of rise with unconvincing volume pattern. Today's last 3 bars into the close had a burst of volume, which is typical of some shorts throwing the towel.

From Oct. 13 low, stock retraced 62% of its prior decline. From Oct. 16 low, stock is rising in a tight channel towards another possible 62% retracement. At that level we have a congestion area that could make or break and advance, or a decline.

Clearing that area will set the stock up for further rise towards the top channel line as can be seen from the 60-minute chart.

To make matters really interesting, I should note that the short term chart patterns are different on Canadian-priced charts.

We had a short term breakout in Canada :-)

Bigger picture is what matters, and it has not changed yet. That does not mean I should be short while price is rising, rather that I should be watchful for signs of exhaustion at critical price points.

If the stock has completed a major a wave, it may embark on a multi week major b counter trend wave, something to keep in mind.

TSX - Oct, 19, 2008

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A reader emailed Market Time and asked if I could take a look at Toronto Stock Exchange (TSX). He, or she, mentioned TSX showing divergences on a 60 minute chart, and was wondering if it was time to get in.

I can’t really say when the time is for others to get in or out, but I can say what I think of the index for my own potential investing/trading purposes.

Toronto Stock Exchange has been clobbered very hard as commodities and commodity-related stocks were being dumped furiously.

This is a weekly count of the index.

The count is done by one of my OEW colleagues and is publicly maintained at Tony Caldaro’s OEW site in his chart book

I believe the reader might have been referring to something similar to the following chart


There are encouraging short term signs, and traders may try to hit the index for points. Longer term, I think it might be a bit early. So, why not make a line in the sand on the 60 minute chart, and take it from there?

Remember TSX is very a polarized index, dominated by commodity stocks and financials - two very oversold groups.

S&P 500 - Oct 19, 2008

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There is not much to show. S&P sold off into the close on Friday. Volume was lighter than Thursday, and breadth was somewhat neutral. Index is not out of the woods by any of my measures. It`s become rather jejune to say we are at an important juncture, but that’s where we are. Charts look horrible – US Dollar is a noted exception. There is no sector that has been saved from the carnage. At the end, it came down to consumer staples as a last standing sector. Funny that last men standing were bread, butter and shampoo. But even that sector broke and fell.

There is a battle between those who believe central banks can pump enough to turn the thing around and those who think we are beyond the point of resuscitation, no matter how fast bankers pump. That battle will likely be won by central banks, especially if they act in unison, and especially since governments are now in the banking business. TED spread has eased a bit, but at 3.6 it is no cause for relaxation.

Can the printing powers fail? Can the forces of deflation trump the agents of reflation? Sure they can. There are no absolutes in this world when humans are concerned. If the psychology of businesses does not change towards expansion, expansion will not happen, and contraction will continue. That may have lasting effects on consumer psyche, and get the world into a belt-tightening mode.

But, one thing at a time. For now, I do not see any indication that the storm has passed. There are encouraging signs, but that’s about it. Regardless of what shouting, clapping, jesting media creatures, or their econo-centric guests cook to serve as the narrative of the day.

May be I am myopic, maybe too conservative, But hey, conservative myopia has saved me from the carnage, so why argue with something that has been working, so far?

At my level, all I know is that the trend is down, markets are badly damaged, and there is no sign of a turn – NOT YET! It does say a lot when one of the few things trending higher is the US Dollar.

Some may attribute Friday’s negative close to profit taking on a good week – S&P was up for the week. Still, I did not like the fact that the index fizzled on Friday. S&P 912 area that I mentioned before is still a key area, and I would not like it to be lost.



To make things more interesting, Nasdaq 100 (NDX) made a lower low with positive divergences last week. So, if big money has betting on a rally, and is looking to tech to lead, then we may have a completed primary wave A down on NDX, and S&P, and the DOW for that matter. There has been a slight outperformance on the part NDX lately. That is a positive development, we need Nasdaq to lead a rally to show us that risk taking is back in the market action.

But, I should remember that I have not received any technical buy signals from the market.

Maybe this week reveals the market’s hand.

There are quite a few wave possibilities near term, I believe the best thing to do for me is not rush to judgement one way or the other, and wait for the market to tip its hand.

Here are my pivots for the coming days.
1037
1004
973
942
912

882
852
823
795
767
740
712
686
660

S&P 500 - Oct 16, 2008

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I heard that Investor's Business Daily (IBD) has called today a follow through rally. I tend to give it a cautious nod of agreement. Market turned and rallied. The good thing about the rally was that it did not happen just in the last half hour. It turned before noon, absorbed a lot of selling and rallied into close. Volume was decent. Some consumer stocks like Wall-Mart, Kraft and Johnson & Johnson did really well. Technically, it can be deemed as a retest.

Yet, again, we made more new lows than new highs. I really would like the troubling trend of more-new-lows-every-day to change, or, at the very least, I would like stocks to stop making new lows.

VIX is showing some signs of peaking.

Not much else to say really. Let’s see what tomorrow, which happens to be an option expiration day, brings.

AEM - A Leading Gold Stock - Oct 16, 2008

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This round of me going after gold stocks with a vengeance started late September when I suspected gold stocks were running out of gas. I had just finished selling out of some long positions, and I did not like what I saw on charts.

You see, I am not hesitant to admit that I am a gold enthusiasts, and I think the paper we carry is no different, in terms of value, that the paper you get in abundance when you buy a Monopoly game set. And I have heard the predictions of gold bugs: 1000 an ounce, 2000 an ounce, whatever. And then there are gold stocks. If gold is going to shine so brightly, shouldn't those who have it in abundance (gold miners) be in demand?

I am not one to argue with inflationary implications of money printing. I also do not argue with deflationary consequences of deleveraging. Yet, what I, above all, hate to argue against are charts.

Here is a daily chart of Agnico Eagle (AEM). As I have mentioned a few times, AEM seems to be a leader of the pack. It seems like big players prefer to build position in AEM, and when they decide to bail, AEM is what they sell. This leadership may change at some point, but so far it's been there.

I started looking at gold stocks with a shorter’s eye in May, June time frame when gold stocks were moving heavily. I then realized that I could count a cycle top in Goldcorp (another quality gold miner with good following) and decided that Agnico probably had a failed 5th and, thus, a cycle top as well.

The rest is, as they say, history.

Well, what now?

There are positive divergences being built. And that’s about the only positive I can see right now. Trend is down, and calling bottoms has made fools out of some very well-known pundits (technicians, value finders, seasonality experts). I don’t even want to start thinking about the implications of their bad calls on portfolios of those who follow them.

We are constantly told not to pick bottoms. Why shouldn't those warnings be applied to gold stocks?

Hopefully we are close to some sort of a bottom, but how close?

This looks like a vicious downward channel.

See how cleanly it counts? A clean count is what you get when there is no intervention from powers beyond, and when waves are impulsive.

We may really be close to some sort of a bottom, but no signs of it, yet.