TSX - Nov 30, 2008

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TSX has been behaving nicely, breadth has been solidly positive. I should remember that TSX is all about materials, commodities, and financials, all of them massively oversold, maybe even sold out.

Percent of stocks above 50-day moving average is showing a nice positive divergence. It is getting to levels where it has to overcome in order to display bullish intentions.

Percent of stocks above 200-day moving average is showing some encouraging signs, but has a long way to go before we can use it, as an indicator, and say a new bull is born.

Index is getting a bit overbought on 60-min chart, but overbought does not mean impending selloff, just that speculators should start thinking about cautionary measures appropriate to their styles.

Gold - Nov 30, 2008

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Gold seems have completed a 5 wave down.

It can be a micro 4, it can be major A (or some other degree A). What that tells me is that it can make a new high or a new low. GREAT! Why not toss a coin?

Well, I can certainly toss a coin, but I can also monitor the makeup of the waves as they evolve, as well as other technical indicators.



It is getting overbought on the daily chart but that does not tell anyone anything.

One thing to Watch is the gold diggers, as long as they lead, the metal has a good chance of acting well.

At a higher level, it is a question of whether market participants expect the central bank infusion to juice up the system to the point of feeling inflationary pressures in near future or not.

On this 60-min chart, despite having the alternate count, I think we are having a 5 wave up, with the 5th wave yet to come.

The way I use waves is as a guide line, and then I check their viability via other technical means.

I should remember that there are a few factors that determine the price of the yellow metal

• Future inflation expectations
• Political instability
• Financial instability
• The direction of US Dollar

So, the horrible, senseless events in Mumbai, and any escalated rhetoric between India and Pakistan may play a role. Also, the rally in US Dollar looks a bit tired and in need of a breath

So far so good for gold.

I, however, should not get complacent. There is potential for the yellow metal to go some good distance, all it has to do now, is impulse up, and correct shallow – higher highs and higher lows, regardless of what the story of the day is.

S&P 500 - Nov 29, 2008

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Good evening. I am finally back from my week of overseas travels. I meant to follow the markets to some level, but both business and pleasure kept me away from the markets. I spent most of the day today studying charts and catching up with the sources that I usually read.

So, let’s get down to it and see what I have been missing.

On November 19, we discussed how easy it had become to short the market, and I expressed concerns that the shorting party might be in its late hours.

On November 20, I thought the market action warranted some limited long exposure, and as I did not want to take a big chance, especially since I was soon to be away on a trip, I played the market using call options. Those calls proved to be a very good bet. On the other hand, I thought that long US bonds had seen their peak, and bet on the short side, that bet proved to be very bad, and I was stopped at a small loss as a result.

But what about now?

We have had a good rally with decent breadth. S&P has reclaimed 770 and 850. Index is back at the steep downtrend line, volume has been ebbing. Index needs to prove itself soon, or a retest may be in the cards. I still think 850 and 770 are very important areas for low risk trade initiation.

Advancers have been leading the decliners as we can see from the chart above. On Nov 20, I pointed to NYSE’s McClellan oscillator being oversold, and pondered the possibility of a divergent low, which proved to be the case. That was one of the reasons I though a bet on the long side of the market, at least for the short term, was warranted.

VIX has been declining nicely, I have not checked put premiums, but they should be a bit tamer now. Still, VIX is at a support and that makes me think that the index may soon pullback. If so, we need to see how traders react to the pullback, how the breadth evolves (or devolves), and whether the important pivots can put up a decent fight or not.

This correction has been quite a challenge to count. But that does not mean I should not try. Above chart counts the Primary A completion. But just to keep things in perspective, let us be aware of the following two alternatives, I deem them less probable at this time but why should we let our guards down?

In closing, let us take a look at the daily chart of TLT. I am so tempted to try the short side of this again, but have not decided yet. See how MACD is fanning wide? That sort of price pressure is seldom sustainable for long, and the gap between 99 and 101 is so inviting for at least a pullback. This instrument has by far been an outstanding gainer. Kudos to Bob Precther of Elliott Wave International for being an unabashed advocate of bonds over all other investments. I do confess that I do not understand why it is preferable at this price to cash. But if the market is so bullish about it, so be it. Until it technically breaks down, I may or may not play hit and run.

Ouch - Nov 20, 2008

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The low of 2002 held for a few hours and then gave way. That is not a very good technical sign for the long-term future of the markets. Yesterday, I said it seemed that making money by trading the short side had become easy. Today was particularly easy. All I had to do was short a trend break

I, however, thought that market would pull itself together and hold the 2002 low. So I was basically an observer on the sideline. This means that by following my thoughts rather than the message of my charts, I missed a very nice, one-way drop.



By many historical measure, yesterday and today look and feel like capitulation days. But we have been making many records and breaking many historical norms. Also, I have survived by first being extremely cautious, and then by trading in the direction of the trend. So, I may take it very easy and see how any upcoming bounce will behave. If this was the capitulation of the masses, then we should see higher highs and higher lows. That does not mean that I did not try to gamble at all. I picked some call options to bet for a bounce. One of the interesting aspects of options is that one’s maximum risk per contract is very well defined. No, I have not turned an unabashed bull. What I have is a very small position, which, even if it goes to total loss, I can easily handle. If we get a bounce, my toughts will be how to hedge the position to reduce my costs.

Take a look at this chart of TLT. This is the second time this year that I wonder why someone might buy this at such a lofty price? I may be wrong but I do not think this is all because of rate of return of the long-term treasury paper. There must be a good amount of fear built into this. I bet a small dose on the short side for a trade, and I emphasize that it is just a trade, a bet against the fear of these two days.

I will be travelling overseas for a week. I will try my best to monitor the market and post, but I am not sure how well I can achieve that.

S&P 500 - Nov 19, 2008

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The widely watched and repeatedly tested 850 area of S&P collapsed today. No miraculous rally to make this a so-called reversal day. Should we really be surprised? How many days have we been plotting our charts with more new lows, and more decliners than advancers? On Nov 5, we discussed a high bullish sentiment reading, and I wondered whether it had something to do with people scared of missing the bottom. Well, they have a new bottom to start from.

Look at the down volume, or should I call it the dump volume?

I am going to relegate the count that had Oct low as primary A to lowoer priority order. Although it still is technically possible, I don’t think it is very viable now. Marking Oct low as minor wave 3, I can present these three short term counts

It has become easy to start the day with cash, watch the first 30 minutes or hour of action, pick some spots and short the market, and, as it falls, short more, and more. When it becomes easy, I become extremely cautious. Remember how easy it became to buy coal stocks and make money? Remember how easy it became to make a deposit on a not-yet-built condo and make money? Remember how easy it became to buy the now defunct JDS Uniphase and make money. It has now become too easy to short the market and make money – and that ease makes me wonder that maybe the shorting party is in its very late hours.

But my gut feeling and intuitions aside (they usually are wrong), 850 is now the level to recapture and hold, and 767 is the 2002 low (another level of obvious importance – too obvious, perhaps). In between, I have two pivots: 795 and 823.

PMOF - A Virtual Fund

I maintain a virtual fund at marketocracy.com. The fund is not very old, I have had it since the beginning of September.

Since its inception, I have maintained a lot of cash, and have basically traded in and out of ETFs (short and long). It is a hobby for me, and so often I forget all about it and miss a trade.

Also, marketocracy does not emulate a truly professional system. For example, recently, they missed a change of exchange for many ETFs and caused me a lot of grief. They have also missed mergers and acquisitions. They do not allow shorting, options, futures. They have an array of other rules and regulations that are suited to a buy-and-hold mentality.

Still, you can set up a fund and do the basic stuff.

This is a picture of the performance of the fund. My fund is in yellow.

What is interesting to me is the other graphs on the performance chart. Three of them are indexes, and one, m100, is a fund run by elite of the elite of marketocracy community.

They are all down a whopping 30, 40%. m100 is doing worse than all three indexes. To break even, they have to make 60, 70+%. My question is why do people let losses like this happen? How much faith in an investment justifies 40, 50, 60% loss? Isn't preservation of capital preferable to being invested at all costs?

You be the judge of that.

S&P 500 - Nov 16, 2008

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Another day, another 50 point chop on S&P. Technically it can be regarded as a follow through rally based on volume and close. Breadth, however, was not that strong. Of course, it takes time to heal the scars of the bear. But I would expect a follow through day to have more advancers and better up volume than down volume. And, why do we make so many new lows?



There is an area around 850 on S&P that has become very important. The problem is everybody knows that 850 is important, and it seems like everybody just watches to see what happens. S&P drifts down, crosses below, and then is miraculously revived. How much of it short covering, how much of it savvy traders? How much of it is manipulation, how much of it true buying?

All I know is that it is still a trader’s market.

I leave you with this 5-minute chart that displays the revivals of Nov 13, and 18

RIMM - Nov 18, 2008

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We all know market is in deep funk. And it’s been trying the patience of everyone. At some point we will get a rally lasting more than the duration of an oversold-to-overbought cycle on a minute chart. What I can do while patiently waiting for market to decide that it has had enough sliding, is to identify potential leaders of any upcoming move up.

I have already talked about how Agriculture ETF has been holding its ground, refusing, so far, to make a new low with the general market.

Today, I noticed that Research In Motion (RIMM) stayed in positive territory as A&P was making its lows of the day, and, as the market turned into the, RIMM started running nicely.

There is massive positive divergence being built on the daily chart. Also notice that money flow has been improving and on the volume graph, black volume bars have been taller than red ones.

60-minute chart does not look all that hot, and is getting a bit overbought.

This is a 5-minute chart, you can clearly see that RIMM went a different way than S&P from 12 PM. Here, too, things are getting a bit overbought.

One day does not make a champion. RIMM, IMO, has quite a bit of work to do still. Finding strength in a bad market is a step in the right direction, but if the overall market does not cooperate, then all bets are off.

So, do I have a position? No, I don’t. Did I trade it? You bet I did, but I closed before the close. Am I interested? Yes, I am.

Do your own analysis, be the master of your own trade!

AEM - Nov 17, 2008

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AEM shed 8% today. Looking at the following daily chart, I see an overall positive profile marred by recent weakness. It’s a chart that can go either way short term.

This 60-minute chart presents a very interesting situation. If the Oct 27 low were the end of a major wave A, and the Nov 3 high were the end of an intermediate wave A, and the Nov 13 the end of an intermediate wave b (lots of ifs, I know) then we may break above 36, for an intermediate wave C, with a Fibonacci target of 40 (c = a) in the low end and 50 ( c = 1.618 x a) in the high end.

If we look at the situation more closely, and treat it using traditional technical analysis

An upside breakout of the rising wedge will target the 50 area. A down side breakout will target the 15 area. All of these are, of course, theoretical. The bottom line is that I think AEM is setting up for a good risk/reward trade regardless of how it breaks out of its ongoing range. But, for now, unless I want to day trade this, the best course of action for me is to wait for the situation to resolve.

Meanwhile, I should not forget that AEM is still in a downtrend.

TSX - Nov 17, 2008

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Not much happening on Toronto Exchange either. Same drift down on contracting volume as S&P 500.

Notice that when the RSI trend broke on Nov 12, we said that it was not that good, and it proved to be a prelude to move down by the index.

S&P 500 - Nov 17, 2008

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Two days has passed since the so called key reversal day of Nov 12, and no follow through rally yet. On the positive side, the drift lower has been happening on contracting volume, and breadth that is not horrendously negative.


S&P closed right at all important pivot area of 850. Interesting how key chart points stop the daily activity and leave things suspended for another day. Market has to get its act together soon, or it will reverse whatever is left from its mid-term buy signals.


There still is no resolution to short term wave count scenarios that we have discussed, and all of them stay valid.

Some sectors have started showing relative strength compared to the general market. Energy, consumer Staples, Utilities and Healthcare ETFs (XLE, XLP, XLU, XLV) are working on rising lows. It is just an observation. I am not trying to imply that these sectors will not join a down party if general markets start to break down again.

It still remains a market made for disciplined traders.

Here's a link to a recent interview with Stan Weinstein. His book Secrets For Profiting in Bull and Bear Markets is the foundation upon which I have developed my approach to trading.

DBA - Nov 16, 2008

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On Nov 3, I talked about the PowerShares Agriculture ETF (DBA). I have been following it since and have been seeing some encouraging signs.

Before taking a look at DBA, I would like to say that this blog and this writer are not about dispensing any sort of investment advise, recommendation, or proposal. In case some readers overlook the disclaimer at the end of this page, I should emphasize that this blog is about me publicly using my right to free speech, and expressing my ideas and musings. I may or may not engage in market speculation based on ideas discussed here. Furthermore, I may, at a later point, realize that I have made a mistake (I do make mistakes aplenty) about a position without feeling compelled to write about it at the exact time of such realization, if at all. In no way, this blog’s postings should be construed as recommendations of any sort. Any market decision taken by any individual is that individual’s responsibility and not mine.

OK, with that monkey off my back, let’s take a look at DBA

Here, I am making a comparative study of DBA against S&P 500, and VTI (a total market ETF) as well as against the oil and gold ETFs. It’s been behaving very well



This is the updated version of the chart that we saw in the Nov 3 post.

It’s been holding very well, working on improving its technical profile. Am I interested? Yes, I am. So much so that I have spent some time calculating some pivots

34.7

32.9

31.2

29.4

27.7

26.1

24.5

22.9

21.5

Will I be telling anyone to buy or sell, or how, or when to buy or sell? Absolutely not.

Different people have different speculative styles, and every individual should define his/her own entry, exit, risk management, as well as any other criteria that may be of importance to that individual.

S&P 500 - Pivot Calculation - Nov 16, 2008

I have re-calculated my pivots for S&P 500. I should remind myself that these are guidelines and not numbers set in stone.

Here they are

1135
1102
1069
1037
1004
973
942
912 (Must recapture and hold for a reversal to have a chance)
882
852 (Battleground 2008)
823
795
767 (low of 2002)
740
712
686
660
635
610
585

I expected some warm and fuzzy news, coombaya kind of announcement from G-20. Seems like all they did, other than deciding to get together, for photo ops and stuff, in April, was blaming hedgefund for the global funk.

Picking easy targets, eh?

S&P 500 - Nov 15, 2008

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What is the best way of describing this market?

Yo-Yo market? See-Saw market? like profits -- see them, saw them, see them, gone?

It's a market that is extremely generous to traders with a bit of technical knowledge, and extremely harsh on investors of all kinds. I don't think a lot of fancy stuff are needed for trading this, just a few technical tools, some courage, a lot of discipline, and a total absence of emotions and bias. Well, that's what I think. Look at this 5-minute chart of SSO


Of course, not every day is as clean and straightforward as this, but when a setup appears, a few simple tools give an edge to the trading job.

S&P chopped along a 46 point range (5+%). At a different time, in a galaxy far far away, this may be considered as volatile, but here, and now, it was just another day at the office.

Nothing’s really changed and yesterday’s reversal is still in place. Volume was light, and breadth was slightly negative

In spite of all the commotion, since the October lows, the market has done nothing - a pause? or base building? Wish I knew the definite answer.

Have a nice weekend!

S&P 500 - Nov 14, 2008, Another Short Term Count

charts courtesy of stockcharts.com

Yesterday I presented some short term wave scenarios. As I was looking at charts, I saw another way a triangle could have been counted.

Quite a diverse array of scenarios we have at this time. I am sure one can think of quite a few other as well.

Such is the nature of corrective waves.

SSO - Nov 14, 2008

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Hard swing of yesterday has already retraced 50% of the decline from Nov 5. we have to see how far it can carry before a pullback appears, and then how it behaves on a pullback. SSO is sitting right below the edge of a small gap opened on Nov 11.


On the above 15 minute chart, see how MACD is fanning wide indicating extreme buying pressure in a very condensed period of trading activity. This type of pressure cannot be sustained for long and usually is exacerbated by shorts running for dear capital.

But that's OK, we need burnt shorts to kick start the action on the long side. What happens after that will tell us a more meaningful story.

AEM - Nov 13, 2008

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Yesterday, I mentioned that there was a lack of available AEM stocks for short sale. Too many shorts are usually a lineup a squeeze. Let’s see what happened to AEM

Maybe they all covered at the bottom. Who know?

Impressive rally, it looks impulsive. Turn around volume on this 60-minute chart was impressive.

I think the above chart presents very compelling risk / reward scenario for a trade.

Stock is still in a downtrend, but has been working off a positive technical profile on this daily chart.

S&P 500 - Nov 13, 2008

charts courtesy of stockcharts.com

What a day! How does one trade a day like this? A trader friend of mine says that if one needs to ask that question one does not need to trade at all. If you ask me, he is full of it.

Very strong outside day, huge volume, nice advancing volume, a 90+ point reversal, the works.

This morning I said the bearish scenario was just too obvious, and, boy, were the obvious bears handed a hard one or what? I also said the bullish side had been weak, but today the bulls mustered some mettle to quickly regain the lost battle ground of 850.

We are back to 912 level as major resistance zone.

But has anything changed? Not really, we are still range bound.

Let’s exercise some short term wave scenarios

There is a trend break and a lower high in VIX. That is a positive signs but does not necessarily mean we are out of the woods. Notice how the 850 level is being defended. Today might have been a bounce form oversold levels off some positive momentum divergences. Notice that MACD did not have a divergence to speak of.

Impressive as today was, it still is a trader’s market. 912 is the next battle zone, and the way 850 has been defended, its importance is now obvious – maybe too obvious.