S&P 500 - July 29, 2009

some charts courtesy of stockcharts.com

The ever so elusive pullback!

Remember way back when the market was falling and bulls were calling bottom after bottom. They seemed to be in a never ending situation of waiting for Godot to come. Now, the tables have turned, and it is a meaningful pullback that does not seem to come.

We have been watching a chart of September S&P futures for a few days now.

A few days ago, I said that the top of July 27 (984 Sept ES) had the potential of being the top for, at least, a pullback. That top has not been violated yet, but the price action since then has been extremely choppy. That makes me think that maybe we are in a sideways correction/consolidation that may be all the market is going to give back.

If that’s the case, the area between 960 and 990 (cash index) should contain the chop-chop.

We have also discussed that a break below 960-965 is needed for a meaningful pullback to have a chance. My view on that is still the same.

If the July 27 is not bettered, and 960 (cash index) is broken to the down side, the probabilities of the decline to be the beginning of a bone crushing fall to retest, or undercut the lows of March will be low. Why? Because the action so far from the peak of July 27 has been choppy.

An extended, steep decline to the depths of hell is more likely to be associated with an impulsive, free flowing wave structure. What we have seen these past few days looks like a tug of war between bulls and bears, and that, typically, is a churn, it can be top, or a consolidation. We just have to wait and see.

So, as long as index stays above 960, there is a good chance for the index to relieve some short term overbought conditions and get ready for another run up.

Also, because of the choppiness, instead of spending too much time on the ongoing minute-by-minute wave count, I will focus on trend lines and support/resistance levels till things clear a bit

We have a nice channel on the 60-minute frame

There is an area to the right of the channel that looks like a buffer zone, or battle zone depending on how you look at it

This area should cushion pullbacks. Otherwise, a change in price action characteristics may have occurred.

Notice that as I am writing this, 5:00 am, an assault in underway on the July 27 peak of the S&P futures.

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One of the characteristics of the rally since March has been an outperformance by the Tech sector, which we have been discussing very frequently.

This is a chart of Nas100 futures that I shared with my OEW colleagues yesterday evening.

The point I was trying to make was that it all looked like a consolidation to me.

Overnight, the chart became lively and started running

I shifted my count, but have kept my original count as an alternate.

If we look more closely,

It successfully tested the top of the consolidation zone and went higher. I think it is important to see how the techies perform, and as long as they do well, the market may either hang in there, or go higher. It may be the last dash at a new high, or just the first wave of an extended run up. Just pick your spots and play safe!

I really find it bizarre that this very obvious outperformance of the techies has not been discussed widely in the blogosphere or main-stream financial media.

To each, his own!

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For the day volume was above average. Breadth was negative.


Notice McClellan Oscillator has pulled back sharply. That is in contrast with the tight, sideways action n of the day. One day a Rome did not make. Let’s keep an eye on it and see if it makes it to neutral and what it does there.

Notice the short term divergences. They may be signalling a pending top.

This is a 15-minute chart of the index

As long as the support zone of 960-965 holds, index has a chance of gathering energy to make it higher.

I leave you with these charts

Notice the positive close of the ETF and the volume

And this

Notice the lacklustre volume and the negative close.

You draw your own conclusions :-)

Have a Nice Day!

PS. Tomorrow, I will start my well deserved, long-awaited vacation. We will be staying in a chalet in the beautiful mountains of Quebec. I have plans to sips good wine, soak in the heated pool, and admire the scenary. I may not be able to post as regularly as I usually like, we’ll see.

S&P 500 - July 28, 2009

some charts courtesy of stockcharts.com

In the morning I made two posts and said that the Sept future charts seemed like it had 5 complete waves and a potential top. At that time, index was dropping in second set of impulsive-looking waves, and I said that it was not clear whether that would be an a-b-c or a 1-2-3.

Well, we now know that it was an a-b-c. We also know that the top of that chart was not taken today and it can still be a top. Unfortunately, I cannot say much more than that. The action today has opened the door to a variety of wave configurations. Here. I have labelled two possibilities on the Sept. Future chart

Very messy and untidy price action. Notice that there is broken trend line that was tested and rejected today. Also, notice that yesterday’s low was taken out today, and we have a potential situation for a short term trend change. All of this may mean nothing when a blast of bids can deploy billions to mop the shorts dry in a few seconds.

Interestingly enough, things look different on an index chart

The cash index looks cleaner, and appears like it is consolidating in a flat base. It’s been a brutal and unforgiving market for bears and complacent shorters. For now, there is not much I can do other than exercise patience and trade if I get a set up. A break below 960-965 may finally set the pullback into motion. A break above 980-985 may force shorterts and momentum players to feed the rally in a frenzy.

This is a 60-minute chart of the index

There really is no need for me to be in that chop zone. Notice how the index bounced back without getting oversold, and this was despite the bad consumer sentiment data. Also notice how widely apart the MAs have become. Contrast that to continuous declining momentum at the top, and you get one heck of a tough market to trade. Well, I don’t know about others, it’s tough for me

For the day, volume was above average. Breadth was neutral.



Daily frame is strong, and has been in overbought territory (measured in RSI) since July 13.

Not much else to say – just waiting and trying to squeeze a trade or two.

Let’s Wrap Up:

Index recovers in choppy fashion from early weakness. Short term momentum shows signs of strain.

Bulls own the market. It is their ball to drop. Bears seem weak (if not dead) and incapable of inflicting lasting damage.

Short term trend is up (we need a new short term low to change that). Mid-term trend is up. Long term trend is down.

Index has gone through several levels of resistance with relative ease. They have all become support.

Resistance is 984, and 990. Support is 961 pivot (a long term level from 2003), 955 (top of the 875-955 range), 935 (Jan 2009 top, July 1 peak), 923-928 (tested multiple times), 910-915, 908 (55 EMA), 875-885 (base of a W bottom) and the frequently contested 850

There are well established intermediate buy signals on daily frames.

I leave you with these charts




Regardless of how we may feel about it, this is a strong chart. There are many levels of support. They should give ample time to secure/trim/liquidate to existing long positions if things get rough.



Yes, there are frames larger than 1 minute as well :-) There are some divergences appearing on the weekly RSI. The rally looks sharp and extended. Price is above the long term area of 950. Notice that weekly volume has steadily declined throughout the rally. I don’t feel like buying anything at this moment. I have calculated some upside targets. Those targets are good in my book as long as index stays above the 950 area.


Getting a bit extended. A pullback to, and recovery from 35 (roughly 1450 NDX) would be a low risk buy. I would not like to hold this too far below 35.

Have a Nice Day!

S&P 500 - July 28, 2009

This a 60-minute chart of EW Futures I used for a trade.

I have laid two lines (green and red). I think those levels are important in telling us if this morning activity was another trap for the bears or the start of some pullback.

S&P 500 - July 27, 2009

some charts courtesy of stockcharts.com

I am a bit busy and cannot do a detailed post.

Briefly, we might have a top in September S&P futures. I repeat: We Might. It's all tentative, and the count on the cash index is a bit iffy.

On Monday, we said, that a break below 960 on cash index might indicate a pullback in underway. I guess I can bump my level to yesterday's low of 969 on September futures (cash is +3, +4 something).

Such break will have the potential of changing the short term trend.

So far, this morning, September futures have declined with two clean 5-wave sets (the second is ongoing as I write this). It might be an a-b-c, or a 1-2-3, the action during the day will tell us.

So, yesterday's high is a cut off point to evaluate short positions. Yesterday's low important to keep the short term trend up.


My favorite daily breadth chart is showing some short term divergences. Longer term breadth is firmly positive.


Here as well, we see new peaks in A/D line, it is technically positive for the mid-term picture of the market, but short term, all signs of technical fatigue have started showing themselves.

Technical picture is one of strength and happy moons to come. Real, non-governmental econo-data is one of drudgery of malaise. Is the market wrong? will the econo-data start showing serious positive growth any time soon? I will defer the answer to real experts, gurus, and future seers of the market. I simply don't know.

But there is a discord, and that makes me paranoid. Paranoid of holding short unprotected and be against the crowd. Paranoid of being long and face the risk of macro econo-data not recovering the way the market anticipates.

Have a Nice Day!

S&P 500 - July 24, 2007

some charts courtesy of stockcharts.com

Index finished off a strong week on a positive note.

We expected a 5th wave, and it seems like we got one on Friday.

Now, the question is whether what we saw was a wave 5 or a wave 1 of another extended 5th wave.

Once again, signs of short term momentum deterioration are there.

Notice that price could not make it past the mid-channel line that we discussed. Instead, it dropped to the lower boundary and just walked it up. There are bids that come in to support the tape. Some say manipulation, some say real bullish sentiment, some say forward-looking nature of the market, whatever. The raison-du-jour seems to be High Frequency Trading Programs (HFT). Remember we started talking about HAL-99-99 super computers running trades months ago? Now, other folks are discussing it as well in the blogosphere, and even on Bubble-Paganda channels by real smart-looking heads in expensive-looking ties.

Bottom line that going against the underlying bid of the tape is hard, and takes good timing and lots of discipline. The rest is just spin, air time, and silk ties.

Now, no one’s gonna bang a gong when the bid is pulled, so, buying a bullish tape with an overbought daily picture and deteriorating short term price momentum may create a lot of headache, at least for the short term.

So, if I am trying to pick a tradable top, I can take short term sell signals near my pivots, and give it a bit of room to play. I will need a lot of discipline to admit defeat. I may also need to secure my position at the end of the day somehow since the tape can awaken and rally at 4:00 am

If I am planning to buy to keep, then, I must wait for a pullback. At least enough to cool the 60-minute frame a bit.

This has been a very strong wave. Just see how it rushed into overbought areas of RSI early on, and did not give much back.

There are two possibilities:

One that what we have seen since the latest low in July was true money positioned for the second half of the year. This is not discussed by many. If that’s the case, as I have mentioned before, players are pricing a mother of all recoveries, and a hell of a span of earning expansion. Pricing for perfection? More like pricing for once-in-a-generation fantasy gratification. Maybe they know something that the non-governmental, hard-core econo-data either does not know or does not show. Maybe they are just delusional. Only time will tell.

The other possibility is that it really has been HAL-99-99 super computers for the majority of the volume. If so, the rush to exit may get ugly as algorithms looking for ways of screwing us over pennies per trade over millions of trades do not care if China’s gone on a high-density diet of coal and copper, nor do they give a hoot if the Chinese drink oil for breakfast or not.

There is no other way I know to play this market than paying attention to charts and technicals, take it one level at a time, and do all sorts of position gymnastics to protect myself – YES, I am paranoid. All sorts of characters have all sorts of fingers in every hole of this market and I trust none of them with my money.

The biggest trick the market pulled on majority of its participants was turning them into wrong animals. Bulls? Bears? Sharks may survive better among sharks.

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For the day, volume came below average. Breadth was positive.

Short term momentum and breadth are overbought, but are yet to signs of rolling over.

Not much else to say except that we seem to either have or be very close to another complete wave set, if the current minute 5 wave does not extend, that is. A break below 960 may be a first indication that a pullback is underway.

Any sustained activity below 960 should give the bears room to see if they have in them to do some damage.

Any sustained activity above 965 will maintain the positive short term posture.

Let’s Wrap Up:

S&P seems to be near the completion of the current rally’s wave structure. Short term momentum shows signs of strain. Daily frame is overbought. A break of 960 may a signal a pullback is under way.

Bulls own the market. It is their ball to drop. Bears seem weak (if not dead) and incapable of inflicting lasting damage. If they are still alive, and healthy, they should seize any opportunity below 960.

Short term trend is up. Mid-term trend is up. Long term trend is down.

Index has gone through several levels of resistance with relative ease. They have all become support.

Resistance is 984, and 990, 1018. Support is 961 pivot (a long term level from 2003), 955 (top of the 875-955 range), 935 (Jan 2009 top, July 1 peak), 923-928 (tested multiple times), 910-915, 908 (55 EMA), 875-885 (base of a W bottom) and the frequently contested 850

There are well established intermediate buy signals on daily frames.

I leave you with these charts

I really don’t think explanation is needed for Nas100. It has been a beautiful position, and that's all there is to say about it. 1515 is an obvious area of support. We have had good experience with our channels. Let’s see how well this channel on the chart above behaves.

A bullish pattern set against two bearish formations.

Pick your spots! Be disciplined! Treat all opinions as opinions at best, and harmful noise at worst!
Have a good evening!

S&P 500 - July 23, 2009

some charts courtesy of stockcharts.com

On July 17, I said,

The area of 955 offers a unique opportunity. An adventurous speculator may place bets to the upside and downside of that level. But he/she needs a clear strategy of playing it. There are a number of option strategies that can be employed. I like spreads, and may play them here.

That is working like a charm.

The day before yesterday, when I was writing these words

But remember, this is where the most exciting (or damaging if you are short) stuff can happen. Extreme overbought on daily chart is usually where money rushes in.

I was just using what I had seen to try to do a risk-reward assessment.

When I said that bulls were running the asylum, I really meant it

The nice and fair thing about the market yesterday was that it gave ample time for shorts to exit. It did not gap up or anything. It just went above the high of the previous day and kept on going

If I were short, I could stop (the red arrow). After that, if I were still inclined to short, I could set a sell order below the previous low point (the blue arrow).

This is just an example of what I could do to let the market sort it all out for me. It is a game of trends, a game of lower lows and lower highs (or the reverse). At least, that’s what I think. It is not prefect, I don’t know of any perfect system, but coupled with proper money management, it has a chance of survival.

Yesterday I posted two counts of September contracts and said I had no idea which one would come to pass.

As index rose above the prior highs and moved on with force, it became apparent that we had another wave up in front of us

Again, there is no magic to this game. Market forces the game plan. We look at alternative scenarios, and try to be prepared as the game evolves.

I made a post yesterday afternoon and said I was short near the highs and that my stop was a new high. My stop was missed by pennies, but I stopped the position myself after hours for some profit. I think there is another wave left in this rally (if not more)

After I shorted, market dropped nicely, but it then rose and made small higher high. The rise was very choppy, more likely a B wave, which tells me that the drop could not have been a wave 1, and was very likely a wave A, and the rise a running wave B of an ongoing minute wave 4

So, I decided to stand aside and observe some more.

Referring to the charts above, it is possible that we are still in a wave 4 of micro degree (orange). To be followed by another leg up at least. Note that I also have the minute wave 5 (green) label on yesterday late peak. I don’t think we have seen minute 5 yet, but I may be wrong

We will know very soon as this market seems in a rush to get things done.

For the day, volume was very good. Breadth was soundly positive.

All the signs are there and catalogued on the chart. Rising volume pattern on the advance, increasing number of new highs, short term momentum peaks. Rising A/D line, and so on.

We identified positive posture using McClellan Oscillator as early as July 14. It has been rising and staying in overbought areas quite nicely. That indicates positive breadth momentum and is very supportive of the rally. It is overbought, and susceptible to a pullback to, at least, neutral, but your guess is as good as mine when that pullback will occur.

Looking at the chart above, one may wonder where the bears are, or why the bears are still bearish

Percentage of stocks above 200 MA matches the height of bull market in 2007. So is it a bull market? My answer is: what do we care? Our job should be catching a ride and money management.

But, other than that, there is no hard, un-massaged, non-governmental, honest-to-goodness blue-collar econo-data to support the notion of a bull market. Market seems to have been pricing the recovery of a life time, econo-data are yet to arrive.

Whether the market is right or wrong is not for me to say. The world has an abundance of experts on that subject, so, let them bicker!

I just know that to justify price multiples, S&P earnings have to go through a hell of a span of expansion.

I also know that market is overbought short term, and what I have for long positions is good and secure enough for now.

Speaking of short term

We have a new peak on RSI. I think the first set of diverging momentum readings marked wave 3. We seem to be in an extended wave 5, which has started with very weak momentum as manifested by falling MACD, and as we have been pointing out every day. The next sell signal on the chart above may give a tradable short. If I take it, I will make sure that I only risk as much as I can afford to lose.

This is a 15-minute frame

We have been following this chart for a few days. Here, as well, there were signs and ample warning that a short position had to be taken care of. Price rose back inside the channel, and MACD rose above the broken trend line. Now, notice that price stalled mid-channel. That is curious, especially on a strong day. Let’s watch that mid-channel and see if price can rise nicely above it before we get a sell signal from the 60-minute frame.

Let’s Wrap Up:

S&P makes new uptrend high on good volume. Short term momentum shows signs of strain. Another wave set appears near completion.

Bulls own the market. It is their ball to drop. Bears seem weak (if not dead) and incapable of inflicting lasting damage.

Short term trend is up. Mid-term trend is up. Long term trend is down.

Index has gone through several levels of resistance with relative ease. They have all become support.

Resistance is 984, and 990. Support is 961 pivot (a long term level from 2003), 955 (top of the 875-955 range), 935 (Jan 2009 top, July 1 peak), 923-928 (tested multiple times), 910-915, 908 (55 EMA), 875-885 (base of a W bottom) and the frequently contested 850

There are well established intermediate buy signals on daily frames.

I leave you with these charts


What can I say about Nas100? Volume yesterday seemed climactic. One thing I am happy about is that I realised way early that Techies were outderperforming. One thing I am proud of is that I have been pointing out the outperformance of the techies every day on this blog. I took some profit. The rest stay hedged

Index has successfully broken above the neckline of an inverse head and shoulder that I have been presenting for a few days. Volume was good. It is curious that the failed head and shoulder that roasted so many bear meat around 875 got so much attention, and this one is basically being ignored. Is that a sentiment thing? Is that a grudge against the bulls by the blogosphere? I don’t know. I don’t even care. It is what it is. Pay attention to multiple levels of support underneath, and the nicely aligned short term MAs, and chart a plan for yourself.

Have a Nice Day!

S&P 500 - July 23, 2009 - Intraday - 2

I shorted a little bit when SSO was 23.50.

Stop is a new high for the day.

S&P 500 - July 23, 2009 - Intraday

Such is the power of a trend!

We are likely dealing with another extended wave, which gives credence to second wave chart that I posted earlier.

A we discussed, the fact that market is oversold on a daily frame does not mean much, and daily oversold are typically situations where many take notice and join the party.

We have freah short term momentum peaks on 60 and 15-minute charts. This, so far feels like a wave 3 of sorts.

Position maintenance for the bulls, and patience for the bears.

If I really wanted to short today, I would take it slow and look at option spreads.

The value of my hedges no more justified some long positions position. So, I either had to come up with new hedges or take the profit and unwind that portion. I chose to close them.

S&P 500 - July 22, 2009

some charts courtesy of stockcharts.com

I am a bit pressed for time, so, I will be a bit brief.

Market ended mixed. S&P closed slightly down. Nas100 turned the positive streak into 11 days on good volume.

Before market open, I posted a chart of S&P September futures and said that it could be either the beginning of the correction or a continuing wave 4. I also said that the possibility of a frustrating triangle could not be ruled out.

It seems like a triangle was either formed, or is still forming on the September futures.

Yes, I know, that is not very definitive, but waves are messy and open to different interpretations.

The above count implies that the rally since July low has topped and a correction is underway

Because of the messy nature of the waves, it is possible to count like this

The above count implies more hardship for the bears

The cash index chart is a bit cleaner

The channel on the chart above is broken. MACD has rolled over from under the broken uptrend line

This index can still walk the underside of the broken channel boundary and crawl up. I am not saying it will, just that it might. Pay attention to MAs and price position with respect to them. I would wait for them to roll over, especially since we are in uptrend in a month that has seen a massive trend reversal.

We know that the larger the frame, the more impact it will have.

On larger frames price has been very strong.

As I have mentioned a couple of times, price has risen steadily against the backdrop of a declining MACD. At some point one of them has to reverse course and get in sync with the other.
On the 60-minute frame, momentum has already peaked. But as we said, the larger the frame the more pronounced the impact

Daily frame is overbought, and as long as it stays overbought, it pulls the shorter frames with it.

For the day, volume was about average. Breadth was positive.

Index is overbought. That in itself does not mean much. But given short term divergences and the possibility of a complete wave set, I would not be a buyer tomorrow. But remember, this is where the most exciting (or damaging if you are short) stuff can happen. Extreme overbought on daily chart is usually where money rushes in. If I wanna pick a top, I need to be nimble and get out quick and retry. Otherwise, I should wait for the daily to roll over

I could also pick an area on the chart that would make a lower low in the time frame I like, and set a sell there, with a stop order where price would make a higher high if it went against me.

Or I could pick a spot close to yesterday's high, and set a stop somewhere above yesterday's high.

Just weigh the risk versus reward and see if you like it. If not, be patient

Nas100 just keep pounding it on

The thought of a new long position here scares me. There are multiple levels of support to pick and choose for either entry, or exit, or hedge.

Short term trend is up. Mid-term trend is up. Long term trend is down.

Resistance is 955 (top of the 875-955 range), 961 pivot (a long term level from 2003), and 984. Support is 935 (Jan 2009 top, July 1 peak), 923-928 (tested multiple times), 910-915, 905, 896 (55 EMA), 893 (neckline), 875-885 (base of a W bottom) and the frequently contested 850

If I am bullish, the trend is with me, I may need to take some measures to make sure my profits do not evaporate. If I am bearish, many things are working against me, I need to pick my spots and err on the side of caution.

Have a Nice Day!

S&P 500 - July 22, 2009 - Before Market Open

These are some charts I used to trade the early hours.

It seems like we have either started correcting the rally from 875 area, or are in a large wave 4.

The possibility of a frustrating triangle cannot be ruled out





So far, it looks like it has started with an abc.

If correct, I would pay more attention to internal waves, support/resistance levels, lower low/lower highs (or higher high, higher lows), and moving average alignment.

I personally hate complicated trades, and err on the side of caution, which sometimes means that I get the hell out early.

At this moment, I do not have any intraday positiona.

At this moment I need some petit dejeuner.

Have a Nice Day!