Equity Markets: Technical Update (11-20-08)

Bulls got killed again. This is probably the 100th+ time this year. Don’t say that I didn’t warn you either. If you’re still “hoping”, then go back to your corner and keep praying. We broke our consolidation low yesterday, and today confirmed a clean break with a major spike in the last half hour and cut through the 2002 lows. That rally we had? That was a really large bear flag.

My gains for today put me at a +69% return for this month so far (the market is down -25% this month). My students have also pillaged the market with me and took whatever they felt like taking. If you can’t trade this market and/or don’t know how to, then get out. If you are slow to react and think too much about a trade, then get out. If you’re still trading on fundamentals, then you have the right to lose every penny. And give it to me. If you diagnosed yourself with multiple personality disorder, seek professional help. This environment is not for you.

Today’s orders for my subscribers: 1) 9:14AM – hold 25% Short/75% Cash from overnight positions. 2) 10:05AM – Add additional 25% Short. 3) 10:43AM – Hedge all short positions. 4) 11:19AM – Remove all hedges. 5) 12:23PM – 100% Cash. 6) 12:50PM – Add 25% Long. 7) 1:12PM – Hedge all long positions. 8) 2:08PM – 100% Short. 9) 3:27PM – Risk-averse traders cover before the close. That’s all for today. You can’t blame the market for anything, because your successes and failures are entirely the result of your trading decisions. No one said making money was easy, but there is always a way to make money.

Looking forward into tomorrow, if the S&P 500 does not close above 800, then that will mark a continuation in the leg. I don’t really see any positive catalysts that can make the market rally 50 points. We may get a nice bounce to the upside following the last hour crash today. We have not hit a capitulation point, so the rally we do get will be a secondary reaction rally. The market is and will continue to get seriously, downright, and utterly crazy, so remember: if you can’t handle it, don’t trade.

SPX 1-day

SPX 3-day

SPX 10-day

SPX 6-month

SPX 10-year

www.weeklyta.blogspot.com

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During the neutral range, I was thinking to myself, “there are two options available for the market: 1) we form a long tedious rounded bottom, or 2) we form a very large bear continuation flag. #2 came really quick in the last hour. Over the weekend, I also stated that I had those two conditions that needed to be met. It’s Wednesday, so both have expired and have not been met (not by a long shot). The bottom line is that we have broken our critical support level and the S&P 500 is reaching the 2002 lows which are currently around the 775-785 level. Unfortunately, this suggests that we have at least a very possible short-term 3-5% additional downside move. Whoever is still buying and holding…should probably stop. It doesn’t make sense. Want some advice? Buy once we make a higher low (that means you might not be buying for a while). Don’t be stupid. This is exclusively a traders market, all others will get/are getting killed and it’s all your fault.

I, on the other hand, made a sweet 7% today adding to a 5% gain yesterday. This is a tricky market and I still remain mostly in cash overnights. There is too much uncertainty and the risk associated with holding overnight. I could hedge, but I just prefer to be in mostly cash. The $RUT, $SPX, and $COMP are all in trouble. The $DJIA is actually sitting at Thursday’s lows, but this divergence will soon be corrected. The VIX is trading in a upward range and today’s candle suggests additional upside. The financials are in some serious trouble and there is no possible way for the market to rally without them, so don’t forget that. What’s the only chance left for the market? We have to cancel out today’s loss tomorrow (gain 400+ points), and that is highly unlikely. Today was just an all out bloody day and longs got mauled by the bear demon or the cartoon blood drop.

SPX 1-day

SPX 3-day

SPX 10-day

SPX 6-month

VIX 10-day

VIX 6-month

www.weeklyta.blogspot.com

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If you want to apply for a few billion dollars, you can fill out this 2-page application for the TARP program. That’s right, it’s 2 PAGES LONG. This is like 10x shorter than my college application. Applying for billions couldn’t be any easier!

www.weeklyta.blogspot.com

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Today was an easier day and more predictable than yesterday, obviously. It’s important to keep your cool and to calm down if you find yourself too excited when you’re making or losing money. I always tell my students to have patience in the face of considerable pressure. This morning I sent an alert at 9:28AM writing that I was anticipating a bounce (which did happened). At 9:56AM, I issued a “100% Short” order – slightly early, but didn’t matter, the rally was dead from the start. A 10:30 alert was issued to notify traders that it will be another volatile session and if they can’t handle it, then get out. A 2:37AM alert was sent notifying that I was still 100% short. A final order at 3:40PM was given to unload most short positions and have some cash handy for tomorrow. I netted a cool 5%.

We tested the lows for the $RUT, slightly for the $COMP, and not quite for the $SPX and $DJIA. The $VIX remains elevated, but the fear seems to be subsiding as it has not tested it’s own highs (as of today). The indicator is still consolidating and a breakout is still possible as long as it hold the 20-day MA. As long as we have uncertainty surrounding the markets, it cannot start a strong rally (Ex: GM). In addition, looking at the market’s components, 14 out of 28 sectors ended lower with the most decline coming from the broker-dealers, banks, semis, telecom, transports, and gold. I stated previously over the weekend that we needed to 1) cancel out Friday’s loss on Monday and 2) break through the 20-day MA within 3 days. Both conditions have not been met yet.

We want to look out for 865 overhead resistance on the $SPX. There is support at around 845-850. We are not out of the woods yet regarding testing Thursday’s low.

SPX 1-day

SPX 3-day

SPX 10-day

SPX 6-month

VIX 10-day

www.weeklyta.blogspot.com

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If you day traded today, then you know what I talking about. Today was a day of wearing out traders and washing them out. The path toward the rising wedge/funnel created a major problem for shorts. I issued a “short” order at 10:15AM and a “Hedge” order at 11:12AM for when the SPX hits 865. This type of pattern showed from the very beginning that price exhaustion is occurring, and it was nothing to fear. However, anything could have happened. I utilized extensive hedging techniques today, more any other day this month. At 1:01PM, a “100% Short” order was issued and all hedges to be sold. A 2:15PM order went out to cut short positions and hedge once again. At 2:28PM, another “100% Short” order was released. At 3:15PM a “Neutral” order was issued and finally at 3:38PM, a “75% Short” order was issued. The frequency of trading shows what type of day it was – a nimble one.

Looking at 3-day charts, these daily patterns are not very bullish at all. We are closer to testing the Friday lows. Intra-day I made use of the fib retracement levels during the wedge’s progression, another tool to keep yourself from panicking. The very long neutral range was especially problem due to false breakouts and breakdowns. If you tried to play every peak and trough, you definitely lost money. I was looking for what happened in the last 10 minutes all day long. Sometimes, patterns do not breakdown as quickly as anticipated. We are currently at support levels, and bounces should be expected. It’s easy riding the market down (if you’re short), but if you can’t handle the pullbacks, then don’t trade. In any case, this was one of the more difficult days to trade. Today, I made enough to pay for a steak dinner, for one, and that’s about it.

SPX 1-day

SPX 3-day

SPX 6-month

NASDAQ 1-day

NASDAQ 3-day

NASDAQ 6-month

www.weeklyta.blogspot.com

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A reversal, then another reversal, and one final reversal in the last half-hour. If you can’t handle this rollercoaster and adapt to the changing environment, then you shouldn’t be trading. Also, to someone whom I will keep anonymous, you should not be trading if you fall asleep during the day with open positions.

It was a deep correction which was expected. However, the last half-hour was not expected. As for my order’s today: A “Hold” order was issued at 10:33AM (for yesterday’s positions), a “Buy” order was issued at 1:26PM. and a “Sell” order was issued at 3:27PM when the right shoulder of the H&S was in formation prior to the plunge. Therefore, I am 100% cash into the close, having added just under +4% for today.

Looking at the 10-day charts on the SPX/COMP, I noted yesterday and the day before that the diagonal line was important. I paid attention to it all day long to confirm a “Buy”. This line was also critical to shaping the rounded bottom. At this point, we are again close to support levels. The RUT is doing the absolute worst, having broken entirely through today’s intraday support. If we break on Monday on all indices, then the chances of a new low are very much in. I hope so, so I can issue a multi-day “Short” order and stop this daytrading nonsense. Just like the Cialis commercial, “When the moment is right, you can be ready”. So, be ready.

Have a good weekend.

SPX 1-day

SPX 10-day

SPX 6-month

NASDAQ 1-day

NASDAQ 10-day

NASDAQ 6-month

www.weeklyta.blogspot.com

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