Equity Markets: Technical Update (11-13-08)

I found exactly what I was looking for, even the increased spike in volume. This was no surprise to me as it was bound to happen. I am up 14% today and up 42% for the month so far and 3 out of 4 of my students are up over 10% today alone after joining me in killing the bears (at least for a day). I even said that today was the day to pay attention to (in my post yesterday), so if you didn’t make money and you were trading all day, then you’re an idiot. Let me tell you something, it’s days like today where you make the biggest buck, days where you sense tremendous reversal. Other days are just “normal” days. You don’t even have to trade everyday.

Also, if you watched CNBC into and after the close, you could see all these people try to give fundamental reasons to try to explain the rally. Let me tell you something again, don’t listen to those idiots, because there was absolutely nothing fundamental about it. It was a pure technical rally and if you know your technical analysis, you made a killing today while the fundamentalists remain dazed and confused as to what just happened.

I just don’t play shorts on days where a potential reversal is imminent. That’s the smart thing to do. We hit an intra-day capitulation point and formed a V-spike. I issued my buy order at 1:52PM and went 100% long and the rest is obvious. I stayed in cash for the most of 2 days prior to today for the sole purpose of waiting for…today. You must have patience to find the best possible entry and bank on it.

As for tomorrow, let’s see what happens. Watch the 20-day MA. Be ready to sell if needed.

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SPX 10-day

SPX 6-month

NASDAQ 1-day

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NASDAQ 6-month

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We are dangerously close to testing the Oct lows, and I’m not kidding. It’ll be tomorrow and I expect some sort of bounce here. There’s too much support for a no-support slice through. I also expect considerable volatility as the bulls and bears fight for control on an important day. We should also see some increased volume levels. Tomorrow will mark the 4th time we test. I would like to remind you that for anything, a 3rd or 4th retest is usually a bad sign, a breakdown typically follows not to long afterward, but in the words of Hank, “let’s not speculate”.

Especially pay attention to the diagonal downward trend in the 10-day charts for the SPX/COMP. They’ll provide significant overhead resistance. As for support, there aren’t anymore left besides the Oct lows. And yes, I am in cash until I see a sizable rally coming after a retest or a total, abysmal failure of the last support level.

In other news, I got invited to only one Wall St party. Usually, every firm is buzzing during this time to speculate on who’s got the biggest and baddest party. Unfortunately, 8/9 out of 10 have completely canceled their parties. Duh, we all know why. I guess MS can send me a cool monkey pen this year instead of the gold one last year. Also in other news, I was given advice to seek out “SINBAD” girls – “Single Income, No Babies, And Desperate”. Interesting…

SPX 1-day

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NASDAQ 1-day

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Here are examples of FAILED tests:

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I was at my local Chartered Market Technician (CMT) meeting tonight which is held once every 2 months, so I couldn’t get my daily market action post out in a timely manner. This also means that I missed the highly anticipated CNBC show on high-class hookers. I was really looking forward to that, seriously, so someone tell me how it was. Anyway, the market acted in the way the stick sandwich said it would act, so there’s nothing special about that. What was interesting was how the market reacted when our favorite politicians spoke – we spiked considerably higher, but failed and reach the level we were at before they opened their mouths. Why do they keep blowing hot air into the markets? That resulted in an intraday head-and-shoulders that slightly recovered into a bearish flag but ended up…if you are confused, don’t worry because I got confused up till about 3:50PM and just said ‘screw it’ and went into all cash. There is no point in gambling with timing if you do not have an edge that’s greater than 50%.

Speaking of direction, my students and e-mail subscribers received the order from me to short at 2:25PM on Monday to be held overnight. I issued a cover order yesterday at 1:54PM before the stupid balloon rally took place, and anyone that didn’t cover…well, you were ok. I stated that I was 100% short (but was actually 200% short, fully margined). I made my coin yesterday and the day before…and I am up over 27% for November so far. You can’t trade every day, you have to pick and choose the best probable days to go long or short. No 50/50 days, or you’ll get killed. If you’re a long-term investor, you’ve been dead a while ago. If you’re not rapidly trading or are not hedged, then you’re dead. If you’re a fundamental person, you’re dead as well. Anyways, I am in all cash right now until I see something good this morning. Really good.

SPX 1-day

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NASDAQ 1-day

NASDAQ 10-day

NASDAQ 6-month

www.weeklyta.blogspot.com

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Interesting day where I didn’t think we would be fading the gap as far as we did. Regardless, we re-entered the consolidation range not giving a care about China’s stimulus package. On a longer short-term view, we are forming a bearish flag after having failed the 20-day MA 3x. At this point, we are more likely to test the October lows than to breakout to the upside. This can obviously change as each new day gives better guidance. The NASDAQ formed a ‘stick sandwich’ and you can also see that the Russell 2000 formed a same pattern, both of which exhibit highly reliable reversal patterns.

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We’re in a flag formation which is much expected after a -10% move down. Friday was an interesting day where we just zigzagged up and down forming a triangle for most of the day. And yes, we did have another WTF moment in the last hour of trading. I can almost say that the spike in the last half-hour was due to program short-covering because the volume just didn’t convince me that it was real buying. If we do not breakout from this flag, then this is a bearish continuation straight down to test the lows.

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NASDAQ 1-day

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Prepare for tomorrow, because there are only two options:

#1 – We form a double-bottom right off the 900 level, despite the terrible Employment Situation report and we head up to at least 20-day MA resistance. The VIX fails the 20-day MA resistance and falls back towards the 50-day MA.

#2 – We break 900 and we automatically head straight to 840-850 where the last support level is located before we make a new low. 900 appears to be a strong support area, but then again, fear is just as strong.

The Employment Situation report: 8:30AM EST

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SPX 3-day

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SPX 6-month

www.weeklyta.blogspot.com

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