Joined Nov 29, 2008
329 Blog Posts

Multi-day Desc Flag Within Flag / M2M+G20+Jobless Claims

Let me get your opinion:

How long does the rally last?

1 day
2 days
3-4 days
1 week
2 weeks
3 weeks
1 month
2 months
3 months
Current Results

There has been a lot of rising/falling wedges and funnels as they can be seen most clearly on the 5-day chart. They are typically followed by a spike. Today’s action suggests the market has an equal chance of going in either direction, diminishing any edge that once was present. As a result, I removed more than half my positions and hold onto a majority cash position until this resolved. The market has flagged the past 3 days, within a larger flag.

(Note: Futures indicate a large spike to the upside).

World indices are not breaking down as expected, with the FTSE leading the European markets with the DAX, and CAC following. The Nikkei is leading the Asian markets. Not only that, almost all sectors negated their reversal patterns. Patterns do fail, so be aware of that.

My thinking is not “bullish”, but rather neutral for the time being, just as the market is neutral. The market rebounded from the 50-day MA, but remains in a larger multi-day consolidation. The 5-month charts are drawn with a bullish bias, and I can clearly see the multi-day flag forming. I will have to see another 50-day MA failure to re-initiate committed short positions. It was definitely fun and very interesting while it lasted.

The M2M FASB meeting is scheduled for 8:00AM EST with approx. 5 hours of discussion. In addition, jobless claims will be reported at the usual 8:30AM EST. The consensus is 655K with a range of 630K to 672K, the previous reading being 652K. The employment situation report will be released tomorrow at 8:30AM EST. The consensus is -650K with a range of -711K to -525K, the previous reading being -651K. Shortly after, the ISM non-mfg report comes out at 10:00AM EST. The consensus is 42 with a range of 40 to 44, the previous reading being 41.6. Lots of news ahead folks, strap on those seat belts.

With the present allocation, I can take about a 40% loss on the current FAZ position before my March gains are entirely wiped out. As much as I would hate to see that happen, I am willing to hold if the market runs and tops out in the short-term. If you are short, daytrade long to recover as much of your losses as you can.

The riots continue into the night…

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Still Short / Sector Reversal Signals / Market’s Shooting Star

Today was the perfect example of a day where you had to stand firm if you were short. There was no reason to cover despite the market killing most of your gains. You must know that, statistically, only 1% of breakaway gaps fill within the first 5 days. We marched to the high of the first opening gap’s bar and quickly failed, unable to fill, unless you were the Nasdaq (COMP). Right now, it’s a fight for the 50-day MA for the SPX, DJIA, and RUT. The COMP formed a shooting star, a ‘warning from above’.

Yesterday’s action confirmed the breakaway gap in several sectors, most notably in energy, cons. staples, and industrials. Further, the cons. disc. and materials sectors formed a 2nd consecutive doji, signaling major indecision. Health care formed a black filled candle at it’s uppermost resistance and we can see shooting stars in tech and utilities. All are potential reversal patterns. The financial sector is actually the strongest sector, but I’m not concerned at this time.

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Financials Breakaway / Possible Inside Day & Continuation

The day’s actions were acceptable, but I would have liked to seen more neutral flagging. Neutral flagging is a continuation pattern for the down side. Pronounced sell-offs create reactionary rallies. The funny thing was that the day was actually half and half. It looks like we could have an inside day or a continuation of the sell-off. I am short like you wouldn’t believe, 25% of it from EOD Friday, and I refuse to cover because there is no reason to do so presently.

The financials, especially the insurers, are in a heap of pain and the breakaway is more pronounced in that sector more than any other sector (surprise!). The insurers, such as HIG, MET, LNC, PRU, and AFL most likely started a new leg down. BAC, WFC, JPM, C, PNC, COF, and STI have all broken down, forming major breakaway gaps.

Looking at the rally from the start, the uptrend of many sectors are still intact. The financials are once again dragging the market down. To get the biggest bang for your buck, it’s best to short the financials and not any other sector. However, don’t trade them if you can’t the volatility. The other sectors must follow the financials quickly for any meaningful decline to take place.

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Shitting the Bed

Looks like we will open right above the 50-day MA. Immediate support is at 791 SPX (50-day MA & Mar 25th pivot). If that breaks sometime, we’re looking at 775 as secondary support. 791 becomes resistance.

Peace be with the automakers. Godspeed for my FAZ position.

As of 4AM, anticipated opening candle (10-day/30min):

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Inside Congestion / Upper Channel+100-day MA Resistance / Sector Breakdown

Yesterday, we approached the congestion area. All three major indices are now inside the critical congestion area, a sort of ‘make it or break it’ type of intermediate-term level.

Long-term channels are marked by the purple lines. The COMP has penetrated and is comfortably above the upper long-term channel, however the Nov low-Jan/Feb consolidation level provides resistance. The COMP’s volume remains level, stable, and without drop off. The DJIA closed slightly into congestion. March’s volume cannot be rivaled by any other month in the DJIA’s entire history. The SPX entering congestion can be seen in the 2-month close-up below. Targets are marked with a red box.

The 100-day MA has become a critical level because the SPX & DJIA have not met it since June 2008 (August 2008 for the COMP). Many indicators indicate increasing overbought situations, but I won’t initiate committed short positions until one of those advanced distributional sell-off days (ADS) occur. Shorts who shorted early, even the strong hands, are feeling intensified pressure at this point, and I can assume that many of them are folding their cards as each day goes by, unless they shorted months ago.

*All figures are for the DJIA, except 2000 (COMP) and 2007 (SPX)

In addition, during these times, I like to breakdown each sector and analyze them individually. All are either in continued uptrends (XLK, XLI, XLP, XLY, XLB) or in bullish consolidation patterns (XLF, XLE, XLU, XLV). Since all sectors are not moving in tandem, it is contributing to the large number of indecision days and large intraday swings. The ascending triangles have a higher chance of breaking out to the upside, while the sectors in continued uptrends are threatened with a pullback as they enter/or are approaching congestion zones.

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