The bulls managed another impressive recovery today, as the $SPX rose 1.37% to close at 1171. We have now convincingly closed above the 1150 area, which has been a key zone since January. We also closed pinned against the 50 day moving average, which sets up an interesting scenario going forward. On the one hand, we have seen a fast and furious V shaped recovery from last week’s high volume selling event. On the other hand, we now find ourselves back to where we were the day before the flash crash. Beyond that, we are directly below the choppy and ultimate toppy trading range where we spent the entire month of April. As you can see in the daily updated chart below, you really have to question how much more upside the bulls have left in the coming days.
Moreover, the volume today was far from inspiring. Thus, despite (or perhaps because of) the exuberant rally that we have seen this week, I initiated several bearish bets today. I went long three inverse ETF’s, $SKF (double short financials), $SDS (double short S&P) and $TZA (triple short small caps). I did not buy what I would consider to be full positions in any of them. I am simply putting my money where my analysis is for now. If my thesis proves correct, I will likely add more. If I am proven wrong, I will sell all three within a matter of days. I still hold a large cash position north of 55% of my portfolio.
One of the main reasons why I have chosen to bet against the financials is because of the unimpressive nature of their sector ETF chart, shown below.
Clearly, the time to initiate a short position here was not in the middle of last week. However, now that the gap has been filled back up to the trend line, I see an edge as a swing trader here to the short side.
The small caps are also showing a weak daily chart.
Perhaps I am completely wrong and we will blast through what should be strong resistance. Frankly, if that happens I will be a big boy and take my lumps. I think your job as a swing trader is to conduct rigorous analysis on a daily basis while looking for potential trades that have an edge, where you think you will profit over the long run by using that same analysis, regardless of short term results. Here, we have seen a heavy volume selloff followed by an immediate V shaped low volume bounce right back up to a heavy congestion zone that trapped many bulls before we broke down.
By all means, if you have been sitting in a lot of cash and do not want to go short here, allow me to be the sacrificial lamb. I believe that I have made the proper diagnosis and that I have an edge for this trade, and I am willing to accept the risk that accompanies it.
I have no doubt 100% that this is the right thing to do…
But as we know, on low volume, bull market robots are fuckin’ insane. All of Europe is insolvent and this market shrugs off a 1000 point drop like nothing.
Goldman wins again.
solid
… I knew I liked your style !!!
I’m also LONG a buttload (as it were) of TZA … ie. SHORT this “fuckery” !
We shall see !
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Charts match what the PPT is telling us so it should be down from here. I initiated small positions in SKF and SMN today offsetting some of my PM holdings. Still have a high cash position though.
Great post as always!
I’m late but congrats on your selection to IBC royalty!!
Thanks. Goldilocks is back!
Impressive analysis-I agree and plan to follow suit tomorrow.
I’ll sit tight waiting for less chop thank you. I think you have the direction correct though. Aren’t we witnessing AGAIN that the FXI leads the NYSE?
Probably so. If their growth helped us on the way up, you can’t disregard them when they go down.
Again, terrific job. I have added some small shorts as well. BTW, Fibline tweeted an interesting observation to add to your chart. Take alook at the TSX index back to 2006 and see where sit….fascinating
Yeah, that guy is awesome. His name is Juan Doe or something like that. He personifies cool in the way that Pennystocking Timmay does not.
hey chess ,
congrats on your selection to IBC royalty!!
i am watching your daily comments close ,
in the market wrap up from today i think to see the same setup at the iwm chart as it was on february 14-16. ,
in other words price went straight true the 50 ma on February 8 but pulled of the 200 ma and without any hesitation
on the 16. straight up true the 20 ma !
where is the difference to the picture we have today ??
thanks
That is a good point. Here is my take on that. First of all, I believe in the concept of time during correction, and space on the chart. I will explain that. We obviously have had a steep correction (for a bull market) in terms of price already with the flash crash et all. However, unlike in Feb., we have only spent a week thus far correcting, and all of this week has been a big move up. It took us a full month to chop, churn, and swing around that 1185-1215 $SPX range before we broke down. So, we have really only had a few days of a selling trend. I believe we need some more time before we take out that resistance level. As per the $IWM, look how much longer it took in Jan/Feb to correct and ready for the next move up–roughly three weeks. Beyond that, the volume is far more bearish this time around in terms of the selloff. The IWM, unlike in Feb., is also back to roughly the highs of the final 2008 bear mkt rallies–which means tougher overhead resistance than in Feb.. Just my take. Thanks for the kind words.
great timing and it went the way u predicted ,
i bought a spy put around 2 pm yesterday …
thanks
NICE
… “chessnwine” …your posted charts seem to indicate that you “kick-it-old-school” with the OHLC Bar Charts.
While I appreciate the simple look and the back-to-basics aesthetic of your posted charts … I have to ask … do you actually JUST look at OHLC Charts … or, do you “take a walk on the wild side” and … dare I say … incorporate those wacky newfangled Japanese Candlestick Charts ?
GAWD … I won’t even ask about Ichimoku Charts !!! lol
Just curious…
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LoL. Good eye. Yeah, trying out some Candlesticks, but still a long ways away from being that guy with the Kumo Clouds on there.
…”chessnSAKE” … meet Ichimoku Kinko Hyo !!! LOL
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I do love sushi though.
… if you “love sushi” … Candlesticks and …yes … even Ichimoku … should be an easy progression. 🙂
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Chess,
Sushi is bait. I will expose my ignorance here and ask you (or Alf) what benefit candles have over HLOC charts? I use both depending whose chart program I’m using. Having learned many candlestick patterns I see the same patterns when using HLOC. Using both, I automatically visualize the candle body when using HLOC. I wouldnt be able to do that with HLC chart which I find useless. Meanwhile, what a boring day..
Not boring anymore Stevo! And I agree with you about the charts. For whatever reason, I switch them up at random to get a different visual look.
“Stevo” … while it’s true that OHLC charts and Candlesticks each tell the same “story” (so to speak) …
…Candlesticks tell that story in a much more visual and (to me) compelling way.
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That’s certainly not to discredit OHLC charts … I cut my teeth on them many years ago and am comfortable with them. Hell, I still like looking at them occasionally … along with P&F, Renko, Ichimoku … whatever …
They ALL tell the “story” … in their own unique way. imo
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