After The Storm.

After the devastation, the markets gave its best shot in a difficult situation. So far it is following the path written. If you remember, we expected the indices to move up and down this week and make a messy bottom. So far SPX has corrected only about 5% from its top but the downturn has persisted for over 40 days now. This in itself is something of a rarity. I see close similarity between now and last April.

And my call for a test of the high is consistent with that topping pattern.  Already some positive divergences are appearing.  Tradersu has forwarded the following link.

http://pialerts.files.wordpress.com/2012/10/techsmithworb9b2.png

However, it would be good to remember that this rebound is going to be short term in nature and unless we see 1480 taken out with conviction and SPX stays above that range for a while, I would consider that as a part of topping process.

For the near term, I would like to share a chart of Presidential Election cycle sent by Tom McClellan.

Again, this chart fits perfectly with my cycle and call. I think Apple is bottoming short term and will test the 50 DMA in the coming days. Gold and silver made some progress from the base. All in all, I am of the opinion that a base of some sort is being built for the next stage of the rally. But for that, we may have to wait till next week.

I hope all you readers are safe and secure. Our good wishes to those who have been badly affected by this storm. At least it gave us respite from the 24 hour politics.

Thanks for sharing my thoughts. Hope you are in cash and cushy and ready for the opportunities ahead of us. 

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Messing Up With The Brain.

That’s what the market is doing with bulls and bears. The bottom is in sight but it is going to be a messy short term bottom. I would not be surprised at all to see the markets up one day down the next for the whole of next week.

So far the important support level has held but it is still too early to do bottom fishing. As I had mentioned in my email, till cash SPX closes above 1420 in a convincing manner, there is no reason to go long for even one day. Even after that, if you want to go long, I would recommend that you weigh all the benefits against risks.  Most likely we will see a retest of the earlier high and may even have a higher high but just. I would think that the risk is more to the downside, both fundamentally and otherwise.  We have been here before.

(H/T: Lance Roberts)

I do not normally believe in analogs. Analogs are fun while it works but we cannot make investment decisions based on analogs. But there are other factors like money flow through the banking system, the coming fiscal cliff and even cycles indicate that there are dangers ahead.

One of the respected chart analysts, Peter L Brandt has this chart to show:

The caveat is that this theory is invalid if SPX closes above 1480.

By Mid-November, I expect SPX to push above 1470 but whether it will stay above is the million dollar question.

We will take it one day at a time but now is not the time to be cute or smart. The topping process is on and even if the mid-November top comes by end November, it does not change anything.

That’s all I have for this rainy weekend. For those of you living in the path of the storm, hope you are well prepared. If we have to err, better be on the side of caution, be it a storm or stock market. Stay safe friends.

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Apple Fell From Tree.

Story of the night is the earning miss by Apple. And the cherry on the top is the disappointing results by Amazon. SPX futures (/ES) again tested 1400 after hours and Nasdaq futures (/NQ) tested 2600. Both bounced back from the lows but we have to wait and see the action overnight.

Trading of Apple shares were halted in the after-market when it traded below $600. But the market was not expecting anything great from these two, if I have got the pulse correctly. Right at the point of writing this post Apple was trading at $ 607. There was no dumping as such.

I wrote in the past that once Apple closed below $640, it had more to fall. I think we will not see a trade-able bottom for Apple before the end of the year. This is consistent with my view of the general market. For now, despite the disappointing results, it is poised for a bounce soon. So are the futures.

Today the markets messed up with both the bulls and bears and end of the day both group were confused as hell. The short term cycles are all mixed up and it is going to be a messy bottom in a day or two.  

These days I look at 4 hour chart to get a little bigger picture. The 4 hour chart of /ES is showing 4/5 touches around 1400 level and bounce from there. Obviously this is an important support. As time passes and bears are unable to convincingly break this support, it becomes stronger. Having said that, market always surprises and inflicts maximum pain on maximum number of people. If folks did buy more puts of Apple, we can be sure that Apple will close higher. As per option pain calculator, November Max.pain for Apple is $ 635, which is higher than where it is now. Go figure.

I still think a short term bottom is around the corner. Let us see what the overnight actions and tomorrow bring. And I am still waiting to see whether Nat.Gas gives the sell signal. Today it broke below $3.40 but closed above that line. If there is no sell signal in a day or two, then it will be time to pile on to Nat.Gas.

Sentiments have turned south for gold and silver. Today one newsletter writer bailed out of gold and that may be a good contrarian indicator. My take is that we will see a re-test of the last high by mid-November and if the re-test fails, then we bail out and re-enter by end of the year.

That’s all for tonight. I made some changes in the Ad program. Now we only have Amazon link at the top and no other Ads except the in-line text ads. Hope you will remember the blog if and when you use Amazon.

Thanks for sharing my thoughts. Patience is required for few more days.

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"Are We There Yet" Redux.

There were some questions from readers about the stock market performance vis-à-vis Presidential elections cycle. The theory goes that price movement in stock market predicts the winner. Logically the incumbent wants to spread the feeling of well being before the voting and “O” has done his best to goose up the stock market with endless liquidity flow. And barring the 50-60 point sell, we are actually closer to the top end of the range. And yet every drop in market is cheered and end of the world is eagerly anticipated. We never believed in this rally (including me) and many have stayed away from the melt up from June. But someone made money and I bet that someone belongs to the Boyz club. With this month long chopping and grinding down, sentiments are bearish. But if the COT EuroDollar chart as shown yesterday is any indication, we should follow the money flow of the TBTF banks.

Today Stock Trader’s Almanac had this chart:

It compares two past Presidential election when the challenger defeated the incumbent. I do not care much about who wins but what I wanted to point out from the chart is that in both cases the market has gone up from this point.

Is it any wonder that cycles are calling for a rally soon?

Today /ES (SPX Futures) tested the 1400 line twice during the day and so far it held. The 1^st rebound from here, if it comes tomorrow will fail. And at that point we have to see whether it makes a higher low and whether there is a positive divergence in RSI. I think we will again test this level in a day or two. By that time we will be in the last week of October.

Gold tested 1700 level and held so far. Same with Nat.Gas. It did not go below $ 3.40. If it does not break through $3.40 in a day or two, I will anyway take a long position with  Nat.Gas. The COT positions are bullish.

Although I plan to take a long trade by end of October, I am hesitant to long equities. I think it may be a good idea to Short VIX. Again this would be a trade for 15 days or so and not an investment. I think we will get a decent correction after mid-November, not an itsy-bitsy 50-60 points correction which is about to reverse any-time now.

So we wait for another day and in the mean time day traders pile up on short trade only to be squeezed. Thanks for sharing my thoughts. Remember, cash is also a position.

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Demise Of Financial Bloggers?

Josh Brown ran an article today as to why financial bloggers have gone down in numbers. I found it quite funny and could not resist quoting it here:

“There seem to be fewer regularly-updated, high quality financial blogs these days. Many have simply disappeared or have gone inactive. And very few new ones of note have come along to replace them.

But why?”

 Then he goes on to give some theories:

Many bloggers have simply been so completely dead wrong about the post-crisis period we've been in (Hyperinflation! Depression! Social Unrest! Hoard Water and Dry Goods!) that they simply have no audience left. Keep in mind that many of the 2008-2010 generation of bloggers were misanthropes who had been rooting for a collapse all along. They came out of the woodwork and began blogging motivated by a mixture of I-Told-You-So schadenfreude and the desire to predict the next crisis, which was obviously an imminent thing. Only it didn't happen (I know, I know, any day now). And having blown all of their personal credibility on failed Cassandra-ism, having recognized what a horrendous disservice they've done to those who've heeded them, they've simply moved on. Many went to Twitter instead where there is a less permanent record of their bullshit.

But the biggest rant blog is still going strong.

That brings me to my post. The collapse of USA is not yet imminent. And come to think of it, so far it is just a 50 point correction in SPX. But already folks are behaving as if the end is near. And when the real stuff comes up, there would not be many to take advantage of it.

We all know the fundamentals sucks and earnings are crappy. And retail has started buying puts like never before. It happens without fail. Retail will sell at the bottom and buy at the top. The equity put/call volume ratio across all 10 options exchanges ended at 1.05, with roughly 7.46 million calls and 7.86 million puts traded.

My 2 cent contrarian thinking:

VIX closed outside its BB today , 1^st time after April 2012.

And SPX closed 2 Standard Deviation below mean, outside BB.

If we see a green day tomorrow, it might be considered as a VIX buy set up.

I do not expect a rally from tomorrow; rather I expect a sideways movement from here till end of the month.

One of the things I follow with interest (apart from my cycles) is the COT Eurodollar indicator as shown by Tom McClellan. He has some complex formula whereby he moves the whole thing ahead by 12 months. I do not understand how it works, except it gives a clue to what the Banksters are thinking and where the money is going. Few days back,the following chart was shared in SHJ’s blog by one of his readers.

So the Boyz have planned all the ups and downs all along!

What I like most about this chart is that it matches with my cycle analysis. It also agrees with the Bradley dates. So we may have to wait a bit more for the Armageddon. Don’t buy the dry foods yet.

At least I have no emotional trauma to bear because I am on the sideline.  So I leave you with some thoughts and cautions. It’s raining here in Toronto. The fall leaves are almost gone. They say that winter will be difficult this year and I still have not been able to get in Nat.Gas. It refuses to give a sell signal. But I am patient.

Thanks for sharing my thoughts. Stay frosty folks. 

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Indices Dig Out Of Hole.

The selling momentum of last Friday continued for better part of today but the last hour was a good turnaround. DOW covered more than 100 points to close in green. In terms of chart pattern let us see the favourite of the Boyz, /ES or emini (SPX futures).

The following is a 4 hour chart of /ES

This is the 2^nd time /ES has bounced from 1420 level which is a good support and the last breakout happened from here. The next line of defence is 1400 level.  And the indices still held the low of 10/12/2012. The cash SPX actually bounced off the lower BB and is sitting just above the 50 DMA. Possibly the bears are allowed only up-to this much for now.

The fundamentals are not that great. With corporate profits down and fiscal cliff hanging in front, there are quite a bit of distributions going on for the last many trading days. Most likely smart money is getting out before the uncertainty hits home. But the last bit of shenanigan is still ahead of us and the Boyz will melt up the market for at least one more time. Therefore it is time for patience and not the time for taking positions. I plan to take a long position by end of October but not in any stock or indices. In my view, the least risky trade would be short bond and therefore TBT.

As you know I am long term bullish on Gold and Silver. But if Gold and Silver do not make new highs by mid-November, it may not be a bad idea to step out for a short while. However, if you are not checking your investment portfolio everyday and are comfortable to hold it for a long term, then there is no need to hop in and out.  In fact every weakness is an opportunity to scale in.

Nat.Gas did sell off today. From $3.65, it closed at $3.44. Yet it has not given the sell signal. It has to close below $3.40 for a meaningful correction. I am waiting for it to correct some more for a good entry.

Coming back to short term equities cycle, the 1^st reading had bottom around 24^th October. Subsequently, 24^th October inverted to top and cycle bottom moved to end of October. In situations like these, it is screaming confusion and the best course of action is no action at all. The crystal ball is fairly clear after 29^th/30^th October till mid- November and that is when I plan to take a long shot for a short while.

Hope you have been in cash and cushy. Cash is the king in times like these. Good opportunities are ahead of us and we have to keep our emotions in check. If you were long, hope you did not close your position because it will turn around very quickly. Problem is, none of these turn around are for real.

We may see some more selling in a day or two but it does not matter. Unless the bears break down 1400 with conviction in the coming few trading sessions, we are looking for a swing high around 1480-1500 range by mid-November.

That’s all for this Monday evening. Thanks for sharing my thoughts. Be safe out there please.  

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Tips For Investors.

I have couple of tips for Relaxed Investors:

1.       Remember that Investment if different from Trading:  The successful investment strategy differs markedly from trading.  It is especially important to establish good, long-term positions when prices are favorable. Most individual investors seriously underperform long-term results by selling low and buying high.  Most successful professionals, of course, do the opposite.

             Even successful years have significant drawdowns.  15% is not unusual.  The investor needs to   expect this.  If it feels stressful, then your asset allocation is wrong.

(H/T Jeff Miller)

2.       Realize that we are no expert on world events: However much ZH or some such blog or various talking heads on TV explain why the world is going to end soon, world is not going to end that easily. Investing based on bear talk can be harmful to the portfolio. World may or may not end tomorrow but investing based on personal belief is not a good strategy.

One of my favourite strategy is to have patience and remove the fear of missing out from the mind. I have not been active in the market for the last few months. During these times, market has gone up and down many times in the most unpredictable fashion. Nothing and nobody can say with any degree of certainty which direction the market will move next. Why take the burden of emotional pain in such a market? So I am looking for what would be a long term trend and trying to get in slowly for a long haul.

For next week, my 2 penny advice would be the same. Patience and do not chase either way. Monday we may see some more selling to start with but an eventual bounce. The market would chop around till end of October. Gold most likely would form a bottom around 24^th-25^th October. And thereafter a longer term up trend (relatively speaking) for equities till mid-November.  Let us see how things develop.

Thanks for all your support and kind words. Have a great Sunday folks.

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