Gump Trader

Kimberly Clark (KMB) Wolfe wave

2011-09-27T15:29:00.000-04:00

Kimberly Clark (KMB) is a swing trade I've been holding since the August lows but now it seems to be getting ahead of itself. Here is the exit strategy and even a short set-up if the market swoons. Wolfe waves are elegant when they work and this one is a classic set up.

My cost basis is 65.29 and I set my sell-stop on the long position at 70.50 (white trend line). The short set-up is good only for the next few trading sessions on this test of top. If KMB drops below the red trend line then I'll enter a short with a target at the green line or Oct 23rd, whichever comes first. There's a chance that KMB takes off to the upside in which case I'll ride it. If it pulls back it may just trade in a range between the white and red lines in which case I won't have a position. This strategy takes patience but feels great when it works...ie, a fun vanity trade.

Is sentiment too high for gold?

2011-09-10T14:41:00.004-04:00

Marc Faber has been bullish on gold for a long time and I've followed him into GLD as well, but now he's calling for gold to hit $10,000. Sentiment is as high as ever now. The inflation adjusted high form the 1970's is $2200.

One aside on this video, as pessimistic as Faber has been on the world economy (and history as proven him correct), he says that he is "not a heavy short-seller" and states his wealth is divided in equal quarters of 1) stocks, 2) gold/silver, 3) real estate and 4) cash. Not bad advice, although I think it's time to take some gold and US Treasuries off the table.. the risk-off trade is getting overdone.

SPY technically oversold

2011-06-03T15:39:00.007-04:00

...and due for a (little) bounce. No question, there are structural problems in the macroeconomy and some major technical damage to the indices, but bears would do well to claim a small victory, take some profits and either go to the sidelines or reverse gears for a day or two.

It's time to get your list ready of stocks you want to own: GS, MSFT, PFE, KMB are some safe names. The last two have dividends larger than the 10-year Treasury. Even MCD and PEP have yields that are safe, although their stock price may pull back. For more aggressive investors, HCN, FTR, NLY are high yielders.

Remember that company earnings are still healthy regardless of what employment and other economic indicators may say.

Don't listen to me, these are not recommendations to buy or sell anything.

The Fed's "Fatal Flaw"; Nothing has changed

2011-06-02T07:18:00.001-04:00

In fact, it's worse since the banks that were too big to fail are now bigger than ever.

What the Cool Kids are Watching:

2011-05-16T15:41:00.004-04:00

We are at support on the daily. See if the dip buyers come in here. MA's are still positive, but it could get ugly. Momo traders are all "talking about" going to the sidelines with lots of momo names getting taken out one by one. Today it's retail's turn. Transports are also at support, finnies have been dead for a while... altho Doug kass bought Goldman Sachs a couple days ago, so it might be a bottom, or Kass is wrong (again.).

Looking at the SPY (just to be more like Brian and to piss off Eric.)

GNW: Bearish Wolf Wave

2011-01-04T13:42:00.002-05:00

Hedge time again for my net long portfolio. Let's try this GNW short set up. Remember to set stops for loss and gain. Don't forget to take gains in corrections.

SPX overbought; AAII bullish

2010-12-15T11:34:00.001-05:00

This is not favorable for bulls, short term. Gentlemen, start your hedges!

GLD, DBC shorts covered at target

2010-11-16T17:15:00.005-05:00

Gold and commodities (discussed previously) have corrected and shorts were covered today. I had also gotten short silver with the ETF ZSL. Now I'm flat on precious metals. At the close today, with the market oversold on short term indicators, I opened small long positions on CAT and PBR.

Size. I trade f*cking SIZE. Bitch

2010-11-10T13:55:00.001-05:00

Hilarious.

(hat tip barry)

Gold and Commodities overbought

2010-11-09T13:29:00.001-05:00

Update on SPX Bearish Wolfe Wave

2010-10-27T14:14:00.004-04:00

Yesterday I presented the targets and stops for the bearish Wolfe wave that developed. Target is the 1168.20 level and stops are the red trendline. The numbers on the chart are Wolfe numbers. Not drawn would be Elliot wave numbers, and by my calculation we are currently in Elliot Wave 4 since this morning and Wave 5 should start before the close today.

Disclosure: I am long FAZ, UUP, DZZ, QID; short WFC, AMZN. These holdings may change before the close today, but UUP is a longer term holding.

$SPX 30-min Bearish Wolfe wave

2010-10-26T12:48:00.004-04:00

On short term basis the SPX is bearish. Stop is the red trendline.

Update of GLD Bearish Wolfe wave

2010-10-22T03:52:00.003-04:00

A couple weeks ago I showed that GLD was giving us a test of top. As of today, the weekly is showing a bearish Trader Vic2B reversal which is consistent with a developing Wolfe Wave.

I sold all my longs since January and even starting a tiny position in DZZ (ultra-short GLD). Shorting individual miners could be another strategy-- many are exhibiting bearish patterns as well.

QQQQ: Bearish Wolfe Wave

2010-10-22T03:43:00.003-04:00

QQQQ on 65-min chart is showing a developing Bearish Wolfe Wave and also a double top formation. If trendline breaks, enter short (or long QID) with target 48.80. Stop 51.75

Dow Dogs Update: 19.5% Gain

2010-10-21T07:32:00.013-04:00

I've been holding the four Dow Dogs since February and yesterday sold the three holdings with the greatest stock price appreciation. I realize this subverts the buy-hold strategy, but I'm gonna take my double digit gain and go to cash til January.

Dupont (DD) and Verizon (VZ) have been beasts, sporting over 4% dividends and outperforming the SPY in style. As I mentioned in February, my experience is that one holding will make up most of the gains, and this year DD has been the driver, with a 46% gain. Kraft (KFT) was sold as well with gains similar to the SPY at plus 10%. Only MRK has underperformed the index, breaking even for the time period, but it's 3 dividend payments have assuaged the pain.

As of today, the four holdings have returned 19.5% including dividends, versus the SPY which has returned 8.8%. Remember these were bought at the February market dip, so the returns are a bit better than YTD.

Since I'm always looking for an easier, cheaper way to get returns, I compared the Vanguard Dividend Appreciation ETF (VIG), and this was up 11%, and although the management fee is higher than SPY, the returns are similar or slightly better. The Dow Dogs strategy is really not going after index gains, however, it's trying to find the racehorse with a low risk portfolio. This year's Secretariat has been Dupont (DD).

With a nice gain for the year and elections coming up, I think it's a wonderful time to sit on some cash.

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As an aside, if the Dow Dogs were chosen today, the picks would be ATT (T), Merck (MRK), Pfizer (PFE) and Kraft (KFT). Remember we throw out the highest dividend producer with the thought that there may be something fundamentally wrong with that company. In Verizon's (VZ) case, however, the higher yield is due to a recent dividend raise and not a stock price drop, but don't try to overthink it-- the strategy is designed to be simple and safe.

Gold: Bearish Wolfe wave...

2010-10-07T00:30:00.004-04:00

developing on weekly? Do not short this too early, but here are the targets if it breaks down. This works like a test of top. 127 would be a point to consider lightening any long positions.

Disclosure: I'm long GLD.

Dogs of the Dow Update

2010-08-18T12:39:00.005-04:00

In February I funded my IRA and split the total among the 4 Dow Dogs. After six months, they are up cumulatively 7.8% plus 2.1% dividend over that period for a total return of 9.9%. This beats the S&P index handily. The best performing holding has been Dupont (DD) and the worst has been Merck (MRK). Verizon (VZ) and Kraft (KFT) have been near the index performance.

IWM Bearish Wolfe Wave developing?

2010-05-12T13:30:00.002-04:00

SPY Weekly- Doji did not confirm for bears

2010-04-25T21:53:00.004-04:00

Last week we were seeing some uncertainty with a weekly doji, and were looking to see whether it would confirm with a weekly down bar. It did not.

They don't ring a bell at the top, folks...

2010-04-16T15:50:00.002-04:00

...we need confirmation next week.

SPY short: Worth the trade? UPDATE below

2010-04-15T15:20:00.007-04:00

For intellectual pursuit, let's look at the Elliot Wave and Wolfe Wave hybrid set-up for an intraday short on SPY. We had a nice upward motive followed by the a-e "corrective" phase on Elliot wave. Bulls would say this is a bull flag, but this does show a moment of indecision in the trading, it could go either way.

If someone wanted to enter short, the down sloping white lines would be the targets, based on Wolfe Waves. But is this tradable? Odds are that this will end in misery for shorts, but heck, maybe the 37th time is the charm.

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UPDATE 4-15 at 3:53 pm

Here's the result. Yes, shorts scalped a bit, but was it worth the trade? What's the target?

More bearish Wolfe Waves: XLF

2010-04-13T11:16:00.005-04:00

See previous post for explanation.

Sell the Earnings News?

2010-04-13T02:45:00.009-04:00

Bearish Wolfe Waves have not triggered very often for this latest uptrend since Feb 5th, but the set-up has reappeared yet again. On April 7th to 8th, the Bearish Wolfe triggered and got to the second target area for a small profit.

Now, on the 65-minute chart, we had an evening star doji Monday at 3pm and a bearish confirmation into the final hour. This is similar to any test of top with a blow off that comes back into the trend channel: the same idea as a Trader Vic2b. With this relentless low-volume rally, only the first or second target has been met on these small pullbacks. My "feeling", however, is that this bearish Wolfe can give us a deeper pullback this time... and Eric has sentiment pegged. Newsweek even gave us a beautiful cover!

Let's review: Fundamentals are fair value or slightly overpriced; Technicals call for a pullback (we are even at Wave 5 from teh Feb motive impulse); Sentiment is wild, bordering on ejaculatory.

I'll go short and take one-quarter profits at each of the specified four targets. The stop will start at 120.05 and be ratcheted down accordingly to protect profits. Stalking a top like this takes discipline and patience or you'll die the thousand cuts.... be faithful to the stops! My longs are still running, btw, with Teresa Lo's Dollar Core Portfolio fully funded and my IRA has the four Dogs of the the Dow.

SPY: Bearish Wolfe Wave

2010-04-07T12:55:00.001-04:00

This is my most bearish scenario.

Update: Dogs of the Dow

2010-04-02T02:36:00.007-04:00

Eight weeks ago I allocated my IRA into the four Dogs of Dow and so far, so good. February 5th was the swing low and my holdings have cumulatively appreciated 8.6%, although under-performing the SPY which has gained 10.6%. The best Dog gainer has been Dupont (DD) which is up 16%, and the worst of the four is Merck (MRK) with a 3% gain. Verizon (VZ) and Kraft (KFT) have intermediate gains. Only Verizon (VZ) has not gone ex-dividend since the purchase, and the cumulative yield of the Dogs is 4.5% annually.

I am pleased with the good performance of the Dogs so far; while they have not done as well as the SPY index, they should be a safe haven for my stock allocation for the remainder of the year.

Stating the obvious: Shorts are nervous

2010-04-01T12:09:00.002-04:00

SPY: bear pattern in trouble

2010-03-30T10:25:00.003-04:00

Last Friday the 65-min had a textbook head and shoulders pattern with negatiave divergence. A short was entered with Thursday's high as the stop, which was the "head". A less aggressive stop would be the top of the "left shoulder".

We reached the less aggressive stop this morning, but Thursday high also looks in jeopardy. The target of 1155 is miles away. This week will be interesting since a big NFP number comes out Friday and the stock markets are closed that day.

SPY: head and shoulders. Really.

2010-03-26T12:31:00.006-04:00

Many bears have been imagining head and shoulders patterns for months, and they have been punished because they were actually seeing higher lows on the "right shoulder".. On the 65-minute I see a true head and shoulders. Bulkowski says this has a #1 rank out of 21 patterns in predicting success. Maybe this is why everyone is looking for the elusive head and shoulders pattern!

Today we have one. And it's the first one I've seen in a long time.

SPY is a puzzle (or a mystery)

2010-03-25T23:06:00.003-04:00

Which indicates it may not be trade-able here. Last week, we correctly indicated a Wave 3 and now is into a flattish Wave 4. This could churn going into Wave 5. The other scenario is Trader Vic 2b if it breaks below 115 with volume. The danger is that shorts could get trapped below 115, so be careful.

Sectors may be more prudent here than attempting to trade broad indices.

UUP: Completing Wave 5

2010-03-25T22:52:00.003-04:00

Last week, I noted that UUP was completing Wave 4 and ready to make an upward move. Now we may be getting ready for an Elliot Wave a-b-c corrective, but overall this is a strong basing pattern on an intermediate time frame.

US dollar-- UUP-- ready for upswing

2010-03-16T13:39:00.003-04:00

Using Elliot waves, the UUP is completing Wave 4. The US remains the "leper with the most fingers" as far as international currencies. Anyone who believes that the Eurozone can dissociate itself from Greece is dreaming. Of course, we have California to worry about.

Bonds and Asset Allocation

2010-03-15T00:28:00.003-04:00

I admit I never looked at a stock table, the WSJ or even knew what a mutual fund was until I finished my ob/gyn residency in 1994. Once out in the real world, the surgeon’s lounge had no text books or journals and only the WSJ to read between cases. I began reading books by John Bogle, Charles Schwab, Charlie Munger… I got addicted. The fact that the “tech boom” coincided with my peak accumulation years only fueled the fire. I socked away a ton in mutual funds and did well.

It's all about 'volatility-adjusted' returns. In the 90’s I rarely beat the market but it was okay because I had double digit returns year after year. I lagged the market returns but did so with very little volatility. When the crash happened in 2000 I survived because I had bought into Bogle’s principle of diversification with bonds which decreased my volatility. Since 2000 I’ve handily beat the market every year until 2009. This is ALL because of the bond allocation.

Nobody leaves the casino happy: the losers wish they never came and the winners wish they had put more on their bets. The important thing is to not worry about performance and comparisons… but enjoy the process. If I lose money but did everything correctly, oh well. When I stop enjoying the process– *the game*– then I’ll take my ball and go home… I can always dump my assets into a balanced fund (or follow Teresa Lo’s allocations) and go golfing.

Elliot Ending Wave 3; Vic2 B test of top

2010-03-11T22:23:00.005-05:00

Interesting charts. This market is is showing several signs that a significant pullback is imminent... which, of course, means that it won't happen. In the last post I showed bearish Wolfe Waves in two time frames. Today, we had a successful Trader Vic 2B test of top with a bearish hammer, if it confirms with a down bar Friday.

Also, we are nearing the end of Wave 3 upward motive. Apparently the Elliot Oscillator can be used to differentiate between Wave 3 and Wave 5-- always a problem for me. It will reach its extreme at the end of Wave 3 and Wave 5 is less extreme on the oscillator.

Finally, the market is extremely overbought here and due for a pullback (although never a guarantee.)

SPY Wolfe Wave-- Bearish view

2010-03-11T10:05:00.004-05:00

On the daily chart, I can see a Wolfe Wave pointing to a bearish target. I'm not sure of the statistical success of this scenario, and entry is tough (see lower chart).

On the 65-min, I see another bearish Wolfe wave (lime green). The entry is below the lime green trend line and it looks like it's beign defended today. No weakness in this market (so far). Be nimble.

FWIW, IWM and other indices look similar.

Update: SPY Wolf Wave

2010-03-05T08:37:00.008-05:00

The Nonfarm Payrolls this morning came in okay at -36K and futures, which were up already, are acting favorably. Traders like this number! This is a classic melt-up on this swing high and correlates very well with the Wolfe Wave. Looking at 130-min, I think it's time to start stalking a down bar for a short entry-- go short 1/2 position below previous bar low and add another 1/2 short position below the swing low (about 112).

I'd still hold tight buy-stops on short positions at the high of the previous 130-min bar or daily bar, but a correction will be fast and furious, so set your entry sell-stops now.

Spy Wolfe Wave says higher...

2010-03-01T09:14:00.003-05:00

...short term, then we fail a test of the top. We are at significant resistance here on the 61.8% retracement level.

Update: IYR Wolfe wave bearish

2010-02-26T16:03:00.002-05:00

Earlier today I presented a trade set up. So far, so good:

IYR Bearish Wolfe Wave

2010-02-26T14:14:00.002-05:00

SPX Elliot wave targets

2010-02-08T18:19:00.003-05:00

Eric wanted me to explain my crazy thought process on Elliot waves.

There were two potential Elliot Wave scenarios until recently; now the only valid one is the white lines and numbers below. I'll keep the green lines and numbers in only for argument sake and I'll explain why this isn't operable anymore after the chart.

The white lines show Wave 1 from Jan high to Jan 29 low of 1071.59 (that was a key level to remember, hence the red line.) We swung up for Wave 2 and then rolled over into Wave 3.

Wave 4 could be no higher than the 1071.59 level from Jan 29 or that would have violated the Elliot Wave mechanics. I know this sounds weird, but it works nearly every time: Wave 4 cannot swing higher than the lowest point of Wave 1. This is why I was stalking this level so closely today looking for a short entry... and it happened at around noon when it began to roll over.

For a while I was thinking that the green numbers were operable, but this was violated on Feb 2 when Wave 4 creeped above the low of Wave 1, so that told me that Wave 1 extended down to were (3) is and we were actually still in Wave 2.

The Wave 5 target for the white Elliot waves is between 1011 and 1030. Wave 3 cannot be the shortest wave, so Wave 5 cannot go below 1011; a more likely target is 68% of Wave 3, which would put us at 1030... game theory.

Even if this were an ABC (green lines), the most conservative target is a test of the low at 1045... game theory was a target of 1050 for today. We didn't make it, but I had to close out my day trade (TWM long) since I'm away from the computer tomorrow. I set my target for the day on TWM at 27.95 with an entry at 27.42. The 27.95 corresponded to the 2-d vwap on IWM, whcih Brian Shannon had tweeted this afternoon. I thought this would be a good exit since buyers might come in on the 2-d vwap.

I'm still net short with swing positions is RSX (short), FXP (long), TAO (short) among others. Small long positions in XLV, XBI, SYK are my hedges.

Dogs of the Dow

2010-02-05T16:04:00.009-05:00

Today I funded my IRA and employed the the Dogs of the Dow. This is something that I had done with regularity in the 1990's with success, but got away from it the last few years for various reasons. The thesis goes like this: The Dow stocks represent a varied cross-section of the stock market and the "Dogs" are those members who are most undervalued using yield for valuation.

Instructions: Take the top five yielding stocks, drop the top yielder since it may have some fundamental problem, then invest one-fourth allocation into each of the next 4 in rank. The ranks will change almost daily and the picks should be held for one year. One variation is to use only those stocks selling below $30 per share, called the "small dogs", with the thought that stocks with higher share price are not as desirable. Since the current four doggish stocks are all near $30, I didn't use this screen.

Therefore, I put one-fourth allocation into each of Verizon (VZ), Dupont (DD), Kraft (KFT) and Merck (MRK), with an average yield of just under 5% which is better than long term Treasurys. In my experience one or two will largely outperform the others, and since it's completely unpredictable a buy-and-hold discipline must be respected.

One unintended bonus: I went long on these four names at 2:00 pm which inadvertently pegged the day's bottom; it's always good when a long term holding gets a 1% gain in the first two hours you hold it. There, now I jinxed the strategy.

Greece's "hidden debt". Oops.

2010-02-04T17:13:00.004-05:00

Hilarious. You heard it here first, folks.

From January 6, I said:

The ECB has stated emphatically that they are not willing to forward any more bailout money to Greece and in response the Greek Finance Minister has said that he doesn't need any more help, thank you. “Hopefully what they will be seeing will be reassuring them that indeed we are moving in the right direction and they should continue funding our large debt,” he said. Hopefully? Think about this. What was he supposed to say in response to to the ECB's hard line, Well, then we're bankrupt? Not. The market seems to think this is a bullish statement, up over 4% today... I would be wary.

From today's UK Telegraph:

...a commission of experts in Athens told the country's parliament that it had uncovered €40bn (£35bn) of "hidden debts" during an investigation...

Huh. Who woulda thunk it?

Is Toyota a buy?

2010-02-01T11:47:00.004-05:00

Down 12% last week and now rebounded 3.2% on news of a "fix" for the accelerator. Pro: Toyota has a lot of brand loyalty and this is their first significant recall. Con: Toyota is purchased for safety and reliability, not image, and this is a big blow to that brand. Also, macro environment for autos is suspect and it trades at a 24 forward PE, well above competitors.

Daily shows nice bounce... or is it a bear flag?

On the 10-minute, we see a bottoming pattern and gap that could be filled.

Buy above $80, but by macro market view is still bearish.

ES_F: Trader Vic or A-B-C ??

2010-01-19T08:35:00.002-05:00

Update on the developing pattern. 1127.75 is key level for bounce or breakdown.

TLT and the Mamis bottom

2010-01-14T13:38:00.005-05:00

Long bonds had an excellent auction today showing that the smart guys are pricing in a bit more deflation as the speculators are still chasing new stock highs. Bottoms form like this.

Jobs worse than expected, December retail sales worse than expected, gas prices tick higher, inventories tick higher, China a seething pit of corruption. Do the math.

Reminder: this is the classic Mamis bottom:

Trader Vic 2B vs. A-B-C ??

2010-01-14T04:24:00.003-05:00

Either way, we should pull back to the trend line. A break below the horizontal would be bearish. A break above the recent swing high is bullish.

SPY Ascending Wedge

2010-01-13T11:32:00.003-05:00

Above 114.22 would damage bear thesis.

Be Careful Bears

2010-01-13T11:19:00.003-05:00

I went over some bearish Wolfe waves yesterday on SPX and EEM. Today we are seeing a respect for the longer term trend. My take is still short term bearish, but the indices must break prove themselves by breaking below the trend.

Bearish Wolfe Waves: SPY and EEM

2010-01-13T00:12:00.003-05:00

Chorus of Positive News: January 1930

2010-01-11T02:33:00.006-05:00

In January 1930, exactly 80 years ago, the news of the recovery was all over the press. TIME magazine reported:

Editor Marcus A. Rose of The Business Week: "Business will be good in 1930 for the lean, hard firms..."

Editor Richard H. Edmonds of the Manufacturers' Record: "I anticipate a gradual but marked improvement throughout the country."

Editor Ralph C. Busby of India Rubber & Tire Review: "Distributors everywhere in looking to 1930 have legitimate reason to be conservatively optimistic."

Editor Lester W. W. Morrow of Electrical World: "Electrical manufacturers are in splendid shape..."

President Louis Fairchild of Fairchild Publications: "A late Easter is expected to aid sales of men's, women's and children's apparel accessories."

Editor A. C. Saunders of Furniture Manufacturer: ". . . the business, valley will not be deep and will be crossed during the first quarter of 1930."

Editor Peter A. Stone of American Contractor: "During the year 1930 the volume of building construction work materializing will be greater than in 1929. . . ."

Editor J. S. Warren of Hotel Management: "During 1930 hotels should prosper as a result of the intensified sales efforts that most manufacturers and others will make, in that more salesmen will be on the road."

Editor Carl W. Stocks of Bus Transportation: "The year looms bright for the industry."

So how did we do with all these glowing predictions?

Yellow shade is the calendar year 1930 which started out at 267 and ended down 38% at 160.... and proceeded to bottom in 1933 at 50 points.

Dr. Pangloss never dies, and deflationary cycles tend to rhyme. My guess: we are at about April of 1930 today.

Is this a new bull market?

2010-01-09T10:15:00.004-05:00

The last one started in 1982. Dave Rosenberg runs down the parallels, or lack thereof:

SPY Bearish Wolfe Wave

2010-01-06T13:06:00.003-05:00

Another attempt to call a top... this one before Friday's NFP. be careful with this one. The last couple bearish Wolfe's never got triggered.

Another attempt to call a top... this one before Friday's NFP. be careful with this one.

Why I'm (still) cautious

2010-01-06T11:18:00.008-05:00

1. PAYROLLS. ADP payroll numbers came in (slightly) worse than expected and the market is up. Granted, this is not very well correlated to the important BLS NFP due out Friday, but it has to be some indication. The market is up over 1% since last month's NFP and we are factoring in a positive jobs number for this Friday. If this disappoints, what will happen? If it's slightly better than expected, is that already factored in? My guess is that either way we have a better-than-even chance that we sell the news.

2. SENTIMENT. The AAII bull/bear ratio is at multi-year highs going back to Feb 2007... the market high was Oct 2007. As Eric points out, this may pre-date any market correction by weeks or even months, as it did in 2007, but this certainly is not an indicator to put lots of new money into the market. One young trader being interviewed by Mandy Drury on CNBC stated yesterday, "Well as long as the market keeps going up, then we're still buyers." Okay. I realize that traders rarely look at fundamentals, but this naked sentiment belies the mindset of this historic market move.

My favorite recent indicator is the latest comment by Dan Gross, Newsweek's financial guru, who actually said in his latest post called Snap Out of It: "Maybe it's time for a little blind faith." Yup. After a 67% move, mind you, he's implying we don't have enough "faith." Any contrarian worth his salt would view this as an intermediate top.

3. CALIFORNIA. The sixth largest economy in the world may need to take drastic measures to avoid bankruptcy. Nuff said. Think about what this will do to jobs and consumer spending in the intermediate term.

4. GREECE. Okay, this is bit esoteric since Greece is tiny compared to California, but it's a reminder that sovereign defaults are still in play and gives a picture about how data is viewed thru a bullish lens. The ECB has stated emphatically that they are not willing to forward any more bailout money to Greece and in response the Greek Finance Minister has said that he doesn't need any more help, thank you. “Hopefully what they will be seeing will be reassuring them that indeed we are moving in the right direction and they should continue funding our large debt,” he said. Hopefully? Think about this. What was he supposed to say in response to to the ECB's hard line, Well, then we're bankrupt? Not. The market seems to think this is a bullish statement, up over 4% today... I would be wary.

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Okay, I've been wrong plenty times before and my market allocation has been mostly cash and bonds according to T.Lo's Dollar Core Portfolio since November. I've been around long enough to have grown comfortable going against the crowd: the goal is to survive, like the cockroach.

FWIW, if the jobs number is positive on Friday, I'll gradually increase my stock allocation and scale back in slowly according to T.Lo's Strategic Portfolio.

Eric will view this bearish sentiment as a contrarian bullish indicator, but it's a tiny drop in a sea of bullish sentiment.

Cashin and the "Double Dip"

2010-01-04T20:14:00.002-05:00

Sentiment Update

2009-12-31T10:27:00.005-05:00

The latest AAII numbers show bearish sentiment multi-year lows.

And uber-Bear Marc Faber is sanguine on US equities but, of course, still likes gold.

Yesterday we asked if sentiment even matters anymore. Answer: it never matters... until it does.

Does sentiment matter?

2009-12-30T15:13:00.003-05:00

Technical Take explores the bullish sentiment present for the past 5 months and the stunning bullish move.

Fading the contrarian indicators when all the bears have disappeared seems to be the play... or is this the top?

SPX: Bearish Wolfe Wave

2009-12-30T12:12:00.001-05:00

TWM: high risk Wolfe Wave

2009-12-22T11:47:00.002-05:00

Be careful with this set-up; use a half-position and use discipline with buy and sell stops.

Update: ESH10_F: Bearish Bingo!

2009-12-21T15:18:00.001-05:00

Cha-ching. That's a target and I'm out for a quickie.

ESH10_F: Bearish Wolfe Wave

2009-12-21T14:55:00.004-05:00

Target = 1107.75; Buy-stop = 1111.25

Sentiment Alert

2009-12-21T07:43:00.005-05:00

Eric has done an excellent run-down of the various sentiment charts and his Davis Sentiment Indicator (TM) is pegged at 9.7 this morning (>5.0 indicates that bulls outnumber bears; >9.0 = Yikes!)

Also, the Rydex leveraged funds are telling us that the bears have gone into hibernation.

Good sentiment stuff on this snowy Monday to start off a likely low volume holiday week.

Ritholtz on the Market

2009-12-19T13:51:00.004-05:00

Points he made:

1. We are still in a secular bear market.

2. The easy money has been made in the counter trend rally, but bias is still to the upside.

3. Inverse correlation of stocks to the dollar seems to be ending.

4. "We're giving the rally the benefit of the doubt. Innocent until proven guilty."

5. "The easy trade is to bet rally is over, and rarely is the easy trade correct."

6. Not a new bull market because valuations are still not as cheap as 1982.

7. Sentiment is middle of the road, and is not useful at the current juncture.

8. We could churn for 18 months, ala 1975 to 1978.

9. One graphic he had shows that bear market rallies average about 70%, and then show a 25% pullback before a 5 year churn. So, should we expect a 25% pullback soon?

IWM: Bearish Wolfe Wave

2009-12-15T12:06:00.003-05:00

The small caps have been doing quite well this week in anticipation of a Santa Claus rally and the January Effect. Now we see a bearish Wolfe Wave for a pullback.

EuroUSD: Completed Bearish Wolfe Wave

2009-12-11T21:37:00.003-05:00

EuroUSD has completed a bearish Wolfe Wave upon reaching the target today. The odd thing is that the indices, SPY, and especially XME had been moving pretty much in lock-step with the EuroUSD-- until this week

So despite a move up in the US dollar, stock including industrials and materials have also been moving up. I can't figure it out, but the has EuroUSD has achieved a goal, of sorts.

SPY: Wolfe and Elliot Waves

2009-12-09T12:59:00.006-05:00

SPY targets based on both Elliot waves and Wolfe wave are approximately 108.80 in this cycle. Then we should bet a bounce consistent with the A wave of a counter-trend Elliot wave.

First the Elliot waves starting at last Fridays' gap up open:

Then the Wolfe Wave on the same time frame. Both give a target of about 108.80 before the bounce. Or, the bounce at 108.80-ish could be the start of Elliot wave 4. But the near-term target remains the same.

SPY: Wolfe Wave Update

2009-12-04T13:31:00.005-05:00

The bearish move that was set up this morning worked out well. I changed to a 65-minute chart for better viewing.

From Point 5 we dropped rapidly (more than I thought it would) to the red target line as sellers rode it down hard.

Another interesting item is the volume. Sure we had good volume on the morning high and the sell-off to the target, but what I did not appreciate at first was the high volume with the bounce from the target red line back up to the 20-bar EMA. That bounce was almost trade-able.

SPY: Bearish Wolfe Wave?

2009-12-04T11:08:00.010-05:00

Eric commented this morning that it would be funny if we sold off on the "good jobs number". Well, that certainly didn't happen this morning with yet another yearly high on the SPY. It should be noted that other indices have not been making new highs this week as new money is running toward the safer big names... perhaps a sign we are near the top.

Eric also noted that macro man has stated the obvious: everyone has the 50% retrace level (SPX 1121) on their radar.

Also, Bespoke observed that we have had a few days where we gapped up or had a quick rise at the open, only to sell it in the afternoon. The adage is that dumb retail money buys in the morning and the smarter "adult" money sells it in the afternoon... another bearish indicator.

The next meme may be to protect the dollar with higher rates and the bond market has been (very subtly) signaling this. Gold and reflation names are being hit today.

Let's look at the obscure Wolfe Wave pattern for a clue. Yesterday I looked at the XME and the Wolfe was not very clean. Today's SPY Wolfe shows the peek above the trend from Point 1 to Point 3... so this may be Point 5 this morning?? The short-sell target is 109.60 and the time-frame is 12/9 (next Wednesday's close). A run above today's high would not invalidate the pattern, it just gives a higher Point 5 and the target would need to be re-calculated.

I do not do swing trades on SPY and prefer to use other indices or stocks, but it is worth looking at the SPY for the general view. I got some TWM (short smalls) and short GDX this morning... so I'm sure Eric will be fading me.

For more info on Wolfe Waves, Todd has done some good analysis on this indicator and I'm just starting to look at them. (He has no association with my lame attempt at Wolfe Waves!)

XME: Bearish Wolfe Wave

2009-12-03T15:17:00.004-05:00

XME is a proxy for the inverse US dollar and a case can be made that the recent high is the top, based on the Wolfe Wave formation. Target is 46-ish.

What does AAPL tell us about the market?

2009-12-02T08:11:00.006-05:00

AAPL monthly chart shows that new highs have recently been made and November was an "inside" month. This could be the beginning of a consolidation phase that lasts for a bit before a breakout to the upside. Or it could rollover. MACD is still bullish although slightly overextended.

Weekly chart shows AAPL having just completed a 3-push upmove, although not classically an Elliot Wave pattern (Wave 3 is too short), followed by a recent swing down which could be a consolidation pattern. Bears would need to be careful here.

Finally, the daily pattern shows the consolidation which could be the long bull flag formation. BUT, the MACD is clearly negative. Brian Shannon says repeatedly that MACD divergences are more useful at predicting a bottom than a top, so the significance of this may be limited. Conclusions below.

Conclusion: The 208 and 185 levels seem important. Any breakout above 208 would be significant and could tell us the entire market is healthy. A break down below 185 would tell us that even the market leaders, the big boys who are the last generals to be killed, have been shot.

XME at resistance for third time

2009-12-01T12:00:00.002-05:00

EURUSD at resistance...

2009-12-01T11:16:00.003-05:00

...back to the top of channel. Gold hit a recent high today intraday before dropping back again. If this is a range trade, then the EURUSD should come back a bit... but the odds are pretty good we get a continuation of the "orderly" take down of the dollar. Gold may be the "tell".

Pain!

2009-11-26T19:36:00.003-05:00

The "Other 1-2-3"

2009-11-24T09:18:00.002-05:00

...also called the "exhaustion pattern", is differentiated from the classic trader Vic 2B pattern, but is an attempt at calling a top nonetheless.

Looks upward, but a bearish case could be made with some type of 1-2-3 "exhaustion" pattern, or what T.Lo calls the "other 1-2-3" since this does not follow the classic Trader Vic 2B pattern.

If this were the case, the short-sale would be entered here or at the LOD from yesterday (= 110.60) with yesterday's high (= 111.784) as the buy-stop. Of course, the risk is that we keep trying to call a top and keep getting stopped out and die the death of a thousand cuts.

It seems the "other 1-2-3" is really as much a sentiment call as a technical set-up.

EURUSD Rangebound

2009-11-23T14:34:00.002-05:00

...with some bearish features. Above 1.50500, we could go much higher.

SPY: Where's the resistance?

2009-11-23T14:12:00.004-05:00

Alright, Eric has pointed out that we have multiple levels of support, but where is the resistance?

1. Near term high (today) of 111.69
2. After that, we have 112 (the 50% retrace from Oct 07 highs to March lows).
3. Then we have the red bar high from Oct08, 2008: 119.34
4. Finally, the 61.8% Fib retrace: 122.41

SDS day trade [Updated]

2009-11-23T12:01:00.003-05:00

Anatomy of a day trade. Big gap up today so looking for a short entry. Eric's pointer (from T.Lo) is to look for an inside bar on the 5-minute. Entered buy on SDS at 10:10 bar price 35.60.

Sell-stop is the previous bar low which is also low of day. Target is just below the biggest gap down bar or the 2-bar EMA, whichever comes first.

Sold half at 35.76 (below the 9:55am bar high) at 10:36am
Sold 1/4 at 35.85 (20-bar EMA) at 11:30am
Holding 1/4 for now.

--------------------------
Update 1700hrs 11/23

Sold remaining 1/4 near the close for $35.97

SPY and IWM

2009-11-22T00:59:00.005-05:00

SPY 135-minute charts show the beginning of a downslope with the 5-bar ema below the 20-bar ema. On shorter time-frame a bear flag has been forming (Wave B), but the tendency is for the trend be established with this 5/20 bar cross on the 135-minute chart. Any intra-day spikes above the 20-bar ema would be shorting opportunities. Be careful with shorts if the 5-bar rises above the 20-bar ema. As Eric has said, Monday may see a spike as part of the end of a Wave B, but the Wave C should follow shortly. MACD is bearish with negative divergence which, while not as reliable, corroborates a weak chart.

Likewise, the IWM (135-minute) has the 5-bar below the 20-bar ema. This chart looks weaker, having already made a lower high. Transports have not confirmed the recent high in large caps. T.Lo has pointed out that in the last gasps of a bull-run, the safe large caps tend to get the last buyers, so this could be a sign of weakness in the market.

Other charts to consider would be the dollar and Vix, whcih are both forming bottoming patterns.

AMAG: Holy Grail short sale

2009-11-20T11:09:00.005-05:00

AMAG pharmaceuticals is in a down trend and recently made a lower high, so I am looking for a short set-up on a day trade.

On the 5-minute, we are looking for a strong tend as determined by an ADX > 25. The we wait for a retracement up to the 20-bar EMA for a short entry. Buy-stop is set at the resistance level as determined, in this case, by the top of the previous large red bar.

Target is above the low of day for a day-trade, but this one could go much lower on a mutlti-day time frame. (Disclosure: I'm short this stock from 41.01 and have cover 1/3 already.)

SDS scalp this morning

2009-11-20T10:45:00.004-05:00

I'm pretty sure I did this wrong, but I got lucky for a small scalp. Using the 5-min chart at the open, we opened weak (strong on the SDS), so I waited for it to come back to support-- in this case the 20-bar EMA.

Once it hit that trigger, I waited for the buy entry at the previous swing high (36.92) to buy. The target for sell is resistance, in this case yesterday's HOD 37.10.

Sell-stop was previous bar's low and target sell was 37.08 to take profits. It worked for a 16 cent scalp.

XLF at critical level

2009-11-17T10:52:00.002-05:00

Yellin: "Not massively overvalued."

2009-11-17T09:22:00.002-05:00

Ah, the last time a Fed governor commented on the equity markets was 1996 when Uncle Alan Greenspan warned of "irrational exuberance." But we continued for another 4 years before the crash, and Al continued the easy money to get us there.

"Not massively overvalued" and Rosie is "Not massively obnoxious."

EURUSD acting bearish

2009-11-13T09:20:00.003-05:00

which means strong dollar, which means...

stocks go down.

easy concept; watched by *everyone*.

No other chart necessary.

All about the dollar

2009-11-11T11:09:00.002-05:00

With the UUP burping last week, the technical analysis is messed up. Now we are looking at EurUSD. This shows it coming back to trend support and it may fall thru, but there is massive support in the 1.495 level. And weakness in the EurUSD should be short-lived.

SPY: Bullish vs Bearish?

2009-11-06T19:05:00.004-05:00

We've had 5 up days after falling below the 50-d MA and the general upward trend from March has been respected. The case can be made for a bearish scenario as well as a further bullish move.

Bullish indicators: SPY is still above the 50-d MA. The trend is upward with a higher low made last week. The previous uptrends were 7-9 days and we are currently on day 5 of this one.

Bearish case: The uptrend is decelerating as evidenced by negative divergence on MACD histogram. SPY is now below the 20-d MA. Today we continued the uptrend with a higher high and IF this is a right shoulder of a bearish H/S, then we need to have a red bar or two.

SPY: Bullish Wolfe Wave?

2009-11-03T10:24:00.001-05:00

This is what keeps bears up at night: the appearance of a suspicious Wolfe Wave bullish pattern. I still remain net short, but this warrants close observation.

SPY: Falling through support

2009-11-02T01:04:00.009-05:00

Let's look at the longer view on the weekly. Last week was a big red pepperoni and this looks like a subtle warning ala Mamis. Strength in the US dollar was required for such a move lower in the stock market, so we continue to watch the DXY to stay above $76.00 and preferably $76.30.

The chart is necessarily busy and shows Elliot wave 5 resolving the motive with last week's high. Also, both Fibonacci price retracements and time extensions are depicted. Eighteen weeks passed from the March low to the July low. The July low resolved upward after the fake out a-b-c reversal. November 13 will be exactly 18 weeks from the July lows, so following the Fib time extension, this should be a significant date.

In July, the pullback was less than 38% and this pullback should be in that neighborhood if we follow Fibonacci rules. That would give us a target of about $95 on November 13th, which sounds like an aggressive pullback. We'll see.

The dotted red trend line is from the March lows as is the solid red trend line.

It's all about the dollar

2009-10-27T07:22:00.006-04:00

OK, I'll chime with other traders who are harping about the latest market moves being inversely correlated to the US dollar. The longer term move from March lows, however, did not start out nearly as correlated to the dollar decline.

As the first chart shows, the SPY (red line) has risen 55% while the US dollar has declined 15% (the blue line is the UDN, the inverse dollar ETF)... correlation in direction, but not in the degree of movement.

The next chart shows the market for the last nine weeks, with the dollar and SPY showing near perfect inverse correlation in direction and magnitude. If the dollar shows regression to the mean over the next few weeks, or a short squeeze in the shorter term time frame, this should bring the SPY back to end of August levels of 104 or below.

Ambrose Evan Pritchard has an excellent commentary on dollar sentiment and economics, the news of its certain demise may be a bit premature.

BAC: breaking down

2009-10-20T16:40:00.004-04:00

BAC is falling below weekly lows and a significant support trend here. With technicals in broader indices looking weak, this is a decent short set-up with a buy-stop at $17.25 and a target at $16-ish. This stock can be considered a bellwether for other consumer-oriented banks.

SPY: short with stops set

2009-10-20T16:26:00.006-04:00

Alright, I'm officially short this beast that won't die. Granted this is a high risk set-up, but I'm in. Buy-stop is $109.70 which voids the head and shoulders top. Some financials are ripe for a fall, too. (See the next blog post.)

Now the meme will be when the Fed is going to raise the rates. Whether the spigot is actually turned off is immaterial, it's the fear of tightening that can fracture this pattern here. At some point the dollar will need to be defended and it is showing a somewhat reliable bottoming pattern with some decent sentiment indicators as well.

Sure, AAPL and TXN blow the doors off their quarters and we have a little "profit-taking." This can definitely continue to climb from here, but I think the risk/reward here warrants going short with a buy-stop.

One caveat: while I think the market is a bit vulnerable here, I still don't see a wholesale sale of the market here. There are enough support levels and sideline money for some buyers to come in along a subtle downward trajectory.

UUP: entry here?

2009-10-20T16:09:00.003-04:00

Everyone is looking at the dollar and when this bottoms most of the other asset classes should be toppped. We have a pattern that could be a head and shoulders bottom...IF it breaks above $22.53.

Teresa Lo has pointed out the Cramer segment today where he is exchanging his dollars for Iraqi dinars. Now all we need is a Newsweek cover to ring the bell any louder.

LQD: Canary in the coal mine?

2009-10-01T10:14:00.006-04:00

LQD went ex-dividend for 49 cents today, but it is still down $1.28 and has broken below the long term trend from March. Unlike SPY and stock indices, LQD has shown a much more smooth trajectory and is an easier read as far as a trend.

This may represent a premonitory indicator of a "renewed belief in the negatives" as investors eschew corporate debt. I guess I'm not calling for a "crash" since support levels are plentiful in LQD as well as other indices, but rather a more sober view of the capital markets and time to take some off the table.

SPY: Elliot wave and Time frames

2009-09-27T01:31:00.004-04:00

SPY is at a critical level based on my Elliot wave analysis. A close below the Aug high of 104.35 (intra-day) or 103.80 (closing price) would invalidate the Wave 4 I've been considering.

Using time frame analysis, a Wave 5, should it occur, may run into resistance in mid-October. Since Wave 3 cannot be the shortest motive wave, a Wave 5 can be no higher than 110.50.

Remember, a close below 104.35 should cast doubt on my analysis, and a close below the highest close in August-- 103.80 --would render my EWT analysis invalid and the "Wave 4" broken.

TLT: preparing for deflation

2009-09-24T14:44:00.003-04:00

TLT has followed pretty classic Mamis bottom formation.

"It's toilet shaped"

2009-09-23T06:45:00.003-04:00

David Roche: "We need real investment, not the kind that punters play with..."

SPY Elliot waves and shorter term

2009-09-23T01:49:00.005-04:00

SPY Elliot waves are not very clear. Wave 3 cannot be the shortest of the motives. Off the July a-b-c correction, we had a long Wave 1 and I cannot be exact on where it ended. I believe we are in Wave 3 now or perhaps the early part of a flat wave 4. Either way, we should still have a Wave 5 to come, and I'm looking at the 112 level since this is the 50% retracement from the Oct 07 high.

On a shorter time frame, we can see that we may be in the flat Wave 4 since 9-17. Now we are forming an ascending triangle that could break out to Wave 5... the Terranova "superspike"? I'm looking at the 112 level as I stated above as the end of the Wave 5. wave 5 cannot be too high since our wave 3 is already somewhat short. Alternatively, we could be in the middle of a larger Wave 3 that can go for quite a while...

SPY Purple Crayon Elliot waves

2009-08-20T23:06:00.006-04:00

I rummaged through by desk drawer and found the biggest purple crayon I could find to do some Elliot waves. Using Fibonacci time extensions I found that September 18th would be the 38.2% extension from the October 07 high to the March 09 low. this could be a proper time for a near-term top in the market. This corresponds roughly with the 8 week pivot highs we have been getting as well.

Not much to hang your hat on, but it does tell us that the run-up from March is not excessively long or large from a percentage standpoint in the grand scheme of things.

My Rant on "Sentiment"

2009-08-18T18:14:00.005-04:00

I'm not picking on Eric, but there seems to be this obsession with trying to determine "sentiment" based on news stories or bloggers' entries. How can anyone determine if the market is overbought or oversold based on a few cryptic remarks by random people?

Every individual trader or investor is an isolated bubble of sentiment, a conglomeration of fear and greed... except that one guy at Goldman Sachs who decides to buy a zillion dollars of RIMM and then the Nazzy takes off with AAPL and MSFT following. Also, if Newsweek, with a circulation of tens of million, has a cover stating the recession's over, or Barron's talks up a stock, sure this might have a material effect for a while... but blogs? and Stocktwits? Come on, dude. I'm absolutely at a loss to figure how some jamoke on Stocktwits, or Slope of Hope, or IBankcoin, who trades maybe 2000 shares a day can be any indication as to how "the market" will move. Are they indicative of some large population of market-movers? Doubtful.

I think this is why technical analysis was invented. There is no way to predict anything based on an individual's biases, especially an individual who 1) you do not know and 2) trades too few shares to matter, and 3) influences almost nobody, and 4) might change their mind in 30 seconds.

There is no way to really "know" where the market is going. To chase alpha, one has to play the odds: 1) buy high and sell higher, or 2) short sell low and buy back lower, or 3)perhaps hardest of all, find the elusive reversal. That's it. Those are the only three ways to make money in the market. Which scenario has the highest percentage? Certainly not throwing money at reversals... fighting the trend is a fool's game and the odds are stacked against it.

Sentiment cannot be determined any reliable way except to look at charts. Period. And even then, it's really playing percentages. If a stock breaks above it 20-d moving average, or above it's 50-d high, what are the odds it will tick up still more? 51%? 70%? That's the game traders play.

Reversals can be found, but for every successful call that makes $1000, there might be 5 false calls that each get stopped out for a loss of $198. Can you make money? Sure, but it takes eternal diligence and you have to take every reversal call on the chance it's the "big one."

Sentiment can be determined, but is it actionable? Was the NASDAQ euphoric in 1999? Absolutely. It was euphoric in February 1999 at 2300, and it was euphoric in July 1999 at 2800, and it was definitely euphoric in December of 1999 at 3600. If you had shorted that market looking for the elusive reversal in February, you would have been sweating bullets with a 100% loss by March of 2000 when the Nas hit 5200.

So where are we now? Sentiment cannot be determined with any confidence. Some people are really really bullish--- buy the dips! the recession is over!-- and others are really really bearish-- we're going bankrupt! the Fed and Treasury are incompetent!

The way to trade this sucker is to look for a trend and follow it. If there is no trend, then hedge or go to cash.

Other than that, just try to find safety in beta.

Renewed Belief in the Negatives

2009-08-17T19:11:00.009-04:00

It's time to uncrumple the Justin Mamis model that I jettisoned about three weeks ago. The Bloomberg headlines tell the sentiment story: Renewed belief in negatives. The goldilocks economy is showing some gray hair and bald spots. No positive stories. We have a jobless, consumer-less recovery, and the rest of the world is even worse.

The mamis chart depicting market bottoms and the corresponding sentiment puts us at Point DD.

Then we plug in the Points on the SPY and see that the sentiment of shitty news matches perfectly with the beginning of Point DD. Target is SPY 80-85. The 38.2% time retracement is from the market high Oct 07 to the bottom of Mar 09 and ends at 38.2%, or Sept 09. I'm not sure if this would be Point E time target.

Having said all that, we'll probably bounce tomorrow.

Dollar is the key...

2009-08-17T14:02:00.004-04:00

Robert Prechter, the Elliotician, says it goes higher as new wave of deflation hits.

Jane Foley at Forex says Euro weakness will lead to dollar strength.

Only time will tell. Continue to look at UUP 23.73. (Chart here.)

DRR is the double short Euro etf, and that may be another way to play it.

SPY Elliot waves

2009-08-17T12:56:00.003-04:00

Currently we are in a Wave 3 of a downward impulse. And now we are in wave (4) of that larger wave 3. I'll look at exact targets, but wave 3 should get us to Eric's target of 96... what he is calling the potential "bear trap". This fits the model because the wave 4 may get some bulls back on board.

UUP near resistance

2009-08-17T10:14:00.003-04:00

UUP strong today as the risk trades abates... but it is still below resistance and the a-b-c correction is still in play. Prechter and other technicians have called the bottom at 23, but let's watch this level of 23.73.