Momentumcycles - Stock Market Trading Blog

PST
May 21,2009
Probably going to tag 875 S and P 500 in near future. Sorry for the long
hiatus - a fire in your dwelling puts the kibosh on any other concerns.

May 1, 2009
We are sorry there will be no updates here for awhile. He had a fire in his apartment building.

April 28,2009
6 10 AM

It wouldn't be surprising to see a test of the bottom of the channel at S and P 500 835, with possible throwover to 818.

April 22,2009
6 00 AM

Inflection point. Look at the S and P 500 and notice the channel. Big
buyers have bought the dips recently, and sold at the top of the channel.We
are near the bottom of the channel. Today looks to start down, then the test
will come.Will they buy the dip or will the channel fail?

Oscillators say overbought and it will fail.Recent history says they will
try to force it higher and eat the bears who watch the oscillators and are
shorting. Therefore, don't short and get eaten if they force it up again.But
overbought means a buy entrance is risky here.Therefore, this is a good time
for short term traders to do nothing.

April 21, 2009
6 00 AM Prediction of a correction immediately in price and time on yesterday's open was followed with a 4% decline the same day.ALL traders made money on he way up in the recent rally, and sold before the drop. Don't short.

April 20, 2009
4 50 AM
Although we suggested standing aside on Thursday last, having captured a
good profit on the long side earlier, we did get the direction right, which
was UP, and avoided shorting, which in spite of overbought extremes, would
have been fatal.

It's best to come a bit late to the party and leave a bit early. We have
6 consecutive weeks up, and stochastics, a measure of overbought/oversold,
shows extreme overbought. It should correct now, here, and fairly soon in
price and time.

April 16, 2009
5 15 AM
Although we are standing aside after a good profit on the long side, odds favor upside today in spite of overbought. Don't short.

April 15, 2009
10 30 AM
Selling the S and P 500, or equivalents from the long positions bought at815 on Monday's open gave us 852, or about 37 S and P 500 points profit,before Monday's and Tuesday's predicted decline. Standing aside for now. Don't short.

April 11,2009

When we looked at the market Saturday, the obvious thought was-pretty good job, nice entry, pat on the back,etc...

That should make anyone worried.The trading gods hate self-congratulation.

Then we looked further into the history of post-holiday declines after strong pre-holiday rallies. Did you know that

there were 5 times the S&P gained more than +2.4% the day before a holiday. Over the next week, it showed positive returns only one time. The standard return was -2.2%.

Hmm...too greedy?

Let's admit to it, and take the money and run. We are way overbought short term. Let's sell all longs on the open Monday, and hope for throwover from remaining bulls late to the party. Hopefully we keep the 40 S and P 500 points we gained.

After the correction, we will try to enter again at lower prices, which we will try to time correctly again.
Don't short.

April 10,2009

So far its a very good buy entry. Close was 856.56 S and P 500, from the suggested 815 buy area. If we had hit 770 we would have "doubled up" the long position, following the big money. Protective sell stop stays at 814.50 for longer term players; if we correct hard we will be stopped out with a very small loss.Expect a big move next week.If you wish to move the protective stop up to hold your 40 point S and P 500 profit, and you have a shorter term profit goal, remember that pre-holiday moves often reverse the next week, so that might be wise. If you want to move the protective stop loss up for short term trading, consider the 830 area. Why so careful? Its a BEAR rally. Sentiment is too bullish. Pre-holiday moves often reverse. Its not yet a bull market. Weekend news sometimes makes for surprises Monday after a holiday.

April 9,2009

6 10 AM

Pre-holiday trading is random at best, due to few participants. Traders who went long at the predicted price of 815 S and P 500 got 2 chances, one at 814 and change, and the other nearby. Close was 825.16, 10 points to the good so far. Let's use the entry, 814.50, as a stop loss. This is still countertrend- a bear rally, and so, being overbought short term, and countertrend as well, we could lose our long position today or Monday easily due to being stopped out. but so far, its 10 points to the good.

April 8, 2009

Let's recap the action we have discussed here.Traders were advised to buy into the countertrend rally on the way up and not to SHORT it, as so many others were trying to do. We then said to scale out into the 8000 DJIA resistance area, by selling the S and P 500 or equivalents into strength, and multiple attempts at 8000 DJIA enabled that to be done easily and elegantly. We then said there would be a correction as the trade was too crowded and everyone was screaming "buy", and that happened. Now this is what we should expect...large money S and P 500 traders will ease into long positions lightly at 815-807,and double up if 760-770 is tagged. Next week will likely see FTSE and S and P 500 rise, and another attempt at closing above resistance. We should see a short term top about May 2.

April 3,2009

LIkely we will have a pullback soon to test the breakout, followed by higher highs, and tag the upper band, as we are close to the midband at this point. In addition, the new life in the CRB, the relative strength of NASDAQ versus S and P, and the falling of the dollar implies this stock rally can go further.

April 2, 2009

Change in accounting rules for banks may be enough to push us above resistance, especially if we get some weakness in the dollar. Next few weeks historically are strong. It appears that we will go above resistance and that the NASDAQ which has lead in price will win over the laggard indices which confused the outlook.

March 31,2009
6 25 AM 

Inflection point. We failed at 8000 DJIA, and we found support yesterday
at the fall lows of 7500. We were oversold long term, and overbought short
term.

We had suggested gradually scaling out of long positions bought during the
rally, bought admittedly not at the exact lows, yet unlike others, we didn't
suggest SHORTING the rally, as that was like pushing down on a balloon
underwater, an exercise against nature. So those who bought, all made money
and escaped the latest carnage once again. What to do now? We are still in
whipsaw world, as seasonality is bullish, yet the revisited numbers of 8000
and 7500 are indicating indecision on traders' parts. Big commercial players
are largely short at this point, indicating they are playing against small
speculators who believe the rally has legs, but the big players can be early
in taking positions as they must acquire size slowly to avoid tipping off
the public.Maybe its time to wait to see if 8000-8200 is exceeded, and stand
aside.At this point, ALL traders covered their hugely profitable S and P 500
shorts near the lows on the way down in the crash over several days,
comfortably and easily below 7188, and sold their longs bought on the way up
recently, into strength, near the recent rally top. No position recommended
now.

March 30,2009
Numerous non-confirmations indicate rising risk for long positions.We
suggested selling long S and P 500 positions by scaling out gradually into
strength during the last several days of this rally. Don't short. If we are
wrong, you will have sold "too soon", but another bus will come along soon
enough, so we will take that one, instead. Those who insist on buying at the
exact bottom of declines and shorting at the exact top can get caught with
one foot in the bus and one on the sidewalk-its exciting but not great for
your long-term health.The plunge protection team ( read the FED), and big
funds engineered this rally to make the end-of-quarter numbers look good,
for retail investors, to keep the genie in the bottle longer- (buy-and
holders who won't EVER sell).

March 27, 2009
6: 00 AM

End of quarter means the big funds want to avoid giving a heart attack to
their depressed clients,so they are buying their own holdings to make their
lists look better. After Tuesday they could well dump those same issues to
raise cash.

Likely now is somewhere soon to retest the breakout and 7500 -7200 DJIA, and then more probing of 7600 to 8000 DJIA. Don't chase the market here.

(Note that he isn't predicting an immediate wipeout, but an eventual low below the recent lows)

An instructive read from the greatest hedge fund guy out there, posted on Yahoo..."Out of those four historical examples, Dalio says that our current situation most closely resembles the Great Depression because of the global breadth of the problems. But he doesn't like to use the term "depression." He thinks it's too scary, evoking as it does images of hobos and Hoovervilles, and distracts people from focusing on the mechanics of what is going on. He prefers to use a term he coined: "D-process."

Most people, says Dalio, think that a depression is simply a really, really bad recession. But in reality, the two are distinct, naturally occurring events. A recession is a contraction in real GDP brought on by a central bank tightening monetary policy, usually to control inflation, and ends when the central bank eases. But a D-process occurs when an economy has an unsustainably high debt burden and monetary policy ceases to be effective, usually because interest rates are close to zero, and the central bank has no way to stimulate the economy. To compensate, the value of debt must be written down (risking deflation) or the central bank must print money (a trigger of inflation), or some combination of both.

In recent years the level of debt as a percentage of GDP in the U.S. has skyrocketed past previous highs last seen in the early 1930s. And the Federal Reserve's benchmark rate is now hovering just above zero. To Dalio, therefore, it's clear that a D-process is under way. "It seems very likely that stocks will get materially cheaper," he says. "We have to go through an important debt restructuring process, and a lot of assets are going to be for sale, huge numbers of assets. And there's going to be a shortage of buyers."

Even investors in most hedge funds won't be immune. According to research by Bridgewater, the hedge fund industry in aggregate is 75% correlated to the S&P 500, an issue on which Dalio has been sounding an alarm for a couple of years now. "Too many people have a systematic bias toward positive economic growth," he says. "I think that what we're going to probably have is an economy that's going to get worse, with most people positioned for it to be better." By the end of the D-process, he expects that the reverse may well be the case."

March 19, 2009

Put call is .61, which says there is no fear in short term traders' minds.Relative strength indicators are stretched and hugely maxed out. Although short term traders may SAY they are fearful-they don't want to miss this rally, and their call buying says they are SAYING fear but buying hope...Of course, we suggested for those who wanted to play this rally that they use smaller positions as it was countertrend. Its STILL countertrend. And we got the point projections we listed here, for sure. 800 S and P 500 is here, where we saw the breakdown before.Broken previous support attracts price on bear rallies, like a sponge attracts water in a desert flash flood.

If you were long the rally I'd take the money and run. But don't short here, even though its screaming OVERBOUGHT. That is conservative strategy and we weren't SHORT this rally, and we should scale out of bought long positions here NOW like we scaled out of shorts on the WAY DOWN.

The FED has decided to trash the US dollar, announce what they are actually doing, (what they have been doing)and continue to print money like its party time after the Superbowl. They will buy debt with this money- thus using money to buy money, which is fake money buying toilet paper, in hopes that the inevitable hangover can be postponed. So bonds rallied, dollar fell, gold rallied, and often bonds up soon means stocks down.

If we are wrong and the rally continues, you will have sold too soon. When asked how he became wealthy, one famous billionaire once said..."I always sold too soon."

March 18, 2009.

Same comments as yesterday.

March 17, 2009

Small pullback from overbought.

Bear rallies tend to be violent and sharp.

If we don't sell off a lot from here, and reach even more overbought, there will be fierce resistance at 800-810.

Bear rallies,after the initial plunge and 50% recovery, stop usually at the point of retracement near the 55 day average, at 800-810.

We got the predicted 740-760 S and P 500 target but it took 3 days, not 2. We are overbought short term on stochastics and put/call, which suggests a profit taking day today or Monday, and after that it gets interesting.Previous selling occurred at 791 S and P 500, and more importantly, 806. Above that, we can get a blast off bear rally to possibly 950. But its still a bear rally. Alternately it could turn and fall to low 700's. If you go long on the retrace here, be aware its countertrend, and use small positions and tighter stops.

March 11,2009
6 30 AM
The "plunge projection team" read my commentary of yesterday and sent out good news in a package. End the short sale on downticks rule scared some shorts, Citi's "profits" (which don't account for credit default swaps and credit card delinquencies) caused a financials rally, and some merger stuff added gas to the pop. We could tag the previous breakdown at 740-760 S and P 500, possibley a 2 day rally.Beyond that, let's be "from Missouri", which means a supposed bull leg up further will have to prove itself with more than 2 up days and a hold above the previous breakdown.

March 10, 2009

Inflection point.

We are at the bottom of a trading channel in a bear market.Historically whenever it holds and rallies, it will try to tag the top of the channel.That means the market MUST rally now, or the alternative is a torrential wipeout. A close below 6473 means the torrential decline is starting.

March 9,2009

Mondays in this market are up the least of all days of the week. Thursdays are up the most. This reverses the normal bull market pattern, with down Thursday having been the rule. Insiders are still selling heavily. That means big money sells the end of the day. Nothing other than short covering is occuring now.

March 6,2009

Stopped out of long USD versus EURO trade. Tag above 1.27 at 1.2713. Small loss on this one. Probably should have entered short the EURO at a higher level, after the right shoulder was crossed below, on the head and shoulders pattern. This is the first missed call in a long while. The market is never wrong- follow the market, not one's preconceptions of what SHOULD be.Small losses, let your profits run.

March 5,2009
7 20 AM

We may see more countertrend pop but risk is still very high for long side trading.