How to trade this headline-driven market

Posted in market analysis, trading plan on 2011-11-06 by Strategesis

From Safehaven.com:

The current price action in the marketplace pales in comparison to the world’s geopolitical tensions and deteriorating social mood. In my trading career, I have never seen the price action in the indices react so violently to intraday headlines and rumors. Risk is high and the types of traders profiting from this market are day traders and very short term traders with trades lasting just a couple hours to 24 hours in length. Aggressive trading which small position sizes is all that can be done right now. This is not meant to be investment advice, but more as a function of the market environment in which we find ourselves currently trading within.

Continued

Something is about to break

Posted in liquidity analysis on 2011-11-06 by Strategesis

From Safehaven.com:

When Dexia was nationalized I said the clock was now ticking. Counterparty risk was the new threat to the global economy. When confidence is gone the system simply shuts down. What does that mean though? How do you measure confidence or lack thereof?

Simply look at where cash is going. Recently released data shows a record jump in the foreign reverse repurchase agreement balance held at the Federal Reserve (first reported by Zero Hedge on November 3).

In just one week a whopping $43.2 billion in liquidity was removed from the system and deposited at the Fed. That is a 53% jump in the total balance from $81.3 billion to $124.5 billion. The last time such a move happened was the week of September 24, 2008 when $44 billion was removed. At the height of the 2008 financial crisis the total balance held at the Fed reached $107.8 billion.

Continued

Market Turning Points | Andre Gratian | 2011-01-06

Posted in education, technical analysis on 2011-11-06 by Strategesis

From Safehaven.com:

The market appears to have survived a steep correction and it looks as if the uptrend is still viable. This is perhaps best observed on the weekly charts. To resume its downtrend, the SPX would have had to close decisively below 1220 on a daily basis (but even that would not guarantee that we’d be on our way to making a new “bear market” low). Instead, it bounced back up and started a near-term uptrend which retraced .618% of the decline. It opened down on Friday, but could not follow through with the morning weakness, and closed on the high of the day. This is good technical action which suggests that there is more to come on the upside before the rally (which started at 1075) has reached its zenith.

Prices have been volatilely connected to the Eurozone situation. Now that the plans for a referendum have been cancelled, and the Greek prime minister has squeaked by on a vote of confidence and intends to resign, temporary stability has returned which may allow the SPX to reach its final rally target of 1310-1320.

In fact, the weekly charts suggest that the indices are just breaking out of their last intermediate downtrend, and they may have some distance to go before the new uptrend is complete. We’ll start by looking at a weekly chart.

Continued

Market Turning Points | Andre Gratian | 2011-10-30

Posted in education, technical analysis on 2011-10-30 by Strategesis

From Safehaven.com:

The title of this newsletter advises caution. There are several reasons for this. The SPX Point & Figure chart has several projections (taken from different levels) which target a top between 1310 and 1320. That, by itself, should be reason for caution. Especially when some indices which run counter to the market and have been in a corrective phase, such as TLT and the VIX appear to be very close to fulfilling their downside P&F potential.

Structural analysis also suggests that we are approaching a top. There is a strong probability that the rally from the early October low has progressed as an a-b-c structure. Although the “b” wave is hardly noticeable on a daily chart of the SPX, it is clearer on the hourly chart, especially on that of the Global Dow and other indices. If this is correct, the entire pattern from the low is evolving in the form of a zig-zag. On Friday, it looked as if we may have completed wave 3 of the second five-wave pattern. That only leaves two short waves (4 and 5) to finish the move before we have a serious retracement. Some EW analysts see this pattern as minor wave 2 of a bear market rally, with wave 3 starting as early as next week.

That seems to fit in with what some serious cycle analysts such as Erik Hadik are saying. And there is also a warning from Raymond Merriman, the well-known financial astrologer, that the Jupiterian influence which he believes was the reason behind the rally should soon begin to wane. It does not hurt to have some reputed analysts who specialize in other market methodologies support your point of view! Hence the warning: CAUTION, if you are a bull!

In today’s market climate, moves are very fast and do not stop until they have exhausted their potential projections. This is probably why the B wave retracement was so insignificant. We should therefore guard against “expecting” a sideways pattern, or a mild retracement, just because we’ve had all the strength, especially if the EW analysts are correct in anticipating the imminent end to minor wave 2. If we are about to start minor wave 3, you can’t look for a shallow, partial retracement of wave 2. The odds rather favor a potential retracement of the entire rally – as incredible as this may seem at this time.

Continued

October has killed another bear | Cliff Droke

Posted in technical analysis on 2011-10-24 by Strategesis

From Safehaven.com:

October has a tendency to be a “bear killer.” That is, in years when the stock market has been in decline heading into October, the month of October more often than not reverses the decline, at least temporarily. In the years that I’ve been writing a financial newsletter this was true in the following Octobers: 1998, 1999, 2001, 2002 and 2005.

Since the rationale behind the May-September mini-bear market was the economic situation in Europe, let’s start with some currency considerations. Since the ongoing rally has been primarily currency driven, it stands to reason that any continued weakness in the dollar and strength in the euro will benefit equities. The previous 20% decline in some major market indices from May to September was largely the psychological result of investor liquidation of stocks over fears relating to the deterioration in the Greek debt situation.

Continued

Market Turning Points | Andre Gratian | 2011-10-23

Posted in education, technical analysis on 2011-10-23 by Strategesis

From Safehaven.com:

The pause in the uptrend was much briefer than I had expected and it is possible that we’ve already completed the A-B portion of the anticipated A-B-C bear market rally.

By overcoming the previous early September high of 1330 (not just once but twice) with a higher close this week, we can assume that the intermediate trend of the SPX is still healthy. The index has also poked its head above its 200-DMA and closed about 5 points above on Friday. There is no sign that we have slowed our upside momentum. In fact we may be starting to accelerate upward once again, though it is just a little too soon to tell.

Another sign of market health is the much improved performance of the weekly breadth indicator.

It had a little difficulty getting off the ground, but is now coming on strong. However, a warning that we could soon get a near-term pull-back comes from my daily A/D indicator which is showing some negative divergence.

The QQQ, which had been relatively stronger than the SPX throughout the whole correction from the 1371 level has started to lag since Apple’s earnings have come out but, It probably does not mean anything just now.

The leading indicator is lagging on a weekly basis, but is keeping up with the SPX on a daily and hourly basis suggesting that a serious reversal is not yet in sight. This is also reflected in the weekly chart indicators, as we will see later on.

Another index worth noting is the Global Dow (GDOW). At the top, you can hardly tell the difference between the chart patterns made by that index and the SPX, but if you look closely, you will see that it had some relative deceleration starting with the May 2010 high. Its relative weakness becomes far more flagrant when you compare the October lows. While the SPX remained well above its July 2010 low, (and is consequently still in a longer-term higher/high, higher/low pattern), the GDOW broke below its July 2010 low, and is thus no longer in a long-term uptrend. This would tend to substantiate the fact that — the current market strength not withstanding — we have started a bear market decline.

Continued

Market Turning Points | Andre Gratian | 2011-10-16

Posted in education, technical analysis on 2011-10-16 by Strategesis

From Safehaven.com:

We’ve got ourselves a rocket-propelled uptrend! In nine daily trading sessions, the SPX has tacked on 149 points, or almost a 14% gain. You’d think that we had started a new bull market but, considering the major cycle lows that lie ahead, that’s highly unlikely, and we are probably only experiencing a very strong rally in a bear market. As anyone who has followed the stock market for a while knows, bear market rallies are supposed to be fast and furious by nature, and this one is taking place in an extremely volatile period, so perhaps we should not be so surprised at its velocity.

In spite of this, we can still make sense of where we are and what is likely to come next. The structure appears to consist of five waves from the 1075 low, with the index now completing its fifth wave. If this is correct, the entire move would be wave A of the upward correction, and we should be on the verge of starting wave B.

The Point & Figure charts seems to support this analysis. The base pattern — including a small extension — gave us a projection to 1171. This is where the rally paused after completing wave 1. Wave 2 formed a re-accumulation pattern which provided a count to 1221, with a possible extension to 1230-1233. Wave 3 stopped at 1220, giving way to a wave 4 correction. When that pattern was completed, we had another projection to 1223 with a possible extension to 1230-1233 (which matched the count across wave 2). Incidentally, there is also a potential base extension count to 1224 which is well defined and which could turn out to be important.

On Friday, the index closed on its high of the day at 1224, intimating that it may not be quite ready to pull back before attempting to meet a final target of 1230-1233. This could happen on Monday morning, and if it does, we should be ready for the beginning of the most serious retracement since the beginning of the move. If the market decides not to go beyond 1224, it will not invalidate the structure or the projection. However, if we go substantially beyond 1233, some adjustment to the analysis will have to be made.

Besides completing the structure and reaching the target, there are several other coincident technical aspects that argue for an important pause in the rally at this time.

– On its way down to 1075, the index made an extended consolidation of several weeks. The top of that consolidation was 1230.71, and any rally to that level should expect to meet with at least temporary resistance, especially since it corresponds with a short-term high in November 2010 and also matches the P&F projection!

– The move from the low of 1075 to 1231 represents a retracement of slightly over 50% of the entire decline from 1370.

– The 200-EDMA of the SPX is currently at 1234. After a move of that extent, it is not likely that the index can shoot through its 200-EDMA without some consolidation.

– As you can imagine, the daily indicators are severely overbought with the MSO at 100%, and the A/D oscillator is in an area from which it normally retraces.

– All the hourly indicators are showing negative divergence.

– The 17-week cycle is expected to make its low next week. The effect of this cycle on the stock market is not consistent, varying from a small ripple to a sizeable move. In this case, if the SPX does top on Monday, it could bring about a significant initial correction.

– Finally, on Friday, my leading indicator started to show some negative divergence to the SPX on an hourly basis. That is only the second time that it has happened from the beginning of the rally. The first was during the wave 2 consolidation.

Taken all together, these are good reasons to expect a pause in the rally.

Let’s look at charts!

Continued