Weekend Update…

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What a wonderful time it is to be a bear!  The market just keep on selling into Friday, closing around 1071, surprising even me.  I said in last weeks post that I believed we would pierce the 1080 level intraday to trick the bears into believing the level has broken, and pierce did we ever!  We went straight through it, and continued on down to a low of 1071.59, which probably had the bears jumping up and down thinking the next level is 1030-1040 area.

Not so fast Mr. Bear (I am one... by the way).  Every down move will have a bounce back up from time to time... and that's exactly what I'm looking for next week.  A rally back up to at least 1100, or maybe as high as 1120 is overdue, and should occur next week.

Looking back at the chart I posted on last weeks "Weekend Update", I see that it played out fairly well.  I was off on the 1080 level holding, but other then that... it's pretty accurate.  I believe the breaking of 1080 is a bear trap, as it requires 2 days below the level to confirm the break, which would allow the market to fall to the next level around 1030-1040 (I don't see that happening).

Last Weeks' Chart....

Tony-Caldaro-60-minute-SPY-chart-01-24-2010

So, looking ahead to Monday, I believe we might have a gap down in the morning, followed by a rally up to close the day positive.  If the gap down doesn't occur, then it might just rally up and sell off a little in the evening... but I still expect a positive (or flat) close on Monday.  I don't think it will close down big again, like Friday.  It should be a flat to up day, for the market to consolidate before a move higher to 1100-1120 by Friday the 5th, (or Monday the 8th at the latest), as the finally high before wave 3 down starts.

To be on the safe side, I will most likely be going short on Friday the 5th, not Monday, as I don't want to miss out if it crashes Monday instead of Tuesday.  Since the first larger wave 1 down from 1150 to 1071 is 79 points, wave 3 down should be well over a 100 points before it's finished.  Whatever you do... don't go long on anything!  No dip buying, only "sell the rips"!  You will get killed if you go long in this market once larger wave 3 starts!

This Weeks' Updated Chart...

Tony-Caldaro-60-minute-SPY-chart-01-31-2010

Once the larger wave 2 up is finished by next Friday (or Monday), you should get short and stay short until options expiration on Friday the 19th.  This larger wave 3 is probably going to last until then (or longer).  This second cut through of 1080, on the down move from whatever high we reach this Friday, should pierce it quickly and not look back.  The first decent bounce level is at 1030, and should cause a pause day to occur, before the selling continues.

Once it breaks... hold on to your hat Nellie, as this is going to be one hell'uva ride down!  The 1000 level should also be heavily protected by the bulls, but when it breaks... look out!  We're going to 910-920!  This is a rare opportunity to make a ton of cash as this thing falls.  I will be holding on for dear life, as it's going to be scary as hell!

Best of luck to all of you...

Red

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582 COMMENTS

  1. i definitely think it's a bear trap in the very short term, I've seen this dance once too many times. This move is just a throwback to check support at the crash gap from 08' which is @ SPY 107.15. I wish I could post some charts into the comments box because the reaction off of this type of throwback is very powerful.

    • Yes, you are absolutely right. There was a gap fill at that time and date. I forgot to include that on the post, but that's the reason behind the break of 108… they wanted to fill that gap.

          • Is it that one about the decay? I totally know they are lousy instruments but I don't want to dig into margin and I don't want to try to pick stocks. So be it.

          • They work fine as long as you don't plan on holding them longer than ~6
            weeks (after a couple weeks the 2x are like 1.9x and the 3x are more
            like 2.7x, but the leverage is still free).

          • Thanks Dnarby – totally true. When they go against you, they seem to make big moves and when they are in your favor, the 3x are more like 2x. Still. I'll take it.

  2. if this scenario plays out like all others in the past then we would likely close @ the high of week next week above 1150, then the following week close below SPY 107.15. This would fit with your scenario a couple weeks back with the major turning point coming around Feb. 9.

    • I would agree with that only if we hadn't sold off so far… so fast! At this point the odds of a new high, or even a double top, are very slim. The best case scenario is to reach 112.34 spy by Friday.

          • If you go long on this… you're going to get crushed! Mark my words on that! I'll be going short next week while you're going long. I hope you still have a job, because this next move down is going to wipe out everyone long!

            Best of luck to you… but I'm going short!

          • did you catch the tick they threw down to SPY 107.50 on monday morning, that wasn't a coincidence

            hopefully you caught a tick they threw on friday afternoon

          • No, I missed the tick on Friday… what was it? (Glad to see you plan to short, and not go long into the week starting on the 8th)

            On another note… Someone bought 10,000 of the July $200 calls on GS yesterday @ 1.60 per contract! I'm not sure if that means anything, because it could have been some rich guy that plans to sell them next week, or he maybe he's just a bad trader… who's soon to be a poor guy.

          • 114.40

            i didn't see the GS calls, but it doesn't surprise me one bit.
            “they” been throwing ticks @ 175.50 for the last week.

            here's another chart,
            http://www.flickr.com/photos/47091634@N04/43168

            $DJI weekly chart, as you see DJI doesn't have more than 4 weekly red bars, we're @ 3 now, what's odd is the 3 red weeks in a row is rare followed by a green week, the last time we had 3 red bars followed by a green one was 11/24/2008 and that week the $DJI was up 9.75% and closed at the high of week on friday and that sequence is the only time it has happened since the all time high on Dow during the 10/8/07 week

          • That would be a huge short squeeze on the bears! Almost a double top, and then a crash the following week… What a wild ride that would be!

            They definitely like to play game, while hurting the most amount of people at the same time. Many shorts are going to want to short any push higher. It's going to take a lot of capital to push it back up to 114.40.

            I'd like to see it though… the high it is, the further for it to fall!

            What do you think about the expected bad jobs number for the month of January due out next Friday? Everyone knows that it's going to be horrible… do you see a surprisingly good number (made up of course) coming? If so, that would cause a big squeeze up on Friday.

          • just as all moves in the market are “manufactured”, all data is also “manufactured” so the data will be whatever they want it to be

            the only thing that gives me pause about next week is the weekly sequence on the $DJI, 3 red weeks followed by a green week has only happened once since the bear market started, if we get another red week next week then it'll be 4 consecutive red weeks which will mark a terminal move and then it'll be a slow grind to new highs. That would be awful as I'm sick of this slow moving market.

            we'll know what the week will be by 930 on monday morning because “they” parked the market @ the crash gap on friday, a flat or gap up will be scenario number 1 or a big gap down will be scenario number 2

          • Well,

            Your chart really only goes back an covers this recent bull market. If you had more data available… say the last 10 years, I'd say that the 4 red weeks isn't as consistent as it has been recently.

            Plus, the moving averages on the weekly chart were all pointing up during that period. We've started to roll over now, and that changes everything.

            By the way, do you trade for a living full time or are you just a swing trader part time like most who visit this blog? I see you are new to using the disqus system. Do you visit other blogs too, as I visit quite a few and I haven't seen you before.

            I know a lot of people just read the blogs and never comment, which is fine of course. Before I started this blog and created my disqus account, I was reading other blogs for almost a year. Then I decided to get more involved and started asking questions. The next thing I know I'm creating my own blog too.

            I guess when you get heavily interested in something, you will finally get good enough to post your thoughts and opinions to inform others as well. That's basically what happened to me. I finally felt that I knew enough to help others who knew nothing… so I started the blog.

            That's my story and I'm sticking too it! 🙂

            Red

  3. Hey Leo!

    Came here from Stevo's (and now Cobra's) blog.

    Damn fine TA there. EW I can believe in! XD

    Seriously though, it does look like we're in a downward channel. I'm not sure we'll get that strong a bounce on Monday. I'm going to be starting a core short position and adding to it on strength.

    This move has surprised everyone with it's speed and strength, I don't see anything other than direct government intervention that will change that. I'm thinking we probably keep that up.

    • I'd wait until this coming Friday or next Monday before going short (unless you are day trading of course). Regardless of how high we are going to next week, the following week is when the big fall will happen.

      The 8th or 9th should start it, so I want to get short on Friday… no matter what level the market is at, I will go short. The government can manufacture any news they want to cause a rally to occur next week. All they have to do is come out an say that they aren't going to be so hard on Wall Street like they said a few weeks ago… which started this big sell off in the first place.

      The banks will rally and the bears will get squeezed. If I'm wrong, then the real key level to break is to have a second closing day below 107.20 spy. I'm looking for a move down to 106.75 Monday morning, which will close the gap from Friday November the 6th to gap open on Monday November the 9th of 2009.

      That means that there is a strong possibility of a gap down Monday to close the gap, and then a rally to close the day positive. Then the rest of the week should rally too, especially if so good news is released.

      Look for 107.20 or lower on Monday's close, before going short. If that happens, then the next support level is at 104.00. Personally, I don't believe it will happen. I think they are going to squeeze the bears next week.

      You know how they love to fake people out, and steal the money from both bulls and bears. Be careful going short next week… as I think that's a bad idea.

      I'm looking for 110.34 (hoping for 112) to be hit by next Friday.

      Red

      • I'm planning on being very careful, and only getting short on
        strength… Although I will be taking a partial position Monday.

        The potential problem I see with your scenario is where the money to
        drive the market up will come from. The free Fed money is gone, the
        remaining stimulus will be spent to 'create' jobs (instead of going
        directly into the market), the bears have been beat to crap over the
        last several months (not much money left there), and money market funds
        (per Technical Take) are at really low levels… So I'm just not seeing
        the money.

        Therefore I'll be building a core short position. I may have to weather
        a drawdown, but I just can't see much upside at all from here.

        Basically (although I know almost squat about EW) I'm not convinced wave
        5 down is done yet (maybe another 5% before a bounce, and 10-20% before
        a relief rally, but who knows!)! XD

        Good luck to all!

        • I think there is a lot of bears short right now, and all the government has too do, is to tell the banks that their not going to bother them as they previously stated.

          The institutions will start buying up the banks to get the squeeze going. Then the bears will be forced to cover causing a larger rally. It's been done since this bear market rally started last year in March, and still works today.

          It's all about what side of the trade the institutions are on. Do they continue selling and allow the bears to jump on board and profit on the way down, or do they steal the bears' money with a squeeze?

          You know the answer to that one… they steal the bears' money again. The big institutions control what direction this market goes, and if they decide to buy for a day or so… the market will go up.

          We'll see Monday I guess? Remember, a possible gap down and then rally is what I expect too happen.

          Good Luck to us both,

          Red

          • I think the hedge funds might buy the banks to start a squeeze, but the
            institutional player's positions are so large they can't jump in and out
            that easily. Plus, hedge funds trying a bear squeeze might run into the
            teeth of an institution selling into it. They are bailing out now (per
            stocktiming.com's paid service), and while they might let up for a day
            or two, they also might just sell the hell out of any bounce.

            Here are some other bear points from a commenter on Carl Futia's blog

            1. Weekly MACD has rolled over
            2. Slow Stochastic has rolled over (when this breaks 80 on the way down,
            the fall will intensify)
            3. The 1150 mark represented the third line from the 2007 S&P highs
            (1576 in October 2007 and 1440 in May 2008) and what a coincidence it
            has now just rolled over.
            4. The market has continued to rise on lower volume and fewer and fewer
            stocks making higher highs (see item#1). This is a classic sign of a
            tired market.
            5. Bernanke was recently made Time Man of the Year. Carl can attest this
            is a classic contrarian indicator he has reached his peak of his career.
            6. The Dumb Money index reached an almost 80% reading, meaning all of
            the Dumb Money was 'all in' long.
            7. In November 2009, the Bearish investors intelligence indicator
            reached the low teens (this has only happened a few times in many
            years), meaning there is no one else to cover.
            8. The market is falling on 'good' earnings reports'. Compare this to
            the times when the market rallied on 'bad' earnings'.
            9. The Euro and Oil peaked in late November. These are classic leading
            indicators of the S&P as I have mention many times on Carl’s blog. .
            10. The dollar bottomed in November 2009 and has started to rise. This
            is considered a safe-haven and compared to all other world currencies,
            is still the choice of investors. And we all know when the dollar is
            going up, indices are going down.
            10. Many other foreign exchanges (i.e. DAX, FTSE) hit their respective
            50 month moving averages (prominent resistance) and have started to fall
            over.

            So there's a bunch of bear arguments. To that I would add p/e's are in
            the ionosphere.

            Another is via John Hussman, who points out that historically these
            things result in a quick plunge averaging about 28%
            http://thetaildoesnotwagthedog.blogspot.com/200

            Also, this market is built on a lot of hope, lies and hot air. Not
            exactly a firm foundation.

            But the best argument I can find that we don't get much of a bounce is
            that there's simply no liquidity (money!) left to drive the market
            higher. Where's it going to come from? QE is almost over (just a few
            billion dollars left), money markets are at very low levels
            http://thetechnicaltakedotcom.blogspot.com/2010

            Now, what exactly is the Bull argument? We just had a 7% correction?
            Per Hussman we have (on average) another 21% to go…

            That said, I'm not going full bore short Monday, I'm just beginning a
            core position… But I still think the risk is much stronger playing
            the upside at this point.

          • All very valid and true points. I'm agreeing that I don't see a lot of upside left. However, I'm still inclined to believe that we will bounce up next week. The short term technicals are pointing up, while the longer term has just rolled over and are point down.

            So don't worry about me going long on the market next week. The only long position I have is in the USO (oil) which due a short term bounce. Other then that, I'm just waiting on the sidelines for the end of next week to arrive, so I can go short again.

            Believe me… I'm a bear! But, all short term TA's say that we bounce next week. So, I'll wait until it's over and then go short again.

            I do think that there will be a lot of swings from up to down each day next week. If you are a day trader, you can make a fortune or loss one…

            Not to worry though… I'll be going short with you, but not until next Friday.

          • Agree, but at this point I think a mistake in shorting will eventually
            be rectified by the market, and pretty quickly.

            Basically my plan is sell the rips, partial cover on dips, rinse,
            repeat. But I want to keep a core short position.

          • You should be fine then. I can't be around a computer all day, so I just swing trade. It's not safe to do that next week until the wave 2 up is over.

            It will whip up and down and scare a lot of people out of positions, but the following week it will be a big move straight down. That's the one I'm waiting for! I'm looking for 100+ points… very quickly!

  4. I was thinking that the employment figure next friday would be bad and now perhaps this is what will drive stock down starting the wave 3 down.

    • Yes Ben…

      They should be horrible! And Wall Street isn't stupid… they know that the numbers are going to be bad. So, I'd expect that the numbers that are predicted to be pretty low. That means that it wouldn't be too hard to beat those numbers by fudging them a little like the government does anyway.

      That could cause a rally up on Friday, and then something bad to happen over the weekend and the markets then crash on Monday or Tuesday?

      The government could stage another 911 or something of that nature to blame the crash on. From a technical standpoint, the market is ready to crash… but the government wants the public to believe in this fake recovery.

      How do you do that if the market crashes because of the lack of real profits and growth from companies? The Answer… you stage some other event to blame it on. Then, you get on TV and preach to the public how well the economy was going, and then something bad had too happen to delay it.

      I hope nothing serious happens, but I wouldn't put it past them! However, I think they are going to wait until this September before they stage another big event. The biggest crash is predicted to start in late September of this year.

      I'm concerned that they will stage another terrorist attack or something like it, during that time period to blame the crash on. I'm going to stay out of the major cities during that month, as it could be a small suitcase nuke?

      I know I'm sounding like a nut, but I'm serious about the governments' involvement in the crashes and rallies in this market. It's all planned out many months in the future. It's up to us to figure it out before it happens.

      • OK… You really need to strip off the tin foil. The gov't did not
        stage 9/11. Just from a practical standpoint the downsides (if found
        out) are too severe.

        That said, the government certainly didn't go out of their way to
        prevent something like 9/11 from happening, FAR FROM THE CONTRARY. Not
        even after they tried to bring it down once before and failed!

        I find it much easier to imagine *they purposefully engaged in a
        dereliction of their duty*, which is just as bad.

        And I doubt they will manufacture a reason to let the market fall.
        Chances are the banksters will just let it happen so they can (attempt
        to) bully more $ out of the taxpayer.

  5. for those of you wanting to follow intra-day moves pulling up a 3 minute chart of the SPX will tell you where its going by the gaps it leaves behind

    Open gaps on 3 minute chart from last 2 days
    1084.66 13:39 candle
    http://www.flickr.com/photos/47091634@N04/43191

    it is important to note they filled the 1533 gap on the closing 3 minute candle which was @ 1073.89, look where they closed the spx @ 1073.87

    • I'm looking for a move back to 38 before the end of the week, on the USO. As for the SPX, I think 1100 should be hit, and maybe even 1120 area?

      The government can release some good news for the banks, and they'll get bought up. Then Exxon can come out will good earnings and the commodities will get bought up too.

      That will lift the market more then most people think. I know it seems unreal to many people, because all the technical's are now pointing down (longer term), but we all know how they like to fool people, so they can take their money.

      A gap down Monday morning to 106.75 spy (which the bears will jump short on), and then a short squeeze the rest of the week to 1120 or higher would really crush a lot of bears that keep shorting at every move higher.

      The bulls would start buying again too, and everyone would think that this was the 10% correction that everyone was waiting for, and now it's back to the rally again.

      Then the following week they crash it for real this time. The bears won't join in because they don't want to get fooled again, and the bulls will be buying all the dips lower thinking that it will rise again.

      The perfect way to steal the bulls money, and keep the bears out of the market… as you will have already stolen their money on the rally coming this week.

      Yes it's crooked, and not fair… but that's how they stay rich and the retail trader stays poor!

  6. Hey Red nice analysis.
    Want to show you an indicator based on a formula I worked out. Indicator uses NYSE statistics, it develops a reading of buying pressure (green line) and selling pressure (red line):
    http://screencast.com/t/YjczYWNjMjUt
    As you can see, selling pressure was mounting Friday, so no indication of bottom of W1 yet, at least not in this measurement.
    BTW, what do you think of the indicator?

    • Interesting chart Apple Al… Still though, I don't see us continuing down next week without a counter rally back up first. I think a dip down Monday to 106.75, and then a rally up the rest of the week is what's going to happen.

      If we don't get the dip down, then just a rally all of next week. The following week is when I expect the huge 100+ point sell off to start. I'll be going 100% short on next Friday, as I expect that to be the high of the week.

      Then Monday the 8th or Tuesday the 9th, the real selling will begin. If there is ever a chance for a Black Monday… it's on the 8th of February!

      I'll be looking for some bad news (or event) to come on that weekend. Not sure what it will be, but it will be blamed for the sell off.

  7. Red, Enjoyed your post and all the comments below. Some nice feedback. I hope your scenario of a bounce this week plays out.

    • Thanks G…

      I hope it works out too, because I'm long the USO. I would go long the SPY, but it's just too risky. Oil isn't as highly manipulated and should move up to about 38 by Friday.

      We'll see…

      • Project Camelot is reading like science fiction to me. I'm open-minded enough to think that some or all of it is plausible. However, I wouldn't need to believe any of it to come to the same conclusion that one should find a safe place and do it now.

        What I do know is that natural disasters and human atrocities have occurred throughout history, and, although Americans have enjoyed a period of relative stability, the world as a whole is potentially more volatile than ever.

        So, Red, how far along are you in securing a safe place? Still at the beginning of the brainstorming phase like me or further ahead?

  8. hey red – thanks for sticking with us! i got down to the very end…margin call all week. todays upward motion brought me out of it and in addition, my csco call advanced for a nice
    little gain which enabled me to buy the fcx 70 put for tomorrow. if things work tomorrow, i'll have a great rebirth of
    enthusiasm for, well, EVERYTHING! heh love the charts and graphics, and i'm finding the commentary very useful too; i am
    glad to be able to read it.
    i am also short bac (and a little in the money!), so i have great hopes for the next wave down. now, when to sell…
    what is your post-thursday forcast for next week?

  9. hey red – thanks for sticking with us! i got down to the very end…margin call all week. todays upward motion brought me out of it and in addition, my csco call advanced for a nice
    little gain which enabled me to buy the fcx 70 put for tomorrow. if things work tomorrow, i'll have a great rebirth of
    enthusiasm for, well, EVERYTHING! heh love the charts and graphics, and i'm finding the commentary very useful too; i am
    glad to be able to read it.
    i am also short bac (and a little in the money!), so i have great hopes for the next wave down. now, when to sell…
    what is your post-thursday forcast for next week?

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