Blog | Red Dragon Leo - Stock Market Trading on the Darkside | Stock Market Trading on the Darkside

Happy Bear…(Friday’s Delayed Post)

Leo's Den

Red

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November 20, 2009

Sorry for the delay last night folks. I was just too tired to post, as I had a really long day. Anyway, I'm now up and feeling good. I see the futures are already down this morning, as I expected. If the past continues then the low of the day today should be in the morning between about 10:30am est and 11:30am.

After that, the volume will die off and the market should float higher the rest of the day. So, if you are short, I'd plan on getting out today around that time frame. If today closes below the low of yesterday, then the new down trend will be confirmed, and the current high should be in until at least a 5% correction in the market takes place.

Whatever the low of today is should complete the first wave down. You can then expect a wave 2 back up to start on Monday of next week. I'm not sure how high it will go, but it shouldn't take out the current high. It might only last about 2-3 days, then a wave 3 down will occur.

I'll have too review the news over the weekend to get a better gauge of what is likely to start the wave 3 down. But, Monday's have usually been up, as they have light volume most of the time. That could be the only up day next week? I'll know over the weekend.

So, for now, I'm closing out my shorts today and will look for another short entry next week.

Red

Tonight’s Posted Delayed.

Leo's Den

Red

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November 20, 2009

241

Sorry folks, I'll been really busy today and got home too late to think. I'll post something tomorrow morning before the market opens. I'm looking for a flat or down day tomorrow, possibly to the 1085-1087 area.

Red

Does The News Really Matter?

Leo's Den

Red

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November 19, 2009

130

I honestly don't know which way the market is going tomorrow? I expected the move up to the 1120 area today, but the negative news on housing, PPI, CPI, and oil didn't give the market any fuel to rally. Tomorrow the unemployment numbers are out, so maybe it will rally on the false data that the government releases?

There is clearly a bull flag pattern on the daily and 60 minute charts for the SPX. We should break out to the upside to finally hit that target of 112.30-112.50 spy, but the news is what could cause it to fail? People say the the news doesn't matter, but I disagree.

The new is what moves the market in the direction that the charts forecast it should go. So, if the charts are bullish, then the market will move in that direction once it receives some news that can be viewed as positive. It hasn't received any news in the last 2 days, that can be interpreted as good.

During this time the market simply goes sideways, not wanting to go down because the charts are still bullish. But, it can't find the fuel it needs to move up either... hence it moves sideways while it waits for the right news to make a big move up.

Now, here's the exception to the rule... if the market can't find what it needs in a reasonable about of time, then it gives up and makes a hard move in the opposite direction, (which is down). I think that tomorrow the jobs numbers will be spun into looking good. It will then give the market the fuel needed to finish the rally up.

This works the opposite way too. When the market really wants to go down, because of a bearish pattern... it will. It just has to wait until some news event can be viewed as negative. Of course everything is negative right now, but a year or two ago it was all positive.

Back then, you had very high expectations on earnings. So, if a company missed by just a little bit, and their chart was bearish... it tanked. Today, the same company with horrible earnings, could be viewed as positive if the chart was bullish. So, if the earnings that were released were only slight negative, and it had a bullish chart, the stock would rally.

In reality, it's not about beating earnings, or jobs numbers... or any news events. But, it's about how the market views the news. It will remain in a sideways pattern until it gets the news it wants to hear, so that the bullish (or bearish) pattern can be completed.

So, if you were to ask me if the news mattered... I'd say yes. But, only to the degree that the bullish or bearish patterns want to hear. The news can sometimes cause a pattern to fail. If the news tomorrow and Friday isn't good enough for the market, then it could simply give up and sell off... only to try to rally back up next week.

Red

Horrible News, But NO Selling…

Leo's Den

Red

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November 18, 2009

43

The market remained strong today even with more bad news. It's seems hell bent on going up, and nothing is going to stop it.. it seems. Next target up, and hopefully the final target before a decent size pullback, is at the 112.30-112.50 spy area. Since today was basically a flat consolidation day, I'd expect the big up move to happen tomorrow... if it's going to happen this week?

If so, then I'd expect Thursday and Friday to remain flat as traders leave early for the weekend. Most Thursday's and Friday's of OPX week are flat, as everyone closes out their positions by Wednesday. Regardless, if the market hit's it target by this Friday, then some selling should happen next week.

So, my forecast for tomorrow... up again, with a some whipsaw action if the news out tomorrow morning on housing starts and oil inventory is really bad. If it's ok, then expect the rally to continue as the bulls snort more crack, while GM talks about cutting 10,000 more jobs. The stock market and the real world are so disconnected it's mind blowing!

As for the volume today... about 140 million shares. Another super light day, and one of the lightest days of the year. To answer a question posted by LuckyFish about the volume issue... here it is: Since about July or August of this year the market seems to have it's biggest selling when the volume traded on the SPY was above 200 million shares. And, when the volume was under 200 million shares, the market seemed to rally or at least be a flat day.

It's not a rule set in stone of course, but it's been a pretty accurate gauge of what way the market is going to trade. Add in your TA's, Elliottwave, Fib Level's, etc... and couple that with what news events are coming out, and you can predict the market direction. Of course it's not perfect, but nothing is.

So, I'm forecasting that tomorrow's news won't bring in that much volume in the spy. I expect under 200 million shares again, or maybe a little over. Now, if we have over 250 million shares traded tomorrow, then I'd would say that it would be a down day. Why you ask? It's mainly because the big institutions are now selling into the rally, with every move up.

They wait for a certain point, and unload a large amount to the public. That causes the large volume in the market. Then, they wait for the market to fall to a major support level and start buying to create a short squeeze. The bears that shorted the market will have to buy back their shares at a higher price, and the market rallies back up again on the retail trader's money.

It doesn't take much money from the big institutions to get the rally started, as the people who are short are the one's who end up losing money again. Then, the big guys sell hard again dumping lots of shares into the market at higher prices, creating larger volume on those days then the up days. The market can rally up easily on light volume, as no one is selling. So, it just goes up without any resistance.

Now, one more factor that is also a huge, and I mean HUGE contributor in helping the market to rise is the dollar. Every time the market seems ready to fall, as the buying by the little guys drys up... (the retail traders like us), they tank the dollar.

That means that US companies that sell products and services to other countries in the world, are a now making more profit. At least it seems that way on paper. You see, if you sell a product in another country that has a different currency, then you would get more US Dollars for each of their dollars as the US Dollar is worth less compared to their dollar.

For example, say you sell a car in Europe for 20,000 US Dollars, and that last year the exchange rate would have made that car to have been sold in Europe for 15,000 Euro Dollars. Now, today it's a year later and the car still sells for 15,000 Euro Dollars over there in Europe, but the US Dollars has become worth less for each Euro Dollars. So now, when you convert the 15,000 Euro Dollars back into US Dollars, it becomes 22,000 US Dollars, instead of 20,000.

So, it looks like you made more money, but in reality it's the same money. Just that now each US Dollar is worth less, it will take more of the them to purchase other goods and services. Why do we now pay $4.00 for a gallon of milk today, when our Grandfather's paid $.50 cents or less? It's the same milk, but why does it cost money? It's called inflation!

And, as long as Obama keeps the printing press going you can expect that gallon of milk to go up to $10.00 or more in the not so distant future. But, for now, the printing of money keeps the ponzi scheme in the stock market working. Dump the dollar, and the market rallies.... it's just that simple, at least for awhile longer.

Red

Gap Filled, Now What?

Leo's Den

Red

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November 17, 2009

148

The market finally filled the gap from October, 2008 today! Now What? It's funny as I posted on my weekend post that the market would have to Gap UP on Monday to cross the huge resistance level between 109.62 to 110.34, and what did it gap open at... 110.38! How's that for avoiding that mine field? Just jump over it instead.

Ok, now that the gap is filled... where's the market going next? I think they are going up to the next resistance level at 112.30 to 112.50 (spy) by the end of the week, but a small retracement could happen tomorrow as the 6o minute charts are rolling over.

The chart above is from "The Chart Pattern Trader". You can check my blog roll for his links. Notice the big sell volume into the close. If it wasn't for that last red candle the spy would have traded less then 200 million shares today. Which of course means an UP day. That last candle pushed it to 210.9 million... just a little over. However, the rule is still pretty accurate... over 200 million equals a down day, and under 200 means an up day.

This chart shows me that the market could go down some tomorrow while the MACD and Full STO's roll to the down side. However, the daily still has some room up to go. Meaning that the market could dip down tomorrow and rally back up to that next resistance level at 112.30-112.50.

Let's also look at the chart below from "The Elliottwave Lives On", (again the link is found on my blog roll under Tony Caldaro). Notice how this up move from the 1029.38 low is almost complete with the final 5th wave still in play, or possibly ended today?

I'm not sure if we push to the 112.30-112-50 or not? I suspect that we will... mainly because this is OPX, and the market makers don't want to pay out any money to the put holders. After OPX is over this Friday... we'll that's another story!

So, if you are stuck in any short positions, tomorrow might be your best chance to get out without too much pain. I'm not sure how low we dip tomorrow, but looking at the charts would indicate the first logical target of around 1096 to fill the gap open from today. Next would be the 1090 level, but I'm not sure if it will go that low? After that is the 1076-1080 area for the gap from the 9th. I really doubt that we go that low during OPX, but anything is possible.

Next week though is a different story. Over the next couple of weeks... starting next week, or possible at this Friday's close, I believe we will go down to the 1030-1040 area before any decent bounce back. From there... I don't know yet. Let's wait till we get closer before answering that question.

Red

Weekend Update…

Leo's Den

Red

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November 15, 2009

143

Trying to forecast where the market is going is sometimes like forecasting the weather. It could rain on Monday or it could be a sunny warm day? Clouds will be moving in, but could leave quickly. Huh? Yeah, that's how I feel about Monday.

On one side... the Bear side, I see that the market is rolling over on the daily, weekly, and monthly charts. Plus, it hit the lower level of the gap from October, 2008. That gap stretches from 109.68 (spy) to 110.34. The market closed Friday almost dead on the lower level at 109.62.

This area is the toughest wall that the Bulls have come up against since the rally began back in March of this year. Going through that area is almost impossible... that's almost though!

Could it avoid the area all together by jumping over it, with a gap up above it on Monday? Yes, it could. That's about the only way I see the market getting to the 1108.30 (SPX) top that it wants to get too.

Going through that area is like walking through a mine field... you're going to get hurt doing it! Why not just jump over the mine field and avoid all the pain? That's what I see the market doing if the 60 minute and 15 minute charts play out.

Those 2 charts are still bullish going into Monday. So, if the Bulls want to get to 1108.30, then they are going to have too gap up big... in my opinion, to reach it.

But, here's the bad news for them... next week brings with it a lot of economic news, which could be a big problem if some of that news is really bad on Monday. A bullish 60 minute, and 15 chart will be ignored if the news is really bad, and instead the daily and weekly charts will take the lead. Which means... a big down day!

So, for the Bear case... I'd say that the mega resistance area between 109.68 to 110.34 held up again, and pushed the Bulls back down. On top of that, the daily, weekly, and monthly charts all support the Bear case.

The close right at the lower level really isn't bullish or bearish, as it gives NO clues to the direction on Monday. We could be in a narrow range until after OPX? It's really hard to say, but I will say that a big, and I mean big, move down is coming.

If it doesn't start next week, then the week after opx is almost certainly a down week. However, my gut tells me that it starts next week. I just don't think they can pull off another 5 days of doji's, only to close on Friday at 1100.

A pullback should occur next week, which will only be the start of a big move down over the coming weeks to months. I could easily see the 107 area being hit for gap fill from the 9th. I'm really leaning toward a couple a big days down, then a rally back up... only because it's OPX and the market makers don't want to lose money by paying call holders, or put holders. They are basically doing "stop sweeps" to scare out the hobby bulls and bears.

Red

Friday Light Volume As Usual…

Leo's Den

Red

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November 14, 2009

181

Today didn't tell me a whole lot about the market direction next week, but I'm leaning toward a down then up into Friday. I'll have more on the weekend post. Until then, enjoy this video by congressman Ron Paul... who should have been president. (In my opinion only of course)....

Red

P.S. The volume was only 149 million on the spy, yet the market barely moved up?

Low Volume But Selling Instead Of Buying?

Leo's Den

Red

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November 13, 2009

37

Low Volume But Selling Instead Of Buying?

Today certain was a victory for the bears, as the bull couldn't move the market up on light volume. That's a big change from what has been going on since about August or so. In the past 3 months the up and down days were very in sync with how much volume was traded.

If the volume was over 200 million shares the market was down, and if it was under 200 million the market was up. Today the market had around 170 million shares traded on the SPY, but the market was DOWN! This is a huge change in trend folks!

I believe that the top could be in already. I know that Mr. Topstep is waiting for 1108.30 (SPX), but it's not looking good for the market. Light volume days are almost always UP days, yet today was down... and not by just a little bit, but a nice move down.

The market did hold support, so tomorrow is another chance for the bulls to rally back up again. Friday's seem to be light volume days, so the bulls have another chance at a rally. But, I just don't see 1108.30 in the cards this time around. Even Mr. TopStep is now saying that we could start down from here. (Here's his latest video)...

So, I'm looking to see what tomorrow brings as I'm not sure at this time. It should be a flat day, after a sell off like today. You know how that works now... sell hard and rest for a day, then sell hard some more (or the opposite when rallying).

What worries me is that in the past opx last weeks the market would hold the current trend (which has been up since last week) and close the opx Friday at a similar level that it hit the week before (which is this week). That means that the market makers would decide in the current week (now) what they wanted to close the last week out on.

So, if they have a lot of calls that they want to collect on, and a lot of puts that they don't want to pay on, then they would whip the market one direction on the week before opx, and back the other on the week of opx. Hence the market would close out where it was about 2 weeks prior.

On Monday and Tuesday of this week we were around 108-109 spy. If they do what they have in the past, then that should be the area that the market closes on next Friday. However, it just feels different this time. Today's selling on light volume is a big change in character for them. Does this mean that next week will really produce some selling? I'm not sure yet, but tomorrow may give me some better clues.

Red

Mr. TopStep Can Say It Better Then Me…

Leo's Den

Red

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November 12, 2009

268

I think the video below is the clue to where this market is headed. We almost hit the 1108.30 SPX mark today, falling just short of it a 1105. I expect the jobs numbers to come in better then expected tomorrow, and the market will rally one final time, hitting the 1108.30 level.

After that, I expect a sell off to begin. I don't think we will close around the 1108.30 area, but instead only touch it intraday. Rally in the morning, selling in the afternoon... that's what I'm looking for. That's it for tonight's post. Look to get short at 1108.30 tomorrow, as I'll be waiting patiently there too.

Red

Light Volume Puts the Market to Sleep…

Leo's Den

Red

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November 11, 2009

155

Today was real yawner! The market basically moved nowhere... and just what's in store for tomorrow? More of the same, with an upside bias. Yes folks, one more day of this nonsense and the market should be back to normal trading. Which means that a reality check is due. So, let's see... is the market really that health or is it sick?

I think it's sick with false hope, fake numbers, outright lies, and manipulation like you've never seen before. That means we should rally some more, right? Yeah right... and I've got an honest banker I'd like you to meet! Of course not folks... I'm looking for selling to take place on Thursday and Friday, as the news out on those days should bring in some bigger volume. If it's more then 200 million shares on the spy, we should be heading down.

Like I said in yesterday's post... 110.34 is like the "Great Wall of China", and will not be broken easily. Closing above it is not likely too happen. I'd like to see the market move up to that level tomorrow, so I can get the best short entry position. It could do just that since it's a holiday tomorrow. That light volume could float the market up to within inches of the wall, and possible go above it briefly to that 1108 spx area everyone is looking for. I will be pouncing on the bulls when that happens.

Others think we are going higher, until OPX and then rolling over. I think we are going down toward OPX, and then going higher. I'm going to try and filter out the noise this time. I've looked back at many of my own forecasts and found that I was pretty accurate on the direction, even though I missed a few ending points. Overall, if I had followed myself I would have been a whole lot more profitably then I currently am.

There again... learn to stick to a plan. That's my lesson for myself today.

Red

Bears Get Crapped On Again…

Leo's Den

Red

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November 10, 2009

79

Once again, light volume equals an UP market... and what an UP we had today! Only 150 millions shares traded on the spy today. Tuesday and Wednesday could be just as light too, as there isn't any real economic news out of a value till Thursday. I was looking for the 1080 area to hold, but the market blew past it like it wasn't there.

This means that the next major... and I mean MAJOR area of resistance is at 110.34 on the SPY. We hit 110.31 previously and sold off hard all the way down to 103, just as I expected it to do. Well, let me say that I expected it to sell off hard, but to what level I was unsure of? I expected the 102 level to be hit again, but it stopped a 103. So, you can't forecast everything correctly... that's for sure!

But, I will say that the 110.34 level is comparable to hitting "The Great Wall of China". It's going to take a whole lot of attempts to go through it. This area is the strongest resistance the Bears have in their arsenal right now. It's like pulling out the rocket launcher from the basement to fight off a yard full of zombie bulls! If this doesn't stop them... nothing will!

The only way I can see the Bulls taking this market past 110.34 is to jump over it with a huge gap opening. Well, they have about 2 more days to try to do it. By Thursday the market should be back to normal (as in... normal sense, not insanity), as volume will be back above 200 million (hopefully). And you know what that means... below 200 million shares traded on the SPY equals an UP market, and over 200 million equals a DOWN market.

I would say that has been truly accurate for over 99% of the last 3 months of trading. I'd say 100%, but I don't feel like going back and researching every day, so 99% means that there could have been a day or two that the volume didn't match up with the 200 million rule.

Needless to say, it's a pretty accurate way to forecast the market direction. So, how do you know how much volume each day in the future will bring? You don't, but you can get a general feel for the market by looking at what news will be released over the coming days. How much of it is "market moving", and how much of it isn't?

I said that I was going to go short on Tuesday, but I might wait until Wednesday, as there isn't any real news on that day either... hence the market could rally up some more. We actually hit 109.68 today, which is the lower boundry of the October, 2008 gap. The top of that gap is at 110.34, which is why I don't think the market will take it out this go around. Could it eventually do it... yes, of course? But, a nice pullback is due first.

So, for tomorrow, I'd expect a little pullback or flat day. Then, on Wednesday, I'm expecting another push up to that 110.34 area. Super heavy resistance is there and every last Bear standing will be waiting at that line, just like every last Bull just jumped on the bandwagon today. This will be the battle of all battles, and the bears stand the best chance this time around.

I will be waiting there on Wednesday for the 110 area to be hit, as I will be siding with the bears to drive back the might bulls. My armour will be the year old gap that hasn't been breached, and my weapons will be the unemployment numbers and other news that will be coming up from behind on Thursday an Friday. Yes, it will be a bloody battle, but I won't be going alone this time. I'm sure I'll see many of you readers standing beside me...

Red

Weekend Update…

Leo's Den

Red

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November 8, 2009

12

Sometimes following your own forecast is harder to do then writing it. I find that true this week, as I posted on last weeks' "Weekend Update" that we would probably go up to 1073-1076... and we did. But, I didn't listen to my gut and follow Scenario ONE or TWO, instead I followed Scenario THREE and went short on Thursday around 1062... only to have to sell that position on Friday for a small loss.

Why didn't I listen to my own forecast? Who knows? Maybe because my forecast was based on logic and technical analysis's, and I went short on emotion. This just go to show you that it's not easy trading... even if you make a correct forecast from time to time. Your emotion will hinder your success untill you learn to control it.

I must admit that I'm not there yet. I still let the outside noise in and react to it with emotional trades. I clearly stated that Scenario THREE was unlikely, but I went short anyway. Every chart I looked at had us retracing back up to almost 1080 to form a right shoulder, then dropping. But, in the end, I'm still here to trade another day. Let's just hope that I learn from this mistake and don't make it again.

Next week...

I'm expecting a few more days up to hover around that 1080 area. We could see a down in the morning and back up in the afternoon day on Monday. Then more up on Tuesday, but probably a flat close. Wednesday through Friday should be more interesting as I expect more bad news to be released. The difference this week will be that the market will be up against heavy resistance and won't be able to break through on that bad news.

So, I do expect selling to occur, and I'm still inclined to believe that we will hit 998-1000 before option expiration. It will most likely come fast and hard, and could hit it before the 20th. If so, you can expect a nice bounce off that level. If you can keep a close watch on your account you could make some quick money by going long on the first hit of that area. If could dip as low as 995 intraday, so be cautious... and be quick to jump on.

So, I'm looking to go short on Tuesday around 1080... if it makes it there? It may do so on Monday as I expect another light volume day, which of course means another UP day. But, my gut tells me that Monday will dip down early and rise back later. That will squeeze any bears that went short at Monday's open, and get the rally up into Tuesday.

Ask yourself that question... "What would you do if you were a Market Maker"? Of course the answer is... Steal as much money from the dumb public as possible! But how specifically would you do that? I think a fake down move to tell the bears that "This is it", only to pull the rug out from under them later in the day with a rally back.

Regardless of how it happens, I'm going to go short again around the 1080 area. I'm planning on holding these positions until opx if needed. However, I think we'll hit at least 1020 before opx, and rally back into it.

Here's a little bonus video for you...

Red

UUP Halted Today…

Leo's Den

Red

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November 6, 2009

2,025

The UUP (dollar index) was halted today as they released another 100 million shares into the market place. This caused the price to swing wildly, and should adjust back to normal in a few days. The markets didn't react negatively as they usually do when the dollar rallies. This seems to be the norm these days, as the market ignores everything negative.

Moving on...

The markets rallied up today as expected, but they took out the 1060 high from yesterday. It looks like we might be going to 1073-1076 after all. This move up should be a wave 5 that will top tomorrow most likely. This should complete a larger wave 2 up from the 103.08 spy low, with larger wave one being from the 110.31 high to the 103.08 low.

However, there is a lot of resistance right where we closed today around the 1066 spx area. It might just spike up to touch the 1073-1076 area, and then reverse into the close. It all depends on the volume tomorrow. Today had 174 million shares traded on the spy. Once again, light volume equals an up market. So, at this point, I have to say that we are looking like Scenario ONE is in play after all. Friday's usually have light volume, so the market could continue up tomorrow.

The only wild card is a bad jobs number. But, I seriously doubt that Obama will allow any really bad numbers to be told to the public. He will have his accountants get out their erasers and a new number will magically appear. Funny how over 500,000 NEW People get laid off every week, but the continuing un-employment claims barely moves up. I guess 499,000 people get hired too each week. LOL!

Anyway, expect more rallying tomorrow as the marine that killed a bunch of people reduced the un-employment numbers... which is good for the market, right? The insanity continues I guess... Of course I went short today around 1062, and I'll look to close that out tomorrow on any dip lower. I'll have to wait untill Monday to go short again...

Red

Whipsaw Galore…

Leo's Den

Red

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November 5, 2009

13

Wow! Was that a wild day or what? I'm glad I wasn't day trading, as that must have slapped a lot of people silly. But, in the end, the market hit 1060, and then fell into the close. Since 1060 was Scenario Three on my weekend post, that could be the high before we start falling again to 998-1000.

The only thing that has me paused about that... is how the government likes to lie about any and all reports that they release. I have a feeling that the new claims numbers released tomorrow will be under 500k, and cause a another pop up in the market. The jobs numbers haven't ever been accurate, but they are a whole lot more manipulated today then a year ago.

The last 3 weeks those numbers have been above 500k. I think it's time to fudge them, so the market will rally and squeeze out everyone who went short into the close. You know how those market makers love to take out stops! I could be wrong of course... in which case the market will continue on down. But, it just doesn't feel right. I know we aren't suppose too trade based on feeling, but the market is made up of human beings buying and selling on emotion.

Sure, TA's are important, but ultimately people buy on greed and sell on fear. A small rally in the morning, after the jobs numbers (assuming that the government lies and says that they are under 500k), and then selling in the later part of the day... due to fear of the continuing claims numbers on Friday. If that hits 10%, I think the selling will be hard and fast.

Personally, I think they'll lie on that one too. It will probably come in at 9.9%... just under 10%. However, I don't think the market will believe any number they release, and the selling will happen anyway. Who in their right mind would want to be long over the weekend? I don't see Scenario ONE or TWO happening, as they have 1073-1076 as the high.

I think the high is in for now at 1060. So, there might be a pop early tomorrow, but the selling should start back down again tomorrow, and continue into Friday as well. Once we hit 1020 I'll look for a bounce, but the larger bounce should occur at 998-1000.

If anyone went short today at 1060 you're probably safe for awhile, as it's unlikely to rally back above it anytime soon. Look for 1020, and then 998-1000. I'll be looking to go long at that point, but cautiously of course, as we are most likely in Primary Wave 3 down. If not, then a bottom around 950-955 should be expected before a larger move back up. How how is the question?

Many say we will hit that 1200 mark, after a fall to 950-955 in the next month or so. I can't answer that, but my gut tells me that once the holiday season is over and the new year begins... more selling will come into play. That's a few months away, and too far for me to forecast. Plus, I like the shorter term trades, as that's where the most money is.

My plan for tomorrow is to short any rally up in the morning, and hold till 1020 before deciding the next move.

Red

Stuck in the middle…

Leo's Den

Red

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November 4, 2009

156

I'm not comfortable going long here, or short... yet. We are stuck in the middle between solid support at 998-1000, and huge resistance at 1100-1108. Don't let this sheep be you! Unless you like to gamble, I'd wait until the direction is clearer.

Wednesday, the Fed's comments should move the market, as it's not going to stay here at 1040 area forever. So, the question is... which way? We are clearly oversold, but we are also forming a bearish pattern. My gut tells me that a small rally will occur to sucker in all the retail bulls. It should fall just short of key resistance levels to prevent the bears from jumping on and profiting.

You know those market makers like to steal money from both bulls and bears. So, expect a lot of fake moves. The trend is down, and no decent rally will occur at this level. It needs to hit the larger support at 998-1000 before I'd feel comfortable going long. Even then, it's still only for a few days, and the selling will continue after that rally ends.

So, I'm looking at Scenario Three to play out at this point. A smaller rally to 105-106 is all I can see right now. I'd hope'd for 107.30-107.60, but it's not looking too bullish right now. With Warren Buffett buying Burlington Northern, which caused that stock to trade up about $25.00 to just under $100.00. That, and the dollar falling should have moved the market higher today.

But, it barely moved up. That's very bearish, as the market would have been up 100 points (Dow) or more in the past with that kind of news. That makes me think that any small negative news will cause more selling. Be cautious here, until a direction is found. Personally, I'm waiting a little longer.

Red

What I wild ride today was…

Leo's Den

Red

-

November 3, 2009

651

Today looked like a roller coaster ride! Up, down, back up, then down. That's what you call a major "Whiplash". It looks like we might be in the middle of Scenario ONE, or THREE, from my weekend post. We have another Fed Meeting Wednesday, and I expect the market to continue trading wildly with an upward bias until the meeting.

Then, I'm expecting more selling. We've hit that 104 spy level and busted through it, so it won't be much support on the way back down. The 102 level should have some bounce, but I don't think it will be much. It will probably be hit around Thursday or Friday... right when the jobs numbers comes out. I think they are done manipulating the numbers to the degree that they did during the rally up.

Yes, we all know that the really unemployment is around 16% percent, not the 10% that they tell us. But, they seem to know that the market is now in a corrective phase, so they simply report the numbers that they are told. That's my thinking at least. The last 2 weeks the numbers were quite bad. I see no reason to think that anything has changed since then.

The big boys are in "Sell Mode" right now, so they just let the chips fall where they may! If it's bad... just report it. They are short the market anyway, and will profit as it falls. So, back to my original thoughts... the 1020 area should be hit during that bad jobs numbers. That means it's likely to fail fairly quickly and move on down to the next support level at 998-1000.

You will probably see a intra-day bounce at 1020, but ultimately we are headed to 998-1000 before any decent bounce. I will be looking to go short on Tuesday or Wednesday, just before the Fed's have their little "pow wow". After we hit support at 998-1000, I will get out of all shorts and go long.

I'm not sure yet how high we will bounce off that level, but there is an 80% chance of a nice bounce there. I would expect a 50%, or 61.8% retracement back up. That's from the 1102 high, to where ever it finds support around the 998-1000 area. That's about 100 point move, so 50% would takes us back to about 1050, or 61.8% to about 1060.

But, let's play one bounce at a time. Let's look for a high tomorrow or Wednesday before the Fed's talk. It's looking pretty weak, and Scenario THREE may be in play? That means a move to just under 1060, instead of the 1073-1076 area listed on Scenario ONE and TWO.

That might be the retracement point back up after we hit the 998-1000 level? So, hang in there friends as this party is just getting started!

Red

Weekend Update…

Leo's Den

Red

-

November 1, 2009

439

OK... so what's the plan for next week? Well, I was off on my Thursday forecast, as I expected a flat day on Friday and Monday. I guess you can't be right a 100% of time? The volume was 325 million on the spy. That means a down day of course... and what did we have? I huge down day! Fortunately, I wasn't in any position... short or long. So, no harm done I guess. I hope all of you weren't long either.

Anyway, I'm looking at 3 possible scenarios...

Note: All charts are from "The Chart Patten Trader". You can find the link to his site, and his charts on my blog list to the right of this website. Hopefully he doesn't mine me borrowing his chart. I just added my thoughts in purple, and the black text with yellow background around them.

One. We continue on down to the 1020 spx support level and bounce back up from there. We could just bust on through 1020, as this will be a second major hit at that area. On the first hit of any support area there is about an 80% chance of a bounce. Each time it is hit the chance of a bounce lowers. I'm giving the 1020 area about a 70% chance of a bounce on this attempt.

If we bust on through then the next level of support is 998-1000. There is an 80% chance of a decent bounce there, and I will be looking to go long at that level. I'm just not sure if we bust through 1020, as it is also the lower trend line of what could be a "head and shoulders" formation forming, with the left side low at 1020 on the first of the October.

Now, if 1020 holds, then I'm still expecting 1073-1076 area to be about the highest possible retracement level on the way back up. There is a gap from 12th-13th at about 107.60 to 108.35 (spy). I believe we will get close to it, but not fill it. Much like the way the market would gap up in the past, and not fill the gaps on any correction down. I think we will now start a series of gap downs and not fill the gaps on the retracements back up. The reverse of what happened from the March lows to the current high of 1102 spx.

I remember how many times I waited for a gap fill to happen on any corrective move down in the past, only to be disappointed when the market stopped just shy of it, and started rallying back up. The markets likes to tease people... especially those that follow technical analysis. The old trick... bring in close, then snatch it away from them!

Everyone was looking for 1120 to be the top, and it fell just short of it at 1102. The same may happen on the way back up. Many will expect 1080 to be hit, and they will be waiting to go short at that level. All the more reason not to get back up to that point.

Now, on to Scenario Two...

This one has us rallying on Monday from the current level. Which, could also run up to the same level around 1073-1076 spx in a few days. Notice how that area would break the upper downward sloping channel line on the chart above. How many times have you seen a channel that gets broken out of... only to fall back in it again? It's another way the market likes to trick you into going long, and then reversing in the other direction.

Notice also that he has marked a 1,2, and 3 on each move down. If we mark 4 as the 104.35 to 106.86 move, and 5 as the 106.86 to 103.44, then we have a 5 wave move down. Is it complete? That's the real question. Certainly it could just continue down some more to the 1020 area, which I believe would be the end of wave 5. Or, it could be complete right here, and start a larger wave 2 back up... which wave 1 being the entire move from 110.31 down to 103.44.

I'm not an elliottwave expert, but I do know that the wave 2 back up should be higher then the top of the smaller wave 4 at 106.86. Since Monday's are usually light volume days, then a rally seems to have the best chance of happening on that day. Once started, short covering would come in a push the market back up on Tuesday. Many people will put their stops at the 104.35 low... which could be easily hit if Monday has light volume.

Then, the 106.86 would also have lots of stops there waiting to be taken out my the market makers. That could be enough to push us up again to just under the 1080 area. In the past, there would have been a whole lot of bears that shorted the market, and any short covering rally would have really pushed the market much higher. However, I believe that many bears missed this correction down. So, that means that there isn't a whole lot of them in the market to "short squeeze". Hence the reason that I don't really see us reaching the 1080 level... only close to it.

Withthat being said, I do believe that whatever level we retrace back up to, the bears are going to all pile on and drive this market down in a big wave 3 move. With this scenario, 1020 won't hold but maybe intraday, and the next level down at 998-1000 will be hit.

This means that Monday is a "wildcard" day, as it could complete a smaller 5 wave move down, or it could just continue the 5th wave until 1020 is hit. So, how do we play this move... that is the big question?

OK, if scenario one is what happens, then I will wait for 1020 to be hit, and then go long for the move up to at least 1060 again, but I'm expecting that 1073-1076 area. I'll just be very cautious at 1060, as it could dump again there? Any long position should only be deep in the money calls, or spreads, as time value and volility will kill your option value on the way up.

Next, if scenario two is in play, then I'll wait for 1073-1076 to be hit and then go short, looking for 1020 as the first support on the way down and then 998-1000. I will determine which as we get close to that time period. So, I play the "wait and see" game. By far, the safest bet is to wait until the retracement back up to just under 1080 is hit, and then go short expecting 998-1000. The next safest move is to wait until the 998-1000 level is hit and go long.

As I said early, I'm not an expert in elliottwave. I believe they have their place, but unfortunately they can't accurately predict the next move... only tell you possible moves. That's why I focus on major support levels, and volume in the market. Bounces occur at the support levels, which makes the EW ABC and 12345 wave counts. Anyway, let's move on to one more possible scenario.

Scenario Three. We concluded a larger wave one down at 104.35. It would have been an ABC move down. Next, we completed a larger wave 2 up at 106.86. And now we are in the first smaller wave inside the larger wave 3. This larger wave 3 should conclude at the 998-1000 support level. It could have 5 smaller waves inside it, which could mean a bounce up on Monday for wave 2 (or A), then down to 1020 for wave 3 (0r straight down to 998-1000 for wave C), back up to about 1040 for wave 4, and then down to 998-1000 for wave 5.

I don't really favor this scenario, as it doesn't give the 1020 much chance of a decent bounce. If scenario 3 happened, then we are in a larger wave 3, and the 1020 would be right in the middle of a smaller wave 3 (or C), inside a larger wave 3. Two waves 3's would bypass 1020 like it wasn't even there! I don't see that happening.

We've fell pretty far in the last week and we are due for more of a bounce then just the 105-106 area that scenario 3 presents us. I really think we will bounce back to just under 108. Now, the question is... from where? That's either at 998-1000 (80% chance of good bounce), 1020 (70% chance of good bounce), or from where we currently are now.

That means that we should be looking to go long a 998-1000 for the best chance of success, and long 1020 for a good chance of success. And, we should be going short just under the 1080 area for another great chance of success. Waiting for either of those levels to be hit is the hardest thing to do, as the market loves to fake you out. Patience is learned, not giving!

Red

Just a little more…

Leo's Den

Red

-

October 30, 2009

9

Wow... when I said I expected a bounce, I didn't think it would all happen in one day! That was a pretty big move, but it happened on light volume. Again, under 200 million shares traded (spy) equals an up market. Looks like we might be on our way to about 107.30 to 107.65 (spy) before the selling continues.

So, I'm looking for a flat to up day for Friday. Remember, Friday's and Monday's are usually very light volume days. That means the markets should float higher. Of course if we have some good volume the market could continue the downward move. But, I think a few days of rest is good for Mr. Bear, before he starts attacking those Bulls again.

I'm thinking that Monday could be the high, before a drop resumes toward the major support at 104 again. However, I believe it will fail this time, and the next level at 102 will be the next destination before another rally will occur. Now, if 102 doesn't hold, then we are going to 99.80 - 100 in a big hurry.

We should definitely bounce there as that hasn't been hit in quite awhile. I give it an 80% chance of a large bounce. That means at least a 50% fib. level move back up. (That's from the current high at 110.31). So, just take the weekend off, and be ready to go short again on Monday, or Tuesday at the latest.

I almost most forgot... this is a holiday weekend. The markets aren't closed, but many traders will go ahead and leave early for Halloween. So, that's just one more reason for the market to have light volume Friday, and also Monday. Which means... say it with me now! Light volume equals an UP market.

OK, that wraps up tonight's post....

Red

Time to Bounce…

Leo's Den

Red

-

October 29, 2009

7

I'm expecting a bounce now for a few days... maybe into Monday? We hit the target of 1040-1050 area as I expected. Since there is a lot of support here, and the auction tomorrow and Friday, I expect the dollar to fall for a few days. The market should rally up to 1070-1080 range, but it might not make it that high?

The jobs numbers Friday could be bad enough to stop it from a big bounce, but a small bounce is coming soon. Tomorrow could be a flat to up day, as the market finds some support here around 1040. Any bounce is just another opportunity to short.

I'm expecting 1020 or maybe even 998-1000 by option expiration. I'll be looking to go short again next week... probably Monday or Tuesday, as I expect that to be the end of any bounce that we might get. It could continue down tomorrow, but we're pretty oversold here, so I'm really expecting this to hold for now.

Red

Almost ready for a bounce…

Leo's Den

Red

-

October 28, 2009

4

Today was a flat consolidation day as expected. I'm still looking for the 1040-1050 area to be hit before any decent bounce back up. That area has multiple supports from horizontal and 2 upward sloping trend lines. And the moving average is also in that area too.

That means that a bounce is almost a sure thing. Almost being the key here... as some disaster or political event could cause a big sell off. But, under normal conditions, the market should bounce in that area. After the bounce is over, the selling should continue until we hit 1020 (next support), at which time I expect a pause before breaking through.

Remember, 1020 has held in the past, but I expect it to fail this time around. Next will be the 998-1000 area. That will be the first hit, and has an 80% chance of a bounce. I would expect around 50% retracement back up from the 1102 high when that area is hit.

The fed has more auctions on Thursday and Friday. I expect that is the main reason that the dollar has been rallying. So, you could see one more push up on the dollar tomorrow, ahead of the auctions. After the auctions are over you can expect the Fed to dump the dollar again.

This means that the market should find a temporary bottom around 1040-1050 tomorrow or early Thursday, then rally as the dollar get sold hard after the auctions are over. You would think the everyone could see that the government simply props up the dollar before every auction, and then dumps it, which causes the market to do the opposite... but wall street just plays along until the party ends!

Red