Thursday, March 25, 2010

Another Reversal Candle - New Trade

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The Nasdaq formed a bearish engulfing pattern today and is the second one in a week. Considering how overbought the market is and how overly optimistic the sentiment, I think this is legit for a tradeable pullback at least. If you like trading individual stocks then there are a plethora of reversal candlesticks to choose from if you check out the screeners on the bottom right of the page. AAPL made a nice bearish engulfing today for example and many financial sector stocks and ETFs made nice shooting star reversals.

Additionally on the sentiment front, I have recently showed several charts summarizing extremes. Now the stock to bond ratio is very high as well. Insiders (smart $) are very bearish. Money managers are very/overly? bullish. Rydex traders are extremely thirsty for bullish funds. And the Sentimentrader.com's smart money indicator is at the lowest confidence level since late in the last bull market. It is clear that things are overdone on an intermediate level.

New Short-Term Trade:

Buy SKF Friday with a market order. I will post the trade entry at tomorrow's opening price.

SKF is a double inverse ETF on the financial sector. The XLF financial ETF made a nice shooting star today. I will use the RSI(5) for oversold exit.

Click on Chart to Enlarge

Click on Chart to Enlarge

The cash Dow and S&P made shooting stars today as well. The Dow actually is more like a doji bu with a long upper shadow.

Click on Chart to Enlarge

This chart is the US dollar index. It appears to be forming a strong directional pattern. In Elliott Wave terms the two consolidations since the uptrend began are too similar in both price and time (and form) to be part of a 5 wave sequence. So it probably will end up being a complex correction like abc-x-abc or something even more complex. The two blue boxes on the chart are both the same size and time. So it shows how the corrections are similar. Also the first 3 legs (abc) follow nearly ideal rules for a zig-zag formation, so I think the above is the best interpretation on a qualitative level.

So here is my summary of major asset classes:

US Bonds: likely headed down in a big way
Currency: US dollar headed up, Euro/related currencies down
Stocks: Topping
Commodities: ?mixed? energy probably down
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4 comments:

  1. cdudeMarch 25, 2010 at 10:56 PM

    I agree with your take on the technical setup in XLF. A word of caution regarding the market order though. The PPT specifically targets the bank stocks in pre-market futures. Politically speaking, DOW 11K would be a very desirable Headline to finish the week following the HCR Bill. Don't underestimate these SOBs. I would watch for a (market) gap-up to fail before launching a market order.

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  2. cdudeApril 7, 2010 at 1:32 PM

    Yesterday's equities only ISEE reading closed at a whopping 276. That is only three digits lower than the all time high of 279 painted on October 8th, 2007 – a few days away from the highest tick ever on the S&P 500

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  3. cdudeApril 9, 2010 at 9:47 AM

    The 10 day CBOE equity put/call ratio is at the lowest level in four years. The 'speculation index' - that is OTC volume compared to NYSE is at the highest (most speculation) in 15 years. The Consensus survey shows 70% bulls. Investors Intelligence shows bears at less than 20%. This is one lopsided bull boat. Something's got to give here.

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  4. bApril 9, 2010 at 4:51 PM

    so, will that be it? 11k and then drop? tune in next week to see....

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