S&P 500 Update

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This morning the S&P 500 cash hit 1157 which is right near the 1160 area I have suggested as a topping point for this rally. It has sold off since this morning, and looks like it may form a bearish engulfing pattern today if the price closes near where it is at noon ET.

A candlestick reversal pattern right in the resistance zone would be a good confirming point that my outlook may be generally correct right now. If the market does indeed experience a pullback or correction from these levels, there will be some keys to watch for that I will lay out in a future post. Basically, if the correction does not retrace more than 61.8% of the Sept rally, in less time than it took to form, then I would lean toward another push up to higher rally highs. But we'll look at those situations as they come.

No changes right now to any trades. EUO will probably rally if the market pulls back from here. I don't know about TBT. There is now a huge bullish divergence on UNG on both weekly and daily time frames. If someone is not in this, you may want to strongly consider it here at this level. I won't be too quick to exit TZA if the market manages to get short-term oversold. I will mainly watch the hourly chart technicals for oversold conditions before exiting.

Market Update

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The chart above is a 120 minute chart of SPY which will kind of smooth some of the noise compared to the hourly chart. You can see that there is a running bearish divergence as each new push to highs recently has not been met with new MACD indicator highs.

Just overhead at 116ish is where I feel the most probably resistance zone is, though I could see it going a bit higher than that. My guess is that prices churn upwards a bit from here and then reverse rather sharply either next week or the following week.

So don't mistake.....the intermediate trend is still up. But I am thinking it won't last much longer.

2010 Trade Results So Far

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This is a screenshot of 2010 trades up to this point. At $10,000 per trade, the closed trades have so far netted a little over $2000.

2009 Trade Results

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Here is a spreadsheet of the long overdue 2009 blog trade results.

The second column from the right shows the running total of profit or loss from only the 2009 trades (assuming $10,000 devoted to each trade and no commissions). The furthest column to the right shows a running total of profits since I started the blog in 2008 (assuming $10,000 devoted to each trade and no commissions).

Quick Update

I think the market is close to making at least a tradable swing high. Ideally I would like to see another push up to new highs before topping. The hourly chart is trending up on SPY but has a strong bearish divergence building.

I am seeing some very nice looking set-ups to the short side. Ones that stick out to me now are SWK, JNPR, ADSK, EBAY, BUCY, and UPS.

As far as other markets go.....Sentiment is running too bullish on grains after a big run up. I would get out of funds like DBA, GRU, JJG, etc.

There is a nice bullish divergence setting up on the daily chart on the US Dollar Index (UUP, EUO). I plan to hold the EUO trade right now in anticipation that it will rebound in coming months.

Gold is overbought, but at all time highs it is in a vacuum area where there is no overhead resistance. I would not jump in at these levels, but would not advise to short it until it gets more divergence, etc. Gold has bucked technical set-ups for top reversals, and my feeling is that this will be a market that remains stronger than it "should" based on technical analysis.

If there are any specific markets or stocks someone wants my input on, drop me a line in the comments.

AAII Update

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The AAII survey has made a big jump in bullishness and now the ratio of bulls to bears is at an extreme level which has typically suggested market weakness ahead. Particularly in the context of an extreme at a lower price high I think this is significant.

A couple weeks ago I had suggested that the most likely scenario for the markets was to break above the 1130 level on the S&P 500, and to move up to 1160 before topping out. I still think that is probably the most likely scenario here based on retracement levels and price gaps, etc.

Some sentiment surveys and models are now confirming intermediate term overbought conditions to match.

On a side note, the TZA trade is obviously not following an ideal format. But there has been no oversold signal to exit the trade. Right now I doubt we will get one until the market is topped out, which I think should happen by next week most likely.

New Short-Term Trade

The hourly chart of the major averages is now showing bearish divergence on MACD and RSI, after a short-term overbought reading last week.

Also the SPY chart has now closed an open window from 8/10-8/11. The associated gap is not yet filled, but in any case, this area could be resistance. So I am going to post a short-term bearish ETF trade here. At this stage I don't expect this rally to be completing here, but it seems due for a pullback.


New Blog Trade:

Buy TZA today with a market order. The current price is 31.47 which will be the blog entry price.

New Intermediate Term Trade - TBT

As a follow up to the recent post on TLT and long term US bond prices, I am going to post a new trade on TBT, which is a 2x inverse bond fund. It should move approximately twice the percent value of TLT in the opposite direction. Those interested check out the TBT weekly chart or the TLT weekly chart. TBT shows a hammer/doji and then a bullish engulfing pattern as the last two weekly candlesticks.


New Trade:

Buy TBT with a market order Tuesday morning 9/7/10. The current price is 32.72. Place a GTC sell stop at 29.76 after entry.

SPY, US Dollar Index, and Natural Gas/UNG

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The chart above is SPY. I have drawn dashed green lines at unfilled gap ups below current levels and dashed red lines at unfilled gap downs from the prior correction. The red dashed lines should be viewed as possible resistance levels on a continued rally. Also the swing highs at the 113 and 117 areas are chart resistance levels.

While not shown on this chart, I see a Fibonacci resistance level at the 116 level or slightly higher. Right now that is what I think is probably the most likely scenario - a move above 1130 to 1160 or higher over the next few weeks. The blue rectangle is the same price(%) and time as the July to August rally. Projected up from the recent lows, that would put SPY a little above 116.

The daily MACD has now made a bullish cross and there is no bearish divergence at this point on the hourly MACD chart. So I would assume there is some upside left in the market at this stage. The next index trade for the blog would ideally be after a couple percent pullback this coming week, to set up a bullish short-term ETF trade.

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The chart above is the US Dollar Index showing the action since the major low last fall. After the high in June, it retraced almost 61.8% of the entire advance. That decline took 2 months. The recent rally since early August stalled out at the 38.2% retracement level of the decline.

However, the rally only lasted a couple weeks. If this move is correcting that entire decline, I would expect it to take as long as the decline or longer. So as long as the lows from August hold, I plan on holding the EUO trade and expect some sideways to upward action over the next few weeks or months.

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This chart is of UNG, the natural gas ETF. I think it may be forming a major bottom. There is a Fibonacci support zone at the 6.14-6.16 area. The most important level is the 127.2% extension of the May-June rally. It sits at 6.14. The particular pattern in play is often called a "butterfly" pattern where the A-B leg bottoms at a 78.6% retracement level and then the C-D leg bottoms at the 127.2% level. Looking at the chart you can see that is in play here.

The daily MACD will make a bullish cross soon with any further upside in prices. Another thing to look at longer term is the size of the major rallies in this bear market in natural gas. The largest rally in UNG since the prior bull market high has been about 38%. There have been a few other rallies around 30%. So if a nice rally takes place, we would want to see it get larger than any other one in order to help confirm a longer term bottom has been made.

I have already covered the sentiment backdrop on Natural Gas in months past, but suffice it to say that this has been a big bear market, and the sentiment is ripe for an unwinding and major bullish advance.

UPRO Exit

Market is short-term overbought now. I am posting an exit on UPRO here at 131.77 up from 121.45.

Trade Exit:

Exit the open UPRO trade today with a market order.

Quick Update

If today's big day holds up, that will close a gap down and make it likely for the market to next the unfilled gap down above this area. The next resistances on SPY from unfilled gaps are 109.79 and 112.38.

Short-term is not quite overbought yet, but I will probably post an exit on UPRO relatively soon.

The Investor Intelligence newsletter survey today showed a big jump in bearishness. In back testing that hasn't been a huge short-term positive, but with the bearishness in the AAII and now the II, I taking the idea of a significant rally, probably even above the August highs, more seriously.

As a side note, Natural Gas prices appear to me to be forming a major bottom. I will try to get a post out with details, but there is an ideal bottoming area at 6.14ish on UNG. We never quite touched that yet. But the specific pattern in play is a major bottoming pattern. Be patient with this one - or add to it if money management allows. I really think this will explode up over coming months.