BGZ Trade Exit

Exit the current BGZ trade today before the close if possible. The current price is 56.50 which I will use for the blog exit price.

The short-term model is not oversold, but the small decline the last few days has been so slow and choppy, that it seems very unlikely that the short-term trend has shifted to down yet. That means I think it is more likely for another high above the recent highs to be made before a potential top is in.

Best case scenario is that there will be another high and we can get back in BGZ at a better price with a small gain already under our belt. Worst case scenario I think is that we get in BGZ at a little worse price a few weeks down the road, but closer to a potential "breakdown" point in the market.

No changes for the QID trade as the short-term model is basically neutral right now.


Pete

QID Trade Update

Just wanted to make a quick post with a limit order to potentially sell the current QID position and simplify the exit for part-time traders.

For Wednesday place a day only limit order of 46.90 to sell QID on further weakness tomorrow.

The short-term model is nearing the oversold area, but not quite there yet. The futures are weak this evening as overseas market are falling thus far, and the kick off to earnings season was apparently not well received by the bulls. The close last Wednesday before the large gap up in the indexes last Thursday is the area being targeted by the limit order above. If things fall that low, I think the short-term model will be oversold.


Pete

Hanging Man Candlesticks

Click on Chart to Enlarge

First off, the opening price of QID this morning was 43.45 which will be the entry price for the blog trade. When I made the previous post it was about 6:30 AM ET and the futures were up about 0.5%. But the futures fell significantly after the morning news flow started, and resulted in a decent size gap down rather than a gap up.

Secondly, with how steady this uptrend has been, the short-term model is likely to become oversold rather quickly compared to during a downtrend, so any additional weakness tomorrow may lead to an exit signal.

Thirdly, IF the S&P 500 moves down below 778 over the next 2 or 3 days, then I will suggest placing a profitable stop loss order on the BGZ trade and assume the top has been made for this rally. Right now, it looks like that is possible, but it also seems possible for another push to new highs over the next week or so.

Now to the chart.....The chart above is DIA which is the standard Dow Industrials ETF. The chart shows 2 consecutive hanging man candlesticks. These occur when the market undergoes an early sell off followed by a recovery toward the opening price. The real body is small (less than half of the lower wick). Also, there should be little to no upper wick on the candle. For interested chart readers, $INDU and $SPX (the Dow and S&P cash values), today formed a classic hanging man candlestick with a black real body, which typically is considered more bearish than a white real body.

Three days ago, a shooting star type candle formed as the large gap up and early advance faltered a bit into the close and closed off the highs. So we have three potentially bearish candlesticks in a row in DIA. Also, the gap up Thursday after a strong, nearly vertical advance, has many characteristics of an exhaustion gap. What we are missing is price confirmation both in magnitude and in rate of decline to be able to have some confidence that a top of some significance has been made.

So from here, the QID trade is easy to manage....just exit at the next oversold signal from the short-term model. The BGZ trade is a little trickier, but I will make an evaluation at the next oversold signal to see whether it makes more sense to exit then and look to re-enter in coming days, or to place a stop loss somewhere and hold in anticipation of a larger move down.

QID Trade Entry

As mentioned in the previous post, the Nasdaq short-term model is overbought. The pre-market futures are indicating a modest gap up at this time, which is what would seem like the best bearish set-up at this point (gap up while overbought after a positive response to Friday's jobs report).

So I am going to recommend a short-term trade on QID at this point, which is the ultra inverse Nasdaq ETF. As discussed in recent posts, some people are in BGZ and may not be making any more trades, which is fine. But for those who want to continue to make short-term trades on top of the intermediate term (potentially) trade on BGZ, I am going to continue to look for solid spots to initiate those trades.


New Trade Recommendation......

Buy QID with a market order Monday morning. This should result in getting in very close to the opening price, which is what I will use for the trade entry price.


Pete

Updated Pattern Expectations and Probable New Short-term Blog Trade

Click on Chart to Enlarge

The chart above is SPY as of Friday's close. I have some projections and a few notes on the chart I will quickly put into words. First off, I would expect the top of this rally to occur below the pink horizontal line. That is due to the price pattern that has formed over the last few months. If that holds true, it is easy to see the potential reward is very small compared to downside risk at this point in the rally.

The solid lime green line was the pattern I drew out 2 weeks ago for expectations of a contracting triangle to form. It does not appear that a classic contracting triangle is forming at this point, but you can see that the highs and lows so far have been occuring at the expected time. Because of that, I don't think the timing of that expectation will be too far off, but I have drawn in a new projection in dotted dark green for my new expectation.

The short-term model for the Nasdaq became overbought near closing time today so that justifies a new bearish short-term blog trade at this point with QID the likely fund of choice. I will make a blog post either Sunday evening or Monday morning with instructions regarding that trade. But for right now, just expect to buy QID at the open on Monday, especially if there is a gap up on Monday.

About 2 weeks ago we saw some stalling candlestick patterns that led to a little pullback and a successful blog trade on SDS. Now that we are at new highs above those levels, it would be nice to see a solid reversal candlestick pattern to indicate that a short-term (at minimum) top has been made.

With each move higher here, I feel more confident that we are very close to a significant high in price, but I am not sure if the market will form a sharp top or if it will stall and form a failed breakout or two before heading down with more conviction.

Pete

Quick Update

There are still 11 minutes until close as I type, but today looks like the VIX will make a hammer candlestick. I have talked about this phenomenon before where the market is overbought and there is a large up day, but the VIX makes a major reversal off the lows. I have seen this happen at tops several times.

Because of that in addition to the allllllmost overbought short-term model today, I am going to suggest entering the BGZ trade before the close today if you didn't enter on the limit orders this morning.

I will consider 54.00 as the blog entry price wince it is about the average of the limit orders this morning.

Hopefully any drawdown will not be too uncomfortable on this trade.


Pete

Quick Note and Limit Order for BGZ

This morning is set for a large gap up (around 2%) in the stock indexes. The short-term model is near overbought after yesterday's gain. With any strength after the open, last weeks highs would be exceeded. I would definitely be wanting to bet against this rally on new highs.

So I would like to see how things go in the morning and see if the short-term model will register any extreme readings before recommending a trade, but I have decided on a limit order to place to potentially buy BGZ for those of you who have very little time during the day to enter orders or check for an update on the blog. So here is the recommendation.....


Place a "day only" limit order to buy BGZ at 55.00 with half the normal dollar amount devoted to a trade and an additional limit order at 53.00 with another half-sized dollar amount.

Those orders would require the market move above last week's highs a bit and would likely result in the short-term model becoming overbought or very close to it.

To reiterate on previous posts here, this trade would be intended for a multi week holding period, though it is unlikely to hold beyond June. I think any push to new highs here may be the highest point the market reaches before making new bear market lows and then some.

Now let's say that the order gets filled and the market drops and everything goes as planned, I will still be looking for good short-term trades to make in future weeks for those of you who want to continue trading the smaller time frame type trades as well. But for those of you who may be using the "cumulative" method I had mentioned for account management for these trades, I would make this BGZ trade and just stay posted over the next few weeks for any trade management type posts on stop placement or trade exit if the market does not begin to accelerate down as expected.

I will post later today if/when the short-term model becomes overbought to suggest entry for any traders not wanting to use the above limit orders for whatever reason.

Pete