High OEX Reading Today

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I had considered recommending a new SPXU trade today, but for a few reasons I didn't. For one thing, I don't see an obvious stop point that is close to current prices. So I would rather see weakness re-emerge and then use the peak of the recent advance as the stop. Also, the candlestick today didn't show any stalling or weakness, closing right at the highs.

On the other hand volume was low which may be a sign that the big money was not convinced that this will last and did not participate. On that note, the OEX put/call ratio looks to be quite high today, which shows the smart traders are taking the precaution of hedging/betting on downside risk from this level. I don't have the exact figure for today, but it looks to be one of the higher readings we've seen recently.

Technically the move up the last few days appears as a rising wedge on the 15 min chart. That is typically a bearish continuation pattern. So until price actually breaks out one way or the other, it is just something of note, but not really actionable. Besides the top of the wedge, there are also the base trendline from the highs as well as horizontal resistance from the 10/29 highs that are potential resistance at this level.

Basically I will be looking to enter a new bearish trade at any time from here, but need to see some better signs of reversal or at least stalling/divergence first.

General Update and Gold Rage

The EUO trade was stopped out (basically breakeven) today during the erratic post FOMC action. I anticipate re-entering this soon, maybe tomorrow.

I also plan on re-entering SPXU soon, most likely tomorrow. The cash S&P showed a shooting star type candle that reversed off the now declining 21 day exp. MA. When these types of candles happen in a trading range, I don't put as much emphasis on them as opposed to at the end of a trending move, but it does offer a nice clear stop point for a new trade entry, so I will probably see what things look like in the morning and then decide whether to enter right away, or see how the early part of the session goes.

I occasionally give updates on gold on this blog, typically noting times of extreme price highs. I take this approach because the sentiment was so uber bullish last year, that it smacked of a major long term top and just wanted to help any would be gold buyers out there steer clear of buy the top ticks of an inflation fearing gold mania. That remains my main emphasis with mentioning gold now, and even more so.

The latest Commitment of Traders data shows that large speculators are by far and away more bullish than any time in years. It is similar but not as extreme with small specs. Both groups tend to be wrong at the extremes. Additionally, the "smart money" commercial hedgers are way more net short, and thus bearish on gold, than any time in years. I know that at times like this, some percentage of people will be convinced of the next best thing, which is gold this time. But like with housing a few years back, when everybody thinks its the next best thing, it probably won't be for very long. In any case, I'd really warn anybody who's thinking about investing in gold or who may have a major investment in it to realize that the real money data like the COT and Rydex fund data, are consistent with very significant highs in gold. It looks like a little mania is ending - not the time you want to invest in it.

Also today showed a gap up on GLD and a doji at the close which could be indicative of some degree of topping. If tomorrow gaps down and falls, it may end up being an Abandoned Baby candlestick pattern which is one of the more rare and more reliable patterns, in this case a topping pattern.

SSO Trade Exit

Short-term model for the Nasdaq is quite overbought. S&P not quite there yet, but I may be out later today and unable to post, so I'm going to post the exit now so that everyone could get out around the lunch time prior to the FOMC news at 2:15 pm ET.

Exit the open SSO trade today with a market order ASAP. Current price is 34.40 for almost 4% gain from the blog entry price.

Bullish Engulfing on Russell 2000 ETF

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The indexes look to be in a solid short-term bullish set-up here. The Russell 2000 and Nasdaq have both undercut first support on this decline. The S&P and Dow have not. For those that have followed the blog for quite a while may recall prior posts highlighting the break of the first support as a target after an intermediate high. Often that support is undercut and then there is a rally back to the middle of the leg down from the top. On the IWM etf above that would translate to a move back to the 59 area.

The index etf's basically formed doji/harami's yesterday indicating indecision and possible consolidation or reversal ahead. Today, they mainly formed bullish engulfing patterns of yesterday's small real bodies. So short-term I think the odds favor a bounce, which is why I suggested the trade on SSO.

There is as FOMC announcement tomorrow afternoon, so there could be a large market move. Also, recent history would suggest likelihood of a gap up in the morning. I expect to exit the SSO trade tomorrow at some point, and possibly reverse the trade back into SPXU if conditions look good. From an indicator standpoint I think a choppy range would be likely for several days at least. Also, for anyone new, there has been a very consistent tendency for FOMC day strength to be reversed over the following 2-3 sessions, so in the event of a large gain tomorrow, that would be an added historical tendency to support consideration of a new bearish trade. In the event that the market moves down substantially, it will be important to see if any new lows get reversed back into the recent 3 day range quickly before reconsidering a bullish trade.

On an intermediate term basis the basic trend indicators are signaling a new down trend in stocks. Both the DMI and Aaroon indicators show bearish trends in the Russell 2000. Also the Bollinger bands are in the most bearish configuration. They are expanding with multiple recent closes below the bottom band after a horizontal channel and double top price formation. The text book target for the double top would put the IWM etf above down into the 53 to 54 region which is just under next support. So that may be a level to keep an eye on for any shorter term traders.

For what it's worth, I think the price action and pattern on this chart suggest that price is likely to move back to or below the July lows some time this month or early next month. Obviously we'll take it one step at a time, but whenever you see price completely retrace a leg of the prior
trend in less time than it took to form, you are usually looking at a larger trend change.

Also, historical studies I referenced in July and August suggested that after periods of such incredible trend persistency the norm was for them to experience very sharp declines that nearly or completely wiped out all those gains in a short period of time. In the Chinese market we saw it happen a few months back, and on the Russell 2000 chart above we've already seen the last 2 months of gains erased in 2 weeks. There is still some work to be done in that regard on the S&P and Dow, so I still expect further sharp declines, though at least a brief rebound looks likely.

EUO Stop Adjustment

On account of the move in EUO above the recent consolidation, I think this is a good time to move the stop up. I think it is not very likely to get stopped out if the recent bottom in the US dollar was a major low. If it does get stopped out, then there may be a chance for re-entry soon after, but right now, removing the risk on the trade will make it much easier psychologically to allow things to unfold.

Modify the GTC sell top on the open EUO trade to 17.50, which is basically breakeven or a little better.

Blank Post Earlier Today

Earlier today there was an accidental publish as I was posting the SPXU trade exit. So I re-posted it. Did everyone receive that post? This has happened before and I thought it always sent the new publish out when republished. If anyone did not get that post, or has missed one before in that situation let me know in the comment area, so I can maybe just delete the accidental publish and make a completely new one, and that would probably solve the problem.

Anyway, please check the blog site for that post if you did not receive it via RSS feed or email, etc. And if you didn't get out today on that, just place a market order for tomorrow to sell it in the morning. I suspect a significant move up by Wednesday, so I would just get out ASAP and then wait for a new trade.

New SSO Trade

I am going to post a new bullish trade here as the technical indicator set-up looks very good with a clear stop level.

This will be a little more active than the last trade. The exit could be as soon as tomorrow and almost definitely by Wednesday.

New Trade:

Buy SSO with a market order today before the close. Current price is 33.31 which will be the blog entry. Place a GTC sell stop at 32.00 immediately after entry and use the money management post for guidelines on position size.

P.S. If you don't get in today and want to tomorrow, use a limit order of today's closing price on SSO to buy tomorrow. I suspect a gap up and if it's big, I don't think you should chase it.