Stock market analysis and commentary from a trader's perspective

Thursday, April 17, 2014

Beats And Misses And The Most Important Level

As the market prepares for an early option expiration ahead of the Good Friday holiday, an unsettling mix of events awaits digestion.

Google missed. GE missed. Goldman missed. Chipotle beat. And consumer spending jumped . . . on Obamacare.

Not a good mix. The last two are the worst: when you've got people spending more on forced healthcare insurance, it's gotta come from somewhere. And so it appears that when people desire to go out to eat, they are downshifting to fast food.

This is not how vibrant economies are built.

No one cares. Futures are right back to yesterday's close, which is perfect. It appears as a double top.

If a move down is to come today, I would speculate that it would occur around 10am. Sometimes I've noticed that it can get stretched to around 11am which I don't like because that is during the time that I don't trade, the hour of the European close.

Europe by the way is all green today. Asia was slightly mixed, with China the notable red. Oh, the irony.

The most important number today remains 1872.53. Above that, and new highs are more than possible eventually. But keeping below that could cause a sharp reversal.

Wednesday, April 16, 2014

Noise And Jitters Or Worldwide Stimulus

One of the best narratives of the last 36 hours was found on Zero Hedge this morning.

Futures Soar 40 Points In Hours On Hopes Of Futher Economic Weakness

Could it be that the out-of-nowhere short covering rallies of Monday and Tuesday afternoon were brought on by speculation or rumors of new worldwide stimulus efforts by Japan, China, and the ECB?

I myself had thought it was due to a Yellen-Fed rumor. The idea of another worldwide stimulus is far more intriguing.

Here's the bottom line for me: until the S&P gets above 1872.53, it's noise and jitters. I see a falling wedge in play (what is it with wedges lately) that targets lower prices.

After those lower prices, however, I will be a buyer. Let's hope we get the same intensity of buying then.

I'm beginning to target the 1763-1777 area for a final low. There is a confluence of Fib targets there along with the all-important 200-day moving average at the lower end. 1737.92 remains a hard stop for this scenario.

1763-1777 could be quite interesting from a time perspective, too. Getting there could put us in the April 20-24 window of the Cardinal Grand Cross. Now that the full lunar eclipse/full moon has shown us short covering rather than a crash, perhaps the Grand Cross could show us a lasting bottom for several months.

Tuesday, April 15, 2014

Little By Little

Little by little the market is hinting that it's not ready to break. It may have lower levels in store, but perhaps not the Big Break or The Correction we've all been waiting for.

What this may eventually mean is that the 10% correction or whatever Wall Street thinks is normal or always happens (as if the market is some sort of machine) may not be so cut and dry. Going five years without a normal correction could mean a much worse event, such as a 10% correction for each year we didn't have one.

Until the signs appear though, the market may still have higher targets.

Yesterday's out-of-nowhere late day bounce felt like a Fed-related short covering rally. Perhaps Janet is already feeling the heat and will make some dovish announcement in the coming hours. Maybe she won't and the markets will feel let down.

Whatever the case, there are valid targets higher and lower. Yesterday's low does not seem to be the low, but that could change by getting above 1872.53.

The higher targets for today are 1849-1852. The lower targets are the 1812.74 1:1 Fib projection, the 1800 area, 1775.79, and the 200dma at roughly 1762.

1737.92 remains the hard stop for the new high scenario. Below that would suggest something else is going on that might take us all by surprise.

Monday, April 14, 2014

Note To Bears

Futures are ripping higher, right where they shouldn't if the market was ready to break down. So again, the rising wedge scenario gets dusted off.

Getting above 1835.07 today on the cash S&P index would close off the "official" bearish wave count which I keep an eye on (though increasingly I'm wondering why). Friday should have been a very scary day and the carnage should have behind a very scary, bearish set of waves, yet it's nearly impossible to count an impulse from it. The action in the futures thus far is more icing on the cake. Getting above Friday's high might well be the last nail in the bear's coffin for the time being.

Could another low occur even if 1835.07 gets exceeded? Of course. But as long as the February low (1737.92) holds, the market can retain a wedge structure and continue to new highs.

Note to Elliott wave bears: try not to be so bearish that you only see a bearish scenario day in-day out without an alternate count if you're wrong. This post is wrong below 1737.92.

Friday, April 11, 2014

Markets Put The Freak On

The bounce fizzled. The higher targets evaporated. The Relentless Bid evaporated. People freaked.

As expected, there was a lot of anecdotal alarm on Fast Money, Dennis returned to revel in the fear, and the Drudge Report added to the drama, on cue:

All this because the market got below the 1858.38 cited yesterday which turned the bounce into a three-wave correction. All this because the S&P was down 37 points but only closed just below the 38% Fibonacci support level. From a technical perspective, nothing has really happened yet.

What will these people do when the market really goes down?

There are two important Fib targets now. 1812.74 and 1775.79. If the first level holds, there is still the potential for a wedge pattern to new all-time highs.

If the first level breaks and the market continues to the second level, the odds increase dramatically that perhaps a top is in. But even then, it would be better to see the Feb. 5th low get pierced (1737.92).

All this is why I took off half of the UVXY position yesterday. Right or wrong.

I'm as much of a bear as anyone, but as bad a yesterday was, it would be very easy -- from a wave perspective -- to break the downtrend structure unless there is ample follow through. True, last night's futures action suggests this maybe ready to happen, but it's what happens in the regular cash session, on the cash index, that really counts.

Until TSHTF, I'll be a defensive bear.

Thursday, April 10, 2014

Simple Math And Not-So-Simple Psychology

We got the bounce. The market closed above the 1870.57 and just inside the 1872-1874.40 zone I mentioned on Stocktwits/Twitter.

The bounce is on lower volume as usual, but it looks choppy. With such large patterns in play, it now sits in a middle-of-the-page area with roughly equal odds up and down.

Good ol' Janet Yellen helped me out with my long hedges yesterday, but caused an implosion in UVXY which needs watching. Rather than act impulsively, I prefer to wait for better odds. I've been doing this a lot this year, preferring to trade less but do so with larger positions.

Currently, anything below 1858.38 without a new high first would likely break the wave structure and put pressure on bulls. There are, however, multiple targets beyond 1874.40 as high as 1880 and even a volume shelf at 1890.

It is now apparent why the Greek 5-year bond auction was 8X oversubscribed yesterday: Markit reports that Greece remains on target for outright deflation with March CPI at -1.3% y/y vs -1.1% y/y in February. So the chance to grab a 4.95% yield was too good to pass up.

Evidently France is headed in the same direction, and is further ahead, or behind, depending on how you look at it, with inflation at just 0.4% y/y in March. Europe is headed for some deep trouble.

So perhaps is China, where the latest trade data caused CNBC's Deirdre Wang Morris to simply exclaim Whoa. March exports fell 6.6% y/y (vs +4.8% expected) and imports fell 11.3% y/y (vs +3.9% expected), well below market consensus. The imports may not be a big deal simply because China is trying to boost internal consumption which will likely be a bumpy road for the near term. But the export figures, along with the latest collapse in the Baltic Dry Index seem to confirm that global growth is slowing at a time when it can't.

After all the unprecedented stimulus efforts worldwide, it just can't fail, can it?

Yes, it can. Because the global debt overhang is so many multiples larger. It's just simple math coupled with the not-so-simple psychology that drives its implosion.

Wednesday, April 9, 2014

Plotting Strategy

Yesterday: 5 warning signs of a stock market bubble.

Today: Has the correction in stocks rebuilt the wall of worry?

Two stories a mere day apart by the same author, two completely different headlines. All this really does is jerk people around.

If there is indeed a trend to be aware of here, it's that the pace of opposing headlines and news both bullish and bearish seems to be accelerating. It feels like a case of growing anxiety.

In Europe, the headlines are sounding the all-clear, for today at least. The front page of the FT reports that the IMF has cut the danger of a downturn to near zero, and that Greece is launching the sale of 5-year bonds, the first long-term issuance since its 2010 bailout. No anxiety there.

The market jerked me around by bottoming during the European close yesterday which is my self-imposed no-trade period due to consistent losses over the years during that timeframe.

A little patience is a good thing, however. Sitting on the sidelines, especially after a sharp, swift decline is not the worst thing a trader can do. I used the time to plot strategy.

The market did make a new low, but it was a weaker low. There are arguably five waves down from the top now. A bounce could occur that could take the market close to the 1870.57 swing point that I had my eye on. It feels choppy thus far. UVXY is coming in hard and should be an excellent buy very soon, probably in the 58 area. I'm holding the SPXL against the UVXY and will scale out of the first as I'm increasing the latter. Seeing as I have some underwater SPY calls as well, I'll roll out of them as SPXL whittles down, or sacrifice them.

Failure to get above the 1860 level (the 38% Fib retracement) could become dangerous, however. At the current time, I feel better about holding more UVXY anyway and will continue to build the position.

The European majors are solid green today, so it feels like go-time for a stateside bounce as well.