Market Update 12/28/09

The SP-500 gapped up yesterday morning and then proceeded to meander lifelessly for the remainder of the day. As commented on in previous posts there are a serious lack of interest from both buyers and sellers. I was filled on my second scale in for the short position I am building. (See the 12/27/09 post for the reasons and trade plan).

% Of Full Position
MY %     Alternate%           SPX Level to Scale In           SPX Level Stop

20%               15 %                        In at 1119

30%               30%                         In at 1128.45

50%               55%                         1136.45                      1145.83



As long as the KW_Mouthwash Breadth indicator stays at extreme levels without at least a 1.5% SP-500 pullback (from peak to trough) I will continue with the plan for a third scale-in at SPX 1136.45.

If SPX pulls back before reaching the third level I will bring the stop down to 3.34 points above the SPX pivot high that will have formed on a close below 1118.19. (My second entry level minus the 10D_ATR on the day filled). On an Intraday move below 1114.10 I will sell half the position and go to break even on the remainder. If a real more normal pullback develops I will trail the remainder until a long signal develops.

That’s the plan and I’m sticking to it.

Good Trading.
KW

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Dollar in a trianlge 2009-12-28

While the current trend has been up for the dollar ($DXY) over the last couple of weeks, and this recent pull back is notable, will the breakout be up or down? and will the market (SPY) follow or invert the pattern? Take a look at the following triangles.

I've decided to watch for a break above the downward trend line as well as the horizontal support line. Keep an eye out since we've recently been in a very narrow range for SPY as well. A move is coming.

Klatuu

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Market Update 12/27/09

The SP-500 certainly looks like its trying to break out of its 1+ month consolidation. It seams destined to at least hit the FIB 1.23 extension of the most recent ABC pattern.

However, volume is still anemic and my tried and true Mouthwash Breadth indicator is at its highest extreme reading ever. It has never reached these relative levels with out at least a 1.5% pull back. Previous extreme readings often preceded much more significant pull backs. Cognizant that the market is in an unrelenting up trend I am using the following scale in strategy to build a short position on the SP-500. (Using a combination of SPY, SPY Futures, and SPY Puts)

I currently have 20% of a full position Short. I will scale into a larger position at the SPX levels posted in the table below. My scales percentages are 20%, 30% and 50% of a full position. I also posted an alternative scale % strategy for any one interested in building a short position.

A Pull back >= of 1 ATR(currently 10.64) on a closing basis will bring my stop down to 3.34 SPX points above what ever the resulting pivot high is. At a pull back of 1.4 ATR’s I will close half the position, trail the stop and see if a more significant pull back develops.

This is a relatively low risk way to be exposed to counter trend trade. If it sounds confusing I will post updated trailing stops as they develop. As always plan the trade, and trade the plan.


% Of Full Position
MY %   Alternate%        SPX Level to Scale In          SPX Level Stop
20%            15%                   In at 1119

 30%           30%                    1128.45


50%           55%                    1136.45                              1145.83

Good Trading.

KW

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Citi leaves an impact on Volume and the TRIN

Citi had a secondary offering today that threw the volume of the NYSE into a tizzy and also affected the TRIN.  The following two charts were taken within about 10 minutes of each other. Note the Citi volume (circled on left), then in the middle you'll see hourly volume of the NYSE, a phenomenal amount for the first hour (red bars).

Not long after this an adjustment was made to the volume from +2 billion to -2 billion shares. It's reflected in the red down candle. But what is not lost has been the effect this has had on the $TRIN (3rd chart down)

The TRIN (circled) went waaay out of kilter.

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Market Update 12/16/09

No change in the outlook from yesterdays post. The Distribution chart above shows just how relatively rare these persistent narrow range days have become. The chart shows the distribution of the 5 day average intra day range (630AM-1:15) for the last 6 ES E-mini futures contracts (372 trading days) on the SP-500.

During this period a 5 day average range of 7-10 has happened only 1.34% of the time. The majority of the 1.34% has happened in the last few weeks, and as of this post stands at 7.75. The one constant in markets is periods of low volatility turn into periods of high volatility, and periods of high volatility are followed by periods of low volatility. The question is when.

As discussed in yesterdays post I am building a short position with SPY puts because of my Market Breadth indicators, and a down day or two is generally the easiest way for a reversion to the mean area of the range distribution.

Good Trading
KW

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Dollar and GLD update 2009-12-16

The dollar ($DXY in top chart) continues up in a wedge that may resolve itself downward. The wedge combined with the resistance from a few months ago (horizontal red line) will require a bit of strength to go through. Such a drop could go as far as the 50dMA (blue line), regain support and continue it's rise.


Conversely, GLD should do the opposite, gaining support from it's 38% fib retracement and rising up from $110.80 to it's 23% fib at $114.07, with a stop under $109.25 should make for a tight trade.

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Market Update 12/15/09

A long time ago in a galaxy far, far away…

Galactic Starships (GS) would fire huge arsenals of futures contracts to overrun Rebel positions and destroy bases. Rebel areas of support and resistance would be overrun, and obliterated.
These volatile periods brought on by the ultimate GS weapon- the program death star- would shatter the peaceful quiet markets enabled by the consolidating Rebel positions.
That was another time and place. In this galaxy the consolidating Rebels are well hidden from a program death star. The SP-500 has been locked in a tight 30 point for a month and has a general lack of interest from buyers, sellers and program death stars.

However, there are signs that in another galaxy would precede an end to the peace.

1. The top breadth indicator (a calculation of the up volume and down volume on NYSE issues) remains extremely negative divergent.

2. My Mouthwash Breadth Indicator is approaching and extreme level on the upside.

3. $SPX is once again testing the lower trend line on the regression channel. A move thru it could fuel a large down side move out of this consolidation. (If it holds it could fuel a large move to the upside)

I have tried for a few days to find an option straddle I was comfortable with. If we ever adopt the physics of that far away galaxy, an explosive move is coming. A straddle would eliminate the need to be right on the direction. I have yet to find the right combination, and I am now trading for a down move. Because of the low volatility SPY put options are relatively cheap and limit my risk if the explosion is to the up side.

I can’t ignore my Breadth indicators, as in that other galaxy they were the “force” that protected against and profited from sudden appearances of the program death star.

Good Trading
KW

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Market Update 12/10/09

After a large gap up the SP-500 could not follow thru to the upside. There was generally a lack of interest from both buyers and sellers resulting in a 7 point range for the entire day. The gap up stopped me out of my

SPY puts for a nominal loss.

I will look to put on a straddle on Friday for exposure to the explosive directional move that the market is building up for. (See previous posts). This period of a tight ranges and low implied volatility on options is the ideal time to open a straddle. This position will eliminate the need to be right on the direction of the move, but requires a large move to profit. I will post the strike and month of the straddle when I open the position.

The eventual move out of the rectangle area on the 45 minute $SPX chart will be a large one. The only question is which way and when. Markets being what they are it will be when the fewest expect it and the most are wrong.



Good trading.

KW

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SPY at a cross roads

After a few weeks of meandering indicators on the SPY have positioned themselves into points which normally are bearish. You can see on the chart the first remark (A) shows our indicator turned up near the middle following a divergent decline (B). A purple circle to the left show a turn up previously seen. The lower indicator (C) has turned up from a 4 month lowwhich has also signaled a reversal. Taken together (A) and (C) should combine for a begining up move.

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Dollar begins pullback

The dollar ($DXY) has hit some resistance and appears headed down for a bit, which could assist the market (SPY) with it's climb. Support at 75.40 is possible.

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Market Update 12/09/09

The market continues to refuse a real break down. The Daily SP-500 chart(on left) once again held the lower regression channel trend line and the 4th attempt to smack thru the 1085 area.
Because of negative breadth divergences (see previous post) that remain intact I remain committed to my SPY puts with my stop pegged to $SPX 1101.94.
The 45 Minute chart of $SPX shows the frustration of staying long or short for more then a day or two for the past few weeks. In that time frame we are making a second attempt to get thru a resistance level that previously acted as support. This market is building up energy for a large directional move. The question is which way. For now and the reasons discussed in the last few posts I am positioned for a down move with a stop that may frustrate but can’t hurt me.

For ES futures traders, the March ESH10 contract becomes the front month on Thursday (12/10/09).



Good Trading

KW

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Market Update 12/08/09

 

Today’s sell-off is the 4th foray below the 1090 area in the last 3 weeks. The SP-500 is sitting on its lower regression channel trend line which held a previous test (the 1029.38 pivot L). Generally when an area that has been support multiple times fails, it sets up a pretty big pop to the downside. If we break the last pivot low of 1083.74, a move to the 1075.39(call it 1076) 1.23 fib extension below the post Dubai rally should be a slam dunk

I will take some SPY put profits on a follow thru of today’s sell off into that area. This area is also the 50 retracement of the rally from 1029.39 to 1119.13. That fib confluence is logical place to take some off the table and hang in there for a larger move with a stop on the remainder at break even.
I am playing for a larger move because:
1. The market has been locked in a tight consolidation for three weeks, which usually culminates in a large move.

2. The major negative breadth divergences discussed in these previous posts-

http://marketkinetics.blogspot.com/2009/12/breadth-divergence-still-intact.html

http://marketkinetics.blogspot.com/2009/12/market-update.html

-is still intact and has not been resolved in a major sell-off. (Yet)

However, the trend for 9 months has been, don’t stay short for too long. With that in mind I will go with my indicators and stay short until they tell me its time to go long or the stop gods hit my trail.


Good Trading

KW

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Dollar above 50dMA for third day

The dollar ($DXY) has traded above it's 50dMA for the last three days, a first since April '09. A corresponding downward move with gold has also taken place. Caution is warranted near this change in direction.

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Dollar Update

Hello World!

The Dollar has hit it's 50dMA, if this continues we may see a reversal. It's followed the FibFans reasonable well, but today's thrust shows a decided change in sentiment of the Job report and the prospects for the dollar, not to mention the short-covering that maybe going on.

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