I have some clients stopping by early, so again another short market update. The market is likely in a third wave up, but there are still pullbacks. VIX:VXV is safely under .91, so you can look into inverse volatility again and personally I favor TNA over UPRO short term.
It's hard to say if today will really offer much pullback. Ideally I would like to see VIX hit 16-18 even if for only a tempoirary spike. I just cannot justify going in at a 14.6 VIX. It feels like chasing. The Slow STO still offers room for advancement and to be honest for the next month I see mostly positive. Remember, we are swing trading, not buying and holding for a month, so you still need to time it properly on the daily and hourly charts. Let's hope this is not a slow grinding upward 3rd wave. If it is, it will be frustrating due to the lack of pullbacks, but that is life.
Lastly, do not worry the market will leave us behind. Two words, "Debt Ceiling". The big players will not get heavily in until this is all done. Plus we will get news driven again in about 6 weeks.
My gut feeling is that they want to run this market up because that will be a very contentious and hard fought issue that will roil the markets. For now I do not want to guess at the damage there, but I would not rule out the correction we talked about. The moving averages did move back inside the wedges on SPY and VIX, so it seems like they would prefer to flirt with the top of the wedge before breaking.
The market cannot go straight up, but it has a LOT of momentum. We are near the top of the BB on SPY and that will slow it down. I would be surprised if we see a bounce down to mid BB, but maybe to the 1 std dev above 20 day line. In a news driven market with so many that have been sidelined, this looks like a strong wave three up. I suspect we are going to the top of the LT channel line (mid to upper 148 range), which could take a week or so.
In general I will be watching NYMO (any break above top BB is a sell), CPCE (historically high levels will be a sell), and VIX (low to mid 14's is a sell).
Until then, I hope you are in. I am up another 6% this morning, and for as much worrying as this market has caused, this feels like hard earned spoils of war for now.
Sorry there has not been much posting lately. Holidays have been fun and while I have been keeping up, I have not had time to do in depth analysis, except a little at nights. Anyways, we stand on a pivotal turning point. Let me explain the talking points on both sides of the field. I am short term bullish, but I am about a half position on upro, so I am being very cautious.
1.) The market is oversold. The worry of course is the fiscal cliff. If you take this off the table, the macro news is not that bad. It's not fantastic either, but it's more positive than negative.
2.) We are sitting right above the 200 day SMA, around 139.3, which also happens to be a terminal 5th wave down point.
3.) STO is 14.23, suggesting a good buy point.
4.) With respect to the fiscal cliff, the republicans seem to want to play ball. The Democrats I think do too, but they are playing hardball since the blame (for whatever reason) will fall on the republicans. Doesn't that seem like a bit of irony there. Anyways...
5.) $NYMO broke under it's lower BB. This is a very good buy signal. It is generally very reliable, although occasionally a day or two off, so don't be scared if we still drop to 1393 on SPX.
6.) Calls to Puts CPCE is not very high.
7.) The market usually crashes at tops, not at local bottoms.
8.) There is a good level of VIX to wear off.
1.) The VIX/VXV ratio is over 1.00, screaming do NOT buy.
2.) We are right at the VIX long term TL and the SPY long term TL on 20 week EMA. This is historically a very good indicator that something bad will happen.
3.) Volatility is high, but can go WAY higher. A .382 correction would see SPY at 118-ish and VIX at 50-ish. Risk reward is there, but not great.
4.) MACD negative crossover, pointing down.
5.) This fiscal cliff thing is not over.
End result: Cash would have been better, but since I am in UPRO, I will stick with it. TNA, XIV and TQQQ look more attractive than UPRO if you are in cash. I would wait for either a confirmation on Fiscal cliff or 1393 in SPX, but outside of that I think they are acceptable buy points.
Sorry, with the holidays I forgot to post my addition of upro. This is a short term pickup. The market sold off hard and volume tapered off. If you did not pick it up and want to, maybe wait a little on the open as TRIN for the spx is very low. To be fair I do not like the market action, but again this will hopefully be a quick short play.
Reason for sale: I think VIX is overextended. We were in upper 22's a couple days ago and now upper 14's. It probably will go just a little lower, but I don't need to hit every top and/or bottoms, just good hits along the way. This certainly was a good hit.
Last night is the reason we were not in bull. Cash is probably still a good policy, and the straddle mentioned yesterday is not favorable as the net debits force VIX to go to 15.5 or 16 just to break even. If it really spikes, we turn a profit, but this could still be a mini spike, until we see follow through or 20 week through VIX TL.
Keep an eye on VIX, as it closed right under its trend line. A trend line break does not mean capitulation necessarily but may lead to a minor spike in low 20's. a 20 week TL break is more serious, chart wise. I am not playing direction, but may play trend. Thinking straddle at VIX 18.
Today is one of those days you have to make a tough decision. Are you going to chase strength or play the statistics? I have a feeling the market will show a ST top today, but I do expect a green candle. It is possible, this top may only lead into a consolidation, not a pure correction, but it should be a top in ST upwards motion nonetheless. In an ideal setting, we hit yesterday's high target at the upward channel right on, and now we should contract. TRIN is .48, which suggests opening weakness, $CPCE is .51 suggesting WAY TOO MANY BULLS as well as minimal protection to downside. That's the lowest I have seen in 6 months. VIX shows support at the bottom of the 10 day bollinger band, but offers just a little more room to fall on the RSI's and the 20 day BB suggests more room as well.
The thing to watch is the RSI 10 and 14 on SPY. RSI(10) is already over 70 and RSI(14) is a day or two away. That would give us an intermediate term top should we hit there. The market will not be doing any favors except to the bears to rally much higher ST. VIX:VXV remains at 92.6 in the warning level.
So bottom line is this. If you play this rally, you have no reliable exit strategy, unless you see something that I do not. You can hope for 148.50, which is the upward trend line, but hope is a crappy strategy. I would say wait it out, even though the market will likely rally. This is being disciplined. Trust me, there will be plenty more opportunities to make money that will be more predictable and safer. Do not short this rally right now. There is too much volume and momentum, and again I do believe short term is up.
Last thing I want to offer is I do see yesterday's pump and dump scenario as being more likely day by day as this rally progresses. When you expand to new high's on less bad news that has not actually happened, and skid upwards on the BB top escentially going parabolic, this is not healthy on the intermediate term. Again, if this is a three, we could still be waiting a little while before we crash out, but do not try to time it too much. Once the market starts to misbehave, have the courage to sit it out unless you see entries AND exit points.
Safe and profitable trading!
9:10 AM - Yesterday I was calling for mid 144's. I didn't expect to get it all in one day. At least we are getting back on target, and the market is starting to become more predictable again, even if moves are a hyperbole of what they should be. If I were to expect a game plan, it is to run up the market prior to the decision on the Fiscal Cliff, and then sell the news (maybe a day or two after announcement, after initial high wears off). Don't marry this concept, but that is what the set-up looks like and seems to follow the market's recent history with big expected announcements.
SPX has nearly 75% of issues over it's 50 day average. daily STO has been above 80 for 3 weeks and finally broke under that mark. SPY was not able to pierce the 143.88 (.618) Fib Line yesterday. TRIN closer at .48. We are currently as of the time of writing gapping above our previous close by a significant margin. VIX has a both a bullish MACD crossover and moving average crossover, while VXV is mixed on signals. Sentiment is very ST bullish on stocktwits as well, which rarely helps. All of this suggests a bearish end result today. But, I think it more likely up than down.
Simple answer: Late day parabolic rally with slightly better than average late day volume. To be fair, the overall impression on volume was not fantastic for a breakout, but the breakout did occur late day. Price action alone is very powerful and I would not want to short this wave until firm resistance.
While I do think we will continue to push up, we do have some confines on us. The first is the daily upper BB at 144.50, which also happens to be the high for last week's candle. Do watch that level. If we make it past that level, then there is the new upper channel, which is currently for today at 145.46. I do not see us breaking that level. If we do, it is a head fake and should be sold, regardless of sentiment at that time.
It's about 9:00 AM as I write now and it looks like we are fading some premarket, which is probably good for the long term duration of today. XIV, TQQQ and TNA are all above UPRO, so honestly that is the best scenario for a bull run today.
As always, be mindful of the impact of a VIX spike. I do not expect it today, but the emotional volatility of this Fiscal Cliff stuff, along with a narrowing downward wedge in VIX and a high VIX:VXV rate does add a dimension of risk. If you got in yesterday, watch the levels I mentioned and trade safely. Remember bulls make money, bears make money, but hogs get slaughtered.
When you first look at the weekly candlestick, it initially suggests fear. This candle is a gravestone doji, but it's not as bad as you might first consider. The downside is that the bears fought back the bulls, but it really suggests indecision. If the doji was completely above the prior bull run, it would suggest a reversal and possible buyer's rejection of higher price. But this was not the case.
In fact, we have history on our side at this point, and we can look to June '12 for a very similar set-up. The most likely case is that we have a reversal in price to last weeks highs, somewhere in the mid 144's. Personally, I think this is strong enough that you could play this bump if you want. Still, you do need to be cautious if you are going to.
The fiscal cliff stills seems likely to unfold into a mess, but remember that moving averages take the path of least resistance USUALLY. We broke the 12 week downward channel to the upside, and with two weeks above, it does not appear to be a random head fake. I suspect that rather than go through the LT rising wedge trend line, it may try to make one last pass up. Keep in mind, there is not much more wiggle room, VIX:VXV is .94 after a 3 day down pattern. A play now DOES carry danger with it, but danger is usually rewarded if you are right. We are still in a news-driven market, so things can turn quickly and the market is obviously nervous. So basically, this is a swim at your own risk situation, but there could be a decent upside on the short term.
If VIX breaks 18 intraday, there could be reason to worry, but I don't think I would short the market right now, unless VIX really starts to spike. John Boehner's consent on higher tax rates seems to be signaling a decision in another iteration or two of negotiations
9:00 AM - I was really hoping to see a good triad of red candles, so I think today may make the third day and a good exit point. Yes, I consider Wednesday 12/12/12 red, even though it looks solid green on the SPY chart. UPRO was red and so was XIV The market, if you believe the analysts, seems intent on giving Washington more time, and is discounting the rhetoric for now. I don't believe this will be the case forever, but you can feel it in the half life of price action against the news. Yesterday's volume was not what you would expect to see for a powerful short term bear move.
A good reflection point for SPY is the 20 day EMA at 141.70 or 141.20 (upper descending trend line now acting as support) if that line fails. Actually, XIV worries me some (VXX being the inverse to that, which I am in). It found strong support at the old former high price line, which also is the old BB line. That line has acted as support and as a magnet of pricing for the better part of a month. So far in premarket XIV seems to be holding much better than any of the indices, so we will have to watch it.
As always, I will post my trade out, which I anticipate for today, unless new information comes to light.