Wednesday 27 July 2011

Roller Coaster Wednesday.

Today‘s market action was a warning shot to Congress.

It was a great day for day-traders and bears alike. SPX fell 2% and it was a sea of red. Today bears are rejoicing and bulls are fearful but just a few days ago it was just the opposite and we were talking of SPX 1370 +. So is it the beginning of the bear market? I doubt it. On 1st of June also the market fell 30 points. Once again let me invoke the bigger picture. But sure there are more churning ahead.

1st the Bull side of the story.

·         See the SPX daily chart.  

All the churning is in-between those two lines. And there is lots of money still waiting in the sideline. As I noted yesterday, in fact lots of money is coming in from Europe and other parts of the world, who still consider USA to be a safer place and they don’t believe that USA will default.

·         Today was a major distribution day. The next day is usually green.  The VXO (old VIX) actually touched the upper limit of the BB and went through it. Most likely it will also churn in the two bands that I have drawn.

·         The 10 year yield still did not break 3% line.

·         Gold fell.

·         And Seasonality induced rally is right around the corner.

Even Bloomberg says Banks don’t see any panic.  In fact S&P itself does not believe that US will default.
Reuters says: “Top Republicans and Democrats worked behind the scenes on Wednesday on a compromise to avert a crippling U.S. default, looking to salvage a last-minute deal from rival debt plans that have little chance of winning broad congressional approval on their own.”

And now the bear side.

·         One concern I have is that the SPX broke below the 50 DMA.

·          $NASI gave sell signal.

·         One of the best TA is Cobra and he also thinks that lower low ahead. You can visit Cobra’s web site at . It is treasure trove.

So now you have both the view to take decision. If you remember my earlier posts, my original plan was to "sell the news". That is, be market neutral on 1st of August after the deal is announced at the last moment.
I am consistent with the theme that all these are part of forming the top and we shall be seeing the mother of all shorts soon. So far the Cassandras have cried fear, panic and despair from May and yet the market is a tight range. Can the good times go on forever? Sure they cannot but they can last longer than most people think. Perma bears like Rosenberg have called out for double dip recession and immediate collapse of US $ and stock markets so many times that I have lost count. I have also lost money listening to them. Bear markets never start on televised real-time bad news.

 I see the whole thing a good trading opportunity and absolutely bad for investors. So once again, be very nimble. I am still holding to my longs and watching. As I said yesterday, I do not mind being wrong because nobody can be right all the time, but I would hate to be wrong for a long time.

Be safe out there.


  1. Good stuff. I'm glad I discovered your blog via SOH. I find your type of commentary much more useful than staring at charts.

  2. In your post titled "Fear Mongering Tuesday" you mentioned that you were going long and thought the market had room for upside. I understand that not everyone is correct all the time, but didn't you think it would be safe to sit on cash and watch the markets before sending out bullish short term signals in your post? Just want to get your thoughts on that.

  3. Great post, thanks.

  4. I am not being bullish. On the contrary I am very bearish. However I do not believe that the end is here and I am looking as a short term trading opportunity. If you are reading carefully, I am urging caution and not to invest. See todays post for more explanation.
    Thank you for reading my blog.