Monday 2 April 2012

"Blow-Off Top" Rally, Day 1

It was a rather sedate start of the “Blow-Off Top” rally. In the morning, before open /ES gave back all the overnight gain and was in negative.  SPX even started in negative territory. But the cycles have bottomed last week and whatever be the news, the market zoomed up. I do really wonder, is it really the news which moves the market?  Because we did call for the start of the rally from Monday, i.e today and the plan of action was laid out in the weekend report.

If we take an average target of 1455 and I will come back to that figure in a while, we are now only 35 points away and we have 3 days to reach there. I think it is immensely doable. And why 1455 you may ask. Because everyone is still shorting it as we go up and a big short is set at 1440 and then 1450. The market will take out all these shorts.

What to expect for tomorrow? The last hour sell off ensured that we get an up day tomorrow because it removed all the short term over bought conditions, paving the way for another up-move. I think we will see this pattern being played out for all the next three days, where we zoom up during the day and release some pressure before close.  Remember, this is a “Blow-Off Top” Rally!

Today the old trusty FX proxy for SPX came back in play. AUD almost mirrored SPX as you can see from the following chart.
I was trying to figure out how AUD is going to play out in short term and I got this beautiful chart from Michael Boutros:
As you can see AUD is bouncing from the 50% level and a rising RSI trend-line. A close above 1.05 will be huge positive in short term.

Of course there is a curve ball in the evening because RBA rate decision is due tonight but I don’t think they will reduce the rate. If they keep the rate at the present level, that will be positive for AUD and “Risk On” trade.

This is a short week and seasonality as well as cycle indicates a very strong week. I think DOW will top around 13450-13500 and SPX around 1450-1460 this week. Again, it is just 35 more points in SPX and there is no reason to think that it will not be reached. Still too many talking heads are calling for immediate decline and they will be soooo disappointed. I think they will have to wait till May for any meaningful decline. And then they will jump up and down as if they have discovered gravity! As I said in morning, none of these folks know anything any better than any of us and these are all empty sound bites.  We are all shooting in the dark. Sometime it works, some it does not. I am trying to figure out how to improve on the success rate. Getting there, slowly.

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  1. Thanks for everything you provide here, BB.
    Could you give an update on AAPL? As you stated, if SPX makes 1455 soon, do you think Apple will go even more parabolic from here before it has some decent correction? I think the great AAPL bubble still has some room to run. However, when it pops, it will be one hell of a show, I think. Your take?

    1. I did not have enough courage to go long Apple and I still do not have the courage. The easy money has been made for now. And unless we get the correction started, I cannot get any idea of the momentum and how far it will go. Because this entire rally has been engineered by the Central Banks and their liquidity. But Nasdaq as a whole does not have much strength if you take away Apple from it. I would think that for the next 3 trading days, more new money would come in the market and chase the stocks. Apple would also benefit from it. It was up over 3% today. May be another $ 20 or so. But again I would not short it unless trend change is 100% sure. Reversal level of Apple today is at $ 570. So it can still fall another $50 and still be in an up-trend.

  2. sorry, but it looks more like distribution to me.. no blow off rally. boyz use coming fresh money to sell it to bagholders.