Monday 6 August 2012

Do We Turn Here?

Following chart is from Stock Trader's Almanac:
According to them, Dow Jones is just below the monthly pivot point and the late day sell off created a shooting start which is a sign of bearish reversal.

Now, I am no expert in candle stick pattern, but the fact that SPX came within the touching distance of 1400 and reversed is an indication of failing momentum. I think tomorrow morning it may again try to breach 1400 but most likely it will close in red. Today both the VIX and SPX closed in green and that calls for caution.
Sentiment has definitely turned bullish. Now folks are talking of the indexes running on auto pilot based on higher job number and retail sales and they do not require the Fed or ECB. I think the Indexes are running on fume and now that bears have been killed and bulls have been trapped, it is time to pull the lever.

Precious metals are not showing much enthusiasm and that worries me. Crude spiked with the rumour of Assad getting killed. But Copper was down and AUD is kind of toppy. The risk on trade may still surprise with one last hurrah and take SPX above 1410 but the odds favour the trip down.

I plan to start laying the short trades from tomorrow. But I want to caution readers that The Powers That Be around the world, from USA to China, do not want the the market to drop. In America Obama does not want the market to fall because it will impact his bragging rights. Europe cannot afford any major correction because they do not have much to save their financial markets and China wants to continue the illusion till infinity. So it will be very difficult for bears because there is always the threat of intervention by the Central Banks. If and when the correction comes, it better be fast and furious. If we do not see a correction of 100+ points in SPX in 5 days, the battle is lost. More importantly, SPX will have to break down the support at 1335 convincingly before we can get serious.

Either way, we are set for some fun time. Take your pick but always use proper risk control measures. I do not know what is your risk tolerance level so it will be wrong to suggest names. I may use leveraged ETF but I will not hold them for long. Instruments like TVIX is highly risky because if the market does not fall rapidly, these kind of instruments lose value quickly. But if we are lucky, they may return the jackpot. There is no one size fits all formula.

Thanks for sharing my thoughts on the market. Please share it with your friends. And trade safe.


  1. isn't the retest of a neckline a classi shorting opportunity....i think we should see some correction......Nifty's Indicators are also overbought ......though I m majorly bullish for August September....,Nifty never takes off when indicators are at this shorting from today 5282 NSE.lets see

  2. I swear, if there's another 9/11 type incident indexes would surge 3%. Banks now have full control of market direction and magnitude.

  3. BB, any idea what explains the period of the oscillatory pattern in SPY between Jun and now of this year (a similar oscillation appeared between Aug and Oct of last year). Just coincidence or Market's heartbeat?

  4. Yeah, I agree - that is the game plan!

    But the 3 month rise untill elections(Nov) might be the last good chance to gain on the long side! Next winter will be Bears season...