S&P 500 Index Review - 15.06.2009

Trend is intact - Old News some would say. Anyway I like the trend channel as it is narrowing the range even more.

Bullish facts: the 21-DMA is tracking nicely the rise in stocks and the 21/200-DMAs Golden Cross and also the pending 55/200-DMAs cross are enough of evidence for the strength in the recovery of this major index. I would also interpret the fall in Volume which is in accordane with the record low readings of the Volatility Index and the TED spread as Risk appetite is not fading. Actually low volatility and Volume are characteristic to trend continuation.

Note the RSI is also trending higher and only the ADX (23.23) bothers me as it is fading a bit lower. However if it was above 30 it would produce a parabolic move and this maybe is correct to be viewed as actually a sustainable trending.

Bearish case would be activated first on any close below 21-DMA. Next I assume we will see some reaction at the 1007 level whch is the November '09 high and then if broken the 1044 High.

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The Weekly chart view has the first impression we are building a very steep Bearish Rising Wedge patern. Here is a clear confluence of Resistance level around 1007 - previous top + Wedge Resistance line top.

RSI is trending up after a successful bounce off the 50 level. ADXhas already given Long signal after the DI+ crossed over the DI- so we remain in trend-following mode until there is a change to observe and act upon.

Japanese Governemnt bonds - Montly chart - 13.06.2009

Monthly JGBs - there is the Long view - I have read some time ago about very intelligent bond traders that have been holding shorts in JGB for years in anticipating a bearish trend to ensue.

Well, seems it takes more than patience to wait until this actually meterialises. The 'lost decade' and the huge debtto GDP of Japan are still not enough for the JGB to break out of the comfortable 130 - 140 range, roughly said.

Sure enought Gravity has to be felt at some point but I can't divine future so will wach for potential developments. As to purely technicla reading of this chart ther eis actually some probability that we see a Golden Cross of the 34 and 55-Month MAs and another test of the 140 level.

After all the Yields in JGB might just again go down as the deflationary pressures even after a decade of printing money are again on the news. Let's see if the immediate Resistance at 137.70 (89-month MA) will be easy to regain and then we can review the possible developments.

UK Long Gilts Chart review - 13.06.2009

UK Long Gilts Daily chart - we could see a Gap which could possibly turn into an Island reversal pattern. However the trend is intact and the breach of the 200-DMA is a substantial fact.

There is a very good probability of Gap filling up to 117.50 and even a test of the Ressitance of the 200-DMA at 118.

Should the Bears reign in full stregth the immediat target is the previous High at 114.40.

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The UK Long Gilt Weekly chart is in accordance witht e Daily one. The 55-Week MA at 115.21 is a tempting target to test. The last Weekly candle range (116 - 118) might see some rotational flow to test both ist sides before a trend continuation or reversal so I will remain vigilant to any possible changes.

US Treasuries downtrend on watch - Weekly charts - 13.06.2009

10-Year US Treasury Notes continue to slide. Weekly chart shows a Piercing Bullish Pattern.

The 89-Week MA which held Support 2 times before is now acting as Resistance after the breach around 118. Obviously a reversal would have to be validated by regaining 119-10 levels but that's just Gap filling I remain vigilant for the subvsequent changes in the trend.

The immediate downward target is 112 - 111.44 lows.

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30-Year US Treasuriy Bonds are helped by the support of the 200-Week MA which holds a third consequtive test on the downside.

There is a Bullish reversal Harami candle pattern that eventually helps the reversal scenario with immediate Resistance at 120. The Bearish view is activate d should the 112 level is broken decisively and the re is noting until the 105 low.

Commodity Rally persists --- Crude Oil / Nat Gas / Silver / Copper - 12.06.2009

Well it leaves the whole world scratching their heads why Crude Oil is rising. Is it the OPEC cutting production, is there higher global consumption or maybe the world reserves are getting scarce? Yes indeed I heard a news report that at current rate of producion there are 40 years left of reserves.

The obvious link is the tight correlation between the Crude Oil and the EURUSD - there are marching right by side - so seems the USD depreciation is fueling the Crude and actually the overall Commodity rise. Let's see what the price tells:

The most obvious fact is that the Trend has reached the Channel top which is around $74.

The Parabolic rise has a recond high ADX reading at 37(Substantial trend strength) and a bounce off to a rather big distance from the rising 21-DMA. The RSI is rising in accordance.

I try to watch and react to chart, not try to be too smart. So I have too possible scenarios that I wait to see a confirmation for. The Bullish one is a Parabolic thrust above the Channel top into the Goldman Sachs touted target $85.

The Bearish scenario should see the Channel bottom broken:

-1st Support: $65 / 21-DMA

-2nd support: $58-60 / confluence of 55 and 200-DMAs

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Natural Gas is a puzzle while the Crude is flying.

The overhaed resistance at $4.50 rejected it 3 times and now there is a pending Dead Cross of the 21 and 55-DMAs. The observation is on the slightly rising Support trendline.

ADX has a very poor reading to state the obvious range consolidation. Currently here is the 4.25 - 3.50 range that has to be broken to have a signal of some sort.

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Wow, Silver is a bullish article as Gold has somewhat stalled in a 5 day flat line.

Well, to be honest it is on a important Support level - both the Channel trendline and a bounce off the Rising 21-DMA.

ADX strength (32.79) is good and the DI+/DI- are maintaing the Bullish scenario atm.

There is always a possibility that while we watch the trend we overstay our welcome. However there is always a loss attached to trying to outsmart or guess or vidine the future. As I noted that Crude was at a fulcrum point and might break - so is Silver here.

The Bullish target would be the Channel top above $18 - this means a parabolic breakaway move. The Bear case given a channed breakdown is the immediate Support at $13.50 / 55-DMA.

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Copper Futures persist in their rise. The Rising channel top gives some reasonable targets around 260/270 range.

Trend is intact supported by the rising 21 and 55 MAs. Wilder's ADX also states the trend is actually accelerating witha reading of trend strength of 22.35. The RSI is rising in accordance.

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Jesse Livermore on suckers and trends...

This is quote from Edwin Lefevre's 'Reminiscences of a Stock Operator':

Where I should have made twenty thousand dollars I made two thousand. That was what my

conservatism did for me. About the time I discovered what a small percentage of what I should have made I was getting I discovered something else, and that is that suckers differ among themselves according to the degree of experience.

The tyro knows nothing, and everybody, including himself, knows it. But the next, or second, grade thinks he knows a great deal and makes others feel that way too. He is the experienced sucker, who has studied—not the market itself but a few remarks about the market made by a still higher grade of suckers.

The second-grade sucker knows how to keep from losing his money in some of the ways that get the raw beginner. It is this semisucker rather than the 100 per cent article who is the real all-the-year-round support of the commission houses. He lasts about three and a half years on an average, as compared with a single season of from three to thirty weeks, which is the usual Wall Street life of a first offender. It is naturally the semisucker who is always quoting the famous trading aphorisms and the various rules of the game. He knows all the don'ts that ever fell from the oracular lips of the old stagers—excepting the principal one, which is: Don't be a sucker!

This semisucker is the type that thinks he has cut his wisdom teeth because he loves to buy on declines. He waits for them. He measures his bargains by the number of points it has sold off from the top. In big bull markets the plain unadulterated sucker, utterly ignorant of rules and precedents, buys blindly because he hopes blindly. He makes most of the money—until one of the healthy reactions takes it away from him at one fell swoop.

But the Careful Mike sucker does what I did when I thought I was playing the game intelligently—according to the intelligence of others. I knew I needed to change my bucket-shop methods and I thought I was solving my problem with any change, particularly one that assayed high gold values according to the experienced traders among the customers.

Most—-let us call 'em customers—-are alike. You find very few who can truthfully say that Wall Street doesn't owe them money. In Fullerton's there were the usual crowd. All grades! Well, there was one old chap who was not like the others. To begin with, he was a much older man. Another thing was that he never volunteered advice and never bragged of his winnings. He was a great hand for listening very attentively to the others. He did not seem very keen to get tips—that is, he never asked the talkers what they'd heard or what they knew. But when somebody gave him one he always thanked the tipster very politely. Sometimes he thanked the tipster again—when the tip turned out O.K. But if it went wrong he never whined, so that nobody could tell whether he followed it or let it slide by. It was a legend of the office that the old jigger was rich and could swing quite a line. But he wasn't donating much to the firm in the way of commissions; at least not that anyone could see. His name was Partridge, but they nicknamed

him Turkey behind his back, because he was so thick-chested and had a habit of strutting about the various rooms, with the point of his chin resting on his breast.

The customers, who were all eager to be shoved and forced into doing things so as to lay the blame for failure on others, used to go to old Partridge and tell him what some friend of a friend of an insider had advised them to do in a certain stock. They would tell him what they had not done with the tip so he would tell them what they ought to do. But whether the tip they had was to buy or to sell, the old chap's answer was always the same.

The customer would finish the tale of his perplexity and then ask: "What do you think I ought to do?" Old Turkey would cock his head to one side, contemplate his fellow customer with a fatherly smile, and finally he would say very impressively, "You know, it's a bull market!"

Time and again I heard him say, "Well, this is a bull market, you know!" as though he were giving to you a priceless talisman wrapped up in a million-dollar accident-insurance policy. And of course I did not get his meaning.

GOLD daily chart - 08.06.2009

Gold has been a trendy asset as I have seen multiple sources say it is the only store of wealth in the coming hyper-inflation. Well, I'm not that smart to divine the future.

Anyway technically I see it falling.

First there is the present configuration of 5 consequent down-up-down-up-down days.

The range is expanded each day while the highs have a flat line - similar to the Tweezer Top candle pattern. I see he first indication of a fall in closing below the 13 MVA as it supported the rise from the start of May.

RSI is close to crossing the 50 level and thus close to supporting the correction theme.

ADX which I favor as a trend indicator of choice tells me the Uptrend not only lost its steam but also there is impending DI+ cross down the DI- - a signal of going Short.

I would be watching with interest the 920 level for signs of an easy penetration which would open a gap towards 880 where I anticipate to see the 200 MVA in the coming days.

USD/CAD Weekly chart - 08.06.2009

USD/CAD weekly is very similar to the USD Index chart.

Please note carefully the upper trading range of the Sept'08 - April'09 distribution phase was approximately 1000 pips (1.18 - 1.28). Here is a good place to underline the importance of the long shadows of the weekly nadles that reach up to the 1.30 area. This is exteemly valuable information and I'd like to remember it very well as it was a good indication that the 'goose' had problems flying that high.

Well as we see the 3-rd attempt to break above 1.28 in April was rejected. There is a nice Bearish Engulfment right at the top and the Downtrend ensued.

Here is a great note to measured moves. Now if we witness a 1000 pip trading range - once its borders are broken we can easily expect a rotation of the same extent to the other side ot border that has bent.

So once the 1.18 was broken the trend took the price down to 1.08. Now here we encounter 2 major Supports. One is the 89-week MVA and the other is the fact that 1.08 was a long term resistance level as shown on the chart. While the price is now in the middle of the 1.08 - 1.18 range I suggest we wait for a clear signal on the direction.

CRB Index Weekly chart - 08.06.2009

The ADX is signalling a Long position by the DI+ crossing above the DI-.

However the Trend strength is fading. I assume that right now there will be some confusion between the Inlationary pressure and the "Green shoots" themes while the market chooses which one should be prevailing.

4 Big Bear Markets

Used from dshort.com

Kondratieff Wave cycle

K-wave chart presented from http://www.longwavegroup.com/ and http://zerohedge.blogspot.com/.

Contrarian Thinking

I read Market Wizards again now after 1 year of study on trend-following, counter trend trading and so on... I was really thinking there is a perfect system or some people that rally exactly know why smtg moves -- so after all trading in different modes and different markets I feel now a bit "baptized by fire" and got back to basics.

Mark Douglas is very true that people don't think trading is casino - but as I see those 95% group must be doing exactly this.

I was thinking after I read "Trend Following" as I started looking for trend systems. There are just as great "Trend-followers" as much as those that are labelled "Contra-traders". I believe that the intuition of the discretionary trader is as much of a weapon as the faith in the long temr success of the trend system in the trend trader. They have different personalities and so are their trading styles..

However what they share is the true sense of success and that is most important.

What I want to clear is that what differentiates a Successful trader from the 95%. Let's take CONTRARIAN thinking for example:

1. When a market is making 20 or 50-day High and is very bullish, then going with the Strong trend is obvious?
But then how many are strong enough to buy the 20, 50, 89 or 200 Day High. Think most people will have this FEAR it is too high and have to retrace - so 95% group all starts to sell. A bit what happens with S&P last 2 months..

So then CONTRARIAN seems is to go with the trend as for the majority of people going with the flow is just too hard - most people think they have to struggle.

Think I read this in FF time ago that it takes 55-60% bullish sentiment for a rally - but a 90-95% bullish sentiment is a sure Trend reversal.

2. So again when the whole public is convinced - it is so easy to go with the crowd - but then it takes CONTRARIAN thinking to see that if everyone bought there is no one left to sell to.
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think it is the psychological frame - then comes to the execution frame - which is where Risk management kicks in:

1. First to trade as little as to not lose your capital as then there is no more opportunity.

2. Take any trade with reasonal R/R since every next around the corner might be the winner - but take only a little hit so you can withstand the series of fake signals until the good trade kicks in.

USD/JPY -- AB=CD measured move

Posting here for a reminder on this AB=CD measurement as it works well when applied with proper Risk Management. The chart speaks for itself.

Trading - a Mind Game

Just a quick reminder of things I have been thinking many times and wanted to put them down in order to have a reference in the future.

Funny fact that every time I get a nice looking idea - the market does the opposite.

I was watching those proposed ideas I posted charts for - but the moves seems to be of a greater extent - so I don't enter the trades... many times I start with great confidence trades that work well in the beginning but then all starts to mess up and I lose my point of view...

maybe it similar with most because markets are dynamic and one has to change his view and adapt to the change as fast as it happens but at the same time -- there is the risk of overreacting and changing one's mind too much..

maybe a balance, patience and low risk is a key to solve this equation...

EUR/JPY Ascending Triangle

4-hour chart.

Ascending Triangle consolidation gives a nice target around 132.75 -
- coinciding with the daily R2 pivot - 132.79.

Again my idea is a short term one -- loking for sharting the initial test of the High witha pullback target around 131.31..

AUD/USD Hourly - possible Double top?

No doubt I got fooled playing a larger pullback after the initial Trednline Break.

Now that the Uptrend is steady - marked by a healthy 38.2% Fib retracement + Support at the 89-hour MA -- I have a new contra idea -- a possible Double Top formation.

Previous High was 0.7092 -- Daily R2 Pivot level is 0.7085 -- So this confluence Plus the parabolic move above the Red trendline would give me a good R/R ratio opportunity for a shor term Short around the first test of 0.70 90/5 level..

AUD/USD Trendline Break

This is AUD/USD 4-hour chart and I am short at 0.6805 on assumption that liquidation setup here is similar to EUR/USD.

Risk Aversion is creeping back with S&P futures down more than 3% and the lows supported by the 20-day MA..

Anyway I look for a pullback to 61.8% fibonacci retracement level around 0.6600.

EUR/USD Rotation around 100 day MA

My humble observations tell me that wjen we have a flat long term MA like the 100 MA the price rotates the same length on the other side.

So from the high above 1.37 to the 100MA /1.31/ is appproximately 600 pips. Thus a break below gives a target around 1.25 for the EUR/USD based on the daily chart.

Shanghai Composite Near Resistance - Weekly Chart

Weekly chart is showing the Bear Market rally in Chinese stock market is in good progress.

This last surge looks like a channel but I will assume it's an expanding Triangle which will top out around 2600 where it meets the 55-week MA and a trendline Resistance that connects 2 historic lows. 

The global markets in my view are running out of steam but here the RSI /which Wilder said is best on Weekly to Daily time frames/ is oscillating around mid levels and many would be lured to say it is quite bullish. 

Yes indeed - the trend in the expanding triangle has still some space to move to the upside, however I would be cautious or at least would protect any gains when the 2600 levels are reached.

S&P 500 Monthly Chart

Here is a Monthly Chart of S&P. I know it's a long shot or a wild card guess but to me the target looks realistic given the scope of the credit problems in the global financial system.

Now that the Fed went all in with its latest PPIP program markets got some fresh air and the exhilaration spread from New York to Tokyo and even a little bit to the Emerging Markets.

However as reality starts to bite again the Daily S&P chart shows a trandline break and the Bear market course seems to be on again.

Anyway this Montly chart is here just as to remind me how things looked like as of today so that I can get back and review my understanding in a point in future when this all will be put in he hindsight perspective.