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Though I have been out of pocket for about a week, it feels like a year. Traveling in the Northeast has been brutal. My schedule eases up a bit this week.

I really do not like where the major indices are sitting.



Looking at the three year daily charts for both the SPX and the DJI, we see that price action broke down below the lower support line started from the March 2009 low. This is great, but it would have been much better if price action broke down below the major resistance line that started from the highs of October 2007. Unfortunately, we instead got a bounce.

This puts us in an unknown state with respect to the last two major trends. My gut is telling me that we may see a test of the January highs in the coming week or so. That would be business as usual on low volume - and I am not threatened by the prospect. This week will tell us everything.

If instead we break down, we must violate 1020 on the SPX and 9600 on the DJI. That would setup the extension of the bear market down trend that many of us have bet on. These levels coincide quite well with the 200p MA - which we have not seen since July!

Sorry for the absence of late. I'll hopefully be much more attentive to the markets this week.

Cheers!

Into some cogestion...

I took today as an opportunity to cash in on my long hedge positions. These include all of the in-the-money February and March call options and believe it or not, I took profits on SLV.

We officially broke out of the down channel today on both SPX and DJI. We are also inside the lower portion of a congestion band that may take some time to clear. As I see it, we will either muddle along in the 1090-1110 range for next couple of weeks, or we are going to see another test of 1040 this week. The general conditions have not changed. National debt crisis in Europe is still unraveling, China is selling US dollar, FEDs need to raise rates. Dollar has cooled and is looking for support here - but will likely fall lower to the 78.900s. Finally, lots of gaps were filled today and volumes were very low going into the key 1100 area.

My traveling is extreme and I just haven't any time to post a chart. Do look at the DJI and SPX daily charts to appreciate the overhang supply that should serve as resistance short term.

Cheers!

Nice Tradining Day

I'll tell you, there is still a substantial amount of selling pressure in the market. The concerns in Europe are not going to easily fade. Big boys realize that this market remains very fragile and suspect to a big leg down.

The action today was pretty much to be expected. Resistance appeared, with strength, in exactly the spots that I expected. Open the Daily of the ES:




This is a review of what I posted in the past week. Note the resistance band that I have highlighted in transparent red. The last couple of days showed indecision in the center of our down channel. Today, bulls made a run at it. Action got volatile which shows that there are real sellers waiting for these blips. Note how the price action could not reach the upper band - even on the high volume spike that we saw. It was rejected immediately and was never able to recompose. This all happened at around 1080 on the cash index. If you follow the tip of the price spike back in time, you will see how much overhang the market needs to digest. It ain't happening in one shot!

The price settled right back down at the 1070ish level - which will reveal itself as either support or resistance in the next couple of sessions.

This is really a fine trading opportunity. The strategy should be to short the blips at key resistance levels and collect your cash at the end of the rejection waves. One can do this all day and easily make 10-20 ES points in a day.

Cheers!

Good Entry for SLV?

Over the years I have made a good deal of money trading SLV. Very odd considering I rarely do TA on the SLV etf. I have simply purchased at levels that I "feel" are right and sell at levels that net nice returns.

I don't wish to dwell on the physical vrs. paper arguement - at least not too much. I will say that I am going to add physical silver this month. The benefit being that physical is truly a long term investment AND in the event of a nasty social/political/economic upheaval - fiat currency may not be that valuable.

From a trading standpoint, I am accumulating SLV right now. Open the chart and I will try to explain why:




First, note the up channel bounded by the yellow trend lines. We recently broke the bottom trend line and (like the equities) have bounced back - just inside the lower line. IF we are to remain in the up channel, this is a decent entry point. IF we are breaking down and out there are some key support levels just below - which should at least temper further downside risk.

The Long Term Support Zone is highlighted in green. Follow the thin green line across to the left. You will see that this line aligns nicely with the tops of several reaction highs during the last three years. The more reaction highs, the more like the support will hold. We just touched that line this past week. Just below that green line is the 50% retrace level of the March rally. This is a common spot for reversal. These levels are very close to the $14 level. Any buys in this area I think are good ones.

What if we break below $14? Well that is not good and I would probably unload. I would do so with an eye at the $12.50 area. I choose this spot for several reasons. First, it would be a test of the major down trend line that started in 2008. If we do not bounce there - look out below. Second, it alings with the 62% retrace off the bottom. This is the last chance for a reversal. Failure there would suggest a pretty nasty future. Finally, the $12.50 level has proven to be a long term support for reaction lows over the three year period.

As you know, I am short the market. The good news is that I am only 60 S&P points out from profitability on those positions and 600 dow points away. In both cases I have some insurance that limits my loss potential through March. When looking at the true pressure in the market - currency crisis - I think SLV is a smart play. If there is going to be a currency crisis - I think GLD and SLV are going to be the ultimate safe haven play. Also, though DEBT and CURRENCY concerns are driving the current market activity - there is still industrial demand and silver has a role beyond safe haven.

That is my take on silver and why I am willing to play the long swing position for now.

I am very interested in comments on this subject.

Thanks!

Seems to be channel after all!

Another impressive day. The best part of the day was of course the low. As I said yesterday, we were diverging and a bounce would be expected. I'm glad the bounce came where it did. It confirms that we have a legit down channel and not a falling wedge. Open the hourly chart for the ES:



The gold channel is the channel I drew on yesterdays daily chart, only here it is illustrated on the hourly chart. Note how if we did not touch bottom near 042 this would be more of a wedge. The reaction off the bottom was strong indeed, and predictable from the divergene in the RSI that started to develop late yesterday.

I have labeled some important levels. First, we will have some resitance to on monday morning in the 068 area. This may or may not prove to be significant. I suspect it may not hold a lid on the reaction wave that started today. If it does not hold, we can expect a run to the 082 area - which now the 38% retrace level back towards the high. It is also a major resistance level going forward and I do not think it will be so easy to get by. Depending on the timing of the price action, it may align perfectly with the upper trend line of the down channel. There is recent supply and historic supply at this level which will likely take time to exhaust (see yesterays daily graph for a view of the historic supply).

Beyond the 38% level and the upper trend line of the down channel, we have the 50% at 094ish and 62% at 1106ish retrace levels. Both are in zones of recent resistance. I just don't see a break out happening just yet. We are in a "no mans" land right now and true support is down around 1020.

We shall see. I hope everyone made some $change$ today.

Have a great weekend.

A touch of panic out there...

This has been quite a brutal selloff. This is the worst day in a long time for the S&P and the DOW. It is bringing back memories for many folks who thought the rough seas were a thing of the past. Frankly, I am amazed at how fast the market gives back months of gains. Let this be a lesson for the invincible bull.

I said that today was very, very important. Last night, I explained how we were right at the 38% retracement level of the down leg that started this correction. That was 1100. I stated that rejection here would bring a retest of the lows for the year. We got the retest, and then some...

Why is this so darn important? Well it converts a major support level to a major resistance level going forward. Open the following ES chart to see what I mean:



Looking at the Daily chart we see that the 1081 ES (futures) level is now the source of a fair amount of overhang. We traveled a full 20 points beyond to 1060 today and closed at our lows. It is going to take quite a bit of enthusiasm to rally back the 20 points just to get back to the overhang supply. The longer it takes to return to the 1080 level, the enthusiastic the selling of supply will be when we arrive.

You'll notice that we are paused on 1062 - which is our current support level. It corresponds to an old reaction high that occured well before the holiday rally. That reaction high is what supported the futures market with the Dubai scare. We have breached that low already and I suspect the futures are headed all the way to 1022. Why? Take our closing price level and scan back in time on the chart to find where we intersect. First you see dubai low then you see the middle of that very significant rally leg just 15 days earlier. Now locate the base of that very significant rally leg. You get 1022. That is our next target if this trend continues.

Speaking of trends, I think we have an official down channel here. I have illustrated the channel with yellow upper and lower trend lines. This is one heck of a sharp channel with a width of 50 points. Note how today we broke through the lower trend line of the prior up channel. I highlighted that break at the mid-point of today's price action. This was the moment of truth for me, and I am now comfortable that we will not be making new highs anytime soon.

One thing to watch is the major divergence on the 15 minute chart formed between price action and RSI. Most of the day was spent diverging. Look how oversold the condition has gotten. The key is that though we continued to make lower lows, the RSI has risen. We popped out of the oversold condition at the end of the day - yet we continued to make a new low. This is telling me that we are oversold and again price action must either pause or bounce a bit. I'll be watching this carefully. If we pause/bounce, the key is to quickly resume the down move until we touch the lower trend line of the down channel. If we do not, we start to form a falling wedge.

That is the quick review for the day.

Good luck out there!

Initial Thoughts...

As you all have kindly noted, I have been MIA for a number of sessions. All for good reason, but MIA none the less.

I once posted about how important it is to feel the pulse of the market and try to trade with it when possible. There is also a danger with being too close to the price action. These last few days I have only observed from afar, and I think that is helpful.

My first instinct is to try and figure out if we are dealing with a true reversal or simply a throwback. Objectively, I can not say that I see evidence of a reversal pattern. Can you? I mean give me something here. A head and shoulders? A double top? Triple top? Broadening top? Anything! I see nothing. That kinda sucks because I sure would like to have a reversal.

In the absence of a topping formation, what else can see from the 5000 yard line? You may remember this channel on the 3 yr weekly chart of the S&P.



It was tracking all the way until the Lehman collapse. We broke right down, bounced to a bottom of 666 and eventually came up to test and re-enter the channel right around the 980ish area. That re-entry was the neckline of the very large inverted head and shoulder bottom. It is also the "break-out" point for the rally up to 1150.

Note how the rally reached the top trend line, drifted along and then broke out above during the holidays. The unfortunate situation is as follows. Whenever you get a break out from a channel, price action almost invariably throws back to test the upper trend line of the channel before forging ahead. I think that is exactly what we see happening.

IF we would have re-entered this channel - then we would be able to celebrate our bear positions. However, we did not re-enter. In fact, we seem to be bouncing off the line and we could very well see the rally resume. This is sad, but we have to consider the possibility.

Right now, we have to watch 3 important resistance levels. They are 1100, 1110ish, and 1120ish and are indicated on this 15 minute chart.



They are the 38%, 50% and 62%fib retrace levels associated with the major down thrust from this year's high of 1150.

If 1120 does not hold, it is my belief that we will see new highs on the year. If, we see a strong selling session after CSCO's big beat and aggressive forecast - look for re-entry into the broad weekly channel.

Good luck everyone!

Cheers.