Luna $ Ticks

October 30, 2008

Projected Short Term Top

Filed under: Trading SPX SPY — moontrader @ 11:38 am

Here’s an updated chart with the bottom on 10/28/08 accounted – which, if you don’t know, was not a crash – and a projection for a short-term top, or better, a potential date for the exhaustion of this rally – considering the criteria I presented in a post yesterday remain valid.

Let me elaborate a little further on it. I’m trying to develop a technique to predict potential sharp movements in the market based on cycles. As I said before in my “about” page, the starting point of my study is the amazing discovery made by Christopher Carolan and described in his book “Spiral Calendar.” However, I believe that the technique presented in the book is full of flaws and I’m trying to find a way to filter for tops and bottoms, using the same time cycles.

The market is constantly alternating between short cycles of movements up and down. During, let’s say, a movement up cycle, the market has a positive predisposition and a relative optimism, and stocks (or whatever asset you are using – providing it is not easily manipulated) tend to go higher inside this time frame. Does it goes constantly up during this period? No. But during this period, the asset will present higher highs and higher lows, for instance. When this period ends the market reverses the sentiment for another cycle.

Last weekend I projected a date for a bottom, but I went bold, shone my crystal ball and called for a crash. The crash didn’t occur, but the bottom did occur, after which the market made a strong reverse. Do you get it? If the thing doesn’t happen inside that time-frame (according to this analysis based on cycles) then the thing won’t happen because the sentiment – or the “mood” – has reversed and you’ll have to wait till the next short term reversal when the sentiment will be negative again. Attention: I’m talking about the short-term.

Now, taking the next short-term tops that follow the bottoms I used to predict this week’s date for a bottom (or crash), they project tops in a very tight time window: either 11/06/08 or 11/07/08.

So, based on this analysis, this rally should hold until Thursday or Friday next week.

Another point: Chris Carolan’s work focus on predicting long-term reversals, while mine is dedicated to help the short-term trader.

If you have any insight, comment, criticism or suggestion, feel free to drop a comment.

October 29, 2008

More signs of a bottom

Filed under: Trading SPX SPY — moontrader @ 4:42 pm

This is a quick post, more of an update on the previous one, written this morning.
In spite of today’s sell-off in the last minutes, SPY closed above DMA 3×3, which adds up to to the bottom in place scenario:

Tomorrow DMA 3×3 will be even lower, at 87.50, so there’s plenty of room for a retracement without changing the scenario. Today SPY even tried to flirt above DMA 7×5 but didn’t make it. This sort of weakness is normal during reversals. I expect SPY to close above DMA 7×5 in the next days.

Case for a Bottom and Guideline to Trade this Reversal

Filed under: Trading SPX SPY — moontrader @ 9:22 am

Some yesterday asked me to explain through my usual set of studies why I called I bottom. Here’s an annotated chart with the case:

(I’m showing ToS charts because they plot DMA’s ahead of the current bar – Tim, suggestion for Prophet Charts)

What happened is called by Joe DiNapoli a Double RePo – a Double Re-Penetration (ok, you can get excited about that) of DMA 3×3. A Double RePo is a close above DMA 3×3, followed by a close below it, followed by another close above it – all in less than 8 trading sessions. This happened inside the timeframe suggested by him between the first and the second times SPY closed above it. Right after that, it came back below DMA 3×3 and closed below it for 4 sessions until it broke above it in an amazing rally yesterday, while MACD and Stochastics gave buy signals.

Question: am I 100% confident we won’t have another low for the year? No. What to look for in the next days? Here the guideline:

  • DMA 3×3 turned into a support. Another close below it would be threatening for the bulls.
  • I expect SPY to test and possibly break DMA 7×5, closing above it, in the next days.
  • I expect MACD to rush towards the zero line in the following week. The fact that it is giving a buy signal means that the trend is losing strength, but a more solid confirmation of a trend reversal and a bottom in place would come with MACD turning positive.

Another question: is there something weird in the chart above? Yes. Too deep of a retraction. What looks like a triple bottom in an intraday chart, looks like a double bottom on a daily chart. So, that could be a double bottom.

But I underline: jugding by the sort of reaction we had yesterday, followed by the turn in the indicators, odds are, in my view, that we have a bottom in place. Let’s also not forget our friend VIX, who gave us so many great signals this year. Coming below 50 would be good for the bulls. Right now, 10:10 ET, it’s around 70.

Last, a poll:

October 28, 2008

WOW!!!!!

Filed under: Trading SPX SPY — moontrader @ 3:19 pm

Ok, just one chart that shows it all:

First of all, congratulations to all of you who went long today. Second, and most obvious, forget about the crash, it happened already. And third, chances (actually, high ones) are that we have a bottom for the year.

ps: luckily I had my stop on the green trendline, right on the spot matching with the blue one, and I covered my short position with basically no loss (3% plus brokerage).

Intraday Update: my edge for now

Filed under: Trading SPX SPY — moontrader @ 12:33 pm

Quite simle:

Also, just a reminder: as closer we get to the triangle vertice, the weaker the breakout… if it occurs.

October 27, 2008

Exhaustion

Filed under: Trading SPX SPY — moontrader @ 3:24 pm

Me, exhausted? Are you kidding? I look like a trashed banana skin. But the exhaustion the title of this post refers to is another one: the downtrend. Early today everything seemed to be heading for the crash I predicted over the weekend – which got me the 95th place in the list of most read posts on Saturday – but right before the opening the futures didn’t seem to support my outlook. SPY/SPX did open weaker, but not much into the day they managed a reaction, which prompted me to cover my position with a reasonable profit, but I had to postpone building the swimming pool in my backyard. Then I sit aside trying to figure out what is going on in the market, until I saw this:

And a closer look:

(while I was capturing this second chart, SPY went further down, closer to 10/10 bottom, once again)

Here’s my conclusions:

SPX/SPY broke the symmetrical triangle (in blue) support trendline and, after reacting and closing back above it, the next day it closed below it for the first time (Friday). The fact that a reaction occurred and prices went back inside the triangle proves that equities are reaching attractive prices and bargain hunters are starting to show up (Triangles are all about that).

Second, triangles are known also as figures that appear at the very last stages of a trend. This means, we are close to a bottom.

Third. Looks like that, once the blue support trendline was broken, SPX/SPY started to develop another triangle, a smaller one, more like a Descending Triangle. Same conclusion here, in another scale: we are closer to a bottom.

My outlook basically continues the same, we seem to be heading to a selloff towards SPX 750, and it might happen inside the time window between today and Thursday. Most probably tomorrow.

In any case, trend remains well down.

October 25, 2008

Ready for the Crash?

Filed under: Trading SPX SPY — moontrader @ 4:30 pm

At this point a crash seems just a natural consequence and the culmination of more than a year of a huge correction movement. Let’s go to two simple charts:

In this first one you can see that there’s been a consolidation from the bottom of the 10th through last Friday, in the form of a triangle. You can also see that Friday we opened with a huge gap down but the market recovered through the day. But notice that it was the first close below the support line of the triangle. Now let’s zoom in on Friday to see the intraday action in this annotated chart:

The message is pretty clear. We are going down, down, down. I don’t know how much, I had SPX 750 but it can go as well to 620 or further. And I guess it’s going to happen between Monday and Thursday, most probably between Monday and Tuesday. If you’re short, my advice is to cover your position at will, but don’t try to nab the bottom. Just relax and digest the idea that you made a lot of money. I mean, in case my forecast happens. Don’t forget everything is possible.

One last thing: CNBC published the rules for the circuit-breaker. CNBC publishing that? Things are getting pretty nasty. Here the rules, just in case you decide to cover your position a little before the halts:

  • The Dow Jones industrial average would have to fall 1,100 points in a day to trigger the first halt.
  • If that decline is reached before 2 p.m., the market will shut down for an hour. If the threshold is breached between 2 p.m. and 2:30 p.m., the halt will last 30 minutes. No trading stops would take place if the plunge occurs after 2:30 p.m.
  • If the index were to fall 2,200 points before 1 p.m., the market would close for two hours. If such a decline took place between 1 p.m. and 2 p.m., there would be a one-hour pause. The market would close for the day if stocks sank to that level after 2 p.m.
  • In the event of a 3,350-point decline, the market would close for the day, regardless of the time.
  • The thresholds are computed at the beginning of each quarter to establish a specific point value for the quarter. The 1,100-point drop represented a 10 percent decline at that time; the 2,200 level, a 20 percent drop and the 3,350 level is a 30 percent drop.
  • The rules would halt trading on the major securities and futures exchanges in a coordinated cross-market halt if the circuit breaker is enacted.

The last time the markets were shot down was during the 9/11 period.

Click here for the full article.

See you all on Monday – btw, New Moon!

October 23, 2008

What Now???

Filed under: Trading SPX SPY — moontrader @ 3:31 pm

Today everything seemed to be going just as predicted, with SP500 and Dow breaking the triangle support trendline, when they reversed and closed above it. Are we facing a triangle failure? Too soon to tell. We do remain below my beloved DMA’s:

Notice also that the Stochastics is indeed giving a sell signal, while MACD is a buy. When you have mixed signals, you favor the longer trend. The weekly and monthly charts are all sell. We need to see what happens tomorrow to have a better idea which direction the market is heading. Remember that I have an important bottom projected for next week.

UPDATE TO THE POST: JUST A WORD

First of all, as I said before, the important thing in these moments is to keep cool, otherwise you don’t think and you act on your emotions, and that is the main source of mistakes. We are living moments of extreme volatility, maybe never seen in the history of US financial markets. It is common to have wild swings and to see a position with a 200% profit turn into 50% loss in just a couple of hours. You have to adapt yourself to the market, or you just won’t survive. So you better define what kind of trader you are: you carry positions or you are a daytrader? I myself am a position trader, for many reasons, mainly because I find it “easier” and more profitable. I have a set of criteria to enter in a trade, and right now my criteria tells me that we are still in a downtrend and therefore I am positioned as such (when I see a close above DMA 7×5, then I’ll start to be worried). At the very end of the day today, the market turned up and rallied back inside the triangle. Is this a failure? Maybe, but I don’t think so. To start with, it might not even be a triangle. On the other hand I don’t buy the idea that the whole movement down from SPY 105 to today’s low at 86 was a correction in a trend reversal. Because it’s just too deep to be a correction. For me, what happened today was nothing else than a trap. I believe we’ll see the real direction of the market in the next 2 sessions. By Tuesday we should know what kind of market this is. So, stay cool, stay small and try to keep your mind inside your head, and your head on top of your neck.

October 22, 2008

Identikit

Filed under: Trading SPX SPY — moontrader @ 3:10 pm

We have a face to the criminal:

Name: Symmetrical

Last Name: Triangle

Answers by: Symm
Age: between 5 and 8 trading sessions
Victims: Bulls
Modus Operandi: Neat incision in the throat
Next Victims: SPY, SPX, Dow, etc… the whole family
Next Attack on: sometime next week
Objective: Cut SPY down to 75 (and the rest of the family accordingly)
Other caracteristics:

  • decreasing volume as it “grows up.”
  • first leg up is 105.53 – 83.58 = 15
  • if it breaks the supporting line around 90, it should go down as much as the first leg up, therefore: 90 – 15 = 75

75 is exactly the bottom of 2002.

Looks like our friend Symm just chopped the fourth leg today and is on his way to complete the 5th, and last leg up, by tomorrow or Monday. After which, expect the last round of blood bath.

Then, my friends, it’s all happiness: let’s go stock-shopping, it’s springtime!

ps: I cheated a little beat with the support line. If we start the day tomorrow breaking below it, then it’s not a triangle and we should go down immediately. In any case, my outlook is extremly bearish for next week.

October 21, 2008

Hello Bears

Filed under: Trading SPX SPY — moontrader @ 3:20 pm

Hold tight to your puts, we’re heading down.

Here’s a pretty simple chart:

Notice how support levels getting tighter as volume decreases. After a choppy day today, SPY headed towards yesterday’s high, but it didn’t make it. At the very end, it tried a little reaction, but all that happened was a close off lows.

As I said yesterday, today we needed to close below DMA 7×5, and that’s exactly what happened:

Ideally, we should go back below DMA 3×3 by tomorrow, to confirm the bearish scenario and increase the odds for a new low for the year. The way the market behaved in the last couple of days, looks like it’s going to happen.

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