Luna $ Ticks

November 28, 2008

Who Has the Guts to Short?

Filed under: Trading SPX SPY — moontrader @ 7:49 pm

This is the last post before my wedding and I promise, if I survive, to upload a couple of pictures. They’ll be kind of general pictures, you will see both of us in them but you won’t be able to recognize me or the bride on the streets if you bump into us. You know, just to stay anonymous, which, in a certain way, is a choice that some of us, bloggers, make. We become the persona we create and we relate to each other through these virtual characters. It’s like watching through the window your neighboor changing clothes, then one day you meet that person and all of a sudden the enchantement is gone. For all the purposes, I’m still the wolf you see in my avatar, howling to the full moon in the company of his faithfull (as I believe) partner. The wedding will be on Sunday, and the next day I’ll be taking off for honeymoon… not before checking the market.

Behind I’ll leave not only my everlasting life as a single, but also an edge for a trade. Unfortunately I won’t be able to play this one, but the market is full of opportunities and soon others will come. Here the edge:

spy-112808

This one is pretty easy to manage. You short once SPY reaches 90.40 (we’re a couple of pennies from there) and the stop is right above it, let’s say 91.50. You have to see a result right away, otherwise don’t drag it overnight. If you see some profits, hold it. The correction should last a couple of days, maybe until Friday. As a reference, the Eureka chart can be used, since it hasn’t yet completed the pattern. Here it is, updated:

spx-112808-spiral

Notice that in my last calls, I’ve missed the bottom or top by a couple of days. They actually happened earlier. This one points to a bottom on the 8th, Monday. So, if you see some good profits by Friday, the 5th, just cover or scale down. The whole Spiral you see above created bottoms, so there’s a good chance that we see a bottom (some sort of) next Friday or the following Monday. I really don’t think it’ll be a new low. It’ll be just a correction and I don’t know how far it’ll go. It could go back to 85 or 83, or even touch 80. On the other hand, if you feel uncomfortable shorting this market, then sit back and watch. Go long, if you wish, on Friday (5th) or Monday (8th). Monday is better.

I’ll be posting again only on the 11th or the 12th.

Good trades to all of you and one last thing: it’s been really great exchanging comments and ideas with all, absolutely all of you.

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November 26, 2008

Rocket Stocks

Filed under: Trading SPX SPY — moontrader @ 6:03 pm

I believe many readers here are frustrated with the retracement I thought would come between today and Friday, but at this point you might already have noticed that this rally is no chicken – or turkey. No doubt that Quantitative Easing is happening – just check interest rates – and it seems that this is the main reason behind this rally. The excess of liquidity the government is injecting in the market is the cure of a symptom, but it doesn’t fix the real problem. Anyway, what matters right now is that this flood of money will be driving the stocks up for quite a while, and maybe in a straight line.

spy-1126081

The low volume is also due to the holiday week, so I wouldn’t care much about it. VIX is in a downtrend for now:

vix-112608

All in all, I wouldn’t dare to short anything for now. Today I went long with some ultra proshares (QLD, SSO, UYG) and even bought some bank stocks (C). The financial system will certainly get the most benefits from the monetary strategy Bernanke chose.

One last thing. Friday will be my last post before my wedding, which happens on Sunday. After which I’ll out on honeymoon for 10 days.

Ah, and Happy Thanksgiving to all!

November 25, 2008

Farewell to our Friend, the Bear

Filed under: Trading SPX SPY — moontrader @ 7:23 pm

This post is more or less a follow-up to the previous one, which I published during the day. Although I said that the possibility of new lows were not to be discarded, after today’s close I find it difficult for the SPX to plunge this week below last Friday’s low. This rally has been holding pretty well and I think it’s arrived the sad moment to say farewell to our friend: the Bear.

This morning the market opened in a pretty weird way: SPX gapping up, TNX gapping down. I quickly asked around to understand what was going on and our friend Evil Speculator showed me an interesting article, which I strongly recommend you all to read. It talks about a monetary strategy to fight moments like this, which was employed by Japan in 1990. It basically consists in flooding the market with credit and money, to keep interest rates close to zero in order to artificially heat up the economy and fight the greatest financial villain: deflation. Although this is a quite efficient strategy in the short and medium terms, on the long run it drags down the whole economy, as it happened with Japan. But let’s forget the long term and let’s focus on the short one. More money in the markets means more consumption, more jobs, higher prices, higher profits, higher dividends and… higher stock prices. What we saw today are the first effects of the “Quantitative Easing” strategy. Check this out:

tnx-112508

Notice in the chart above that Treasury Notes yield are at historic lows. The chart covers 46 years!

If that’s not enough, look at this:

irx-112508

This means, the market is being flooded with money and credit as you read this.

Now, the conclusion. I still think we’ll have a retracement in the next one or two trading sessions:

spy-112508

If you’re short I wouldn’t wait too long. Tomorrow SPY will probably head towards DMA 3×3, which stands at 78.3 (80 on Friday) but it’s not guaranteed it’s going to go below it (nothing is ever guaranteed). In any case, I will close my short positions (which are few) tomorrow and start thinking on… my wedding and honeymoon! I think we’ll have quite an opportunity to go long this week.

Retracement or New Low?

Filed under: Trading SPX SPY — moontrader @ 1:21 pm

From Friday’s low to today’s high we had quite a rally, but I wouldn’t go long at these levels. I’m writing this post in the middle of the day, and SPX right now is 847.42. Here is an updated date projection also calling for some sort of bottom this week, either a new low for the year or just a retracement.

spx-112508-spiral

There’s a couple of interesting things to notice in the above chart. First, last Friday to today’s rally perfectly aligns with the sharp rally that happened between the 18th and the 19th of September. What happened back then? The short-selling ban. I saw some of the readers commenting that the rally from last Friday looked similar to that September rally. No wonder. Both rallies were produced by the government taking bold actions to try to gain some time while trying to stabilize the financial crisis and avoiding panic.

Second, it aligns with another very important bottom followed by a sharp rally: the bottom on October, 10th.

Please notice that the bottom of last Friday, the 21st, aligns perfectly (tolerance only 2 days) with both bottoms, plus the following tops align perfectly with today’s top (if 868.94 holds, which is likely). The following bottom also aligns between Wednesday (tomorrow) and Friday (the 28th).

Although I’m not sure if we’re going to have a new low or just a retracement, I want you to notice the third important thing:

  • the upleg got larger from F5 to F3, but it got smaller from F3 to the current.
  • the downleg from F5 to F3 got larger.

Therefore, if this is a retracement, the downleg will get smaller, otherwise we’ll have a new low for the year. Now, notice that the downleg from October 14th to 16th almost erased the whole rally from Oct 10th to 14th. And that was a much larger rally. From October 14th to 16th, from top to bottom, SPX slid 178.48 points. The rally from last Friday to today’s top was 124.83.

Just another thing to notice:

  • October 16th low = 865.83
  • Today’s high (so far) = 868.94

To conclude: we might or might not have a new low for the year, but we’ll probably have at least a sharp retracement from today’s high happening in the next couple of trading sessions.

November 24, 2008

Evidence Mounts

Filed under: Trading SPX SPY — moontrader @ 7:57 pm

In my last post, after Friday’s rally, I said there was absolutely no evidence of a bottom yet. A 6% rally by itself doesn’t make for a trend reversal: it needs to be followed by other indicators supporting the case. Today we had a couple of bullish indicators. First of all, Friday’s rally sustained and was followed by another strong rally, basically from the beginning to the end of the day. Second, I showed in my Eureka chart that we would have a bottom between Monday and Wednesday this week. Today’s rally obviously put a big question mark on top of the Eureka chart. Let’s not insist on it, since it’s almost invalidated. I say almost because we still have two days in the time window, but today’s rally put us too far from Friday’s low. On the other hand, VIX remains high and, although SPY is not in full bear mode, it’s indeed giving signals that we are still in a downtrend:

spy-112408

The chart above is self-explained, but I do want to call your attention to the close, which was on top of the DMA 3×3. If tomorrow we close below DMA 3×3, we’ll probably see a big drop on Wednesday. It’s worth remembering that today’s volume was low compared to the last two trading days.

I don’t want to clutter this post with a lot of charts, because I don’t want to “justify” the downtrend scenario, so I’m going to show just one more chart:

tnx-1124081

In my view, Treasury Notes yield above 33.54 would increase the odds of a bottom in place. Also, I would take today’s high as the stoploss. And tomorrow close will be extremely important.

Regarding the dates, we obviously can go down next week or another date, but it wouldn’t fit in the Eureka chart. I would have to find other date proportions.

Just one last thing. Today’s rally was based on Citi rescue and Oil spike. Financials and Commodities led the rally. Are financial problems over with Citi rescue? I don’t think so. And Oil remains in a downtrend.

November 22, 2008

Absolutely No Evidence

Filed under: Trading SPX SPY — moontrader @ 9:53 am

Of a bottom yet. Friday’s late minutes rally means nothing as it didn’t breach Wednesday low, it was just a recovery from Thursday’s fall, and it makes for lower lows, lower highs: the trend remains down down down. Here’s the visual approach:

spx-211108

tnx-211108

vix-211108

util-211108

And this chart I believe to be extremely important in the very short run, as it shows a market quickly deteriorating:

spy-h-211108

So, for those that think Friday’s rally is a sign of a bottom, I advise you to look closely at the above chart. If you still think problems are over, then read this article by Paul Krugman. Here’s an excerpt:

Consider how much darker the economic picture has grown since the failure of Lehman Brothers, which took place just over two months ago. And the pace of deterioration seems to be accelerating.

Most obviously, we’re in the midst of the worst stock market crash since the Great Depression: the Standard & Poor’s 500-stock index has now fallen more than 50 percent from its peak. Other indicators are arguably even more disturbing: unemployment claims are surging, manufacturing production is plunging, interest rates on corporate bonds — which reflect investor fears of default — are soaring, which will almost surely lead to a sharp fall in business spending. The prospects for the economy look much grimmer now than they did as little as a week or two ago.

Yet economic policy, rather than responding to the threat, seems to have gone on vacation. In particular, panic has returned to the credit markets, yet no new rescue plan is in sight. On the contrary, Henry Paulson, the Treasury secretary, has announced that he won’t even go back to Congress for the second half of the $700 billion already approved for financial bailouts. And financial aid for the beleaguered auto industry is being stalled by a political standoff.

Just a final reminder: the last chart I showed, this one, points to a window this week. It shows that this whole correction (or the first part of it) might converge during the days between Monday and Wednesday. I know I’ve tried to do this sort of projection before, but this last chart covers the whole correction from the very top last year until the next couple of days, with a clear, consistent recurring pattern in time. The other charts I presented did not had this sort of consistency. I’m looking forward to see what happens this week.

November 21, 2008

SPX Targets

Filed under: Trading SPX SPY — moontrader @ 9:33 am

Today the market is opening high, and this for me is just another short opportunity. It looks like we’re heading towards a bottom sometime next week and I’ll be positioned for that. In the meantime, I’m trying to calculate the target for the S&P 500 and I have a couple of candidates.

Here’s what I’m doing:

spx-turning-points-112108

On the above chart you can see significant turning points and their respective value. I tried to combine tops with bottoms with tops to project targets in 5 different ways:

  1. Contracted Fibonacci: x .618
  2. 1 to 1
  3. Expanded Fibonacci: x 1.618
  4. X-Expanded Fibonacci: x 2.382
  5. XX-Expanded Fibonacci: x 2.618

The combinations you can see in this table:

spx-targets-112108

I colored the target clusters. The yellow highlights however mean possible targets with no clusters.

These are the targets I got to:

  • 750 (we hit that yesterday);
  • 680;
  • 610;
  • 540.

Since I believe the bottom will be next week, the 750 might be – in theory – discarded. Again, we need to see a sharp drop between today (after this sort of rally at the opening) and Monday towards these numbers, otherwise the scenario is not valid.

UPDATE: As suggested here’s the poll:

November 20, 2008

OY VEY!!!

Filed under: Trading SPX SPY — moontrader @ 5:29 pm

If my date projection for a bottom sometime next week between Monday and Wednesday (I forgot Thursday is Thanksgiving) is right, then today’s drop is just the beginning. If this is so, then we’re about to live some sort of disaster. First my OY VEY chart, Treasury Notes:

tnx-112008

Then the SPY, what to look for in the next couple of days:

spy-112008

Tomorrow we might even have some sort of bounce, although I wouldn’t bet on it. On the other hand, if we do have this bounce back up, I don’t think it’s going to be scary. We might even open lower and bounce from the level suggested by 2Sweets, 725 (not sure if this is still valid tomorrow, Friday), but this is just a speculation. In any case, tomorrow and Monday should be incredibly interesting days. I’ll definitely hold puts over the weekend (a small position, obviously).

November 19, 2008

Black Something

Filed under: Trading SPX SPY — moontrader @ 7:24 pm

Today was a pretty weird day. It started out with what seemed to be a correction of yesterday’s late day rally, but it slowly turned into a clear impulsive wave down. For most of the day I didn’t know what to do, and when that happens I just don’t do anything. Towards the end, however, it seemed that it would prepare another whipsaw for the bears like yesterday, so I bought a tiny November Call position. It didn’t take long for me to understand that the position wouldn’t make any lottery money (although for 10 or 15 minutes it was quite profitable): the rally soon fizzled giving place to a new low for the year. But that happened at the very end of the day, and from those levels the market didn’t react. At this point everything was clear: I closed my tiny long position and quickly opened a short one. I left some ammunition in case we open higher tomorrow, but I’m not sure the market will give this sort chance to those that didn’t grab some puts today.

Here two charts I think are useful:

spy-111908

tnx-111908

Just a final word about the date projected for next week. I guess we all have the feeling that things are converging towards some sort of big drop in the near future. Maybe tomorrow, maybe Friday, maybe Monday. I don’t know when, but it looks like we’re going to have a black something. The big drop doesn’t need to be next week, it can be Friday, with the low and reversal next week. For those already short and conservative, if a big drop do come tomorrow or Friday, you don’t need to wait until Monday to see what will happen: scale down your position. Don’t need to grab the whole world at once.

Good trade to all of you.

November 18, 2008

Pure Magic

Filed under: Trading SPX SPY — moontrader @ 5:58 pm

In an incredibly choppy market I had a great day and it was in part to our dearest friend 2Sweeties. Check it out:

spx-111808

Just unbelievable! Pure magic! I dumped the calls I had in the beginning of the day, went short at around 86.5 SPY and then, towards the end of the day, I decided to try 2Sweeties model. I checked the level he suggested, closed part of my position, SPY reacted, I covered the rest, then I went long and closed the day with an amazing profit! The man is a genious! Click here for his website.

Anyway, it looks like we have some sort of rally, after all. I’ll be going short tomorrow again, or Thursday at the latest.

Here’s another chart I would like to show, which I showed early today: the breakout in the Treasuries triangle:

tnx-111808

The market has been extremely choppy, so it’s better to be careful. The scenario of a bottom sometime next week is absolutely valid, and I’ll spend the weekend with a nice chunck of puts.

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