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Archive for April, 2010

Bears Look To Gain Control This Week

April 30, 2010 Leave a comment

On Thursday, I highlighted a head-n-shoulders pattern in the SPX and COMPX. Friday's high volume sell-off went a long ways towards confirming this ominous pattern. It was the third distribution day while carving out the formation.

Volume 

To further strengthen my bearish bias is the weekly engulfing bar giving U.S. markets the lowest weekly close in three weeks.  Call the back-to-back candlestick pattern what you want, "Kings-n-Queens", "Marubozo" (Japanese lingo), or "Bull-Market-Bitch-Slap" (Paul's lingo). To be certain, this is a harbinger of a market changing its path of least resistance.

Engulfing pattern 

Once a break occurs through the neckline, assuming it does in fact break, the levels to watch are 1170 -> 50 day EMA, 1165 -> 50 day SMA, and then 1150'ish -> Click here. Should the market hold the neckline the possibility exist for a triangle to take shape, however; this seems unlikely given the current news-flow and technical damage already in place – Multiple distribution days, weekly change in direction, and weak posture of the financial sector. Financial names, upon examining the chart of the XLF etf, have made three lower peaks and are ready to lead the market lower. Even if the triangle were to come into play it would likely be of the topping variety due to the before mentioned reasons.

Xlf 

I began a bearish campaign Friday morning and will look to get more aggressive through the neck-line, which is the lows from Tuesday (SPX 1181, ES 1177). As long as the market doesn't trade above the right shoulder I will maintain a bearish stance and look to reassess as we move lower towards the projected 1150 target. As always, any questions or comments please feel free to email me at paul@macro-trader.com.

Position Disclosure: Currently short the June ES contract.

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Categories: Short-Term Trader

Head-and-Shoulders Forming In SPX & NASDAQ

April 29, 2010 Leave a comment

The SPX and COMPX are both testing the underside of the broken trend-line extending back to the lows in February. This retest, potentially, is setting up a head-and-shoulders pattern. I will look to execute an initial short position in the futures market AFTER a break occurs away from the trend-line, this way I have a definable pivot from which I can assess my risk and set a stop. Should this pattern come to fruition, a break below the neckline will warrant a maximum position with a target of around 1150 in the S&P 500 Cash Index.

Compx has     Spx has

Categories: Short-Term Trader

$SPX 1150 Downside Target

April 28, 2010 Leave a comment

By: Paul

Initial downside target for the S&P 500 is right around 1150. Three points of confluence exist at this price level.

1. Prior breakout level from January (1151)

2. Bull market trend-line (1150ish)

3. 38.2% Fibo Retracement from Feb-April (1153)

SPX 1150
 

Categories: Short-Term Trader

Short AUDUSD – A Way To Play A Chinese Market Drop

April 28, 2010 Leave a comment

I like this idea from three standpoints – Technical, Fundamental, and as a solid Risk/Reward trade. A way to play a short coming in the Chinese stock market is to short the Australian Dollar vs U.S. Dollar (AUDUSD). Australia's economic condition, without the help of China's insatiable appetite for commodities, wouldn't be in nearly as good a shape as it is. It has been the carry-trade de jour since the March 2009 bottom. With its huge interest rate differential vs. other major pairs and strong chinese fundamentals it has made a great deal of sense to own this currency.

But what if China is on the cusp of faltering? The Shanghai Index doesn't look so hot these days and in fact stopped participating in the global re-inflation trade back in August. An ominous topping triangle pattern has been in formation since and now looks to be breaking downward. Markets tend to lead economies and if this is the case then the Chinese economy could be on the brink of a cool-down. If that is the case then they will no longer be gobbling down commodities and therefore putting the brakes on the Australian exporting machine.

The interest rate differential will be something to contend with and in fact eat into profits a bit, but I think its still a good way to play a China breakdown.

Notice how closely the Shanghai and Aussie trade with one another. The actual correlation isn't what statiticians would call high, but it's pretty obvious using the eyeball test that these do in fact trade in proximity to one another. Eyeball test……fundamental connection……I'm satisfied its a good play. A new high, above 0.9387, would be the protective stop and a reasonable target of 0.8600 provides, if a trade is placed right now, an approximate 4 to 1 Risk/Reward opportunity exist……odds I'll take any day!

  Spx vs shanghai         Aud shanghai

 

Very Funny……..

April 27, 2010 Leave a comment

 from Calculated Risk

Making the rounds, a little Goldman humor (ht Brian):

"You want the truth? You can't handle the truth. Son, we live in a country with an investment gap. And that gap needs to be filled by men with money. Who's gonna do it? You? You, Middle Class Consumer? Goldman Sachs has a greater responsibility than you can possibly fathom. You weep for Lehman and you curse derivatives. You have that luxury. You have the luxury of not knowing what we know: that Lehman's death, while tragic, probably saved the financial system. And that Goldman's existence, while grotesque and incomprehensible to you, saves pension funds. You don't want the truth. Because deep down, in places you don't talk about at parties, you want us to fill that investment gap. You need us to fill that gap. "We use words like credit default swaps, collateralized debt obligation, and securitization? We use these words as the backbone of a life spent investing in something. You use 'em as a punchline. We have neither the time nor the inclination to explain ourselves to a commoner who rises and sleeps under the blanket of the very credit we provide, and then questions the manner in which we provide it! We'd rather you just said thank you and paid your taxes on time. Otherwise, we suggest you get an account and start trading. Either way, we don't give a damn what you think you're entitled to!"

 credit: anon.

Here is the original version of Jack at his finest!

Categories: Uncategorized

U.S. Markets Finally Waking Up To European Crisis

April 27, 2010 Leave a comment

 

Collapse bonds and ASE - The spread on 660 bp the CDS at 770 bps - discount default - Dramatic drop in ASE -6%

27/04/10 – 17:06 27/04/1910 – 17:06
The Greek market collapses in the absence HDAT prices, spreads reflect the bankruptcy and renegotiate debt, while the ASE wave of massive sell-off hit the banks …
Categories: Uncategorized

Weakness In Financials Could Spell Trouble In The Short-Term

April 26, 2010 Leave a comment

by
Paul

Last
Thursday, I outlined a triangle
pattern
in the SPX which broke out to the upside heading into the
weekend. This is an excerpt from Thursday's posting – “In
accordance with Elliot Wave theory, the high level nature of this
formation has created a '4th wave triangle'. This means that should
we break out we will be entering the final thrust of this up move
before correcting.”

While
the S&P was putting in a triangle so was the financial group
(XLF), which accounts for nearly 17% of the S&P 500. However,
when the broad market broke higher this already lagging sector
continued to stay behind. Today, the underside trend-line of the
triangle was broken putting not only financial names at risk but the
whole market.


                                                                    FINANCIALS (XLF) – 30 min. chart


XLF triangle

Both
the S&P 500 and NASDAQ have run up into or near very stiff
resistance levels. 1225'ish and 2030'ish respectively. Many sentiment
guides
have become excessively bullish as well.

                                      S&P 500                                                                        NASDAQ

  
Spx RESISTANCE                           
Compx RESISTANCE

Case for cautiousness:

     1. 
Resistance levels in major indices

  1. Weak price action in the financial sector

  2. Overly
    bullish sentiment levels

  3. Headline
    risk – most likely news events related to the bout between Govt. and Wall St. or the European debt crisis)

In
the coming days, it will be important to pay attention to the degree
of further weakness in the financials, should it occur, and how much
it will affect the broader market. The FOMC meeting on Wednesday could
shake things up as well.


Categories: Short-Term Trader