05.31.2011 Update Up, Up and Away...

Not good news for the bears, sorry.

Whether we have a rocket that's going to explode into pieces and fall back to earth or we have a rocket that will head into orbit.. we have a rocket and they will both go up for at least awhile.

Everything except the XLF is back above all moving averages on a close. The XLF made it back over the 200dma and there's a lot of room between the 200 and resistance at the 100.

The Russel 2000 and DOW Jones Real Estate are both approaching a level where they will naturally pullback some here, the S&P is not quite there yet.

I suspect we'll open higher and let the S&P and DOW Industrials top out the stochs and catch up with the Russel and Real Estate. Then we'll probably have a pullback.

After that though, unless the pullback turns into a rout and we head back under moving averages in a hurry, we are going a lot higher.

Looks like 1354ish is an immediate S&P target, then a pullback, and then probably taking out 1370 and going higher. I give the S&P a very high probability of taking out 1400, maybe as high as 1450.

Here are the charts;

S&P



Russel 2000 (IWM)



DOW Jones Real Estate (IYR)



Sorry bears, all you can hope for is a violent reversal in the next 3-4 days.

GL

Update 05.26.2011.. At Resistance..

We are at an important juncture here. I will cover both the bullish and bearish items.

Let's start with bullish items;

1) Today's internals were much stronger than it appeared on the face. IWM (the Russel 2000) was up 1.4% which is double the NAS and more than triple the S&P. Same for IYR (Dow Jones Real Estate), also up 1.4%. XLF even outperformed the S&P today, it was up .52%.

2) The daily stochs on the S&P are bottoming. This almost always results in a upswing in the market. It may be a temporary upswing that ends with another plunge, but I've never seen the daily stochs swing up and the market not go up at least some.

3) Friday and Tuesday are the last 2 trading days of the month. And then Wednesday/Thursday are the first 2 trading days of next month AND before and after a holiday. End of month/beginning of month always leans bullish and this is especially true before/after a holiday weekend.

o.k. so those are the bullish things and they make a pretty strong argument.

Bearish things...

1) Every sector that made a big move today stopped RIGHT ON resistance. And very important resistance at that.

*Disclosure here, I went short today by shorting TNA and going long DRV. I have pretty tight stops because we are literally sitting on resistance here. We either fail here or we take it out, in which case I quickly switch sides because we'll rocket ride most likely.

Here's the charts.. the speak for themselves;

IWM (Russel 2000).. stopped right at both a trendline and the 50DMA;



IYR (Dow Jones Real Estate).. Stopped right at a trendline and top of the bollinger bands;



XLF (Financials sector ETF).. Stopped right at the 200dma.



and the S&P 500.. stopped right under the bollingers and just under the 50dma that it bounced down off of intra-day;



So there you have it. Plenty of things for the bulls to feel good about today.. but man the market is sitting on some heavy resistance right here.

Put yer hard hats on, the next break one way or the other is probably going to be pretty violent.

GL

CJ

05.25.2011 Update.. backed a little off the ledge..

So the market decided to follow the rules and spend the day correcting an oversold condition.

What that tells us is that the market is probably not ready to collapse here quite yet. It was a perfect place for it to happen and instead it rallied in the face of awful durable goods numbers.

The Russel 2000 managed to get a close back above the 100dma. Which was an important piece of stopping a landslide from happening here;



The S&P's situation has not really changed from yesterday. We had a false head fake lower below the 100dma on the open, and the rest of the day was green. We closed right in the middle of the 50 and 100dma's;



So the Russel and S&P are over the 100 dma and holding with the daily stochs, RSI and MACD looking oversoldish. We also have a typically seasonly strong period after memorial day for a bit.

Lets get to the bearish items. The sell off at the end of the day felt a little bearish. Up 9 or 10 on the day and closing near HOD and closer to the 50 would have felt a lot more bullish.

The XLF is still ugly, ugly, ugly. It did not really participate today and actually touched the 200dma from underneath and failed and sold back off. The XLF is below all moving averages. Not just the 50 and 100.. it's below the 200 too;



Going back to my short term S&P chart from yesterday. We pretty much followed the possible path to a T. We rallied right up to the 50dma, then hit and sold back off. Now the question is whether we head back down and take out the 100 or head up and take out the 50. That will answer all our questions about what direction the market will be taking in the mid-term over the summer.



One last thing to mention;

Before you get too beared up here, the market traded today very logically. It was slightly oversold, it corrected that oversoldness, then got overbought and corrected that.

The VIX is back below all moving averages.

So while we do have lots of leaders appearing very weak here, like Tech, the Russel, and Retail, this market is trading very logically and with not much fear. This is not an impulsive fear driven market yet.

That could be bearish or bullish depending on how you look at it. You could see it as the market being much too complacent or you could see it as no one is scared and the bull trend is going to resume.

I tend to think it's short term bullish but longer term very bearish. We will see though... just watch those Moving averages.. that's all the matters at the moment. If the S&P closes under the 100.. the market has a problem. If it gets back over the 50 the rally is not done yet.

GL

CJ

05.24.2011 Update... On the ledge...

Lots to go over tonight, so I will try not to go off on tangents and keep to the point.

I will start off with the short term S&P chart. (60 min/6 weeks) I have a direction laid out for where we might head short term, BUT I am hesisitant at all to even post it, because I'm not very confident in it. The main reasons I have for a bounce dead ahead is the stochs, MACD and RSI are all oversold on the 60 min. chart. In addition, the stochs are oversold on the daily as well, with the RSI and MACD approaching oversold, but they have some room lower. The problem with that is Oversold during violent sell offs, just become more and more oversold. So take this short term direction prediction with a heavy grain of salt;



O.k.. that's pretty much all there is for the bull case at the moment. The S&P is still over the 100dma which is important. But it's stuck between the 50 and 100 right now. Below the 100, things get hairy fast. We may have that oversold bounce, but i'm really only 50/50 on it here.

Moving on.

XLF... ugly ugly ugly ugly.. for those that don't know. XLF is the tracking ETF for the financial stocks.

This chart speaks for itself;



Let me just say, with this kind of action in the financials, those with more access to information than most of us have know more than we do. We can guess, as I certainly have lately, but the market is telling us somethings wrong. Don't forget David Tepper abandoned his huge positions in the financials recently. Tepper is a cocky dude, so to admit he was wrong, he probably knows something.

Moving on..

IWM is ugly ugly ugly... just like XLF, it is below all moving averages. So we have both IWM and XLF that could potentially get a death cross going forward here. Ouch.



The Russel only looks uglier than the XLF because it had run up so far. The Russel looks like a bubble set to collapse. It could maybe bounce off the bottom of that megaphone, but man.. that's an old megaphone.

Now back to the S&P on the long term. As mentioned, we are stuck between the 50 and 100dma's. Like I said, we are oversold, so most of the time, i'm going to say we have a bounce coming and it sort of fits into a short term EW count. But, we have the financials and small caps that are closed under ALL moving averages. That is bearish as all get out. Financials and small companies are 2 of the most important pieces to the economic puzzle and they are both looking like potential collapse.

The DOW and S&P obviously look more healthy than XLF or the Russel. But I think that is nothing more than the multi-nationals still trying to hold in the DOW, and consumer staples and other defensive areas catching a bid while some of our leaders from the rally are rolling over and dying.

Here's the long term chart showing different area's of support down to about 1239. Below that, we could go cliff diving in a hurry.



I will say this much.. the bears case is getting stronger and stronger and if the XLF and IWM don't get back above some moving averages, this market is doomed.

GL

05.23.2011 Update Threatening to breakdown

Today we had a pretty broad based sell off. Nothing was being particularly smashed while others based. The Russel 2000 took it on the chin a bit worse than most, but otherwise it was a pretty even sell off.

Speaking of the Russel, I'll jump right on that first. Ugly breakdown in the Russel today, it closed under both the 50 and 100 dma's. It also appears to have broken well below support of any type going back 12 months. Pretty nasty.. have a look at that first;

(btw, in case anyone isn't aware, if you click on the image you get a large version)



Pretty ugly eh? Charts don't get a hell of a lot more bearish than that looks.

The S&P did a bit better job at holding onto support today. It's still in the down channel and while it did get below the 50dma, it bounced off of the 100dma, so at the moment the 100is still holding. The 100 will be key for further weakness here. Break the 100 and we almost certainly will test the 200, which is all the way down at 1240. I think we lost the Russel, but the S&P is holding on for dear life;



The DOW, not surprisingly, is holding up the best. The smashing of the dollar and pain at the gas station for us all has done wonders for the likes of IBM, Caterpillar, 3M, McDonalds, etc. When your products and services become cheaper across the globe, obviously you'll sell more of them as you become more competitive. Unfortunately, this has come at great cost to the American middle class and retiree's who don't enjoy paying 4.25 for a gallon of gas or 15$ for lunch at TGI Fridays. The DOW stopped at the 50 dma and reversed. So it's still above all moving averages. However, the dollar is doing some serious rallying, which obviously is not going to be good for continuing to grow profits at the mega multi-nationals.



Last but not least, we have our favorite giant turd IYR. It's threatening the bottom of it's very old wedge. It's becoming more and more apparent to me that the combination of a re-collapse of commercial real estate, double dipping residential real estate, popping of the emerging market bubble, popping of the Chinese, Austrailian, Canadian and recently London real estate bubbles all with the mega-banks at multi-year lows of loan loss reserves is what is going to re-smash the financial system and re-start the global collapse that we started in 2008. Remember, THEY'VE DONE NOTHING TO ACTUALLY FIX THE PROBLEMS. The can has been continually kicked down the road. You can't fix debt problems with more debt. You can't charge your mortgage on your credit card. It'll work for a month, but then what? You're fucked worse than you were before.



Elliot wave doesn't give us a lot of clues at the moment because there is possible long term bear and bull counts. The only thing I can say is that there are more long term bear than bull counts at the moment.

But other signs are flashing.

05.22.2011 Weekend update.. back down and then what?

In typical fashion, the market didn't give us the couple points on Friday and the trading made it difficult to get short especially on OPEX.

But we are heading back down again, so now the question is where are we going and what kind of move is this. I still believe this is a correction, but my opinion is slowly shifting and I will list the evidence I see that is making me think otherwise.

First, below is our S&P Chart. My complaint with this chart from a bearish perspective is that there isn't really a good way to make this a channel. You can, but you have cut some corners to do it and assume that we have a couple false breaks already. It looks better as a bullish falling wedge. So that is glaring at me right now and the main thing that is keeping me on the path that this is a correction and we still have a move to potentially new 52 week highs coming.

Chart;



As far as Elliot Wave is concerned, this move could either be an ABC (correction) or a 5 wave move down. A 5 wave down would probably take out 1320 and close there. That could potentially change our long term count and everything becomes more bearish instantly. If it's an ABC, we've got 2 moves down left and we'll probably take out 1320 (cash market.. my targets are always cash not futures) but only intra-day and possibly on a questionable break lower close, such as 1318. A close below.. but not convincing.. a head fake.

The bears have a chance here. But before I get into the things that are glaring at me from the bearish side, I want to show you another chart.

IYR.. everyones favorite insane index. Ooohh.. commercial real estate, how I love you.. let me count the ways. .. This shit is so overvalued it's insane. Major REIT's are basically at 2007 real estate bubble highs. CNBS even had a real estate mogul on last Friday talking about NYC office building and multi-family properties back to bubble prices. It's all yield reach. Remember my last discussion of Retirees, Pension funds, Trust funds, etc., having a hard time getting their 6-8% they need? REIT's pay a dividend which at the moment exceeds most CD rates. On top of that, you have foreign money flowing out of the middle east (the middle east elite don't want their money in the banks there during the turmoil in the region) and you have the paper money is trash crowd that want hard assets. Result, a new commercial real estate bubble. Yippee...

Gee.. i wonder if that has anything to do with the financials getting smashed lately? Financials had another ugly day on Friday. Don't forget, the banks have been drawing down loan loss reserves to pump up their earnings and have spent large amounts of cash trying to pay back the FED loans. Those reserves are supposed to be for LOAN LOSSES NOT PROFITS. What happens if we have a re-collapse in commercial real estate in conjunction with our double dipping housing market?? Prepare yourself for another round of bail out nation.

Here's the IYR chart... we've got a 7 month long bearish rising wedge with 2 false breakouts. How much you want to bet the next breakout is actually a breakdown?



On to my list, these things are causing me to get more and more bearish;

1) Volume on the sell side is ALWAYS higher and much higher, although this has been the case for a long time. But it's just not normal is a bull market.

2) The financials are falling apart lately. They are pointing to another round of 2008 problems dead ahead.

3) Russel 2000 is not leading anymore. It's rolling over and looking almost as ugly as the financials.

4) The previous leaders are not leading. Retail is breaking down, small caps are breaking down, technology is breaking down, the SOX is ugly, .. the area's that do look o.k. are defensive areas like consumer staples.

5) The moves have flip flopped. The moves up had been bleeding higher and higher over a period of time and the downmoves were hard and fast but over very quickly. We have switched to downmoves being slower and bleeding while the counter rallies are furious and over quickly. That is indicating a major change in trend.

6) real estate is obviously double dipping in a lot of the country. this means a majority of the buyers that bought in mid-2009 to end of 2010 are now probably underwater including transaction costs unless they put more than 10% down. Considering that something like 90% of those purchases were FHA, most of them were probably 3.5% down or less.

7) Commercial real estate, emerging markets and residential real estate in Canada, China and Australia look like bubbles. Again.

But as always.. we'll watch the market. It will tell us if bad things are coming down the pike.

If we do re-collapse,.. Bernanke's tool chest is very empty and the political will to throw another 4 trillion dollars at the problem is probably not there.

I expect to hear more and more and more threats of Armageddon coming from Geithner, Bernanke, Dimon, and everyone else in the I love bankers club.

GL tomorrow.

05.19.2011 Update.. Couple points and back down

We had the broad based rally yesterday but today really fizzled out. Not much follow through there. In fact it was weak enough that we fizzled out right at a very small channel (red in the chart) inside of our larger blue channel. Pretty weak.

Based on today's action, I am now leaning towards the highest probability is that we nail the top of the blue channel here, with maybe a slight fake breakout tomorrow or Monday, and then head back down to the bottom again. So, I'm leaning towards this correction (if that's all it is) not being completed yet.

At this point though, I'm only 60/40 that we head back down, the scale has not tipped that much, but if we climb up 3-4 points tomorrow, it wouldn't be a bad place to go short again with a tight stop to protect from a breakout.

Tomorrow is OPEX (options expiration for non-options folks), so I wouldn't expect to many fireworks tomorrow. It would be classic for a market to really make a major turn on an OPEX and have a major move, I've seen it happen at major tops quite a few times, but I do not expect that tomorrow. IF this is a major top that has been forming, as opposed to we haven't quite yet topped out, it takes a lot of time. Remember after we topped in 2007, the market fuddled around only losing about 15% over the next year until the real collapse came very suddenly after a death cross and getting under the 200 dma. We don't have a death cross and we aren't even close to the 200dma, so realize there is lots of time still to build this top before a collapse occurs, and it will eventually. The market will tell us when it's near.

Here is updated chart with the current larger channel (blue) and smaller channel (red) you can see we failed today at the red channel, which is a bad sign for breaking out of the blue channel. Also note on the chart that the Stochs are very overbought and the MACD and RSI are rolling over;



How about Linked In today (LNKD)? Internet bubble much? That is what happens in this market when nobody can go short to balance the trade. It goes straight up to a point that an IPO is trading at 1200 P/E. That is super high even for the Internet bubble. The scramble to put money into something is really at a fever pitch here.

If you are a retired person with 800K in savings to live off of, you would be doing great with interest rates up around an historical average of 6% and you could get a comfortable 5% out of CD giving you an income of 40K a year without draw down. But with CD's at 2.5% and savings accounts at ZERO.. the BEST you could do is maybe 15-20K a year, off 800K!!!. This is where the cash buyers for rental property is coming from, in case you were wondering where all the cash buyers showed up out of nowhere. If you are afraid of the stock market and only can get 2% from a CD.. you might reluctantly become a landlord.

Now expand that general principal to Pension funds, Trust Funds, General Funds, anything that NEEDS 6-8% a year safely in order to maintain long term goals. They can't get that 6-8% safely. They're being pushed, much like retiree's, into riskier assets because they have no choice. This is what Ben Bernanke is doing, he is forcing them to take on more risk.

Does anyone think it's smart to force retiree's, pension funds, trust funds, and general funds into riskier assets???

NO!, of course not. This spells one thing... pending disaster during the next market sell off.

Tomorrow I will do some detail on how to technically spot a market roll over well ahead of time. Because sometime in the next year, we will be in the midst of one.

GL