Wild-eyed Bullish

Disclosure: I am long SPXL.

Broken S&P 500 Rising Wedge

The S&P breaks 1600!!!

The S&P 500 Top? (ChicagoStock)

Saturday Rock Blog: Burnin' (S&P 500)

S&P Golden Cross!! (bullish)

The golden cross (50 dma/200 dma) is a lagging indicator and it would be healthy for the market to pullback here. But damn, is this not a gorgeous chart?! If you leave out the prior ten years, this (six month) chart looks really bullish. We might be a little over extended in the short term but the 2008+ bull market seems alive and well. A violation of $125 (or ~1250 SPX) would convince me otherwise.

Saturday Rock Blog: Fuck You

I'm becoming increasingly bullish on the market, I no longer have any index puts and I have opened long positions in AUD and EUR. This chart doesn't look super bullish but clearly 1040 (neckline) is holding and there is even a false breakdown to boot. Other indicators (MAs, stochs, CCI) are also starting to turn up as the increasingly low volume of summer wanes. It seems like the market likes the economic news that came out last week so that could be the catalyst for the next leg higher. The head and shoulders pattern that we had all been watching just didn't pan out. Anyways, one thing is for sure, the S&P has been stuck in a very annoying range for a while now:

Saturday Rock Blog: Shine (on the Sun Bear)

Everything about this chart says that a new trend has begun. The six month S&P charts has increasing volume on down days, decreasing volume on up days. A cross of death and a series of lower highs. The stochastics and CCI are both about to give renewed sell signals (market worked off oversold conditions). We held the flash crash low barely on Friday but I suspect op ex had something to do with that. Watch for a close below 1040 to confirm what everybody is wondering: Has a new bear mearket begun? If so, I'd guess it doesn't take as long as my patience to get to that head and shoulders target at 860. Enjoy the beautiful weekend everyone!

The Malaysian Sun Bear:



Disclosure: I own SPY puts, plan to hold them for a while.

S&P 500 Rallies as Cross of Death Completes

After completing a nearly perfect H&S top on the S&P 500 daily and hitting new lows for 2010, the bulls have come out to squeeze the bears. What a surprise! Nope, seen it a million times. Just when the bears get a grip on things the market miraculous rallies to squeeze the bears. I think stock have likely begun a new bear market as evidenced by a number of technical indications. The series of lower highs and lower lows on both the daily and weekly time frames is an obvious one. Then there's the cross of death on the dow and the S&P, note that this has not yet occurred on IWM or QQQQ yet (but it will soon). Further, you can see that the 50 dma and 200 dma on the S&P 500 are now both declining. I could go on and on about how strong the economic argument is for a renewed weakness in stocks, but.. eh, I'll leave that for another day. There were some short term buy signals this week and after the bulls retook 1040 its no surprise that there has been a squeeze on the false breakdown. Once the market falls back below 1040 I think I will be ready to declare a new bear market with certainty and bet the house short. For now I am happily long as I wait to see how far the retards on Wall Street continue this low volume squeeze. I hope you are all enjoying your summer?

Disclosure: I am long IWM August calls.

The head & shoulders everyone is talking about

Here's the 9 month daily S&P 500 chart:

The head and shoulders pattern that seems to be forming here has a neckline at 1040 which is 180 points below the top of the head at 1220. Using a simple measure rule (1040-180) I get a target of 840 upon a close below the neckline. Currently I don't have a position in the S&P directly but I do have a few IWM puts.

$SPX FALSE BREAKOUT?

$SPX SP500 DAILY 01/04/10-04/28/10

RISK DISCLOSURE: PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING FUTURES AND OPTIONS IS SUBSTANTIAL AND SUCH INVESTING IS NOT SUITABLE FOR ALL INVESTORS. AN INVESTOR COULD LOSE MORE THAN THE INITIAL INVESTMENT.

Saturday Rock Blog: Enter Sandman

50% Retracement of the Bear Market

After thinking about it for a bit, it dawned on me what the Bloomberg journalist was trying to say in his poorly worded article earlier. He was pointing out that today the S&P 500 reversed back below its 50% retracement level of the 2007-2009 bear market (precisely 1121.44). Actually, this is a good point, a bearish development and I'm glad it was brought to my attention, albeit after a little work on my part. He was *not* talking about the 50% retrace of the rally from the March 2009 lows as was implied.

If you look at the chart above you can see precisely where the level of interest (50% bear retrace) is for the S&P 500. On the one hand its just a technical level that has value merely because traders think it does and you can easily see that this level has represented resistance recently (note daily chart below). On the other hand, you can image that this is a psychologically important level because it is roughly where 50% of bear market investors break even. Those investors might be happy to get out with all of their money back. One perspective some technicians might take is that the 50% retracement is an appropriate correction to the initial bear market move. Note that Elliot wave folks are going nuts over this and have turned extremely bearish as of late and they aren't the only ones. Often you'll see that after a stock makes some big move, it will "retrace" 50% of that move to effectively digest the price action. The idea being that after the correction is over the longer term trend resumes. Its far too early to say if this is the case here, but I will be keeping a close eye on this developing pattern, I'm skeptical that the S&P 500 will give up its rapidly rising 50 dma so easily.

Interestingly, this level (1121.44) also represents the closing price of 2009 and the opening price of 2010, roughly. The Bloomberg author could have also noted the S&P 500 went negative for the year by closing below this level.

Gravestone dojis (reversal pattern)

The stock market looks to pullback here as we enter the holidays, I tightened up my stops today, wrote some covered calls and even picked up a few shorts. Yeah, markets generally made a new high for the year and closed with gains today but I see many reversal candles out there (gravestone dojis for example), stocks seem tired. IWM tried again to retake it's 50 dma but failed. You could even say that today there was a collective failed breakout as stocks made new highs but did not close at them. From failed moves come fast moves, tomorrow will be telling.

Even the shining star of customer service (Best Buy) was not immune to the bearishness of the day. Errr, don't ask. Lets just say I won't be going back to Best Buy after a bad experience this weekend.

Disclosure: Short TNA, SPWRA

Wedges that break the "wrong way"

Today I've got a few quick updated charts for you. They both display a relatively rare phenomena that seems to be happening more often lately or a rising (or falling) wedge that breaks upwards (or downwards), in other words, in the "wrong" direction. Traders expect rising wedges to break down and falling wedges to break up, but clearly that's not always the case.

According to Bulkowski, rising wedges break down 69% of the time and meet the price target ~50% of the time. So in the S&P chart below, we have the statistically unlikely upwards breakout occurring recently which targets roughly 1250 (coinciding with my head and shoulders target). For such an over extended market that target seems a little crazy but that's what the chart says. On the other hand, if this wedge does eventually break down, the target would be about 850 (including the 50% statistic). As you know, I think that if the S&P 500 slips below 950 then we will have a resumption of the bear market. So in my view this is really a crucial pattern here, and currently its breaking upwards suggesting that this is a cyclical bull market. And bull markets... well, they go up, and up and up.


Another wedge that broke the "wrong" way recently is in UNG which broke down then basically crashed a few weeks ago. Bulkowski says that falling wedges like the one in UNG, break upwards 68% of the time and meet their price target 70% for upwards breaks and 30% for downwards. Interestingly, if you include that 30% statistic then UNG actually met the target on that downward break. After the gory capitulation in which natural gas traders "got slaughtered," UNG managed to return into the wedge where it now lies in conolisdation. I call it consolidation because UNG has traded in a narrow range as volume has declined after a huge move up. Now that we are back in the wedge we must expect the wedge to break upwards again, as this happens 68% of the time. Further, the recent reversal of the downwards break gives support to the notion that any attempt to break UNG down will bring in demand. Note that confirmation occurs when the price closes outside of the pattern.

I'll just conclude with one caveat that Bulkowski mentions to these patterns, the dip:

"After a downward breakout (of a falling wedge), price sometimes curls around the front of the wedge and soars upward. The busted pattern presents a profit opportunity from the long side."

Disclosure: I remain long UNG calls

The overdue pullback in the S&P 500 is here

The Bear Market is Over

Yep, I'm ready to go ahead and call this one. In my view the US stock markets are no longer in a long term downtrend and began a new uptrend in mid July as the major US stock indexes made a significant higher high. This ends the bear market which in my opinion began in the first week of January 2008. Its a sad day for the remaining bears who go down hard in defeat as the fraudulent system (think Paulson (Bush), Dimon (JPM), Mozillo (CFC), Geithner (White House), Lewis (BAC), Bernanke (Feds), Liddy (AIG), Greenspan (Feds) prevails in victory. The cronnies who created this mess, for the most part, all got of a get out of jail free card plus a bonus.

Now I'm not gonna argue with those of you who remind me of rising unemployment, collapsing commercial real estate prices, the lower level of aggregate consumer demand or tell me that Obama's socialism will kill the economy. No I won't argue with any of that, but I won't give it much weight either. The markets are the pulse of the economy and they have the power to make or break global psychology. Was this rally based on bull shit? Yeah, most likely. Does it matter? No, not really, because if people get optimistic that things have turned around, if companies can start raising capital for expansion, if investors start making profits, then the fiction can become reality. And thats where I think we are today. Enough people drank the koolaid, who cares if we are all drunk as long as we have fun for a while right?

So thats it, I think this is likely to be a short bull market by historical standards. Perhaps lasting a few years. I could see the S&P 500 reaching close to the former highs in this bull, maybe higher. If I had to guess, I'd say this will be an inflation fueled frenzy of a stock bubble. Expect commodity prices to outperform stocks, and expect the leading stocks to be commodity producers. My guess is that at the end of this bubble you will see solar stocks at insanely astronomical valuations bringing back memories of the dot com bubble ("too the moon alice"). We are no where near the end of this bull, but expect the top to ultimately come from credit tightening by the feds after things get out of control.

Readers know, this opinion is entriely based on charts so here they are. In the daily chart below you can see that the S&P 500 made a very clear and significant higher high in mid July. The market followed through for about a week before goign sideways, it was at that time that my skeptical bearish tendencies kicked in and I really thought that the reality of the economy (all the bearish news the past few weeks) would roll us over and as that breakout failed volume would pick up. This did not happen. After a consolidation, mostly in time rather than price, the market made a new year high Friday on increasing volume. For me thats the confirmation I was looking for to define the previous long term downtrend as over.

So yeah, its pretty clear there to me. Now, I still have a knot in my stomach telling me this is all a big bull trap, and the economy will pull the market back down, etc, etc. I won't say that it is impossible for the bear market to resume, but it would be pretty damn hard. My line in the sand is 950 on the S&P, below there we are back in the 2008-2009 bear market. If we broke below 1000 again I'd start to get nervous being long, and either hedge myself or stop out. If the recent breakout does fail I'd imagine the market would go 1987 style and crash 10-20% in a few days. That being said, the odds are with the bulls from here forward.

In the weekly charts, I see massive inverted head and shoulders bottoms everywhere. On the S&P 500 (see top) that pattern targets about 1250 or 20% higher, a ~100% gain from the bottom this year. Below I have the market leading small caps (IWM) where the head and shoulders there nicely targets $75 which was the 2008 high.

This doesn't mean I am going to whole heartedly embrace stocks Monday, although I did heavily shift into UNG Friday. In the short term the market feels over extended and I would guess that we'll see a post options expiration correction early next week. Essentially, all the wealthy August call holders and put sellers will be taking profits on their newly aquired stock. Stocks will probably dip, but I think its time to buy that dip. If they don't dip next week, well, that would kinda suck. Again, I would stress that if the S&P 500 looses 950, this was a failed breakout and the vicious 2008-2009 bear market rises like a pheonix.

Disclosure: I own XLF puts and UNG calls.

Keeping It Simple, Honoring My Stops

Hey folks, well its been a rough past two days for me and many who don't buy into this big breakout through 1000. We are all getting sick of the unending media headlines about how the recession is over when its plain as day that its not. With increasing job losses, accelerating earnings deterioration, a collapsing US dollar and a deterioirating still-overvalued housing market we know that the bounce in leading indicators is just a zag. Afterall, thats how volitile leading indicators usually work, they zig and they zag, rarely do markets and economies move in a monotonic fashion. So yeah, yeah, keep pumping it feds, its your only hope. Really, Obama, Geithner, Bernanke, its your only hope if you want to keep your jobs.

Anyways, yeah, I'm frustrated because I got stopped out on all but one of my recently entered bearish positions over the past two days even though I know I had gotten good long term prices. As frustrating as that is, I have to be practical when I look at the bubble before me. "The makret can remain irrational far longer than I can remain solvent." In stupid, ridiculous times like these it pays to keep things simple: S&P broke out, moving averages are rising, volume is rising, measured rule targets about 4% higher. If it rolls over and dies I'll be back on this market like a fly on .... But for now, I'll just sit back and expect the ovbious: That we plow higher but could crash at any second.

Inverted H&S on the S&P 500, nothing but air overhead. Or.... (weekly)

Trailing One Year S&P 500 P/E Ratio: About 2000

No joke here, the S&P 500 one year trailing price to earnings ratio was actually about 1912 on 06/30/2009. Because the losses in the 4th quarter (of 2008) were so huge, the total earnings for the S&P 500 for the past year is extremely low relative to the current S&P price, especially now that this total no longer includes the first part of 2008. When you divide the 06/30/09 S&P price (919)(its even higher now) by the second quarter (2009) earnings you get an abnormally large number for the PE ratio. I first saw a PE of 134 quoted by reddit today from this page of the Standard & Poors website, and I was thinking holy shit, really? So I looked into it and I found this spreadsheet that gives the historical S&P PE from 12/31/1936 until 12/31/2008 and added in the more recent data from this S&P spreadsheet to get my plot:

Yep, that's completely accurate and note that I left out the most recent data point (1912 on 06/30/09) because it would ruin the scaling. Click here for a copy of the appended S&P spreadsheet, all I did was take PE quotes directly from the S&P website. In fact, according to the Standard & Poors, the trailing 1 yr PE is projected to go negative in the quarter ending 09/30/2009! Ok, the headline number (1912) is partially based on estimated earnings for the most recent quarter since not all companies have reported, but frankly, it doesn't matter that much because the PE is so ridiculously large. If the PE is really 1500 or really 2500, does it make all that much difference? Its a massive stock market bubble any way you slice it. Compare this to the historic highs of the dot com bubble (~50) or any other bubble and its way, way, way higher. If you want to work out the details on your own, start here and please let me know what you figure out.

I am appalled that anyone would actually try and justify this rally based on value when its clear that fundamental analysis is completely worthless in this market. I think the markets can go higher but I sure feel sorry for those sorry bastards who buy stocks anywhere near here for the long term. Please note that I still expect a substantial move higher in price from here before this bubble pops. Recall that the Nasdaq broke out last week and notice that the S&P came pretty close today.

This is posted on reddit here.