There Is No Market Top- The Week Ahead – Tues March 5 2013

I took a lot of time this weekend to step back and really take a look at what was happening here in the equities market. All the time I’ve spent learning japanese candlesticks, fibonacci retracements, bollinger bands, commodity correlations…all that jazz… all of these are just tools for entry and exit. What REALLY matters most in developing a successful trading strategy is the strength and direction of underlying momentum. Although current momentum is overwhelmingly bullish,  I really thought last week was going to be the beginning of a meaningful correction, then the rally to new highs. But in order for any correction to happen that would mean a need for institutional investors to sell…and who in their right mind would sell this chart?

What I was expecting last week was a complete reversal in momentum, and markets simply don’t work like that. With the strong bullish momentum we see today, we would first need proof of a halt in this bull’s vigor in order to call any market top. Last week’s volatility and low volume was not a halt in momentum but rather the market going, “Hold on, can we really do this? Can we really rally this high, this fast?” And Uncle Ben was there to console her and answer with 3 speeches “Yes, my dear. Relax and take your QE3..” 

This bull is renewed after its meditation last week. I bought to open SPY calls this morning because, quite simply, there is no risk involved. There is nothing really going on to stop this rally this week. Potential ECB rate cuts and Friday’s manipulated jobs report should keep this bull raging until the end of the week. 

Many are calling a top at SPY 155.85 which was the 2007 top..but this is not 2007. This is 2013, and the world is desperate for a U.S. recovery. Bernanke is the global market’s elected Superman and he is using every trick in the book to push this market higher. Ladies and gentleman, he is winning. Global investors are flocking to the U.S. equities markets because there is nowhere else to go. We are it. And this alone is enough to break through 2007 highs. Buyers > Sellers.

The Best Summary of The Week – Fri March 1 2013

1) NEVER SHORT THE MARKET WHEN BERNANKE MAKES 3 SPEECHES IN ONE WEEK. 

2) Any bearish sequester effects can only take place if mainstream media plasters it as a “doom and gloom” situation for a few days. Perhaps over the weekend.

3) This primary bull market is extremely, extremely strong. I am beginning to think it is possible we break through the multi-year triple top on SPY by early April (thanks Uncle Ben). 

Congrats, bulls. Ben had your back this week.

The next two weeks, however, will be volatile as we are strongly setup for some consolidation.

Next week, options open interest is highest in the SPY 150 puts and 148 puts. Pretty bearish. Also in recent weeks, Green Fridays have mostly brought Red Mondays. We’ll have to see what happens over the weekend to make any attempt to figure out Monday’s move.

Happy Sequester Day

 

Are You Ready For VIX 20 Tomorrow ? – Thurs Feb 28 2013

Here it comes, everyone! The day we’ve all been waiting for. Sequester day! :confetti everywhere:

Every hour you can see more and more articles coming out about how the Senate rejected a deal and we are getting closer and closer to the final hour of “doom” and how a deal is unlikely. Perfect.

The final hour of trading today validated everything I’ve been saying all week. (Not gonna lie, I was sweating most of the day with my short positions, but, hey, I ended the day in the green and that’s what this game is all about)

Today was a quintessential bull trap and the sellers know this. I’ve been saying it since Monday, the sellers are waiting for the final moment to sell because they knew Bernanke was gonna push this market higher all week. Why not sell when prices are highest? And that’s exactly what they did today and that’s exactly what they’ll do tomorrow. The bears these days are smart money…they know the most profitable time to sell will be at the last minute.

No deal will be made tomorrow and finally the markets will react. SPY’s complacency stems from the market’s numbness from the fiscal cliff drama. When the news hits the tape confirming no deal, the VIX will arise from its slumber. Be ready. 

Daily Chart of SPY:

 

I maintain my SPY target for the week at 148. 

Happy Sequester Day!

Why All You Bulls Are Screwed This Week

Did the bulls take control of this market again?? Nope! Not yet!!!

What moves markets? Volume? Price?.. NO NO NO my friends…

EXPECTATIONS

Now that expectations of Ben keeping his finger on the printing press are confirmed, we have this rally. Wonderful.

So what’s next?

THE SEQUESTER. This market is pricing in a last minute deal but guess what folks?? Probability says it won’t happen, and if you’re an experienced trader, you know that solid trades are based on probabilities. Here’s why it won’t happen: The Republicans want the sequester to go through.

Republican Congressman Paul Broun (R-GA). “I want to see it go into place.” [Cherokee Tribune, 2/9]

Republican Congressman Mike Coffman (R-CO). “I don’t think going over the fiscal cliff would have been a huge deal” [kdvr.com, 1/02/13]

Former NRCC Chairman Tom Cole. “We just had additional revenue for the federal government, so I don’t see any way in the world the sequester won’t happen either as written or renegotiated or reallocated cuts.” [Talking Points Memo, 2/05/13]

Republican Congressman Scott DesJarlais (R-TN). “Sequestration needs to happen…Bottom line, it needs to happen and that’s the deal we struck to raise the debt limit.” [Cleveland Daily Banner, 2/1]

Republican Congressman John Fleming (R-LA). “The sequester is law. Those cuts happen no matter what. We’re willing to hang in there and insist that those cuts go into place…” [NHPR, 1/30/13]

Republican Congressman James Lankford (R-OK). “greater chance that they’ll be implemented than not at this point.” [Politico, 2/13/13]

So my friends, keep those shorts on (those of you who had the balls to stay in) and you’ll be handsomely rewarded.

No matter if we gap up or down tomorrow, tomorrow will be RED. SPY target 148.

What To Expect Today – Weds Feb 27 2013

So let’s look at the facts:

1) Durable goods orders ex-transport were slightly better than expected. NEUTRAL

2) Stock futures are slightly up this morning. Can’t be because of durable goods, so it must be Bernanke’s testimony today giving the market optimism. BULLISH

3) Sequester is in 2 days and Bernanke is warning Washington of its potential detrimental effects on the economy. BEARISH

4) Yesterday’s 0.7% bounce in SPY followed a 2% down day. So we have our natural, expected bounce up after a large-sell off. NEUTRAL

5) We are technically still in a downward trend. BEARISH

What does this mean?? It means there are more downside catalysts present in today’s market. I do think it’s possible we could have a slightly green day today, but this week is set to end deep in the red.

Be wary.

For more, read the post below. Are You Ready For This Week’s Violence?

Are You Ready For This Week’s Potential Violence?

Okay, so the market didn’t end in the red today. That’s okay. This is a good thing. Bernanke accomplished his goal of buoying the markets and we achieved a nice healthy 0.7% up day after a 2% down day.

Many traders are anticipating a gap down tomorrow morning to continue this bear trend. However, durable good orders are released before the open and any news right now is being acted on intensely. Technically, there is room for some upside tomorrow as indicated in the chart below. Today’s hammer is a bullish technical pattern, after all.

Although it is possible we gap up slightly tomorrow on durable good orders and/or overnight global markets strength…most likely we continue this strong bear trend and end the day in the red (SPY) around the 147 level…especially after today’s healthy/natural bullish price action.(Which was partially driven by AAPL and rumors of a stock split. Otherwise, we would have only a 0.4% day and I would not be so bearish about tomorrow) This inclination for the SPY to continue its bear path could mean some violent downward action tomorrow if we don’t gap down in the morning.

Bernanke’s testimony included a plea to Washington to not allow the budget cuts to go through because they will surely dent the economic progress of the U.S. THIS IS VERY BEARISH FOR THE WEEK. If Bernanke thinks the sequester is bad, then the markets will too. He is currently running the show. Friday is going to be bloody carnage if a deal is not made (most likely scenario).

VIX falling today means nothing. By the end of the week, this thing could be at 19.50.

I do not think the real money bulls will be back this week at all.

I am long March 1 SPY 149.50 Puts.

Best of luck.

What to Expect – Tues Feb 26 2013 – Updated

You should expect a similar down day to yesterday, but just not as deep. The bulls are hoping Bernanke’s testimony will be the Red Bull to give this market wings again. Will it work? Probably not. Will they try really hard to keep this market above 147 today? You betcha.

However, keep in mind, surprises in either direction will be exaggerated. It’s an emotional, touchy market. High chance VIX ends above 19 again today.

Considering what happened yesterday, those who didn’t have the opportunity to sell Monday will sell today as soon as they have the chance and we break again below 150. (already happened as I’m writing this)

Ben’s testimony begins at 10am and will be the major market mover today. Keep an eye on any news as it will be the catalyst for selling.

Best of luck. No emotions today, traders. Just discipline.

What The Hell Happened Today? Monday – Feb 25 2013

What happened today proved the bulls are sitting on the sidelines praying this correction isn’t 8%. Those who had money to invest in this secular bull market, already have, and so with no one else left to buy, the bears have come to crash the party. The bears today came in numbers (massive selling volume) and said they don’t give one sh*t about Italian elections, they know Euro problems aren’t going away, they finally decided to negatively price in the sequester, and they were sick and tired of seeing this rally ensue without any sort of consolidation…until now.

I no longer believe Bernanke’s testimony tomorrow will be enough to buoy this market. Although there may be some kind of Bernanke bounce once his testimony is released, I think the bears are here to stay. We broke through a number of technical levels on a majority of the indices and this is not something to shrug off.

A closer look at SPY:

My March 16 VIX call suggestion from The Week Ahead Report (yesterday’s post) is up 155% today. I knew it was a good hedge but even I did not anticipate such a move.

This week is set to be bloody. Be careful out there.

Be Wary – Today’s Bull is Tired

Traders, this gap in futures this morning is really pretty. I know. It’s what we’ve all hoping for…a continuation of this beautiful rally. But remember, the 153/154 level for SPY is multi-year resistance and the only news hitting the tape this morning is that Italian election results are looking to favor Bersani.

Other things to keep in mind: the U.K. was downgraded by Moody’s today, people are expecting Bernanke’s testimony to boost the market, and bearish bets for Friday’s sequester are very high.

If Bernanke doesn’t give the market the juice it needs to keep this rally going mid-week, things could get really ugly by Thursday.

Be careful buying in at these levels. Good luck!

The Week Ahead – Feb 24 2013

Everyone and their mother has figured out the market is most likely due for a pullback this week. We get it. The real uncertainty lies in the one and only, Ben Bernanke. He has a large political incentive to keep the wind in the sails of this market by reinstating the vagueness of QE3’s end with his testimony Tues. This is the potentially large bullish catalyst for equities this week.

The most important thing to remember is that this long-term bull trend is strong and all juiced up on QE3. This means there is still a slight chance Ben could help this secular bull get the fix it needs to pull a flat to slightly green week. Never underestimate Washington drama.

Speaking of Washington, this market has not yet priced in sequester results which could also be a huge market mover in either direction this week. I believe this pricing in has not happened yet because of how numb the markets are from the Fiscal Cliff drama in Nov/Dec. The market is waiting for more information to make its move simply because it’s smarter now. It realizes market overreaction is unwarranted until more news hits the tape. The deadline this Friday makes this pricing in inevitable so be ready for the move.

However, for the most part, this week is littered with bearish landmines. For one, technically, this market is looking very weak since most major indices broke their short-term trend channels last Weds (I’m sure you’ve all seen a thousand charts of that by now). Add to that the low volume bounce on Friday, the ominous trend of the EUR/USD and the long-term chart of the S&P, and you have “short-term correction” written all over it.

Chart of the EUR/USD, which historically has been an early indicator of market direction:

The long term chart of the S&P:

Fundamentally, bearish risk for global equities comes from this Italian stallion:

Since there are few economic indicators due for release domestically this week, the Italian election results could affect the U.S. markets negatively if European bond yields jump. Any opportunity for fear to creep into this market will only strengthen this building upcoming correction, whether it’s this week or in the next few weeks to come.

It’s also been mentioned in a million articles, but I don’t believe that just because 99% of newsletters are bullish that it’s automatically a reason to be bearish….but VIX has been below 13 for a large part of February…and complacency is not the market’s friend.

Overall, this week will be key in determining market momentum and should be exciting to watch. Traders will have to be nimble to survive. Protective positions are a must. If your portfolio is net long, I suggest picking up a few March 16 calls on VIX.