Friday, September 24, 2010

Mid-week status with charts

Dear my Readers,

Your number is large, and I promised to provide some charts. Promise is promise...

Before starting to discuss volume analysis, I need to rise your attention to a sad improvement in USD.
USD usually makes inverse move than market. Last 3 days market is down and USD lost it's value, also lost an important support. Currency crisis on the way. It'll take months to have clear manifestation, but this type of behavior of dollar is always a clear sign of a fundamental issue. Now FED has no way back; if market rises then USD falls, if makret falls, USD falls. There is no reason not to push pedal on QE and flood market with liquidity. I am sure FED has intelligent and highly educated people and they know what to do and also they know the consequence of it. T-bills and cash is not a safe haven now, they loose their value even they provide fix positive return. Actually it was the only way to decrease almost not-payable internal deficit: let masses and other countries buy t-bills, and then debase dollar. Now they finance US deficits. Nice solution in short-term, but others will not be happy with this, so US jeopardizes the global reserve status of USD.

FED realized they are in a dead-end street, they just can take it easy and serve short-term interests: demonstrate nice results on market without any strong fundamentals.
Anyway we need to trade market here in this blog, with no emotions.
Gold, precious metals will start to be the only safe heaven.

So, let's see our beloved RUA or Russel 3000 volume figures:

RUA suggests intact bull internals on 1-day chart, histogram still gives positive numbers and oscillator is still above the critical level. Buy volume declines to critical level, but buy volume remains steady zero.
If sell volume rises from zero on 1-day chart we will seriously consider to liquidate.
So far other indicators are okay, as you can see this three days resulted low bull momentum, could not manage to turn market back to negative momentum territories.

RUA fakeout analysis is negative. We have that massive bull volume aggregation simply caused no damage on our oscillators. (lowest indicator is the longer-period oscillator)

RUA 2d chart:

There is no damage on 2-days chart at any indicator, actually volumes suggest rising bull volume! Smarts play with masses again.
A quick note: please observe volume bars on 2-day chart, this is the first red one in the last 8 bars. 2 consecutive red bars suggest high probability of overall trend-change.


Market had this status at opening bell, 60-min chart:

On 60-min charts, this, current bear started to be prepared at 21-sep 15:30.
Smarts could manage low price-effect in surface for 1.5 days,making sure smarts could buy cheap puts.
Then, yesterday early hours price manifestation started, smarts sold their puts, loaded bull positions, and played this game twice. This game is usual and happened as I estimated, and we might see the same on friday with a nice buyup at the end.

Looking into the chart there is a low chance they jeopardize their bull positions with further play with other market players, and yesterday evening they loaded nice sum of calls again. I read some notes I am brave or bold. I am not brave, I just follow their track.

As I saw no breaking market internals I made a pretty safe buy at 1123.
Reason: EOD 60-min chart suggests bear volume exhaustion, it seems we have a double dip scenario with a single short period bear scenario. Maybe we will see a second leg, but EOD chart rather suggests exhaustion. Look, comparing this bearish volume to the 1-day or 2-days chart is very small.

60-min EOD chart (shows exhaustion)

Please observe  double-bottom histogram showing exhaustion, also sell-volume decreased and all this cycle remained below the critical signal level.
Usually sentiment is the first what suggest a turn, and now that started to go upside.
Also momentum is increasing toward bullish territories.

You can ask me: how do I know there will not be next leg down? My answer is simple: I dont know it.
There are only probabilities.
Longer-term probability of bull is that high, I simply take the risk. Our supports, danger zones and liquidation limits will still make sure we will win on this cycle even things turn to bearish.

As it's an educational blog, let's collect why did I buy 1 unit of SPX:
1. RUA (the market itself ) is still very strong
2. fakeout analysis is negative
3. selling volume is steady 0 on 1-day RUA and SPX chart
4. 60-min SPX chart shows high probability of exhaustion
5. USD debasement
6. Parabolic SAR should be kept intact

Market might test 100 EMA on 60-min chart or 200 ema on 1-day chart, so I count with further 10-15 points of fall and final buyup and further sideways move in the next 24-36 trading hours. Most possible bear and bull scenarios can be found on chart below.

 Finally I've updated my chart about supports and liquidation zones.
1. Watch ichimoku cloud support. If fails liquidate 1 unit:
2. Check danger zone
3. If soft liquidation zone reached, liquidate 1 unit
4. Few points before hard liquidation start to consider load puts (subject of short selling is not in scope of this blog)

Gold: Media is full with chats about gold, so I expect masses jump in, and then smarts dump with some 1-2% in gold and gold miners at 1300 freaking out masses again and use lower prices to buy more.

Broken USD and upcoming heavy market easing will make sure we will see gold in 1500s soon and then higher.

Good luck!

PS: New readers are kindly asked to read the FAQ
As you know, I am a big SOX fun. Semiconductors are just before a nice gain again.

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