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Resting or Ready to Fall?

ilene's picture




 

Resting or Ready to Fall?

(Excerpt from Stock World Weekly)

We wrote in last week’s Stock World Weekly, Tightening the Screws, “This bull run might resume, or not, but we may be seeing the initial ‘weakness’ that leads a correction. We have been skeptical of this rally, and concerned that it is building on air, that when things turn down, they will do so with a vengeance. Let's not be in a place where the ‘air’ will fall out from under us, dropping us into an air pocket!

“Phil surveyed the market on Friday and wrote, ‘While the market has been content to ignore and soar during this gathering storm, now we begin to see the size of the wave that may be coming in, and it's starting to look scary indeed…

“Last Friday, March 30, I summed things up as we finalized our month's plan to ‘Sell in March and Go Away’ where I concluded the post with: 'Yes, cash is good, CASH IS KING!'"

This past week saw all the classical symptoms of a market getting very tired. It was about time. Phil had been gradually positioning his virtual portfolios into more bearish postures over the last three weeks. Let’s see what Lee Adler and Allan of Allan Trends are thinking in the next two sections. 

Lee Adler of the Wall Street Examiner:

The markets get a gift in the coming week. Depending on how strong tax receipts are, the Treasury will pay down as much as $48 billion in expiring short term bills on Thursday. That’s cash that will come back to holders of the paper. They’ll have to put it somewhere. This is a normal feature of tax week, and some of that cash usually flows toward stocks.

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What appeared to support the bond market last week were some phony ginned up misses in the economic data. That was an excuse to dump stocks and scare money into Treasuries just at a time when the Treasury had to both roll over old paper and sell new paper totaling $156 billion. Is it my imagination or does the “bad” news, both real and imagined, almost always seem to come in the weeks when Treasury supply is heaviest? It would make an interesting academic study.

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My impression from observing these things closely for the past 10 years is that, call it “conspiracy,” or call it “metaphysics,” this is how the markets seem to function. The government and Primary Dealers need to keep bond yields down—they find ways to accomplish that... (Treasury and Primary Dealers Shake The Stock Market Tree When Needed) (Click this link to try WSE’s Professional Edition risk free for 30 days!)

 

This week, Allan of Allan Trends is sharing his weekend update for subscribers with us. Allan is an active trader, and old friend, who has been playing the stock market for many years. His signals are turning short, due to the metaphysics of the market, or the ghost in the machine. 

New Signals

VXX Hourly——>?? 

VXX Hourly

VXX Hourly (top) closed the regular trading session on Friday 13 cents from triggering Long. In Friday’s after-hours trading, VXX closed at 19.40, one cent away from triggering Long. Any weakness on Monday morning will push it into a new Long trend.

Allan’s Market Analysis

The DJIA Daily is the most important chart (below) of this week, this month and this year:

Let’s break it down:

(1) DJIA Daily chart from October, 2011, market low;

(2) Elliott Wave counts 5 waves up, i.e. a completed impulse wave;

(3) Elliott Oscillator (lower study, chart below) is showing a series of lower highs throughout the six months that DJIA was making higher highs. This is a highly significant divergence with 30+ years of historical accuracy in foresting major reversals;

(4) DJIA Daily Trend Model has already reversed Short;

(5) April-May annual Top pattern (see DJIA Weekly on the next page).

Sometimes the evidence is overwhelming that the market is making a major turn. This is one of those times. That’s not a 100% guarantee, but it is a compilation of very reliable indicators that a change is at hand. We only really care about one of these factors, number 4 above, and since that one indicator is in the direction of the weight-of-the-evidence turn, we trade in the direction of least resistance: SHORT.

The pattern described above for the Daily chart is almost identical on the Weekly chart that goes back to 2007. Here again we see 5 waves up with a divergence in the Elliott Oscillator. The only element that is missing is a Short signal in the Weekly Trend Model. That signal will come on a break below 12,370 - about 4% lower from current prices. There is enough confirming factors present in the Daily chart to forgo waiting that extra 4%.

Trading Strategies

Under the assumption that a new downtrend has begun, here is a review of my favorite strategies for garnering maximum returns from the new dominant trend. These strategies are presented roughly in order of risk, starting with the most conservative and ending with the those that have the highest risk, and the highest reward.

(1) SH – This is an ETF that will go up at the same rate that the SPX goes down. Simple one decision investment. For every 1% that the SPX falls, SH will rise 1%;

(2) DXD (DJIA); SDS (SPX); QID (Nasdaq 100) – These all correspond to the major market indices (in parenthesis) on a 2X leveraged basis, i.e. they should go up by twice the percentage that the corresponding index goes down. For every 1% in value that the index/market goes down, these will go up by about 2%;

(3) TZA (Russell 2000) – There are several 3X ETF’s but TZA is the one with all the liquidity. This is the one for maximum leverage in an index ETF.

(4) VXX – This is the volatility index that has historically maximum leverage for any market decline. We have seen VXX go up 100% or more on a 20% decline in the market.

(5) UVXY – Structured to go up 2X the rise in VXX and so far it has performed as advertised. The big caveat here is TVIX. This is an ETN and it was also structured to go up 2X the value of VXX, but it ran into big trouble after its sponsor, Credit Suisse, pulled the plug on the issuance or new shares. Nonetheless, UVXY was up 10% on Friday, on a 1.25% drop in the market (and a 5.5% rise in VXX). That is some leverage.

Options

Options are the riskiest way to trade market direction. They are especially suited for the above ETF’s, as well as commodity ETF’s and individual stocks. (Yesterday the market was down 1.25%, VXX was up 5.5% and VXX May calls were up about 35%.) Trading options adds risk; detailed analysis and special attention are needed to trade effectively.

Options aren’t necessary to achieve outstanding returns. For those returns, our trend models only need to get the dominant direction of the market right. After over two years of real time trend following, it is evident that they do.

*For a risk-free trial, click here for Allan’s standard service, or click here for the premium service. The premium is for more active traders. For more information, see “Can you trade a chart like this?

Trading at Phil's Stock World

We are heavily concentrated in Bearish Hedge positions, although we do have Bullish/Long positions also. 

We never go completely Bearish OR Bullish. We straddle a range of about 30% to 70% around the center line. Remember, hedges are INSURANCE against things going really wrong. If you are invested in Long Positions and want to hold them, that's fine, over the long term. But select proper hedges to protect yourself in case your bullish premise is wrong.

Right now? We this think is a time to have Bearish Hedges in place, in proper proportion to protect most of your Long Equities. Insurance is something you EXPECT to lose, and it is relatively cheap. The "value" of insurance is not always apparent until AFTER the house burns down.

Friday gapped down heavily in the morning, traded sideways all day, and then went down again in the last half hour. That is very unusual and almost always signals a poor start to the next week. Barring any extraordinary news over the weekend or early Monday, we don't see any fuel to keep things up on Monday and Tuesday.

Note: Phil Davis was interviewed live on the radio Friday morning out of New York City. It was very informative and entertaining. Check it out.

Sign up to try Stock World Weekly here >

 

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Sun, 04/15/2012 - 23:37 | 2347747 palmereldritch
palmereldritch's picture

Resting...like a Norwegian Blue

http://www.youtube.com/watch?v=4vuW6tQ0218

Sun, 04/15/2012 - 23:28 | 2347730 Grand Supercycle
Grand Supercycle's picture

The Big Picture Wile E. Coyote Equity Top.

http://www.zerohedge.com/news/2012-12-24/market-analysis

Prepare for a substantial USD rally.

Sun, 04/15/2012 - 22:02 | 2347622 onlooker
onlooker's picture

 

Positive information for us ZH enthusiastic to have a lady like this on our side. And looks to boot. 

(Yeah, I am in Texas and yes that is a compliment-- boot being a positive add on in a trade)

 

Sun, 04/15/2012 - 22:02 | 2347620 blueridgeviews
blueridgeviews's picture

I've heard the same BS for 3 years now and the market keeps going up. Why would you think otherwise if it is good pratice to NOT fight the Fed?

Sun, 04/15/2012 - 21:02 | 2347547 orangegeek
orangegeek's picture

I follow the Dow Jones weekly, daily and hourly - takes a few minutes at the end of each day.

http://bullandbearmash.com/index/djia/hourly/

 

I do the same with the NASDAQ and SP500.

http://bullandbearmash.com/index/sp-500/weekly/

Sun, 04/15/2012 - 20:26 | 2347493 engineertheeconomy
engineertheeconomy's picture

They will crash it when it suits their needs. 100% rigged game, all analysis is 100% useless. You would be better off investing in physical Gold, Silver, Palladium, Platinum, Rhodium, Copper or maybe even Aluminum at this point in the game

Sun, 04/15/2012 - 17:23 | 2347148 max2205
max2205's picture

Wow. STFU They phoney'd up bad Econ reports !? Huh.

They phoney up good reports

Come on Ilene, you know what I mean...... :)

Sun, 04/15/2012 - 19:46 | 2347415 DeadFred
DeadFred's picture

They phony all of them up. Sometimes they want to spook the market and sometimes (most times) they want to sell hopium. If you want to play the week to week moves you'd better learn to discern the difference. The signals are mixed right now. THEY hauled El Erian out recently to do his normal job of spooking people when the market will actually go up. On the other hand Cramer is on Twitter talking baseball and saying the people were overanxious last week, a huge bear signal. Time will tell but I'm putting the odds of a further downturn at 63.7%. (yes I made the odds up)

Sun, 04/15/2012 - 20:54 | 2347534 Element
Element's picture

 

 

Time will tell but I'm putting the odds of a further downturn at 63.7%. (yes I made the odds up)

 

Repeat after timmay:  "No risk of that"

Sun, 04/15/2012 - 17:05 | 2347127 hettygreen
hettygreen's picture

Here's a couple of simple suggestions for that endangered species, the average investor. Stay the hell out of inverse ETFs of all kinds. Sell longs, raise cash, get rid of debt and go to ground. A natural bottom and some great values will show up a lot faster with fewer amateurs on the short side feeding Wall Street's voracious appetite for their seed corn. Read the prospectus if you are still thinking about throwing your money away. Why and for whose benefit do you think these ETFs were created in the first place? And I'm no f*****g bull by any stretch of the imagination. 

Sun, 04/15/2012 - 20:22 | 2347485 engineertheeconomy
engineertheeconomy's picture

I second the motion

Sun, 04/15/2012 - 16:30 | 2347082 ilene
ilene's picture

Hi Earl and Bank Guy - yes I am working as an editor, and am working on starting a business in that area as well. Not using most of my background education... except as it comes into the field of writing/editing lately. I do edit many posts (some more than others). 

Sun, 04/15/2012 - 16:51 | 2347116 ilene
ilene's picture

Clarification - I edit to some degree on articles that I put up here. Not most of the posts here. 

Sun, 04/15/2012 - 16:42 | 2347108 ebworthen
ebworthen's picture

Find some way to soften up Reggie Middleton about editing; lunch?  Or...tell him you have an android phone and use Ubuntu on your Mac?

Sun, 04/15/2012 - 16:48 | 2347115 ilene
ilene's picture

Not editing for Reggie... Not most of the material that is on ZH at all. Some that I post.

Sun, 04/15/2012 - 16:53 | 2347121 ebworthen
ebworthen's picture

Roger that.

Thanks, and keep up the good work.

Sun, 04/15/2012 - 16:37 | 2347088 Earl of Chiswick
Earl of Chiswick's picture

Follow up question, in the case of the contribution above (or similar) would it be safe to assume that you have a stake in such posts as in editing them?  I also take from your response that with the rapid fire speed that main page  ZH articles are presented that you have a hand in editing them as well.  And finally with your background why do you not publish your own writings under your own name? 

I see that Krasting is on on your customer list, he needs to give you more business.

Mon, 04/16/2012 - 02:03 | 2347916 ilene
ilene's picture

And finally with your background why do you not publish your own writings under your own name? 

I'm not an expert in finances/economics/trading so my writing in this area is based mostly what I learn from others - e.g., interviews with people on various topics, here: http://ilene.typepad.com/cycle_editing/sample-writingediting-interviews....

(I've done some writing/editing in medical journals and law.)

Sun, 04/15/2012 - 16:53 | 2347120 ilene
ilene's picture

I work also as an affiliate for certain posters that have subscription services; this is separate from the editing work, but can overlap it. I started as an editor at Phil's Stock World - that's where I've done most of my work, editing plus other things. 

Sun, 04/15/2012 - 15:43 | 2347022 Earl of Chiswick
Earl of Chiswick's picture

Ilene is this you?

 

http://ilene.typepad.com/cycle_editing/

 

Whilst it is none of my business, inquiring minds may want to know if you edit some of the posts on main ZH as your cite implies. Your creds seem quite impressive, particularly the pathology specialty, ideal for this neighbourhood.

Sun, 04/15/2012 - 16:01 | 2347040 bank guy in Brussels
bank guy in Brussels's picture

You seem to have discovered the Ilene behind the scenes:

« Ilene Carrie: Ilene has been working as an editor for Phil's Stock World and Stock World Weekly, and for other financial writers. Ilene's background is in science (M.S. in pathology), law (J.D, practiced law for several years), finances and editing. »

Picture of ZeroHedge's Ilene in front of her Apple computer:

http://ilene.typepad.com/.a/6a010536583aff970b016303ec2c3f970d-pi


Sun, 04/15/2012 - 16:57 | 2347122 LasVegasDave
LasVegasDave's picture

One wonders, Ilene, what you think of the viscious anti-jewish comments that are tolerated on ZH?

Mon, 04/16/2012 - 12:33 | 2348809 ilene
ilene's picture

I've been disgusted and horrified by racist/hateful comments. (And I avoid reading  comments/threads filled with sickness.) What to do about it? On my own site, I would block them. However, I also believe that it's a decision for the people running the website whether to allow the comments to stay or not. It is in a sense eye-opening to see what some people not only believe, but are willing to admit to believing.

Sun, 04/15/2012 - 16:47 | 2347101 ebworthen
ebworthen's picture

Pretty ;-) but some of us Munchkins don't want to see the Wizards behind the curtains, we like the leaping flames and smoke.

Sun, 04/15/2012 - 23:54 | 2347773 LFMayor
LFMayor's picture

yeah, but two first names clenches the deal, the nays have it.  Can't trust people with two first names

Sun, 04/15/2012 - 18:59 | 2347325 The Alarmist
The Alarmist's picture

Gee, I thought they all looked like Helen Bonham-Carter.

Do NOT follow this link or you will be banned from the site!