Value of Perfect Information

SPY – SP500 ETF Trading Chart

I am showing the SPY etf because that’s a fund most people know and trade, but this analysis is the same for trading futures like the ES M0 Mini SP500 contract.

You can see the similar price action which formed in January and what has happened recently. I feel we are about to see a correction which would last several weeks which is very exciting for us traders.

SPY April Top – SP500 ETF Trading 60 Minute Chart

This chart shows the past few weeks of price action with the market becoming more volatile with waves of selling and buying. This indicates exhaustion and generally leads to a market correction or at least some sideways movement to digest the recent rally before continuing higher.

SPY January Top – SP500 ETF Trading 60 Minute Chart

Take a look at this chart of January….
Very similar price and volume action.

SPY January Sell Off – SP500 ETF Trading 60 Minute Chart

This chart shows the sell off last January and the setups I had when the market reached extremes generating trades with the underlying down trend.

SP500 Day Trading & Swing Trading Opportunities:

I hope these charts help you to see how I read the market and what I am looking for in trade setups. While its easy to see these setups in hindsight it requires a lot of research and experience in-order to time these plays in real-time when emotions are flying high and with BNN, Bloomberg, CNBC and other newsletters all saying different things…

Some words from fellow traders:

“I just wanted to let you know how much I’ve learned from you already. Understanding that you don’t always have to be in the market because another Low Risk Setup is just around the corner tops my list. Keep up the good work.” M. B., CA, USA

“Hey, Chris!
I really like the way you think and I’m already learning some useful stuff. I tend to be too aggressive, that’s another reason I picked you – I think you have just the medicine I need to learn to be a bit more cautious and to manage risk better. My biggest weakness is jumping the gun. Pretty typical, I guess. Already I can see I will learn to improve from following your lead.” G.F., VA, USA

If you would like stock market training, how to find low risk setups with great potential along with my trading signals then check out my websites below:

Gold and SP500 ETF Swing Trading Signals: www.TheGoldAndOilGuy.com
Intraday, Swing Trades and Trading Strategy: www.FuturesTradingSignals.com
Trade Explosive Stocks: www.ActiveTradingPartners.com

Disclaimer: I currently do not own gold and SP500 ETFs or Futures contracts.

Back in January 2010, I did an article based on fundamental analysis of why I saw 1250 as the top on S&P 500

http://www.bostonwealth.net/2010/01/27/sp-500-here-we-come-1250/

Well I just went back and looked at the estimated bottom up approach operating earnings for 2010 and it has gone up from $76.47 in January to $79.83 today.

Applying the 16.37 multiple (read the article to see how it is derived) and wow, I get 1306 for the S&P 500. See how this compares to other analysts and the consensus estimate show on the attached chart. Interesting that the consensus average is at 1229!

I just heard some great news tonight! Frederick Forsyth’s latest novel, “The Cobra” will be out in August this year!

The 1-month lag between the Baltic Dry Index and selected commodities strikes again. The BDI, a daily index of shipping costs of dry bulk, is often seen as a leading indicator for raw material demand, hence a precursor for global production dynamics.

On March 15, the BDI hit a 3-month high at $3,574. 4 weeks later, US crude oil hit an 18-month high of $87.09/barrel, copper reached a 17-month high of $8,000/tonne and gold hit a 4-month high of $1,169 /oz. Both copper and oil peaked out on the same day (April 6th), while gold topped out 3 days later.

This was not the first time that BDI peaks preceded dry and liquid commodities by 4 weeks. The chart below shows the same pattern occurred in November 2009 and July 2008. There was no identifiable time lag in the BDI peak of June 2009.

The economic rationale for such time lag could be explained by the notion that production-targeted demand for commodities starts to turn prior to a retreat in the speculative element of these commodities. Thus, global factory demand starts to ease, so will shipping capacity for hauling raw materials and eventually their price in organized exchanges. I recognize that such analysis may be a little too simplistic in that it ignores the supply factors of these cargos, yet the general rational remains valid.

Integrating the China factor into the BDI equation, we recall that the April peak in copper coincided with reports that Chinas surging demand may have reflected stockpiling than actual integration into the building cycle. Looming measures of policy tightening from Beijing (curbing property prices, higher reserve requirements, upcoming rate hikes and loan restrictions) as well as the dampening effect of the anticipated currency revaluation on the economy will further dampen infrastructure spending and industrial capacity. And since Chinas March record imports were instrumental in producing the first monthly trade deficit since 2004, the pressure is on to cool down.

The 1-month lag has started to take effect after the recent sell-off in oil (-5%) and gold (-3%). If more commodities selling is on the way, then equities could surely follow.

S&P500 and Dows Failures.. So far

The charts below illustrate both the DJIA and S&P500 have failed to cross above their 200-week moving average as well as the 61.8% retracement of the decline from their 2007 record highs to their March 2009 lows. The importance of these two technical levels is underlined by their proximity; hence their confluence, which is an essential element in technical analysis.

The case of the S&P500: Last week, the index peaked at 1,213, which lies below 1,229, representing the 61.8% retracement (rebound) of the decline from the October 2007 high to the March 2009 low. The peak also failed to take out 1,224, which represents the 200-week MA, a popular measure of long term trend.

In the case of the Dow: Last week, the index peaked out at 11,154, failing to take out the 11,232, which represents the 61.8% retracement of the decline from its October 2007 high to its March 2009 low. It also failed to take out 11,133, which is the 200-week MA.

Considering that unusual development that some emerging market indices (Brazils Bovespa and Indias Sensex) have fallen by as much as 4% before the high in the aforementioned US indices, these are due for a correction of 3-5%, which could drag the S&P500 and the Dow towards 1,150 and 10,550 respectively.

The economic impact of the volcanic ash disruption on European airlines is estimated to cost $250 million per day. The European Airlines Association stated the disruption could be unsustainable for some airlines, but no airline has yet applied for any compensation for lost revenues. Setting aside the risk of an EU bailout for airlines, currency markets remain pre-occupied with the medium term (6-9 month horizon) visibility for Greeces ability to meet this years debt obligations and the likelihood of further austerity measures that required to be passed as a condition for any ultimate IMF aid. With $1.3280 having been printed less than 2 weeks ago, the obstacles facing renewed declines towards $1.33 are negligible.

The impact of interest rate differentials on FX is highlighted by the fact that the correlation between EURUSD and GE-US 10-year yields is now at +0.90, the highest since June 2007. Global bond yields may be rising across the board but the 10-year yield differential between Germany and the US continues to deteriorate for Germany, hitting 3-year lows at 0.73%. These increasingly meaningful differentials will continue to influence FX markets especially after JC Trichet indicated the ECB will extend its emergency collateral rules beyond 2010, while the Fed will conclude its MBS purchases next week. The yield differential story continues to favour the US dollar from both a short and long-term perspective. Aside from the 10-year yield differentials, EUR 3-month LIBOR hits fresh record low at 0.58% while USD 3-month LIBOR advances to its highest since September 2009.

Thus, even if a net creation of +170K US jobs is priced in the market for Fridays March payrolls, the actual materialization would further extend the LIBOR and 10- yr yield trend in favour of USD.

The euro may have rebounded off its $1.3260 lows but all eyes are on whether it will demonstrate another failed rebound as was the case 2 weeks ago (March 17). Even fundamental-oriented traders & strategists are watching the 18-week long downtrend in EURUSD. The trend line helps traders gauge whether any euro rebound marks the beginning of a new uptrend or simply a corrective move. March 17^th was such a day when EURUSD posted an intraday break above the trend line (above $1.38) only to close the NY session well below ($1.3724).

Accordingly, only a Friday close above $1.3550 in EURUSD would represent technical requirement for upcoming stabilization in the single currency. Could the euro manage to break above the $1.3550 barrier on a day when US employment payrolls may show the first net increase since December 2007? The euros failure to meet key technical requirements against the US dollar is also revealed in gold (failed $1127), oil (failed $83) and even the solid Aussie (failed $0.9250), all of which continue to struggle against USD.

FX and commodity traders also take note of the emerging dead-cross formation developing in the CRB-index (index of 19 commodities), whereby the 50-day MA has fallen below the 100-day MA for the first time since May 2009. The last time such a crossover took place was in August 2008, before triggering a 53% collapse.

The (a)  is not yet complete, but looking like building LDT (Leading Diagonal Triangle) or a first wave of bigger LDT of (a). The past waves of (A) from 666 had identical structures. Here is the same chart zoomed, to give you the idea how it may look like.

Based on this observation, I see the end of wave (a) in the next 30 days, building new higher highs. After it complete, we should see a fast a-b-c drop as (b) above the blue line between 17%-38% of previous wave. The last similar drop took only 31%. 


Based on this scenario, there are some good news for BULLs and BEARs:

• The minimal extension of wave (Y) is 1294 in /ES, 100% would be 1451.
• The period for (Y) to reach the top is about from August to October 2010.

Detailed targets should follow when (a) and (b) are complete. 


Finally the short-term picture of SPX 

I expect to see 1180.60 for wave overlapping between 1LDT and 4LDT, the final 5 LDT could run into the 1200 area.

P.S. The weekly and daily RSI are  strong overbought, I thing we should see the divergence, until the (Y) is over.

I hang out at MortiES Premium during the trading day where I provide charts and analysis during the trading day. Mortie has a free thirty day trial going on. Give it a try by signing up below:

Ok, I am back on EWwaving and EWtrading, Hey!  I am 30 years old and was born in Kiev, Ukraine and now live in Germany. Trading and Elliot Waves are my passion. I work as a consultant in the securities industry.

After failed hunting the wave IV, P2 or whatever, losing money and mind, I took a personal break, and during this time I was able to  re-analyze the global picture, which I would like to discuss in this post. In the last few month I also have realized, that there are two big groups of traders who emotionally BELIEF in BULL or BEAR markets. If an investor is talking about a BEAR market, everyone is adjusting their EW count to a P2 scenario, with a utopian target of around 1,000 in DOW in several years (e.g. EWI). The other group, BULLS, are seeing the beginning of  aBULL market with a DOW target about 20,000 in the same time. The discrepancy is about 19,000 dow points. But the are a lot of reasons, why  both these cases do not make any sense.

The BULL case: everyone knows, that government world-wide is printing money (FED, EZB), less tax-incomes are increasing public/national debt DRAMATICALLY (German’s debt in 2009 increased by 7.1% or 112 Bil. EUR, US budget deficit hit a record $1.4 trillion in 2009, etc.). Unemployment hit over 10% in the USA and is probably bad on average in Europe. Even if the stocks are rising, it means for me nothing than the notional VALUE of money is just GETTING DESTrOYED. Or in other words – hidden increase of INFLATION. Inflation will be a very good way to pay back the dept in the coming decade(s). But in reality, we just know only 10% of the big story, without mentioning any impacts of  CDS’s, defaulted Corporate Loans, CDOs and other financial issues, we will be faced with its impact on us and the economy in the next 5-10 years. For me there is no one single reason from an economical perspective, which gives me at least one single argument to say that we are done with the  recession. If you do not believe me, there are 4 economic cycles in every economics school book you can learn in your second semester. When we will see the Bull market we are still missing one cycle in between.

The P2 BEAR case: I just want to point, that this case is coming from EWI, which will be destroyed, after we reach a new high.  Dow at 1,000 and S&P500 at 150 is not realistic, at least only because of  the huge amount of virtual money, printed by the FED. Such case means unemployment of more than 50% – possible, but until the FED has a right to issue money, bonds, which will be accepted by all WMF members (hope you understand what I mean) –  I see this case as UTOPIA. Even if everything gets worthless, Apple/Amazon/Google will have enough cash to hold Nasdaq100 over 900 – joke. Mr. Preacher- please adjust your count!!!

The OTHER case: I was looking for some other case, which adjusts to the economical and political issues, we have seen from year 2000 till this time, when the economy can REALLY solve the old and new issues, to give people and government new BREATH for the BULL run.  Two weeks ago I  read an article in a German newspaper, which described the situation, when all EU countries will reduce its debt deficit by only 0.5%/year, only in 2018/20 we can reach the same economical state of 2007.  Historically we had similar economical disasters, which took on average 17/18 years to solve, and produced finally a new BULL run. This happened in 1906-1923, and in 1966-83. The similarity is obvious to the time from the year 2000. If in 2000 we completed only the cycle III, we should be in the cycle IV. Based on new count I see a Double Flat formation, which will last until 2017/2018.  Between 2000 and 2009 we only finished the (W) wave, which has an irregular flat pattern. Now we should be in the (X) wave into the 1500th area. Please see the daily chart below.

Daily Wave count: We are in the wave (X) which is moving from 666, and has a target between 95%-110% of Wave (W). The minor (A)/(W) is already finished. Now we are in the (B)/(X)-wave. The first A/W-wave of (B)/(X) is finished, and I am counting the B/X wave. Right now we should be in the (a)/(w) of B/X.

Short term count: the blue (a)/(w) shows a w-x-y pattern right now, it is still not clear, how the y-wave will extend. I see a sub-wave structure of a-b-c waves, where the first part of a of y is complete and we are now in the a-b-c of b of y. Tomorrow we should also finish the b of y probably as irregular or running flat and start the c of y, with a minimum target of 0.618 of a, which is 1204.5 in S&P500. 

For any questions or comments, fill free to write me: yury.menchinskiy@gmail.com.  I hang out at MortiES Premium during the trading day.

How about that! We got to 1170 which is halfway between my 1160 and 1180 prediction back in July 2009!

I mentioned the 1180 level originally back in July 2009 to email subscribers to my newsletter!

http://www.bostonwealth.net/2009/10/04/when-will-this-bull-run-end/

This is what I said back in July 2009, almost 9 months ago!

Back on July 28, 2009 I sent out a newsletter to subscribers stating the following:

“Finally!!

The S&P 500 200 day moving average increased compared to the previous day’s level for incredibly the first time in a year and a half! This has been one of the worst and longest streaks of consecutive days with a declining 200 day moving average and tonight that streak has come to an end!!!

For all the naysayers out there who have been saying that this rally is not for real and that a confirmation signal was missing because the 200 day moving average was still declining, well that theory has now been negated!

Following the end of this streak in the past, going back eighty years, the S&P 500 has averaged a return of an amazing 20% during the end of the prior five worst streaks; you can take that to the bank.”

So back then in late July 2009 the S&P closed at 980 and went up as high as 1080. A 100 point increase in the S&P 500. However applying the historical data mentioned above, the end of this bull run should occur at 1180 which would be that 20% historical gain!!

I don’t know for sure, but history seems to be on the side of a continued bull run!

http://www.bostonwealth.net/2010/01/10/the-1160-level-is-where-the-sp-found-initial-support-after-the-lehman-collapse/

And above is where I mentioned the 1160 level:

Over two month ago, I stated the following in an exclusive article I posted over at Slope of Hope:

Why I see 1160 as an important level and hurdle to overcome: The 1160 level is where the S&P found initial support after the Lehman collapse. This former area acted as support, and should now act as the final front or resistance for this juggernaut of a bull run

This Slope of Hope post is back from November 2009

http://slopeofhope.com/2009/11/is-history-on-the-side-of-the-bulls-by-boston-wealth.html

…and this after nearly nailing the bottom in 2009 from October 2008!

http://tinyurl.com/yldaczx

Nothing like going out on top and being correct and saying that you were the best analyst to yourself!!

But hey wtf do I know.. as many have said to me or prospective subscribers or clients.. if you are so good, then why do you need to have a paid site or worry about other clients and need to manage their monies or heck even our money?!Answer: Good question! I don’t!

Seriously thinking of retiring in Jan. 2011 as I turn 50!

Readers of the last 4 articles (since Jan 4) were given several technical and fundamental argumenst calling for more declines in EURUSD. Here’s another one, with a touch of gold. Last week, gold hit a new record high in euro terms, highlighting the latest weakness in the single currency rather than gold’s improved lustre. Analysing gold’s movements against various currencies is not only crucial in weighing the true performance in the precious metal, but also important in valuing a currency’s secular movement (rather than comparing it to other currencies). Thus, figuring out whether a falling EURUSD is a result of broadening euro weakness rather than a strengthening USD can be addressed via golds multi-FX analysis.

The first chart shows weekly gold in USD terms suffering from classic bearish case of lower highs i.e. failed rebounds. The $1,225 record high from December 2nd coincided with the same month of the higher than expected US November jobs report and the triple downgrade of Greece credit rating from Fitch, Moodys and S&P. As long as gold fails to regain $1,133 (50% retracement of the decline from 1225 high to 1043 low), it remains vulnerable to $1,020 (target by Mar 6^th), followed by $980. Our long-term bullish stance in gold would only be reconsidered in the event of a break below $880.

The second chart shows weekly gold in EUR terms reaching a new record high of EUR 831.00 Since this occurrence is primarily EUR-driven move, it merits more attention regarding its implications for EUR rather than gold. We would only start to focus on golds strengthening trend when it nears its highs vs. the stronger JPY and AUD as was the case in early December.

The third chart shows eroding interest in gold net longs (positioning of futures contracts in NY Mercantile Exchange). Last week, net longs rose for the first time in 5 weeks after having fallen to 181,519 contracts, the lowest since September. Since December, falling net longs were more a case of a decline in new longs rather than an escalation in fresh shorts, which is unlike in Q3 2008, when golds decline was prompted by surging shorts as a result of the great unwinding trade. Reconciling golds robust performance against EUR and the fading interest in gold net longs (vs. USD) justifies our bearishness in EURUSD as well as anticipation of further losses in Gold/USD. Technical analysis of golds net longs suggests the decline will retest the 130K level from the current 188K.

Fed Chairman Bernanke will likely use this weeks semiannual monetary policy testimony to tone down any overshoot in short term yields by reiterating exceptionally low levels of the federal funds rate for an extended period, but that will likely fail in dissuading USD bulls, especially as bond traders anticipate payment of interest on reserves as the Feds next step of exiting its liquidity strategy.

Dead Cross on Gold

And those who became familiar with the meaining of DEAD CROSS formations, Daily gold sees its 50-day MA falls below its 100-day MA. Readers of this site were warned on Jan 19 about the dead cross in EURUSD (50-day MA falling below 100-day) 23 hours before it occured. 18 hous later, EURUSD lost 210 pips.  3-year Anniversary of the Pre-Crash Correction  February 27 (marks the 3-year anniversary of the 1st correction in global bourses, which wiped out nearly $600 billion in market value, triggered by fears of higher transaction taxes in China, an expected plunge in US durable orders and preliminary fears of US subprime debt. The Shanghai Composite plunged 10%, NASDAQ fell 4% and DJIA dropped 3%. While the global patient has shown marked signs of improvement, it remains highly vulnerable to multiple sources of contagion (Eurozone fiscal woes, Chinese tightening, rating concerns in Gulf & pace of liquidity reduction by Fed). Pay attention to recurring cycles and repeat events.

Canadian dollar falls across the board as markets unwind gains in commodity currencies ahead of potential event-risk from Bernanke’s testimony. CADJPY bearishness was highlighted by negative crossover in the stochastics, losing 270 pips since Monday’s tweets and IMTs. Subscribers to our IMTs and Twitter.com/alaidi were initially warned on ensuing CADJPY bearishness on Monday when it stood at 87.70.

USD Daily:  MA 50 crosses above 200, MACD well above zero, AROON trend up and support at 79.50.

USD Weekly:  EMA 10 supportive, MACD on verge of big time bull signal and AROON trend up.

USD Monthly:  Dealing constructively with strong resistance, MACD okay and will be flat out bullish if it gets above zero. AROON trend up.

So tell me, where are the ‘Dollar Collapse’ cultists now?  You know, the smart guys making a living out of touting the destruction of this intrinsically worthless currency in favor of other more ‘sound’ currencies?  Give me a break.

It’s all a confidence game and right now confidence is ping ponging around the globe from the trying to be all things to all people debt note in Europe, to the reserve currency debt note of America to the commodity/resource currencies of Australia and Canada.  FOREX jocks are having a blast but most Americans probably think the dollar is still in the tank.

The boring old blogger will simply remind that it is long past time to begin securing your future against these rackets