Correction not over

Very good risk/reward analysis, I can't know the next levels on S&P500 to me all this support/resistance is bullshit. The biggest traders don't use this stuff and never, nobody, ever made money using it. It's either you know what's going on or you are left holding the bag. There is no middle in the market, there are only winners and losers. People who know what to do will make a lot of money, those who don't will eat shit.
I don't like to eat shit, that's why I only act as a witness in this theatricals.
If S&P500 will finish 2010 at 1500 I don't mind, if it will end at 500, no problem.
But if you really know what's going to happen, then your account will reflect it very soon.
Better you be right this time.

"Very good risk/reward analysis, I can't know the next levels on S&P500 to me all this support/resistance is bullshit. The biggest traders don't use this stuff and never, nobody, ever made money using it. "

Hi DevilAngel:

Not necessarily. I know of several marketmakers, and traders that do use support levels but not in the way that you stated. For the most part the marketmakers know of alot of stops are set right below the support resistance levels. They try to trigger the stops and they take the other side of the trade and move the market back up. They do make alot of money this way. Friday was a pretty good example of it.

WOW ! 2 great posts.
Is it possible to agree with you both 100% ?

Well I do, lol.

keep em coming .

Soon we'll see how this mkt develops, my guts tells me there will be a bloodbath
before March ends, and I am ussually wrong but havent seen a market that wants to fall
so bad like this one in a long time.

Sorry Devil...

Technical measures are indeed used by the big boys. Hedge Fund managers routinely wait for a break of support/resistence lines before executing trades.

Long term success depends upon having discipline in whatever trading method one uses.

If TA was not useful, no one would use it......

Market makers always make a lot of money till they lose tons of money and need a bailout :)
I know market makers in index options, they make money for years, then in one day they lose it all and start small again, bring in new partners, raise money from the bank and it begins as 3-4 years ago. Then investment bank (this traders are from Switzerland, small office less than 10 traders were I seen them in 2007, today I heared they are only 2) places them instanly on a F of margin call and liquidates profits made in years in less than an hour. Market makers don't make much from month to month and usually their up low double digits in the best year with no volatility. When volatility is rising, their margins are cannibalised to almost break even, they hate volatility to the same degree as macro hedge funds love it.
The problem I see now is in the structure of the market, before investments banks were themselves braking many small hedge funds, killing them on a margin call these generating profits to the bank.
Today even biggest investment banks sink and need constant blood supply from Central Banks, the market changed and this is very bad as the system is different now, everybody needs a bailout this days: small mortgage holder, biggest banks in the world, biggest industrial conglomerates.

"Today even biggest investment banks sink and need constant blood supply from Central Banks, the market changed and this is very bad as the system is different now, everybody needs a bailout this days: small mortgage holder, biggest banks in the world, biggest industrial conglomerates."

No disagreement with you there!!

MarketPro,
I agree that somebody, somewhere is using TA. My style is very different, I hunt for companies once in many years and take a back sit. If I would use TA I would never buy WEL for cents sell for dollars. (WEL is my last big shot, I think I was very lucky, fools are lucky sometimes :)
When I looked at WEL at the end of 1990's there was only few good things about them, their P/L looked normal like assets exceeding liabilities and no debt. But what I loved is their business, serving Oil/Gas platforms on fire. Then Iraq war came and WEL balooned.
Today I would never buy it even if they are much better company this days.
I doubt very successful traders use TA to the same degree daytraders or individual investors use it. In my opinion very big hedge funds look at the market as a one whole thing, then they find what is extremely overvalued/undervalued and jump on it.
Besides the biggest enemy of TA trader is margin requirements, the more they make mistakes the less money they are left with.
You know, on a chart S&P500 from 1987 looked only going up but it didn't prevented most of the smart people to lose $$$ in year 2000 or 2008 being long. And the biggest problem is if you were long from Dow 11000 years ago and less than 3 weeks ago Dow was almost 11000, you think this traders were even? Not, they were on a margin call in 2008 and even if they would lose only 10% and go out, because of the margin they lost more likely 50%. Then they didn't buy on the lowest Dow point 6500 (the big support according to TA then was 7500) so they bought with half the money at 7500 and increased their leverage later only. So they can be still down from the last 5 years 50% or anything.
On a long chart all looks nice, then why most people including best TA traders lost few trillion $$$??? Because there is reality and there is real life which is different.
I am against leverage altogether in all it's aspects of trading, if traders were only trading with cash, there would be no bubbles and no crashes. The enemy is not TA, it's leverage.

VicthebrickV,
I am not bear or bull, I just see how thing changed and TARP in US and same ECB flooding European banks with trillions were used to buy index futures and bank stock, leaving real economy without oxygen. Of course stocks went up because of it, it created false optimism and rising tide rises all boats.
But in my opinion the recession is not over exactly for this reason, the money were used in the market and not in the economy. So if 2008 was a bear market for stocks (bubble), it may be that 2010 will be a bear in the economy (reality).
It may very well be that the latest correction started by natural force, markets started to retreat because of economic situation that touches everybody, which is much more dangerous than stocks bubble. This doesn't mean stocks will crash, but what it means to me is that policymakers lost the felling of reality. Economy is like a building made of bricks (Vicbricks :) and when economic growth is declining, the bricks fall one by one from the building, making the size of the house smaller. The smaller is the house, the less there is need for new Apples Macs, Windows 7, GM's, airlines, Hersheys, loans etc.
All this things are needed but in lesser quantities and stocks have P/E ratios and this ratios are the growth of the future earnings, but where this earning will come from if the pie is just as sweet as before, only this pie is smaller...

You speak broadly about support levels. Support and resistance are dynamic so price and time are fluid and you must have the tools to adjust your trading strategy as the market changes (unexpectedly). Most people have static support/resistance and it is one of their failures as a market technician. The levels I have laid out are only valid on a uninterupted decline. Else, I will have to adjust. Frankly, as a humble trader, I will probably be wrong! :)

RiskReward:

You may or may not be wrong, but your record shows you have been doing pretty well so far.

"when economic growth is declining, the bricks fall one by one from the building, making the size of the house smaller. The smaller is the house, the less there is need for new Apples Macs, Windows 7, GM's, airlines, Hersheys, loans etc.
All this things are needed but in lesser quantities and stocks have P/E ratios and this ratios are the growth of the future earnings, but where this earning will come from if the pie is just as sweet as before, only this pie is smaller..."

Sounds like the theory of money velocity in reverse, or credit destruction.

Unfortunately alot of corporations have borrowed money where they were expecting the pie to be a bit larger and need that amount in order to service debt.

The markets can remain irrational longer than any of us can remain solvent. with that said, I think now is bear's turn to sell every bounce much like the bulls bought every dip.
Buying DZZ, TZA and FAZ

I agree with MarketPro
TA is as good as FA and perhaps better. TA has it all including the trends, news and all other traps.
Markets do not behave because of few fund managers or a crowd of traders but because of macro economic trends that actually drive the real thing.

Just a quick update. These bumps are just shorting opportunities. This rally is toast tomorrow or Thursday. Be careful shorting any early morning weakness tomorrow, it is likely a trap for one more higher high.

Hey RiskReward:

Don't you think with options expiration this week that they move it higher into expiration to shake out traders with long put positions and shorts at the same time? End of day Thursday maybe?

oops - I mean next week

RiskReward, what's ur introspection on longterm trend? do you see any plunge in comin months?

I'm bearish neutral in my bias LT. I think we have another 5-8 years of sideways/down action.

Wednesday morning was a trap like I suspected. I thought we would top out today... but likely we are testing the 1085-95 SPX and then down we go. If we are still fighting around 1090 or above by next Wednesday I'm a bull again.

hm.. i was thinkin 1100 to 1125 and then down

I am OK with a quick move to 1105-1115, but an immediate and huge reversal would have to occur. A giant (scary) short covering rally that faded immediately or an overnight news item that was sold into. It is not very likely at this point in my opinion. ---It would have happened Feb 2 instead.


The situation with the Euro and sovereign debt should keep a lid on prices, but if it doesn't we need to listen to the market and not our bias!

An absolutely HUGE move is coming. Use smaller position sizing so you don't get squeezed out. Remember, fear is more powerful than greed. But that same emotion can negatively affect you, if you use too much leverage. Be safe.

Riskreward: Huge move to the downside!! Your statement seems like you are pretty well convinced. What is the reason?

Vic: Before you bite off on all this, look at the MACD readings on IYW, IYT, DJ-20, IYZ.

All of these are nearing a break above ZERO. RSI is gaining momentum from my reading.

While fear is high, the data looks neutral to positive. A high level of fear can indicate that entry points may be near....

Just a thought. But again, you probably already know that.

If you don't have the guts for shorting, cash is the correct low risk trade here. Don't be fooled by guys that only know how to go long the market. They look smart until the bear market resumes. Trust me, I've seen them come and go plenty of times.

[URL=http://img5​14.imageshack​.us/i/eurusd2​0100211.png/][IMG]http://img514.​imageshack.us/im​g514/3087/eurusd​20100211.th.png[/IMG][/URL]

Please review charts of the following:

EWI EWP FXI JNK HYG

Agreed that the market is in for a sharp downturn. I am in cash at the moment. Before I short, I want to see the S&P at least break it's 13 day EMA to the upside....then give a reversal. I won't enter until I see both the break, and a reversal though. I need to know there's enough room to drop down, and that also the market has finished going up. I'm not convinced we're there just yet.

A quick update.

I have been very busy selling covered calls and buying protective puts for clients who are buy and hold types. Also, allocating towards dividend payers and hiding in larger cap, higher quality names.

My opinion has not changed that the risk is to the downside for the time being. I was right to suspect a violent short squeeze in the last few days. This is how they clear out the bids, setting up increased risk to the downside-- Squeeze out the shorts on light volume (and a near vertical scary pitch). My fear of this is what had me commenting, "do not use too much leverage" so that you don't get squeezed out of quality short positions.

The size and steepness of this rally rightfully has me questioning the liklihood of a prolonged deep correction as I had expected. The next few days should give us some clues as to how much selling pressure remains.

Three posts ago you were advocating short positions and cash....

The short term risk is being out of the market. Eventually fundamentals matter as much as the technical picture. We are just finishing a great earnings season where reports were on balance excellent and where many companies beat on the more important metric of revenues.

Leverage is an important component of generating Alpha. I agree however that prudence using leverage, especially if new to the game is a very good idea.

Market pro, I still am.

If you are criticizing me for missing 200 dow points... thats OK. But, to be fair, please post your weekly outlook. Also, please consider that you never hold cash and are "long only" in your bias.

You are infact correct, the fundamentals will play out. These fundamentals will not be pretty for most long stock holders. Record number of small cap and midcap defaults, and massive dilution of shareholder ownership is "the future fundamentals" you refer too. Add to that, the risk of debasement of currency which may drive up costs, but not necessarily the value of (most) stocks.

Wrong again. I have $170,000 in cash that you are not seeing.

I also had short positions on that I reversed. The information is available for review on this site.

I have no argument with you regarding dilution. Many companies have diluted without regard to Cap size. However, shareholder interest is not always harmed by capital raises over the long run. One needs to make a distinction among the various companies and determine managements ability to execute on behalf of shareholders. Know what you own is always a good rule....

Good luck with your weekly outlook. I'll stick to buying great companies in good industries with excellent management. Anyone interested in following or not is welcome to do so.

I do lean toward a high alpha style, so everyone is forewarned.....

You are wrong about dilution of course. Sure, it beats bankruptcy and may even allow for aquisitions of overpriced assets.

Yes, high alpha indeed. You stick with that great companies idea. As if such a thing exists.

Just consider how many stock brokers told their clients that the following companies were great companies (at one time or another):

General Motors, Fannie Mae, AIG, Bear Sterns, Lehman, Citi Group, General Growth Properties, Thornburg Mortgage, Pulte Homes, Cemex, Alcoa, Motorola, Sun Micro systems, Enron, Worldcom ETC ETC ETC

I don't even need to name all the stocks that have traded sideways for 2 decades or the Japanese market which has traded sideways down for nearly 3 decades.

Or maybe you would like to look at charts of the last 10 years of "great investments" like the DJIA or the SP500 or the Nasdaq 100.

I look forward to the next few years as the long only types disapear once again and blame it on the "bad economy" or "worldwide financial crisis" as if such things exist. These are all fantasies of an emotion called hope. Fantasies of individuals who only go long stocks based on "fundamentals" and who sometimes hit homeruns and think they are "Gurus".

Your speculations do not apply to me. I have never owned any of the companies that you mention.

I'm not in the buy and forget camp. But rant on as you wish.....

Well I won't take pot shots at you for being a long-hold biased on "fundamentals", if you don't begrudge me for thinking its foolish to buy hold here?

And yes, my "rant" does apply to you because as good as any company may seem, all stocks are merely a reflection of market liquidity and dilution/ownership at any given time.

If you happen to be right that this is the exact moment of monetary expansion and the credit crisis is over, then you will look very smart indeed. Of course, you will chalk it up as good research and stock selection, no doubt.

I will indeed. I'll be happy to put both technical knowledge and fundamental skills to match any skepticism offered.

I do not subscribe to drinking anyones kool-aid regarding the worthlessness of methods of valuation or timing that have worked for skilled and unbiased traders for decades.

I do strongly agree that all stocks are speculative. But, I don't think that's news to most people on this site.

Many people produce good returns on MG using a variety of methods. As for me, I never sought the designation of "Guru." I use this site to test my investment thesis. If MG followers decide to follow me that is their business. If enough MG followers accumulate and the staff designate "Guru" status on me, I'm fine with that too.

I have often found that pessimists rarely accumulate wealth. Optimists on the other hand, at least enjoy the journey while they accumulate wealth.

I am both happy with my returns and enjoy the pursuit of great companies for investment.

Cheers!

I am excited as well. May good fortune find its way to both of us.


http://www.tr​aders-talk.com/​mb2/index.php?s​howtopic=116318

With the dollar rallying hard, it is downright amazing that stocks and commodities are rising as well. Something has to give, and it isn't the dollar (yet).

We top out this week and begin a multi month decline.

how much extent of this decline, u think?

Tomorrow gap down and by Wednesday-Thursday we should be testing 1080-85 SPY. If this holds, then it is bullish and we will likely take out the recent highs.

If not, 950ish is the next stop.

Don't worry about the close. It is not important. Tomorrow's action and Thursday's open are much more important.

BwinFraud:

Please! I hope you get banned for your endless penny stock pushing. I asked you guys to stop spamming, not 15 minutes ago, and you post in my topic? Bug off!

Euro is set to test the 1.3450. I can only read this as bearish. Commodities stocks are rolling over, and so to will the broad indexes. The Euro is a proxy for global risk appetite and it is greatly diminished. There will be another period of deflation spawned by Europe's debt crisis as well as the sickening debt levels of Japan and the US.

As far as what comes tomorrow. I have another gap signature on the hourly which leads me to suspect it is a gap down and go. My less probable alternate, is a gap up that closes below today's close.

http://img7​18.imageshac​k.us/img718/​9304/fcx.png

And on that note, here is a credited reprint of an article from today related to FCX:

This Commodity Could Suffer a Catastrophe Soon
By Matt Badiali

It's not often a major stock or commodity gets set up for "catastrophe," but when it does, I stand up and take note.

Most investors and traders aren't much interested in catastrophe. They won't short a vulnerable asset when a crisis is looming... and they won't buy it just after the crisis... when the asset is very cheap.

This is a shame, but it's why most people lose in the stock and commodity markets. And it's why they're going to miss a big opportunity coming to the copper market soon. Here's the story...

Put simply, speculators, rather than real demand, account for a great deal of the 120% rally in copper prices over the past 12 months. Many of those "hoarders" are in the People's Republic of China.

I started digging into this idea after listening to David Threlkeld, a longtime copper trader and analyst. He recently told Bloomberg that China, the world's largest copper user, more than doubled its imports of refined copper in 2009.

Today, Threlkeld thinks China has 3 million tons of unreported copper. China consumed about 5 million tons of copper in 2009. That unreported 3 million tons would be seven months of supply.

While not all the experts believe China has that much copper stashed away, another source agrees with Threlkeld. I recently spoke with a banking insider who believes that China has about 1.8 million tons of unreported copper.

These Chinese speculators and hoarders are not buying copper to build refrigerators: In 2008, 50% of the raw copper imports turned around as exports. In 2009, it was just 15%. They're buying copper to stockpile a bit and to bet on a price increase. But when stockpilers and speculators get their fill, it only takes a lack of buying to hammer the market.

In addition to hoarding in China, copper stockpiles are soaring in warehouses elsewhere. The London Metal Exchange, the market maker in all kinds of metals, has another 1.2 million pounds in warehouses all over the world. That supply is equal to another three months of Chinese consumption.

In total, there's enough copper out there to supply China's demand for nearly a year and that has Threlkeld worried. He recently predicted copper prices will fall to $1 per pound. That's 70% below today's price of $3.30 per pound.

Even if he's half right, and copper prices fall to $2 per pound, large copper producers like Freeport-McMoRan, Southern Copper, and Teck Resources are in for a huge fall. I'm not making this bet yet. With current prices near yearly highs, the uptrend is still strongly in favor of the bulls. But this trend could end quickly.

If you hold stock in the big copper producers I just mentioned, watch your trailing stops. If you're more of a short-term trader, consider getting ready to trade these from the short side.

Good investing,

Matt

Nice post and I also saw what Threlkeld said on CNBC. An Intermediate top for FCX is in, maybe more than that but it is too early to know.

Gap was a little bigger than I thought!

Small intraday bounce and sell into the close is how I see the broad US indexes. I got 990-1010 SPX by Friday next week or Monday the following.

Today's breach of the 2/23 intraday low is a serious offense for the bullish views. The bulls need to reclaim 1103 SPX (on a 2 hour closing basis), but it "ain't gonna happen".

Intraday resistance 1098-1103 SPX is like a brick wall.

This is all the dollar - it's heading to 82-83 and that's going to take this down pretty far - the euro's problems, along with Spain etc. could easily be the driver.

Yep I'm long from 77.7 DXHO with my original target 81-83. It's been a sicko trade.

See the signature momentum move off the last high in FCX a few days ago? I got long the DXHO on the exact same signature.

Also, take a look at EUR/JPY weekly if you have any doubts about what is coming down the pipe...

I am trying to say that the FCX move will be inverse to what I saw in the /DXHO a few weeks ago.

/DXHO = dollar futures

I just put vertical put positions on FCX this morningin anticipation of $USD strengthening further.

Yah a nice deadcat bounce in FCX off the open... all based on gold rallying.

I got a core short took a bit off this morning. Looking to reload 73.5ish.

Maximum uncertainty going into Friday. I strongly believe today's close represents "bear fear" and is not bullish. We will see weakness Friday at some point -- a good time to reduce risk if you got too aggressive this afternoon (like I did).

However, I would like to discuss two air pockets:

one is above 1110 SPX and the other below 1090SPX. Clearly, the plan is to gap below or above these two points and trend in a very hard manner. Do not fight it, join it.

Most likely, the next 3-6 weeks of trading will be controlled by the gap that occurs Monday morning.

I may take some risk off the table into late Friday weakness purely as a risk control unless I see categorical weakness in commodities. Commodities specifically because of their leadership to the downside.

I believe the top is right here and now. It appears the bulls are not able to clear resistance. In addition copper stocks are acting relatively weak given the explosion in copper futures. This must be reconciled or we will get price rejection and a huge reversal. I believe that rejection has just occured.

There is an interesting article on volumes going overseas (leaving the US exchanges) in seekingalpha.com this morning. I'm surprised that the dollar is moving higher faster with the apparent issues in the pound.

I'm still smiling to myself that a put position (on FCX) can be put underwater by an earthquake in Chile, incredible.