BullBear Trading: Stock and Financial Market Technical Analysis

I rarely make such pronouncements, but I think the evidence points to a substantial selloff in stocks and a very large rally in the USD commencing immediately. Commodities, including precious metals, should also participate in the downside.

I have been reluctant to counter trend trade since March, but since the uptrend is violated and there is a short term downtrend we can go ahead and put on a reasonable short position. My target is the 200 EMA on the SPX.



If you are short USD I think you'd better cover because you have a lot of company. When the entire planet hits the buy button at the same time it's called a short covering PANIC.

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Comment by BullBearGirl on November 7, 2009 at 10:45pm
Christopher - yes, it has been a frustrating week for shorts. I thought the market would go down last week - instead I have been seeing red in my brokerage account. But maybe the fact that the S&P has possibly started to form a right shoulder will mean even better profits for us. If you decide you don't want to use options, some inverse ETFs I use are: FAZ (financial bear); QID (Nasdaq bear); SRS (real estate bear - I think this is commercial real estate, but not sure); EDZ (emerging markets bear). I use options also, but I get In the Money or At the Money options that are more expensive, well traded and higher quality. They haven't been a problem for me, although I am starting to lean more toward the ETFs because they're easier to trade. And, of course, if it takes longer for this market to turn down than I thought, there is the time problem.
Comment by BullBearGirl on November 7, 2009 at 10:31pm
Steven - I truly hope you are right that this is a bull market. I don't relish the idea of eventually going below the March low.

I didn't know you could trade index futures on a forex account. I'll have to look into that.
Comment by Steven Vincent on November 7, 2009 at 6:57pm
I think if we see an expansion of volume to the upside and a strong day for IWM and XLF on Monday that will be a signal that we are going back to 1100 and beyond. But if the market either drifts higher with INDU in the lead on low volume or if it sells off sharply on good volume then a good shakeout will be in process. Fast, speculative money needs to take profits and will flip to short. Weak, late hands with lots of worries about the future will bail below SPX 1030.

I do think this will be a correction in a bull market because level of fear and negative sentiment and the sheer volume panic of Oct-March was sufficient to put in a long term bottom. However we will have to see how the market acts as it declines and what it does at key support zones. From a bullish perspective the best case scenario would be a fast puking of shares and a mini-panic with very high VIX and P/C ratio. That would put in a secondary bottom. It would be bearish if investors keep trying to buy the decline and then it repeatedly tops out over and over again.

I hate options. If you like leverage then use the 3x ETF's. Or get a forex account with index futures trading. Plenty of leverage there.
Comment by Christopher Forgione on November 7, 2009 at 5:42pm
BBG,
I too have been a bit early to the correction party. It has been a particularly frustating week as the mkt did not go down after 10.2. But, I also noticed that the mkt did not have a hugely positive reaction to Fed announcement of continued free money. Again, to Steven's point, the rallies were on lower volume. I have purchased UUP etf and calls on UUP. I also added to my SPY and QQQQ puts in Jan and March. I am comforted by Steven's call for a correction. My question is this. Is the SPX target in the 950's as an exit strategy, or can we actually see 850's? Would this equate to an exit strategy in the USD at 82ish? Also, wouldn't that also drop oil? What would the target be in oil? Anyone have an idea on the best way to short oil? Thanks in advance, Chris
Comment by BullBearGirl on November 7, 2009 at 5:11pm
I agree with you, Christopher, on this site. I think Steven's charting and interpretation are very professional.

I have been of the opinion that we have been in a bear market rally. I keep thinking that 10% plus official unemployment does not bode well for stocks. I do believe the dollar is going to go up very soon and the market is in for a steep correction or worse. I am short the market in anticipation of this.

That being said, I do like to listen to a contrarian viewpoint because I don't want to get fatally stuck on any one idea.

Steven, is there anything in your technicals or charting that tells you we are going to be in a real bull market soon? I know that has been one of your theories and that you believe technology will bring us out of the doldrums, but would love to hear more technically or otherwise on why you think that.

Thanks,
BBG
Comment by Steven Vincent on November 7, 2009 at 4:36pm
I think the contrarian view is required when markets reach extremes of sentiment. The bearishness on the dollar and british pound are extreme. The bullishness on the equities markets is not extreme, but there is sufficient complacency to warrant a good shakeout before the real bull market begins.
Comment by Christopher Forgione on November 7, 2009 at 4:20pm
I like this site a lot. Very thoughtful analysis. The USD has got to move up at some point, doesn't it? I understand to an extent the argument for a weak dollar, but it's doomsday if it weakens too much more. The manipulation can only last so long.
Comment by Peter Pettersson on November 7, 2009 at 3:48pm
I have noticed the same thing. Very large volume in UUP (PowerShare ETF for USD bull fund), prices breaking out from wedge and close above 50SMA. Gold hit USD1101 Friday and that is 161.8% expansion on wave down from previous top of USD 1030 to bottom at USD 661, it is normally good resistance, might work this time too. The majority of investors are very bullish gold, oil and stocks and very bearish US-dollars, that is why I would not be surprised if this scenario happens.
Comment by Steven Vincent on November 7, 2009 at 2:52pm


I think chances are very slim that the market will not sell off from here. Volume is declining on moves up and increasing on moves down. 1080 is strong horizontal resistance. The Dow is vastly outperforming the Russell 2000 even during this little rally. The financial stocks have not participated in the rally. Crude oil may be breaking down....the list of indications that this is a topping formation is extensive. None of these factors were in play at the July bottom.
Comment by Steven Vincent on November 5, 2009 at 11:44am
Hmmmm....interesting action today. Dollar strength and equities strength at the same time today accompanied by strong fundamental news. Could the shift to the growth trade be underway already?

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