Market update

Please read my previous post . That post came at a crucial time, atleast for the swing period. I used the word miracle for the market to go up, and yes it indeed happen. My line in the sand to open a long position was 1198 (and close any short positions) and effectively that was taken out in a big whoosh in the last hour of that day. We are on Wall Street business which means you should expect miracles to happen. Fortunes are made and lost here; to make a fortune, risk is often needed with proper asset management. If you had gone long at that time and taken profits all along the way, you should have gone up by 5 - 10% atleast depending on your asset allocation and profit taking. There were small pullbacks in between but no pullback was greater than 2%. That 2% number should ring a bell because usually, if and when I am trading market ETFs I use a 2- 2.5% stop. So, if you have gone long and placed a 2% stop there, you should have been up all the way without getting stopped out, if you didn't take profits manually. Have I done that? Unfortunately, I missed it. 2 reasons: I had a busy weekend at that time with travel being part of it. But, the bigger reason was my bias towards being bearish. I was in cash at that time but later I have gone short on a small SPY position (at 116.49$) which is in loss and has not been stopped out (at 2% because that is small position)  which is another mistake. So, basically if you take a wrong position, you just pile up on your mistakes. Lesson learnt! Enough on that as it is time to move on..

30% of the SPX constituents report earnings next week. While momentum is in the market's favor, too long too fast in too short time is not in the market's favor. In 9 trading days, market has gone up 10%. Usually it takes months to go 10% up. That 10% number hurts me when I think of it. At this point, I am looking at the chart below. My bias is to the upside but with a pullback. We are sitting at the 50% retracement between May top and recent low. I believe we will test 1187 and go up. If we do not get a pullback here (which is unlikely as the market cannot go up every single day), then we should test 1257 soon. What should you do? If you don't have a position, do nothing. If you are long, take 75% of your money off the table. If you are short, wait for a pulback but have a 2% stop up. I will be trading different positions and posting on the trading blog , so I will answer any of your questions there if needed.

                                                                 SPX daily chart

A different look at the market from the currency standpoint. We are at a crucial stance on the Eur/ USD. We are effectively a day or two from the resistance that was previously a rock solid support. Eur/ USD may test that, or it could fall from here (without testing resistance) as often prices may not go to the test point.

Eur/ USD daily chart

Please remember that the seasonality from Nov - December into the holidays is with a upwards bias. Seasonality may repeat or not, but please have that in your mind. My target of 1257 into November comes with that bias as well. I present 2 good looking charts for you:

AMZN daily chart 

AMZN above is in a wedge that should break on either side on the coming earnings date of 10/25. My guesstimation is that AMZN will continue to be in the wedge before earnings. Since the push up has been relentless recently, you could short sell at the resistance by selling AMZN or sell the weekly 250$ calls. You should have a stop at 252$, regardless of what trade you take of the above 2. Please get out of your positions before the earnings date as I don't suggest playing earnings ever. 

VFC daily chart

VFC has been in a channel with a small wedge taking part recently. You could go long on the lower trendline (of the wedge) test, open a small position. You could double down on the channel's lower trendline test. I see VFC higher in December than today, that is my bias. But, since we have a channel, you can take long or short positions based on the breaks in either directions. Earnings report is on 10/24.

In addition to the above charts, I have a proprietary buy/ sell signal which I will update when I get it. The signal is a recipe for taking the money on the table and is usually worth 30-40 SPX points atleast on the average. I will post my signals when and if I will get it. The signal is on a buy since SPX 1130.

Sleeping sickness

Hang on! The bottom did not drop out yet, not yet. Tell me if this drop will hold, I will pray to Thee my Lord for the miracle. If you are looking to go long for a swing, I  would suggest you to do that when we clear that small horizontal trendline in the middle of the chart. You can play the small bounces in between, so that you can buy icecreams for your kids, or pop sodas, chewing gums for yourself. Otherwise it is not worthwhile. You can go full stop short sell below the big bottom line with a 2% stop. I usually do not suggest shortselling (though I do it myself at my own risk many times) but this chart looks too enticing.

The real moves will happen during night because the above chart is Emini futures, hence I used the term "Sleeping Sickness". Well, this is not African Sleeping sickness but the American version of it.

Always keep in the mind the Dracula version of the markets, I posted what they may do.

Review of the European market indices

FTSE and DAX have been trading in a box for the last 2 months with the momentum moving up. All 3 major indices escaped the bearish cross down. It looks like that the down cross is inevitable this time around. I don't see anything bullish at this time. They are poised to go down. We will review after one week.

Weekly sector review

For the past week, financials were the leading sector while the Material sector is lagging all others.

In September, the basket stocks of Utilities was leading while the materials remains the loser.

For the Q3 2011, Utilities and the materials were the leading and lagging sectors respectively.

YTD and in the past 1 year , Financials were leading the stock market down while Utilities lead the sectors.

I suggest you look at the figure below to analyze which sectors lead the economic cycles and understand the current situation.

If it is not obvious to you, let me explain. The Utilities lead the sectors in the downtrending economic cycles - beginning or in the middle of recessions. You might be wondering what I am talking about while the GDP still shows growth. NBER lags by atleast 2 or 3 quarters, they come back and revise the calls as far as quarters upto 1 year. It is very well possible that, in future revisions, NBER may come and say we have been in recession since Quarter 2 of 2011. Or this quarter may be the beginning of the recession.