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TF thread (Russell 2000) ... anything goes

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  #101 (permalink)
 kbit 
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This is a 15m chart for those who attended the recent webinar. It is a KS cross play....had a down trend, then spun around and came up through the KS then a long could have been taken on the retest (blue arrow)

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 kbit 
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I hesitate posting this because probably most won't understand but had an example of a "footprint play".
That's what I call it anyway. Notice by the blue arrow there is a pinbar and a subsequent candle confirming direction....It was at a swing high at the time but what I really want is the second attempt at reversal and that is at the red arrow area. The best part is you can determine where it's going by measuring from the bottom of the confirming candle on the first reversal attempt (where the red line and blue arrow is) to the top of the swing (pinbar at the top) and take that measurement and subtract that amount from the red line to get a target (blue line)
This is on a Kase bar chart...the same thing can happen on some of the tick charts as well...don't know about time based charts though. It's a easy play and for some reason usually happens later in the day...but could happen anytime.
I posted another example of this in bugsbunnys journal so you can see another example there.
>

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 kbit 
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Had the same trades that I posted yesterday happen again today....hopefully someone figured it out. I did give a heads up.....
Tomorrow I do have some levels to keep an eye on but am thinking it will be like the wild west so I don't want to get anyone in trouble by giving out numbers....I suspect everyone is expecting a rise tomorrow but I am keeping a open view on this.
Below is todays Ichimoku (daily)....starting to look good but still need some more time to pass..... there have been trades on 15m like I posted above for the past couple days.



Here's the 15m trade (KS cross as described in previous post)


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 kbit 
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Sometimes a picture – or a chart without markings – says more than words ever could.




And contained in these charts that appear to be presenting topping patterns on the cusp of confirming is the fact that there is not any “nice” consolidation to be found.




Watch 2611 on the Nasdaq Composite and 731 on the Russell 2000 because a breaching of those levels will all but assure that the apparent topping action in these equity indexes will take each down to close gaps and fulfill Bear Pennants for an approximate 10% decline from current levels.

And it is for this reason that it seems worth paying attention to the fact that tech and small cap look toppy.

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 kbit 
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I'm not going to make a habit out of posting all this stuff...just wanted to show another example of the same trade that happened yesterday on a kase bar chart (same thing came up on my tick chart).
Yesterdays trade was a short ...today was a long. first signal in this case was a engulfing bar the second was a nice pinbar....blue line was target.



Just wondering if all those guys out there with all those fancy indicators can get trades like that.
I'm guilty of using vwap and pivots on my other charts but as you can see you don't even need that......

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kbit View Post
I'm not going to make a habit out of posting all this stuff...just wanted to show another example of the same trade that happened yesterday on a kase bar chart (same thing came up on my tick chart).
Yesterdays trade was a short ...today was a long. first signal in this case was a engulfing bar the second was a nice pinbar....blue line was target.

Attachment 56691

Just wondering if all those guys out there with all those fancy indicators can get trades like that.
I'm guilty of using vwap and pivots on my other charts but as you can see you don't even need that......

ya.. i guess the sample size would have to be much larger to find out.. i have also been looking to simplify things allot, so i welcome these kinds of posting kbit... thanks!

dont believe anything you hear and only half of what you see

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 kbit 
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madLyfe View Post
ya.. i guess the sample size would have to be much larger to find out.. i have also been looking to simplify things allot, so i welcome these kinds of posting kbit... thanks!


Don't take my word for it...see for yourself....I'm sure you will agree if you spend time on it, I'm just showing the way I do it. Take a look at bugsbunnys old journal, I posted a bunch of examples in there.

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 Massive l 
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With the 1 minute you'll get a lot of false signals IMO.

I've seen first hand from a trading friend (JLC) the power of engulfing candles and pinbars in the fx market
on 1hr, 4hr, and daily charts.

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 kbit 
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With the 1 minute you'll get a lot of false signals IMO.

I've seen first hand from a trading friend (JLC) the power of engulfing candles and pinbars in the fx market
on 1hr, 4hr, and daily charts.

I agree on just a conventional 1m chart but that is a Kase bar chart and is different....mine can be based on ticks or 1m data which is actually a different result than a regular 1m candle (Kase bars last longer than 1 minute in duration)...if that makes sense.
I have spent a lot of time on it can read it very well. I have tried it with every setting imaginable in the past and the way it is shown here by far works best for me. I would add though that I would use different settings on the ES and NQ and others....this is just the setting for the TF and EUR/USD and the swissy.
Without writing a book I would also say that my main focus is on a 2000 tick (TF)chart but the Kase produces trades as well ...as you can see.

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 Massive l 
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I see! Makes total sense, kbit.

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 supermht 
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I read some article online , somebody use 7, 22, 44 on ichimoku setting instead of 9,26,52. does it make sense?

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 kbit 
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I read some article online , somebody use 7, 22, 44 on ichimoku setting instead of 9,26,52. does it make sense?

I use the standard settings, I don't really care to mess with that at all.
@Massive1 could probably tell you something about that though because he has a few years worth of experience with Ichimoku.

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 Massive l 
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I read some article online , somebody use 7, 22, 44 on ichimoku setting instead of 9,26,52. does it make sense?

I know a lot of traders that use different settings, but it doesn't really matter IMO. I've used 5.21.42 on the daily for 5 days in a week, 21 days in a month and 42 days in 2 months. That made sense to me at the time. I've been watching ichimoku with my regular strategy and have been using the 9.26.52. Those numbers work great.

One of the things I liked doing was drilling down to the 5min chart and using a higher lookback. i.e. 96.280.560
I'm just throwing ideas out there. It's best to experiment and see what works best for you IMO...but overall 9.26.52
are the go to numbers.

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 kbit 
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Today we got the TS over the KS but the chikuo is buried into price....I guess I would expect price to come down to the 708 area and maybe bounce out. If it stays in this area 10 more days the chikuo should be in the clear.
Alternatively for the bold guys out there you could put a buy stop in the 754.5 area as a breakout trade at this point...if it goes up your in but you are exposed to a pretty good drawdown if it backs up on you, I prefer to just wait and see if entry gets triggered and then wait for a pullback.

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 kbit 
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Earlier this morning, we, as in me, mused that it seemed as though a little “round down” was on the way with tech and small cap having looked toppy yesterday and a look that was carried straight into today. Joining in on that look was the XLF along with the S&P and Dow Jones Industrial Average and now it seems that we have a few confirmed Rounding Tops on our hands with a few others waiting to join in.

Rather than making this a charting bonanza, though, let’s keep the equity focus on tech and small cap where the topping action stands out rather well as can be seen in the Russell 2000 below.




Its Rounding Top is confirmed and carries a target of 709 and a level that would put the Russell 2000 back below its 50 DMA and something that could be taken as a sign of deeper declines ahead as seems likely due to its Bear Pennant marked in lightly. That pattern carries a target range of 672 to 698 for a 3-7% decline after today’s 3% drop.

For an even easier-to-spot Rounding Top, look no further than the Nasdaq Composite that closed below its 50 DMA even though its pattern is not officially confirmed.




It’s hard to see how the Nasdaq Composite, or the Russell 2000 for that matter, can save itself from falling to that Rounding Top by confirming it with a drop through 2582 and a target of 2500 and a level that will serve to more than close that gap.

Returning quickly to what could reverse these bearish patterns from producing at least 4% declines in equities and declines that could become closer to 10% on Bear Pennants resembling the one marked in the Russell 2000 is entirely clear to me, but one sign of it will be the obvious or a flat to up open that produces an up day tomorrow.

Such a possibility seems unlikely to me, though, considering that this round down phenomenon extends past equities and right into commodities.




As can be seen, the CRB Index is showing a Rounding Top of sorts – similar to the Head and Shoulders showing in gold and silver – with past such Rounding Tops having been pretty successful in the past.

In turn, it is my inclination to believe that the round down in risk has begun.

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 kbit 
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Just thought I might play this out in real time.....that footprint thing I mentioned in a couple posts is setting up now.
739.5 is the spot to measure from....will post when I see a turn.
I should also mention that today is a crappy day and this might take a while but will happen so....

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 kbit 
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To make a long story short this setup fizzled...just didn't lay out that good because of the crappy conditions.
There is a chance it will go down to 737.4 but it's a very weak trade at this point...garbage, I am walking away.

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 Big Mike 
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Thanks for posting.



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 kbit 
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Anyone else see a chance of going up to 742.5......me either really but there is a possiblity albeit small....you heard it here first.(I have some weird evidence for that but...)
Actually 731.5 is a spot to keep an eye on as well as 735.5 should we see that. just watch for PA...not worth posting a chart today, nothing excitng except for price coming down to the KS area on daily Ichimoku (719.5 on H12) but not really enthused about it.....this thing will probably yo-yo a little.

Edit: I thought I would point out the KS is currently at 731.2 and the KS is at 705
The top of the cloud is at 708

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 kbit 
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The S&P is looking rather interesting right about now with its daily chart showing a nice bull and bear tension as can be seen below.




On the bear side of the battle, the chart above shows the S&P close to the resistance set by its series of lower highs that have been covered, and shown, here many times before and a bearish force that is supported by the likely target-like pull of the bottom trendline at 1165 that represents the index’s messy but rising lows. Enter, however, the Pipe Bottom hanging with a bit of inside day glory and the potential to take the S&P to its upside target of 1291 and both sides of the rope are manned.

Let’s blow this shot out though and, in so doing, it seems the bears may have it as seems to present below.




Putting aside the minor fact that this chart looks like it is going to produce a big move down to a triple digit S&P, its very next move appears to be down to about 1165 as shown by the very clean markings of that Symmetrical while the Descending Trend Channel shown below is hard to ignore and it supports the idea of S&P 775.




Also supporting S&P 775 at some point in the next 3 to 12 months is the Head and Shoulders pattern shown in the weekly chart below.




It confirms at 1075 for a target of 775 and seems likely to break and fulfill in 3 to 12 months and it may provide one reason to think about S&P 775 in 2012.

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 kbit 
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This is more about the charts, but it should be prefaced by saying that this is a bearish step down for equities as can be seen immediately below in the S&P.




Specifically, it’s bearish for the S&P to have crossed below its 50 DMA again considering that similar such crosses in the past have resulted in declines, one rather significant decline back in August, but the true test will be to see whether the S&P closes below its 50 DMA in the days.

One reason to think the S&P will close below its 50 DMA soon is the Rounding Top pattern it is trading in with a target of about 1199 and a pattern shared with the one year view of the Nasdaq Composite below that shows rather clearly just how bearish the 50 DMA dance has been recently and one that it has begun officially having closed below it today.




Its Rounding Top carries a target of about 2490 while its Bear Pennant carries a target of about 2450 and is a pattern showing in the S&P as well and one that is calling for a roughly 5% decline in both indices from current levels.

Not surprisingly the not-shown-tonight Russell 2000 is presenting a similar pattern set-up with its little intraday Diamond in the rough helping out with what could be a decline to about 691 for a 4% decline from today’s close.

What is possible interesting here, however, is the fact that the Dow Jones Industrial Average is still above its 50 DMA.




It raises the question of whether the S&P, Comp and RUT will move up to match the DJIA or whether the Dow moves down to follow those indexes.

Putting aside the fact that three would seem to outnumber one and particularly with two of the leading indices in the former grouping, the CRB Index traded below its 50 DMA days ago and something that should have been caught here in all my bearish zeal and so please accept my apologies around the late notice of what’s shown below.




As can be seen, its Rounding Top pattern is a bit more significant than those showing in the equity indices and points to a potential drop to 360 for a 15% decline from today’s close.

In turn, it may be the CRB Index’s ongoing and bearish flirtation with its 50 DMA shown by its lower highs that may offer caution around the 50 DMA dance coming back into style for equities.

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 kbit 
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Looks like the areas I picked to look at today were valid but not worth much at all so I hesitate in posting the areas I'm looking at for tomorrow. I said 742.5 was a spot that had a slim chance of getting hit...it did not but as it turns out it did have more pull to that area than I thought and did get close...in other words that skewed my plan. The daily Ichimoku is still bullish but I expect a little more dowside. Tonight it may crawl up to about 721.5 and then roll over and go through todays low and end up around 706.5. My official guess for tomorrow is get some kind of move up (after 706.5 gets hit)then down after the turn and finish the day at whatever lows we get....we'll see

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 kbit 
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Just wanted to show this...15m Ichimoku ..very nice short, couple different spots you could have entered and any would have worked.

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 kbit 
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A look at daily Ichimoku....stuck on KS and in the cloud a little

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 kbit 
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I wish I could pick a direction here but I can't really.....could go either way. I guess I will focus on 727 on the topside and the 695 area on the downside. It's not worth posting a chart at the moment....nothing that exciting.
A note to the less experienced out there...be careful tomorrow it has the potential to be really goofy.

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 kbit 
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The charts were so static today with DXY and EURUSD trading sideways to put off what’s going to be a decent break at this point that there was little worth reporting on with the exception of the XLF and its intraday Bear Pennant.




Interestingly, though, by the close and despite EURUSD holding about flat, the XLF started to confirm this Bear Pennant with a target of $11.80 and something that comes safely at $12.48 and a level that would serve to confirm its Rounding Top with a target of $11.50. It invalidates itself only if the XLF trades above $12.95 and something that should be watched for considering the mixed messages in risk as noted last night.

As interesting as the XLF’s Bear P starting to confirm on the close was the fact that this pattern is now showing in the daily chart too and something that probably supports the possibility of its fulfilling to the downside to some degree.



It is worth noting, however, that the equity indexes are not showing Bear Pennants but rather bearish appendage patterns and this is true even of the Russell 2000 that closed up by more than 1.0% today.




It appears to be trading in some sort of a Bear Flag that confirms at 716 for a target of 684 and just below the 691 target of its unmarked Rounding Top and just above the bottom target of its bigger Bear Pennant at 672 with the XLF needing to take out 737 to the upside to invalidate these bearish aspects.

All in all, though, the Russell 2000 is well-armored with bearish patterns as are the other equity indexes with perhaps the XLF’s Bear P going daily providing some indication that the round down in risk may continue tomorrow.

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 kbit 
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Here we are back at the KS (705), .....698 might produce some kind of bounce and there are a few spots in between that and 680ish but I still have not written off some upside tomorrow...I'd like to see a rise up to about 724.
I guess I want to focus on 698 (might go a little beyond that but....)and see what happens there as well as 714 -716 area on the upside to give an idea whats in store. There is a possibility that it just rises from 705 to one of the above mentioned areas then drops......

Last thought...keep an eye on 710 as well, could roll over there too




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 kbit 
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Three Charts That Blow the Doors Off any Hope of a 2012 Rally





The centrally-managed rally of March 2009 is over; reality is finally intruding on the manipulation and propaganda.


A good way to generate hate mail is to question 1) Santa's "guaranteed year-end rally" and 2) the notion that market rallies always resume soon enough because of the Federal Reserve's backstop/intervention.
If we step back from the latest shuck-and-jive data from the Ministry of Propaganda, a.k.a. the Status Quo managing perceptions, and take a longer view of the economy, money, credit and the stock market, we get an extremely troubling set of insights.

Courtesy of this site's Chartist Friend from Pittsburgh, here are three charts that completely undermine the fantasy that central planning/intervention can "save the market" once again in 2012 and beyond.
The first chart depicts annual percentage of change of Total Credit Market Debt and GDP. The black line tracks the annual percentage expansion of debt and the purple line shows the annual percentage of change in the Gross Domestic Product.

The second chart shows the velocity of M2 Money Supply and the S&P 500 (SPX) stock market index divided by the PPI (Producer Price Index). Velocity of money can be illustrated with a simple example: if the Federal Reserve creates a dollar out of thin air and a bank parks that digital dollar in its reserves, the velocity of that money is very low. If that dollar is lent out and spent at a business that then uses it to buy goods and services at another business where it is paid out as a wage that is spent, and so on, then the velocity of that money is high.

Dividing the SPX by the PPI is a way of adjusting for base inflation. This gives us a more accurate snapshot of reality than a nominal or unadjusted number.
The third chart presents the MZM (money zero maturity) Money Stock, a measure of supply of financial assets, and the 3-month T-Bill (Treasury bond) which reflects interest rates.

Here is our Chartist Friend from Pittsburgh's summary of the charts' fundamental meaning:
I think these three charts together do a good job of showing the correlation between the dynamics of money/credit and the real economy as measured by GDP, stock prices and interest rates. They paint a very clear picture: the economic contractions that we are experiencing today began roughly twenty years ago, and soon a full blown deflationary depression will be delivered.
Thank you, CFFP for sharing these excellent charts.</B> I am adding a bit of commentary after each chart.



Note that GDP more or less tracked credit expansion until around 1979, often exceeding debt as the expansion of credit sparked real growth via investment in productive assets. In the inflationary 1970s, both credit and GDP rose. In 1986-87, credit exploded, leaving the real economy in the dust.

From 1991 on, credit tended to expand at a much higher rate than the real economy, a trend that accelerated in the 2003-07 housing/credit bubble. This reflects the saturation or exhaustion of debt as a driver of growth, i.e. mis-investment in unproductive assets such as McMansions in the middle of nowhere.

Since 2009, GDP hasn't recovered to ite previous annual rates of change, and credit fell to a negative number, i.e. credit contraction, for the first time in the postwar era. It has since regained positive territory but the expansion is weak; simply put, people either don't want to borrow more or they can't borrow more.



The velocity of money rose in the stagflationary 1970s, even as stocks yielded negative returns when adjusted for inflation, i.e. to real returns. Velocity declined in the mid-1980s and then exploded higher in 1990s, topping out several years before the stock market topped in 2000.

Velocity and stocks were highly correlated from 2000 to 2009, when the market staged a sharp rebound even as velocity continued down to a historic low. This suggests stocks have some catching up to do with velocity, that is, the S&P 500 should decline significantly.

Many people have noted the explosive rise in money supply (not shown) since the 2008 financial crisis; this chart shows that this "new money" isn't entering the real economy at all, as money velocity has plummeted to zero.



This third chart shows a rough but long-term correlation between T-Bill yields (interest rates) and the supply of financial assets (money stock). The stock of money fell off a cliff in 2000, and that marked the highs in both the S&P 500 and the T-Bill yield.

Maybe near-zero interest rates aren't the panacea the Federal Reserve thinks they are.
If we look at civilian participation in the workforce and other basic measures of employment, we find they topped out
in 2000 as well.


If there is any evidence of a resurgence in the real economy just ahead, it isn't present in these charts. Any stock market rally in 2012 will not reflect the real economy, credit, money stock and velocity or employment visible in these charts. Until these charts shows positive fundamental improvement, a rally can only be smoke and mirrors, a trick of central planning manipulation that is unlikely to last longer than a sugar high

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 kbit 
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So much for some more downside today....anyway, this is the daily chart showing price back above the cloud.
The KS held it yesterday and here we are. It looks like 3 more days and the chikou will be above price if it can stay in this area or higher. We've got a long in play soon if it all holds, the only concern is that the future cloud has just about disappeared and might even turn bearish so we will have to wait and see.


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 bluemele 
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I had traded the last 2 holiday sessions with a live account. NEVER AGAIN. NEVER EVER EVER AGAIN.

I made one trade while I was visiting in Vegas without a stop. I left for an hour and on something that I usually would make or break 300 bucks I came back to a 15K drawdown! (exited at -11K)

Holiday trading is for people who really like to challenge themselves in my opinion. It could go up, down, all-around for the next 2 weeks and I don't think it will surprise anyone. For me, I will wait to see what happens at the end after Jan 1, and see if there is a BO play or some other form, but I am not live anymore so take it for what it is worth, little to nothing.

I enjoy your sentiment journal.

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 kbit 
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I had traded the last 2 holiday sessions with a live account. NEVER AGAIN. NEVER EVER EVER AGAIN.

I made one trade while I was visiting in Vegas without a stop. I left for an hour and on something that I usually would make or break 300 bucks I came back to a 15K drawdown! (exited at -11K)

Holiday trading is for people who really like to challenge themselves in my opinion. It could go up, down, all-around for the next 2 weeks and I don't think it will surprise anyone. For me, I will wait to see what happens at the end after Jan 1, and see if there is a BO play or some other form, but I am not live anymore so take it for what it is worth, little to nothing.

I enjoy your sentiment journal.

Sorry to hear about the painful lesson, I can't say that I have a perfect record either. I will still trade until thursday but have scaled down and am very careful and more selective.
Your policy is a wise one though....better safe than sorry
Kbit

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Are Torrid Tuesdays The New Merger Mondays?


While there is nothing quite like using correlation to imply causation, or predicting the future by observing self-fulfilling prophecies which work until they wipe everyone who blindly follows them, investors do enjoy observing technical patterns that lead to at least some incremental and tranistory beta.

Especially in this day and age of centrally planned alpha disintegration. And while many have noted historical phenomena which used to work in the old days, such as the "Merger Monday" effect, this was before the Obama administration decided it would be the best and last arbiter of what transactions should and shouldn't work.

As a result, Merger Monday were promptly forgotten. Also promptly forgotten were POMO days (at least for now), as every Fed bond purchase, has an equal and offsetting bond sale (inverse POMO). Granted once the Fed starts monetizing Italian bonds this will quickly change. But what about now? Well, as a trading desk advises us, using 2011 statistica data, "Torrid Tuesdays" just may be the new "Merger Monday."
To wit:




Looking back to 2011, Tuesday is a great day to own the Russell. Average move in the Russell on Tuesdays this year has been 43bps. This is a huge move, corresponding to 22% annualized return. If all you did all year was to buy the IWM on Monday at close and sell it Tuesday at close you would have made a 20% return.

4 out of the 11 times the Russell moved more than 4% in a day were on Tuesdays, including the two best days in the Russell (8/9 up 6.9% and 10/4 up 6.4%).

Conversely, there were no Tuesdays when the Russell was down 4% or more (out of 7 such days).
Of course, now that it is public, using the old faithful precepts of the wave function collapse, this self-fulfilling anomaly will no longer work. Or maybe it will work that much better if even more momo chasers go after it.

Who knows? Anyone crazy enough to want to put even a dollar of their money at risk in this joke of a market is welcome to try it. The rest of us will sternly contemplate the age old question: just how will the world grow when the marginal utility of debt is below 1, when capex is far lower than D&A, when asset bases do not generate enough cash flows to satisfy liabilities, and when the only solution is inflating our way out of every troublesome spot.

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 kbit 
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This is something that should have been explained here a bit more thoroughly – read: better – over recent days with my blinding bearish zeal to blame and so please accept my apologies.

Specifically, the break that looks more and more imminent in most equity charts via the “round down” does not need to be straight down considering it is coming on the apex of the Symmetrical Triangle discussed weeks ago in relation to the S&P and more recently around the Nasdaq Composite and the XLF.

This is something that should have been highlighted here more so as a possibility and one that may be behind today’s huge surge in the stock markets as shown below in the chart of the Nasdaq Composite.




As can be seen in the 6-month daily chart above, the Nasdaq Composite is “coiling” into the apex of that Symmetrical Triangle with many actually calling the pattern a coil as has been done here many times in the past. Such coiling represents technical consolidation and real world confusion as investors await information that will help to break the lack of clarity.

Relative to the Symmetrical Triangle above, you may agree with me that it appears to have equal chances of breaking toward its upside target of 3420 or its downside target of 1960 for a roughly 25% move in either direction.

However, let’s look at this same pattern in the context of a longer-term chart that showcases the Nasdaq Composite’s stunning trend of lower highs and this Symmetrical Triangle looks far more prone to a downside break and one that would bring in the possibility of an extreme Rounding Top as shown in the chart on the following page.

Relative to that potential Rounding Top, it is not the “round down” referred to above, but it is worth noting that particular Rounding Top marked in above has grown bigger and now carries a target of about 2350 and a level that, if breached to the downside, will confirm the Symmetrical Triangle to the downside.

In turn, this provides another reason to think that the Symmetrical Triangle will break down with its bearish presentation as a continuation pattern of the downtrend to precede it shown below.




In turn, if the Symmetrical Triangle does take the Nasdaq Composite down toward its downside target of 1960, it will breach the big Rounding Top’s level of confirmation at 2200 and it would be at that point that it would make sense to think about the big Rounding Top’s extreme target of 1500 for a more than 40% decline from current levels.

Let’s keep that pattern on the backburner for now, though, and focus on the Symmetrical Triangle that tells us that the Nasdaq Composite should trade sideways between 2525 and 2625 for a few days before making the big break that will be unmistakable in my view.

This puts our eye on early levels of confirmation on either side at 2450 and 2700 with either side having a shot but with the stronger technical case coming for a break to the downside due to those lower highs and the potential for the smaller Rounding Top to take the Nasdaq Composite down to confirm the Symmetrical Triangle to the downside.

It would seem the real world case is more in support of the break to the downside, too, considering how difficult it is to see any dramatically amazing news coming out in the next few weeks that would convince investors that the corporate profit picture has improved by leaps and bounds overnight as the eurozone sovereign debt and banking crisis healed itself magically.

Rather, it seems more likely that the stream of bad news out of the eurozone will continue and something that could push its mild recession into an actual global recession and something that would make the corporate profit outlook shrink.

In turn, it seems that both the technicals and the fundamentals suggest the break is coming and it is more likely than not to be down.

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 ctmvas 
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What is the slippage like in /TF?

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What is the slippage like in /TF?

Normally I don't really have slippage problems but on days like today you might loose a tick...that's about it
Actually there have been times with some entrys I get positive slippage. The point is that it has plenty of liquidity normally during regular market hours...after hours it is not good though so just be aware of that.

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 kbit 
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Notice where today bottomed out at...the top of the cloud and the TS....
By friday the chikou will be above price and this thing could blast off (?)
Like I said a while back, an entry could be put at about 752.5
The worst part of this which probably won't stop it anyway is that this is lining up at the worst possible time of the year to trade. Regardless of whether or not I do something here, it will be interesting to see what happens.


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 kbit 
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Just a couple spots to keep in mind tomorrow where we might get some action..752, 742, 728, 722
Tomorrow will be my last trading day for the year...as evidenced by todays action liquidity is drying up and it's not worth trading after tomorrow morning in my view. I will be watching what's going on from the sidelines after that.

Before I forget I want to wish everyone a Merry Christmas/Happy Hanukkah and a prosperous New Year.

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Merry Christmas and Happy New Year!

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Your Three Investing Opponents

By Barry Ritholtz

“Tough Year!”

We hear that around the office nearly every day – from professional traders to money managers to even the ‘most-hedged’ of the hedge fund community. This year’s markets have perplexed the best of them. Each week brings another event that sets up some confusing crosscurrent: call them reversals or head fakes or bear traps or (my personal favorite) the “fake-out break-out” – this volatile, trendless market has been unkind to Wall Street pros and Main Street investors alike.

Indeed, buy & hold investors have had more ups and downs this year than your average rollercoaster. The third and fourth quarters alone had more than a dozen market swings, ranging from 5 percent to more than 20 percent. Despite all of that action, the S&P 500 is essentially unchanged year-to-date. It doesn’t take much to push portfolios into the red these days.


Three Opponents in Investing

With markets more challenging than ever, individual investors need to understand exactly whom they are going up against when they step onto the field of battle. You have three opponents to consider whenever you invest.

The first is Mr. Market himself. He is, as Benjamin Graham described him, your eternal partner in investing. He is a patient if somewhat bipolar fellow. Subject to wild mood swings, he is always willing to offer you a bid or an ask. If you are a buyer, he is a seller – and vice versa. But do not mistake this for generosity: he is your opponent.

He likes to make you look a fool. Sell him shares at a nice profit, and he happily takes their prices so much higher you are embarrassed to even mention them again. Buy something from him on the cheap, and he will show you exactly what cheap is. And perhaps most frustrating of all, Mr. Market has no ego – he does not care about being right or wrong; he only exists to separate the rubes from their money.

Yes, Mr. Market is a difficult opponent. But your next rivals are nearly as tough: they are everyone else buying or selling stocks.

Recall what Charles Ellis said when he was overseeing the $15-billion endowment fund at Yale University:

"Watch a pro football game, and it's obvious the guys on the field are far faster, stronger and more willing to bear and inflict pain than you are. Surely you would say, 'I don't want to play against those guys!'
“Well, 90% of stock market volume is done by institutions, and half of that is done by the world's 50 largest investment firms, deeply committed, vastly well prepared – the smartest sons of bitches in the world working their tails off all day long. You know what? I don't want to play against those guys either."

Ellis lays out the brutal truth: investing is a rough and tumble business. It doesn’t matter where these traders work – they may be on prop desks, mutual funds, hedge funds, or HFT shops – they employ an array of professional staff and technological tools to give themselves a significant edge. With billions at risk, they deploy anything that gives them even a slight advantage.

These are who individuals are doing battle with. Armed only with a PC, an internet connection, and CNBC muted in the background, investors face daunting odds. They are at a tactical disadvantage, outmanned and outgunned.
We Have Met the Enemy and They Is Us

That is even before we meet your third opponent, perhaps the most difficult one to conquer of all: You.
You are your own third opponent. And, you may be the opponent you understand the least of all three. It is more than time constraints, lack of discipline, and asymmetrical information that challenges you. The biggest disadvantage you have is that melon perched atop your 3rd opponent’s neck. It is your big ole brain, and unless you do something about it, it is going to lose all of your money for you.

See it? There. Sitting right behind your eyes and between your ears. That “thing” you hardly pay any attention to. You just assume it knows what it’s doing, works properly, doesn’t make too many mistakes. I hate to disabuse you of those lovely notions; but no, sorry, it does not work nearly as well as you assume. At least, not when it comes to investing. The wiring is an historical remnant, hardly functional for modern living.

It is overrun with desires, emotions, and blind spots. Its capacity for cognitive error is nearly endless. It was originally developed for entirely other purposes than risk assessment in capital markets. Indeed, when it comes to money, the way most investors use those 100 billion neurons or so of grey matter, they might as well not even bother using their brains at all.

Let me give you an example. Think of any year from 1990-2005. Off of the top of your head, take a guess how well your portfolio did that year. Write it down – this is important (that big dumb brain of yours cannot be trusted to be honest with itself). Now, pull your statement from that year and calculate your gains or losses.

How’d you do? Was the reality as good as you remembered? This is a phenomenon called selective retention. When it comes to details like this, you actually remember what you want to, not what factually occurred. Try it again. Only this time, do it for this year – 2011. Write it down. Go pull up your YTD performance online. We’ll wait.

Well, how did you do? Not nearly as well as you imagined, right? Welcome to the human race.
This sort of error is much more commonplace than you might imagine. If we ask any group of automobile owners how good their driving skills are, about 80% will say “Above average. The same applies to how well we evaluate our own investing skills. Most of us think we are above average, and nearly all of us believe we are better than we actually are.

(Me personally, I am not an above-average driver. This is despite having taken numerous high-performance driving courses and spending a lot of time on various race tracks. I know this is true because my wife reminds me of it constantly.) [JM here – I am also in the bottom 25%, as my kids constantly remind me!])

As it turns out, there is a simple reason for this. The worse we are at any specific skill set, the harder it is for us to evaluate our own competency at it. This is called the Dunning–Kruger effect. This precise sort of cognitive deficit means that areas we are least skilled at – let’s use investing decisions as an example – also means we lack the ability to identify any investing shortcomings. As it turns out, the same skill set needed to be an outstanding investor is also necessary to have “metacognition” – the ability to objectively evaluate one’s own abilities. (This is also true in all other professions.)

Unlike Garrison Keillor’s Lake Wobegon, where all of the children are above average, the bell curve in investing is quite damning. By definition, all investors cannot be above average. Indeed, the odds are high that, like most investors, you will underperform the broad market this year. But it is more than just this year – “underperformance” is not merely a 2011 phenomenon. The statistics suggest that 4 out of 5 of you underperformed last year, and the same number will underperform next year, too.

Underperformance is not a disease suffered only by retail investors – the pros succumb as well. In fact, about 4 out of 5 mutual fund managers underperform their benchmarks every year. These managers engage in many of the same errors that Main Street investors make. They overtrade, they engage in “groupthink,” they freeze up, some have been even known to sell in a panic. (Do any of these sound familiar to you?)

These kinds of errors seem to be hardwired in us. Humans have evolved to survive in competitive conditions. We developed instincts and survival skills, and passed those on to our descendants. The genetic makeup of our species contains all sorts of elements that were honed over millions of years to give us an edge in surviving long enough to procreate and pass our genes along to our progeny. Our automatic reactions in times of panic are a result of that development arc.

This leads to a variety of problems when it comes to investing in equities: our instincts often betray us. To do well in the capital markets requires developing skills that very often are the opposite of what our survival instincts are telling us. Our emotions compound the problem, often compelling us to make changes at the worst possible times. The panic selling at market lows and greedy chasing as we head into tops are a reflection of these factors.

The sort of grinding market we had in 2011 only exacerbates investor aggravation, and therefore increases poor decision making. Facts and logic go out the window, and thinking gets replaced with naked emotions. We get annoyed, angry, frightened, frustrated – and that does not help returns. Indeed, our evolutionary “flight or fight” response developed for a reason – it helped keep us alive out on the savannah. But the adrenaline necessary to fight a Cro-Magnon or flee from a sabre-toothed tiger does not help us in the capital markets. Indeed, study after study suggests our own wetware works against us; the emotions that helped keep us alive on the plains now hinder our investment performance.

The problem, as it turns out, lies primarily in those large mammalian brains of ours. Our wiring evolved for a specific set of survival challenges, most of which no longer exist. We have cognitive deficits that are by-products of that. Much of our decision making comes with cognitive errors “secretly” built in. We are often unaware we even have these (for lack of a better word) defects. These cognitive foibles are one of the main reasons that, when it comes to investing, we humans just ain’t built for it.
We Are Tool Makers

But we are not helpless. These large mammalian brains of ours can do a whole lot more than merely overreact to stimulus. We think up new ideas, ponder new tools, and create new technologies. Indeed, our ability to innovate is one of the factors that separates us from the rest of the animal kingdom.

As investors, we can use our big brains to compensate for our known limitations. This means creating tools to help us make better decisions. When battling Mr. Market – as tough as any Cro-Magnon or sabre-toothed tiger – it helps to be able to make informed decisions coolly and objectively. If we can manage our emotions and prevent them from causing us to make decisions out of panic or greed, then our investing results will improve dramatically.

So stop being your own third opponent. Jiu jitsu yourself, and learn how to outwit your evolutionary legacy. Use that big ole melon for a change. You just might see some improvement in your portfolio performance.
Individual Investors Have Certain Advantages Over Institutions

One final thought. Smaller investors do not realize that they possess quite a few strategic advantages – if only they would take advantage of them. Consider these small-investor pluses:
• No benchmark to meet quarterly (or monthly), so you can have longer-term time horizons and different goals
• You can enter or exit a position without impacting markets.
• There is no public scrutiny of your holdings and no disclosures required, so you don’t have to worry about someone taking your ideas.
• You don’t have to limit yourself to just the largest stocks or worry about position size (this is huge).
• Cost structure, fees, and taxes are within your control.
• You can reverse errors without professional consequences – you don’t get fired for admitting a mistake.
• You can have longer-term time horizons and different goals.

And with those thoughts, good luck and good trading in 2012!

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 kbit 
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Well this is taking longer than seemed likely to me just a week or two ago with “this” meaning the big – and it will be unforgettably big – break to hit equities with “big” meaning a likely move of 30%+ up or down in months if not weeks. Clearly my view on how this break will come is bearish right now with almost all equity charts carrying major topping patterns that should cause a significant decline.

That is only my interpretation, however, and even though the charts look just a bit more bearish to me after today’s trading than on Friday with at least a 5% decline down on the sideways trend seeming imminent and one that should have little to do with the big break, it is starting to strike me just how lopsidedly bearish my position is at this moment around risk.

Take for instance a few recent titles:

- S&P’s H&S: Rough Ride Ahead for Risk,
- XLF’s Bear P Points to 40% Decline,
- Dow’s Diamond to Bring Out the Bear,
- Copper May Fall By 40%,
- Silver Looks Set to Slide By 40%,
- QLD Looks Outright Ugly, and,
- Corn: The Cruel Correction Is Coming.

None of these titles are for shock value or sensationalism, rather each is just what the respective chart is telling me and it almost never occurs to me to temper what a chart is telling me as you may noticed. This means that right now the risk asset charts are talking about a correction, or some might even call it a crash, in the months ahead and so it makes sense to discuss it.

That being said, it did occur to me today just far in the bear camp my interpretation is despite wanting to be a bull as an optimist by nature, not to mention how it will be painful to watch another recession, and so it seems to make sense to make sure that you are completely aware of both the technical bull and bear cases around risk.

It does not matter what this chartist thinks the charts are saying. It only matters what the charts are saying and charts are always talking bull and bear considering there are always two sides to a market.

For this reason, if possible, the tone of these notes may go a bit more neutral until it makes sense to be bullish or bearish by the levels.

Is this possible? Probably not considering how outrageously bad, even shockingly bad, so many of the charts look across various risk asset classes look, but you have my promise to try to be a better chartist to you by always telling the complete tale of any chart.

In the spirit of keeping to this promise properly but one that may go on break for about three days after tonight, let’s look at one chart in a more bullish light and one in a more bearish light.

Starting out with the more bullish chart and this is turning out to be a problem but let me keep looking, the truth is a crash is probably coming as the number of charts looked at increases, but one of those mixed message charts just popped into mind and that is HYG.

As you can see below, this high-yield bond ETF is close to taking out its last high and it is well above the generously-drawn Bear Fan Lines that would begin to prove any sort of reversal of its long-term uptrend.



Above its last high at $90.31 and HYG may be telling us that the risk assets are going 30% higher in 2012 and beyond and a message that will not be ignored even by this bear. In fact, such an upside breaching would cause me to treat each and every chart with kid gloves and that is to say with great caution around seeing all bull and bear aspects.

What would take HYG up 30% higher potentially in 2012 is an unmarked Inverse Head and Shoulders pattern that confirms right around $91 for a target of about $103. Relative to the bear side of HYG’s more bullish chart, it is actually not so apparent right now and has to be projected into a gentle Rounding Top that confirms around $75 for a target of about $60.

And now let’s turn to the more bearish chart and among the runner ups are AAPL, AGU, the CRB Index, GE, GOOG, the Nasdaq Composite, the Russell 2000 and the S&P and it goes on and on, but let’s settle on the good old XLF.




What makes the chart of the XLF just so bearish is the ability to connect the trend of lower highs born of 2007’s peak to the XLF’s new trend of lower highs born of this past February as was noted in a weekly note here as early as this past May as its major Spike Bottom of 2009 appears to be failing.

Compounding that bearish look of the XLF’s 10-year daily chart is that likely Bear Pennant drawn in toward the right and a pattern that confirms fully at $10.95 for a very generous target of $8. Unless the XLF rises above about $14.50, its charts are overwhelmingly bearish.

However, let’s look at the bull case in the XLF’s bearish charts and it comes down to a potential Inverse Head and Shoulders pattern within that Bear Pennant. It confirms at $14.50 for a target of about $17.

When these bull and bear aspects are viewed around today’s close in the XLF, it presents a 30% upside case to a 40% downside case and something that seems to skew the risk-to-reward profile toward the former and something worth noting.

But irrespective of how that bull and bear battle is broken, 2012 will begin with a bang because of it.

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 kbit 
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The stock market's "fear gauge" is flashing a fairly atypical sign for what is usually the market's quietest period of the year.

The Chicago Board Options Exchange's volatility index, or VIX, has jumped 13% this week as trading volume thinned due to the holidays. The measure is still down 24% from levels earlier this month. But the fact that it is hovering above its long-term average of about 20 is uncharacteristic heading into the end of the year, and represents the latest cause for concern for investors.

The VIX uses options pricing to measure the market's expectations for future swings in the Standard & Poor's 500-stock index. It tends to rise when stocks fall. The S&P 500 was recently down 14 points, or 1.1%, to 1251, as investors fretted about the euro sinking to an 11-month low ahead of Italy's long-term debt auction on Thursday.

The VIX was recently up 1.44, or 6.6%, to 23.35.

The previous instances when the VIX finished a year above 20 was at the end of 2008 and 2009, when markets grappled with the financial crisis and its aftermath. The time prior to that was in 2002, when investors reeled from the burst tech bubble.

"We're seeing a little bit of fear creep back into the market here before the end of the year," said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management. "Within that context, it's important to keep in mind that we're under levels that we've seen just a few weeks and few months ago."

The VIX finished 2010 at 17.75 and started the first few months of the current year in a relatively tight trading range. It shot above 30 in March after the earthquake in Japan, but quickly reverted to the long-term average for much of 2011's first half.

But the VIX hit a 2011 high of about 48 in early August following the rancorous U.S. debt-ceiling debate and S&P's downgrade of the U.S. credit rating. It remained elevated for months as stocks swung wildly in both directions for much of the summer and the fall. The VIX was even above 30 as recently as early December.

Michael Farr, president of portfolio-management firm Farr, Miller & Washington, said he doesn't see volatility subsiding going into 2012. Continued worries related to the European sovereign-debt crisis and further political wrangling in the U.S. are likely to weigh on markets once the calendar flips to 2012.

"The VIX is telling you the choppy, stormy conditions are not going away," Farr said. "We have not seen the last serious spike in the VIX."


eFXnews : VIX Creeps Higher This Week As Europe Overhang Persists

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 bluemele 
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Hey Kbit, when are you going to post the Million Dollar setups so we can all get rich?

Seriously though, curious on learning some price action from you this year.

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 kbit 
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Bearish Volatility to Return?



The answer is yes, but the timing is unclear.




Specifically, the daily chart of the VIX is showing a bullish Falling Wedge pattern with a target 47.5, but it is unclear where and when its apex might be put in and this means it is unclear as to when this bullish pattern might begin to fulfill up. It could be tomorrow with the apex having been hit last week or it could be weeks from now on an apex that could be as low as 17.5.

Clearly, these differences will show up in the equity index charts in somewhat and rather imperfect inverse fashion even though there continues to be a nice bearish Rising Wedge in the chart of the S&P as has been shown in the Dow Jones Industrial Average many times recently.



Might that pattern with a target of 1075 peak out a little higher? Absolutely, but so long as it does not exceed 1350, it seems that the bearish Rising Wedge has an excellent shot of fulfilling down.

What makes a potentially higher peak in the S&P’s Rising Wedge so interesting is the fact that it would “match” a lower apex in the VIX’s Falling Wedge with both appearing likely to find bearish resolution within a few weeks at the most if not much sooner.




Such an observation seems supported by the long-term monthly chart of the VIX that shows a Sideways Trend Channel between about 10 and almost 40 with an inner level around 16.

Unless you think that a period of economic expansion that accompanied the bull market of 2003 to 2007 is ahead, it seems most likely that the VIX will trade perhaps as low as 16 or so before ricocheting back up toward 40 or even to the 47.5 target of the Falling Wedge shown first.

In turn, it is not clear when this might happen in the first quarter of this year, but it is clear that some bearish volatility will return to the S&P.

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 kbit 
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bluemele View Post
Hey Kbit, when are you going to post the Million Dollar setups so we can all get rich?

Seriously though, curious on learning some price action from you this year.

I'll try to give more detail in the future....as far as the million dollar stuff goes I'm kind of afraid of getting to much attention and end up like Cj Booth and Bugsbunny et al ( getting overwhelmed and end up leaving ). I do get some really good trades but get some turds too so that's why I"ve been comfortable pointing out some levels of interest and let people decide whether or not they get PA they like to act on them. I have thought of just posting when I am going to jump on something but in the heat of the moment I forget. I will try in the future and then later explain what I was looking at, I don't want to babysit though as I'm sure you understand.

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 kbit 
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Before I make any comments about anything I just want to mention that in my experience "normal" trading probably won't really resume until about Jan 17th-18th. That's not to say there won't be trades but it's likely to be goofy til then....
Above is the daily Ichimoku, the obvious thing standing out like a sore thumb is the shooting star/pinbar/doji thingy.
We really need to see what tomorrow ends up at to determine what to do with this thing...I wouldn't want to just enter on a break of this thing at this point because it's to risky for a couple reasons. From a Ichimoku perspective we are in bullish territory and depending on entry methods you could be long already and this could tap the low and bounce right back up.
Secondly you really need confirmation by having tomorrows close to be below this thing to consider a short because it could be that the bulls are just taking a rest and will come back and run it up again.


Some spots to watch....745.5, 742, 734.5 and on the upside 764-5 area, maybe the 772.5 area

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 bluemele 
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I am curious @kbit in that selling into support like this sounds scary to me, so how would you handle it? Are you going to wait for it to break through some zones and then head short or are you going to look for bounces on support to go long?

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 kbit 
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I am curious @ kbit in that selling into support like this sounds scary to me, so how would you handle it? Are you going to wait for it to break through some zones and then head short or are you going to look for bounces on support to go long?

I would not be nervous at all actually...like I said we have to see where tomorrow ends. If it does drop 736 is my first real concern but we really need to see how it plays out tomorrow....how far it drops or if it even drops at all and so on....you know what I mean. If you want to get a bit more confidence just look at the weekly chart and on that you can more easily see some downside potential. I would like to see a move down to about 705 actually.
Like I said tomorrows candle will say a lot...depending on where it closes. It's a lot of guessing at this point

Just remember some of the best trades are the ones that look the crappiest.....

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Just remember some of the best trades are the ones that look the crappiest.....

I haven't heard that before, but good advice... haha...

Thanks for the comments.

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 kbit 
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Well I guess it wouldn't be any fun if it was easy.
The day is not over yet but looks like we will end up with a barbed wire mess here. Looking at it Ichimoku wise, it came down and touched the TS and bounced.....really that could have been a long entry right there (forgot to mention it yesterday). We still have to see where it closes (how low) but the short side doesn't look good...everything except for that pin thing says it's going up.

I guess I may be hoping for to much when I am looking for a good size pull back to go long but it's not over yet.

As a side note I was in the middle of posting something here about going long (earlier)at 739.5 but it didn't make it that far and it was the heat of the moment and didn't feel like chasing it or getting anyone else to chase it so I scratched it.
I had identified 742 as an area to watch and got a 2 pt bounce off it but it had no solid base PA wise so I figured it would fail .....739.7 was a floor trader pivot sittng right beneath it ...obviously that area held but like I said it didn't hit my entry and the PA after the bounce was kind of goofy.....which is no surprise really based on the time of year right now as I previously mentioned...blah blah blah....

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 cory 
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kbit View Post
....
I had identified 742 as an area to watch and got a 2 pt bounce off it but it had no solid base PA wise so I figured it would fail .....739.7 was a floor trader pivot sittng right beneath it ...obviously that area held but like I said it didn't hit my entry and the PA after the bounce was kind of goofy.....which is no surprise really based on the time of year right now as I previously mentioned...blah blah blah....

742 was confluence fibs buy but it never went there since NY lunch.

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 kbit 
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cory View Post
742 was confluence fibs buy but it never went there since NY lunch.

Your right..not sure I know what your saying but I posted that 742 number yesterday if you look back a few posts and it got hit right after the open today (around 8:35) and when I said I was considering posting an update it was getting taken out at the same time (around 9:20). sorry for the confusion.

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 Silvester17 
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cory View Post
742 was confluence fibs buy but it never went there since NY lunch.

that's what I have as well.

but it really depends what time frame you're looking at and how many days you load. that is if taking swing highs and lows for the fibs.

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that's what I have as well.

but it really depends what time frame you're looking at and how many days you load. that is if taking swing highs and lows for the fibs.

I use 4 better renko. I need only 1 day data. I measure fib on renko body only. I have 15m open range at 745.7 (high) and 741.8 (low). Take a abc fib and I have 217% at 742.1 so confluence is around 741.8 - 742.1 so 742 is close enough. Does it work? who know, just something I see.

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 kbit 
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No chart today...there was a trade off the 734.5 area I spoke of a couple days ago...nice pinbar on my tick chart and a engulfing bar on the Kase bar chart I look at occasionally....you obviously know how that worked out.
As far as tomorrow....who knows, the daily is goofy and hard to even guess what will happen especially with NFP so just going to wing it.

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AT the turn of the last century, it was widely accepted that American stocks were virtually certain to be good long-term investments. Now, far fewer people are confident of that.

A major reason for the earlier confidence was that in the 15 years from the end of 1984 through the end of 1999, the total return of the Standard & Poor’s 500-stock index was more than 740 percent, even after adjusting for inflation. That amounted to a compound annual real return of more than 15 percent.

At the end of 2011, by contrast, the 15-year return — from the end of 1996 — was just 3 percent. And most of those gains came in the first three years of the period. Since the end of 1999, the stock market has not come close to keeping up with inflation.

The first of the accompanying charts shows compound 15-year real returns on stock market investments from the period that ended in 1943 through the one that ended last month.

Broadly, it appears there is a cycle that is repeating itself, in which the 15-year return tops out at more than 15 percent and then falls precipitously.

In June 1964, the real return over the previous 15 years averaged 15.6 percent a year, the highest that figure had ever been. The stock market did not begin to fall then, but it could no longer maintain the torrid pace, and the 15-year return figures began to decline. On a real total return basis, stock prices hit their highs for the era in late 1968, and by the mid-1970s were in free fall as high inflation combined with a bear market.

By 1979, an investor who bought stocks in 1964, when the market seemed to be a sure moneymaker, had lost money after adjusting for inflation, even after including dividend income.
In the early 1980s, the stock market turned around, and by mid-1997 the 15-year return figure had reached a new high of 15.8 percent.

The second chart overlays the two cycles. The first line goes from the end of 1943 through the end of 1980, when the line was in negative territory. The second one, beginning at the end of 1980, continues through the end of last year.
The match between the lines is far from perfect, but there are significant similarities. If past is prologue, the 15-year return is likely to continue to decline and to turn negative in about four years. That does not necessarily imply that stocks will fall during that period, since that could happen with small gains over the period. And, of course, there is no assurance that history will repeat itself.

It is probably significant that opinion surveys show Americans are more pessimistic than they have been in many years. There is a fear that the American economy is in decline and that this country will be unable to compete with emerging Asian economies, principally China. There was a similar fear in the late 1970s, although then the fear was that the United States could not compete with Japan.

Perhaps overconfidence inspired in part by a strong stock market also played a role in American military history. Within a few years after the 1964 peak for 15-year returns, the United States escalated the Vietnam War. Within a few years after the 1999 peak, the United States decided to invade Iraq.

The other two charts indicate that the stock market may have done surprisingly well over the last 15 years, considering how little the economy grew over that period. Through the third quarter of last year — the most recent data available — real gross domestic product had risen at an annual rate of just 2.3 percent over the previous 15 years.

That was the lowest return since the 15 years ending in 1960, a period that was distorted because it included the rapid decline in real gross domestic product in 1946 as the production of weapons halted after World War II.

Similarly, over the last 15 years the total real personal income earned by Americans has risen at an annual rate of just 2.6 percent. That is the lowest for any similar period for which G.D.P. data is available. Both the G.D.P. and personal income rates of growth are well below where they were when the cumulative stock returns bottomed out in 1982.

After the pessimism of the late 1970s and early 1980s, the economy and the stock market turned around as it became clear the American economy was resilient and could adapt to a changing world. The question now is whether that can happen again.


A Historical Cycle Bodes Ill for the Markets - Yahoo! Finance

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 kbit 
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One of my favorite quotes is by Howard Marks and is a principle that we live by in our little investment shop; "Resisting – and thereby achieving success as a contrarian – isn't easy. Things combine to make it difficult; including natural herd tendencies and the pain imposed by being out of step, since momentum invariably makes pro-cyclical actions look correct for a while. (That's why it's essential to remember that 'being too far ahead of your time is indistinguishable from being wrong.')

Given the uncertain nature of the future, and thus the difficulty of being confident your position is the right one – especially as price moves against you – it's challenging to be a lonely contrarian."

If you think about the basic philosophies of the "great investors of our time" you will find that their rules are primarily based on going against the "madness of crowds". Selling when everyone is buying, buying when everyone is selling and betting against the herd mentality has always been advice that investors are told to live by - yet, because of human nature, we tend to do just the opposite.

As Howard Marks stated the act of being a contrarian is a very lonely endeavor and plays against the nature of human emotion. When things are going well - we want them to continue to do well. We ignore the signs that something may be going wrong because we don't want to the "good times" to end. However, these are the very signs that we need to pay close attention to even as unpleasant as that may be.

If you think about bullish/bearish sentiment like a "gas tank" in an automobile you will understand the idea better. At the end of September the majority of investors were very "bearish" on equities which, from a contrarian viewpoint, was like a full tank of gas. As sentiment began to become less negative investors piled back into equities pushing the market higher. Normally, from the levels of negativity that we witnessed, the markets should have at least reached old market highs or potentially set new highs for 2011.

Unfortunately, that was not the case. The market remained stuck in neutral, with the engine running, going nowhere while "burning up" the fuel in the tank.

Today, the level of weekly sentiment is beginning to approach levels of optimism that are normally witnessed near market tops. Which, as a contrarian, begins to make us more alert to the possibility of this cycle coming to an end. Our job as investors is simple - we all have pieces of paper to sell and our job is to "sell" them to some other "sucker" at the highest possible price. Remember that the stock market is based on the "greater fool" theory in that there is always someone there willing to pay a higher price. This is true until it isn't and you want to be the seller - not the "fool".
However, it isn't just this bullish/bearish composite sentiment index that is sending up a potential warning. Our weekly over bought/sold momentum indicator is confirming the same. The recent rally to "nowhere" has used up the "fuel" that was available very rapidly. With the indicator in over bought territory we may well be closer to the end of the current advance than the beginning.

Sell And Run Away?
At this juncture most individuals tend to let their emotions get the better of them and they make critical errors with their portfolios. Emotional buying and selling will always cause you to go against the basic contrarian investment views and leads to selling at the bottom and buying at the top. The point that we are making here is that you need to be aware that a) things do not go up forever and; b) they do not go down forever. The trick is understanding when things are getting to extremes which lead to a change in direction.

Being "contrarian" as an investor and going against the grain of the mainstream media feels like an abomination of nature. The halls of despair and broken portfolios are littered with the hollow cries of "what if I sell and the market continues to go up", or "if I sell at a loss I will lose money" and "I am a long term investor" .

These are all emotional pleas to keep you from doing what is necessary to navigate volatile markets safely. Becoming a successful investor requires a strict diet of discipline and patience combined with proper planning and execution. Emotions have no place within your investment program and need to be checked at the door. Unfortunately, unless you are Spock, being emotionless about your money is a very difficult thing for most investors to accomplish. As humans we tend to extrapolate the success or failure within our portfolios as success and failure of ourselves as individuals. This is patently wrong.

As investors we will likely lose more often than we win - the difference is limiting the losses and maximizing the winnings. This explains why there are so few really successful investors in the world.

However, with this in mind it doesn't mean that you can't do well as an investor. It is ever more important that you pay attention to the "risks" inherent in the market and act accordingly.

Generally, the process of acting accordingly requires nothing more than just dong the opposite of what everyone else is doing when the markets began to reach extremes. While bullish sentiment has yet to reach extremes other indicators that we monitor on a weekly basis have. This doesn't mean that you need to act immediately, however, it does mean that the "tank" in the car is getting close to empty.

After the next correction, which will come in time, the "fuel" will be replenished and another attempt will be made. The difference between success and failure will be determined by the amount of damage the correction does to your portfolio.
If you were Howard Marks what would you be doing?

Markets Getting Over Bought / Over Bullish

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 kbit 
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Sentiment is awfully complacent, and volatility is low. Smells like May 2011--or August 2008.


Equities look ripe indeed for an "unexpected" bloodletting and resultant wicked correction. The general outlines of a equity bubble awaiting a nice little thumb-pricking are all present: high levels of confidence and complacency, massive divergences and a disconnect between the global economy and U.S. equities.

It's certainly possible that the stock market will reward the 83% bulls and further punish the 17% shorts, but it's ever so much evil fun to inflict the most pain on the greatest number of participants. If Mr. Market reverts to his usual evil ways, it's the bulls, slumbering a la Pearl Harbor, 6 a.m. 7 December 1941, feeling little need for hedging against any downside, who may hear "tora tora tora."

It's possible that the U.S. economy can keep logging positive statistics even as the global economy spirals into depression. Never mind that gasoline consumption has plummeted or that savings have dropped or that austerity and higher debt service payments insure a deep recession in Europe; and who cares about China's real estate bubble popping? None of that matters here--or so it seems.

Heck, maybe we've entered a new golden era of low volatility; that's possible, too. Everything's fixed, and the U.S. has successfully decoupled from the rest of the global economy.

Based on sentiment and volatility readings, those are the consensus views. Reportedly 16 out of 16 stock market mavens see nothing but rally ahead--and we all know unanimity is astonishingly accurate in predicting stock prices.

The U.S. dollar has traded on a see-saw with equities for years; recently, both equities and the dollar have surged. So either the see-saw has broken or this is the mother of all divergences.

Maybe short interest is at recent lows because it's now painfully obvious that equities have broken out into a new rally and only fools feel the need for hedges against downside.

Commodities such as copper have led the market for years; recently they've rolled over while the stock market surges higher. Once again, either historic correlations have been decisively severed or there is a gargantuan divergence that's about to be resolved.

Sentiment readings are firmly in extreme bullish territory, but hey, maybe the market will reward the majority with a rally that feeds on rising complacency.
And maybe the truism "volume is the weapon of the bull" is also voided, as low volume rallies may well lead to lower-volume rallies.
The market has been acting as if all these signs are bullish. Maybe, maybe not. Meanwhile, the witches are cackling quietly over their bubbling brew, and it certainly sounds like some evil is being conjured up.

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 kbit 
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While relying on technical analysis and chart patterns may lack the academic rigor that fundamental analysts (such as Bill Miller) and economists (such as Joe LaVorgna) assume, it seems that relying on the reality of what is actually going on within businesses is a fool's errand currently.

Furthermore, the just-around-the-corner nominal price action impact of a Fed-driven QE3 expansion is on every long-only manager's mind as good is bad and bad is great. As an antidote to this enthusiasm, Dolmen Securities note two longer-dated chart analogs that should provide some food for thought for the more bullish equity investors (which now represents the massive majority of individual investors).

The 115 year Dow chart points to sideways price action in a broad range to an 80 year trend at best while the analog to the wave structure from the 2011 peak in the S&P 500 is echoing 2007/8's pre-crash levels rather accurately. While neither chart portends or guarantees an imminent precipice, given earnings downgrades and the box Bernanke appears to be increasingly squeezed in, perhaps they signal the flush that the market needs as an excuse to ramp up the printing press one more time.




While history does not always repeat, it certainly seems to echo

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 kbit 
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.


The top one is a daily and the lower is 60m.
Intersting how similar they look....I did a double take on that....

Anyway still a bit confused here...you can make a good argument for being long already but greed tells me to wait for a better pullback somewhere. This may not happen....bus may have left the station already...
To be long now means that you would need about a 30 point stop....more than I want.

I guess the gist of it is that a long here is just to wimpy for my taste and I think a pullback is possible...the question after that is how far can it pullback and still be a long and not turn into a short.

The short possibilty I pointed out a few days ago looks horrible at this point too.
So to summarize my ramblings...we will just have to wait some more.

Just a couple spots to watch....763 ish is in the cards if it breaks to the upside (764.7 is high on 10/27)
728 ish on the downside......those are kind of the extremes..I haven't spent time to micro analyze anything in between yet....if I see something later I will post a heads up.

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 kbit 
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Just a tip for any new guys out there....If you can't figure where to initate a trade from just look to trade right around the highs or lows of the previous day.....you should do this anyway really but focus on getting PA in those areas and you should do pretty good. I know this is basic stuff but it is worth mentioning.

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 bluemele 
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I am in your boat.

I am thoroughly confused...

Depends on the time of day which is it? Long or short? Well, it is 3pm so I think short... haha...

Not clear at all as if it is short, it is going to be a doozy, but I could see long as well.

If I add fundementals then I see both as well, but more 'emotional fundamentals' for the long side and more 'technical fundamentals' on the short side.

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 kbit 
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I am in your boat.

I am thoroughly confused...

Depends on the time of day which is it? Long or short? Well, it is 3pm so I think short... haha...

Not clear at all as if it is short, it is going to be a doozy, but I could see long as well.

If I add fundementals then I see both as well, but more 'emotional fundamentals' for the long side and more 'technical fundamentals' on the short side.


I think my problem(?) is that I overthink this stuff sometimes.....Really as far as the TF is concerned the monthly and weekly and daily are saying it's going up. It is just a matter of trying to get the exact spot to go long from....which can be a guessing game. I might end up sitting here twiddling my thumbs watching it rise without me....

I guess though if it does breakthrough 765 we will go to 800 in which case a retest of 765 could be the entry for the eventual ride up.

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 kbit 
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How this one slipped by me until now is beyond me, but a favorite reader was good enough to remind me of a chart that was a frequent topic here earlier this year and that is the chart of copper and the Nasdaq Composite.



What makes it of interest now is the divergence in trading paths with copper remaining true to its trend of lower highs and the Nasdaq Composite having traded above its last high. Such a difference is also shown by the fact that copper remains in the body of its Symmetrical Triangle that presents bearishly due to the lower highs to precede it while the Nasdaq Composite is beginning to break above its Symmetrical Triangle.

When this current divergence is considered in the context of past departures in direction by copper and the Nasdaq Composite, it seems likely that the Nasdaq is going to fall back down to close its gap at 2616 and then perhaps to the bottom of its Symmetrical Triangle at 2575 with copper nearly at the bottom of its Symmetrical Triangle now.

Should copper breakout to the downside from its Symmetrical Triangle, it confirms safely at $3.00/lb for a target of $2.00/lb and it may provide a slightly early indication that the Nasdaq Composite will begin to confirm its Symmetrical Triangle at 2440 for a target of 1960.

There is good reason to think this might occur considering that copper has been “right” more often than not in the past when the two have parted paths as indicated by the arrows. There is one notable exception, though, and one that tripped me up and that was this past July when the Nasdaq began to break down slightly before copper.

And so let’s not be tripped up here but rather watch these Symmetrical Triangles from both sides with the downside covered above while the Nasdaq would lead the charge up confirmation coming at 2753 for a target of 3420 and such a confirmation would tell us that copper would confirm its Symmetrical Triangle at $3.72/lb for a target of $4.70/lb.

Considering, though, that copper has led this parade more often than the COMP, it seems there could be a bear on display soon.

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 kbit 
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In my view, the Nasdaq Composite is breaking out of its Symmetrical Triangle to the upside.




It is crucial to watch this breakout because it may tell us whether equities are about to move up by at least 20% or move down by at least 20%. Such a distinction will be made initially by whether the Nasdaq Composite ignores an unclosed gap at 2616 to climb higher using that Ascending Trend Channel in blue or whether the Nasdaq Composite closes that gap on the Bear Pennant comprised of the top trendline in blue and the bottom trendline in red.

Should the Nasdaq climb higher, it must take out its last protruding high at 2753 for us to treat it seriously and a level that would safely confirm its Symmetrical Triangle for its upside target of 3240.

Should the Nasdaq fall back, it must move below its last protruding low at 2441 for us to treat it seriously and a level that would provide early confirmation of its Symmetrical Triangle’s downside target of 1960.

Levels, then, are the best way to watch this bull and bear battle and those are 2441 and 2616 on the downside and 2730 and 2753 on the upside with a move above the latter levels signaling that last week’s move up was the beginning of that Symmetrical Triangle fulfilling to the upside while a move below the former levels will signal that last week’s move up was a false initial reaction from that Symmetrical Triangle.

Perhaps providing some early guidance is the weekly chart on the following page that continues to look truly bearish to me and even with this past week’s move up.

Not only is there a bearish Head and Shoulders pattern showing with a target of 1500, there is a toppy symmetry between 2007 and 2011 and it is challenging to see the Nasdaq Composite overcome that look right now.




Levels are the guide here, however, and this means watching the near-term boundaries outlined above and it is due to the clarity of levels around the Nasdaq Composite’s Symmetrical Triangle and its current breakout to the upside, though, that make the COMP the chart to watch still.

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 bluemele 
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You say everything is long, but all your re-posts say short...

haha... I guess that may be why you are confused...

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bluemele View Post
You say everything is long, but all your re-posts say short...

haha... I guess that may be why you are confused...

Yeah I know....just listen to me...don't listen to those re-post wackos and you'll be fine.
I post them just to make me look better when they prove to be wrong...

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 kbit 
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What a boring day....I hope you guys got something ...wasn't a lot to chose from as I saw it but I did get a small short off the 763 area.
It's not worth posting a chart today...I am just going to point out some areas I will keep an eye on tomorrow.

769.5 is a spot I am curious about...for some reason I'm thinking it could rollover here and go fill that gap from today...not saying it will just a feeling.

Aside from that we have to watch for PA around 765 anyway to see if it gets taken out and if it does will it hold on a retest of a break.

Right now it seems bullish enough to try a long off about 758 if it even drops at all...it does look like it will drop a little....
Where it tops out if it kept going up...maybe 775 and change....don't really know...still a bit confused...
As kind of a last note, this should be more clear next week...things should be more "normal" even though we have a holiday and cpi and option exp.

Anyway just remember ALWAYS get PA before jumping in.

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 kbit 
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Today’s big news is the S&P taking out its last true high made in late October on an intraday basis, but let’s look at the chart of an index that made this possibly bullish move last year and that is the chart of the Dow Jones Industrial Average.



It is worth looking at the chart of the Dow tonight for the very irony contained in the fact that it grows more bearish as it climbs higher and something reflected in almost every individual stock chart viewed here recently with most not detailed in notes.

Driving that ironic twist is the Dow’s truly magnificent and bearish Rising Wedge pattern that could put in a peak to match last April’s high of 12876 or could begin to fulfill any day now with the difference presenting the difficulty around forecasting an unconfirmed Rising Wedge.

Such a difficulty is captured by the challenge of gauging a bearish pattern built of a bullish trend. What makes the bullish trend ultimately bearish is the fact that it represents slowing buying momentum that typically turns outright selling with the recent Rising Wedges in TIF and ORCL providing good examples of how these patterns trade once confirmed.

Relative to the Dow’s current pattern, its apex might come at any level between today’s close and around that aforementioned 12876 with confirmation at about 12250 for a target of 10405.

Interestingly, it was this very pattern that brought the Dow down in August even though the bearish Rising Wedge built of trading from late 2010 into early 2011 failed to hit its target of about 9615, but the strong potential for pattern repetition in the chart above should not be ignored nor should the fact that this pattern might strike when the fewest people are expecting it with a lot of sudden bullishness out there.

What happened to the eurozone’s recession, the fact that Greece needs the next part of its bailout to avoid bankruptcy by March, the possibility of France’s downgrade, and possible eurozone bank collapse on bad collateral?

All of the above and more is showing up in the chart of EURUSD even though risk appears to be trying to decouple from the old risk currency of choice, but, and a topic for another time, probably unsuccessfully due to those looming fundamental factors.

Rather it seems likely that risk in the form of the Dow in this case will probably correlate back up to EURUSD as worries about the eurozone push each down whether that is tomorrow or weeks from now, it is simply hard to see the Dow escaping some sort of bearish fate from that Rising Wedge.

Supporting such a bearish fate is the chart of the VIX that is trading in the bullish Falling Wedge pointed out last week and one that has found a nicer possible apex yet but one that could carve even lower.



Maybe this pattern does trade down to about 17.5 and something that would probably match Dow 12786 or thereabouts, but when it confirms, as it will, by taking the VIX above 25, it is likely to come very close to hitting its target of 47.5 and something that would probably match Dow 10405 if not lower.

In other words, the VIX and the Dow point down at some point in the first quarter of this New Year.

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 kbit 
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looks like they took out 765...but not by much and ended up stuck here at the close.
Again where it goes is a bit unknown(as usual) but tonight anyway there are signs it will drop(right when it opens up).....keep an eye on 763

There probably should have been a bit more upside today and there wasn't so that's kind of telling me the bulls are running a bit low on gas up here. A pullback may be in order soon...it may pop up later tonight or in the morning to the 769 area and might rollover. It's kind of guess work so just pay attention to those spots.

On the downside watch the 736 area if it gets visited and before that the 750 area and more immediately 758.5

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 bluemele 
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Now I read this!!!! haha...

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 kbit 
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This one is for you @ bluemele.....pinbar off my number (was off weekly vwap as well)
the two red lines are the opening range.....pin was perched on the low of the range too (lower red line).

Edit: I forgot to mention S1 was mixed in there as well

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 bluemele 
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I am hoping you jumped on it! This was maybe the pullback you were looking for? Seems like it could be a big H&S for more down?

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 kbit 
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Nothing fancy tonight....my thought is just go long if it breaks todays high or go short if we take out the low.

The only spots I can point out are 764 and 759 ......and 776.5 area on the upside, but not real comfy with these numbers so like always just look for PA around there and act accordingly.

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 kbit 
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This is a chart of the EMD...just happen to notice this megaphone thing going on( roughly drawn past 5 days).
This could be a reversal sign....and we are at the top so this would be a nice spot to try a short...

I have found over time the EMD can show a better picture ( for me anyway) of what's going on....so just throwing this out there for you guys to consider.

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 kbit 
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I thought I should point out a couple spots to keep an eye on on the TF....783 ish should get some kind of reaction (should be decent) when/if we hit it...
Before that is 773 even though it seems like it might get blown through....
There are a couple other spots but I don't have a clear enough picture really to say.

As I kind of alluded to in the previous post(EMD), I'm not entirely certain we're not going to get some downside on this deal.....in my mind I'm thinking that the new year shenanigans will be dealt with this week and after a couple more days pass we will know what the true direction is and I think we will be able to better predict things. So we could rollover at anytime really.

I do have some downside spots the main one being 740 on the extreme end and before that 756 and 753 which would more likely come into play in the short term.

Sorry I'm all over the map today, what it boils down to is just keep those spots in mind and see what happens around them and I'll refine things as the week unfolds.


P.S. if any of you guys see something that I may have missed or you just think I'm crazy feel free to chime in

EDIT; I forgot to mention the possibility of this thing just taking off now that we are topside of 765 and working our way ( longer term ) up to 800....so keep that in the back of your head

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 kbit 
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The apparently critical-when-its-going-up-but-ignore-it-when-it-is-falling index of the cost of dry bulk goods transportation has 'crashed' in the last few weeks to its lowest level since January 2009 (back below 1000 according to today's levels).

Whether this is seasonal output differences or weather impacts, it seems clear that lower steel output in China and a decline in European imports is having its impact on global trade. The index has fallen for 19 days in a row, down almost 50%, its largest drop since the harrowing period of Q4 2008.



The change over the past 19 days (of freefall) is almost 50%, its largest drop since Q4 2008...

and only the third largest ever monthly percentage drop in dry bulk rates...

Charts: Bloomberg

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 kbit 
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We are hovering just above 765 which could be a launching pad for a run up.
The 773 area got blown through as I thought was a possibility but 775 held it so it wasn't to far off.....
This 765 area is something we will have to watch....might just dance around here for a while....
I'll post more details later

Edit: just a note, this little bottom they have in now looks weak so watch out for a rise and fall deal..in other words not seeing PA that I would like so that usually means if it goes up it will come back and revisit this area or go lower

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 kbit 
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Just wanted to remind you guys to keep an eye on the 783 area.....
I'm not seeing a reason for a significant drop before that really......but anyway keep an eye on 771 area if it drops.

There are a few other spots but until it hits one of those I don't care to speculate.

We basically had one of those melt up deals today...slow grind up so it's likely to hold up....not seeing any imminent collapse.

The only thing that might change that is the CPI or some kind of horrible number in unemployment claims like way over 400 or something

Edit: I'm changing that 771 to 772.5

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 kbit 
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This remains the chart to watch and it just wants to go up as can be seen below.



Whether it will continue to want to go up will depend on whether its uptrend from the middle of December is an Ascending Trend Channel or a bearish Rising Wedge with the latter marked within the former. Supporting the continuation of the uptrend is the obvious or the fact that there is such a discernible uptrend while the possible reversal that would come on that Rising Wedge is supported by unclosed gaps below and notably one at 2616.

Tomorrow may be an interesting tell around these two aspects, though, with both calling for a move down but the difference being one of degree. It is the bottom trendline of the bullish Ascending Trend Channel that could pull the Nasdaq Composite down to about 2720 before allowing it to rise higher while the bearish Rising Wedge is looking for confirmation on a potential drop below that level to validate its downside target of about 2525.

And this brings us to the bigger issue at hand here and that is the Nasdaq Composite’s Symmetrical Triangle.




There is absolutely no doubt that it has broken to the upside this year on that unclosed gap up at 2616 but a breakout that may be less about a false initial breakout to the upside and more about a real deal breakout that will lead to some continuation of the cyclical bull market that began in March 2009 after today’s clear takeout of the Vision-For-A-Plan-To-Save-Europe rally back in late October.

Does this mean my view is turning bullish? No, unfortunately, it does not as it is becoming tiring to go against the trend, but it still seems like a false uptrend to me and so it is hard for me to get behind it, but clearly stocks are going up and this counts for something.

Maybe what it counts for is not a false initial reaction from that Symmetrical Triangle but a sideways swipe up in a larger Symmetrical Triangle as shown below.



Such an interpretation seems like a stretch to me, but it is possible and it points to some more sideways trading ahead and perhaps for a good bulk of this year. Should this prove true as may occur if 2720 is breached to the downside on the confirmation of that potential Rising Wedge, expect to see the Nasdaq Composite trade sideways between about 2350 and 2750 in the months ahead before that truly impressionable directionless breaks up or down for a 30%+ move.

Interestingly, the Symmetrical Triangle as drawn directly above presents particularly well in weekly form as will be shown over this weekend if it is relevant and that is probably more of the real reason to show this possibility above.

It is this massive sideways possibility that is simply a continuation of the sideways ways of the last two years and one that will be filled with plenty of whipsaws up and down and lots of fodder for the bulls and the bears.

And it is all of these charts that take us back to watching the COMP first and foremost as the leader of what could turn out to be yet another head faking melt-up.

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 kbit 
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I'm still liking 783 area but can make an argument based on how things are going for a possible rise to 787.5 area so be aware of that

also looking at 1311.50 on ES and 1316.25 ......

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 kbit 
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A couple spots to keep in mind on the topside....787-788 and around 794ish and then 801.5 (these #s should do something...look at a chart and see if you agree)
On the downside I'm still a bit interested in the 772.5 area and before that around 777.

It pretty much again looks like it will keep grinding up....I only have a weak argument for a decent pullback tonight....that being some weak looking PA up here and the thought that it needs to drop to 777 before it can rise some more based on past experience but.....

Anyway will try to post something if I get a better idea

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 kbit 
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....bearish Rising Wedges that should give way to strong selling pressures any day now.

One is the fact that my analysis will end up missing the mark and the Rising Wedge in equities will simply turn into the gruesomely bullish Inverse Head and Shoulders pattern detailed here many times over the last nearly five months and a pattern that will take the S&P close to 1600 if successful. Another was the fact that something about the current market reminds me of August 2008 when markets simply rebounded after the May, June and July rout without really “deserving” to do so.

Should the S&P take out 1325 and then 1350, it will prove technically that the S&P is not exhausted but beginning to breakout into an extension of the cyclical bull market that began in 2009 and maybe this happens.

In looking at the chart from 2008 below, though, the current bearish Rising Wedge built of August through today should not be counted out until the S&P takes out those levels if it should do so.




Interestingly, it is the trading from the end of 2007 into May 2008 that makes the better comparison to the last six months rather than that of July and August 2008.

Such a comparison of winter and spring 2008 has been floating around for many months and made by some excellent bank technicians and it does not hold as well now as it would have appeared to have held just two to three months ago, but there’s definitely something there still and it is worth paying attention to unless the S&P rises above those aforementioned levels.

After all, technical comparisons are never perfect, just close, and there is no doubt that the first Rising Wedge above led to the second Rising Wedge that led to a drop that nobody needs to reminded of.


Clearly, the S&P’s Rising Wedge is on the cusp of failure as it trades close to 1325 and 1350, but it should not be counted out until it actually fails considering the possible Head and Shoulder pattern that’s been shown in the three-year chart many times and a pattern that would be an all-time classic if its right shoulder was at any level between today’s close and 1350.




Another reason to not count out the Rising Wedge in the S&P and the other equity indices is the fact that there are a lot individual equity charts that look awful and as though the companies represented would miss or lower guidance in this current earnings season even though that is not happening mainly. Maybe those bad looking charts somehow transform into something positive on weeks if not months of consolidation but as likely is something macro out there that is showing in the charts driven by all of the information and psychology of investors collectively.

Until that bad look goes away even as stocks go up, it seems fair to believe that something bad is coming and technically the only positive cure is consolidation. Otherwise it seems likely that there will be some big chunky declines ahead and probably in the first quarter of this year but maybe as late as May.

After all there was no Rising Wedge on the Inverse Head and Shoulders pattern of 2010 as shown below.




Rather there was just the sideways consolidation of a nice Inverse Head and Shoulders pattern as was the case in 2009 as well.

Be that as it may, there is no question that the S&P’s current Rising Wedge may be about to support a breakout into a renewed bull market and something that would cause the bigger Head and Shoulders to fail as well.

Above 1325 and then 1350 and such failures will have been proven basically, but below 1292 and 1277 and perhaps the Rising Wedge will attempt to confirm at 1250 for a target of 1075.

It is such a possibility that would suggest this is 2008 all over again with some “unexpected” Lehman-style event ahead and probably a good reason to continue to treat the S&P with care.

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 kbit 
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The Stock Ramp Is Just More Deja Vu "Insanity" Warns Morgan Stanley




When Morgan Stanley now agrees with most of what Zero Hedge has been saying (especially when it earlier announced that a short covering rally in the EURUSD is imminent, as we have been warning for the past two weeks), it may be time to get concerned.

From Morgan Stanley: "Most investors I speak with concur with the view that growth is likely to be below trend for the next several years thanks to deleveraging and a more stringent regulatory environment. However, there is quite a bit of excitement over the probability of QE3 being implemented at some point during 2Q.

Exhibit 5 shows just how excited stock investors seem to be getting over this prospect, especially in relation to their fixed income peers. But, this is almost always the case when animal spirits get going. The last time I pointed out such a divergence (October of last year), the SPX had a swift 10% correction over the proceeding 3 weeks. I have no idea whether we are likely to get such a correctly immediately, but I sure can’t rule it out and I am pretty confident you won’t be able to get out of the way unscathed.

Just another reason for why I want to be paired off right now." Also, this time will never be different: "Didn’t we learn anything from the Japanese experience of the past 20 years! I might be more on board with the program if I thought we were making real progress on the things that matter for sustainable organic growth. Unfortunately, I just don’t see it."

Morgan Stanley's Mike Wilson
Insanity
Wasn’t it just a year ago that we had the exact same set-up? Growth was slowing, Greece was close to default and there was unrest in Middle East. I guess one could argue China is no longer tightening policy and Europe is closer to the end of their crisis.

On the other hand, earnings growth in the US is now decelerating and likely to get worse over the next several quarters. Furthermore, the political environment in the US has rarely been more charged and bipartisan than it is today. The S&P500 is trading almost exactly where it was at this time last year, but with a lower multiple.

This is the direct result of higher earnings in 2011 than 2010 but with the prospect of lower growth going forward. This makes sense to me. Most investors I speak with concur with the view that growth is likely to be below trend for the next several years thanks to deleveraging and a more stringent regulatory environment.

However, there is quite a bit of excitement over the probability of QE3 being implemented at some point during 2Q. Exhibit 5 shows just how excited stock investors seem to be getting over this prospect, especially in relation to their fixed income peers. But, this is almost always the case when animal spirits get going.

The last time I pointed out such a divergence (October of last year), the SPX had a swift 10% correction over the proceeding 3 weeks. I have no idea whether we are likely to get such a correctly immediately, but I sure can’t rule it out and I am pretty confident you won’t be able to get out of the way unscathed. Just another reason for why I want to be paired off right now.



I’d like to end this week’s note with a quote from Albert Einstein who said “Insanity is doing the same thing over and over again expecting a different outcome.” I feel like this is exactly where we are today with respect to the policy choices being made all over the world.

Do we really think the result of QE3 is going to be any different than QE2? Or that the second European LTRO is going to end up resolving Europe’s solvency problems simply because the Fed is now supporting a larger effort via its open swaps line? Didn’t we learn anything from the Japanese experience of the past 20 years! I might be more on board with the program if I thought we were making real progress on the things that matter for sustainable organic growth. Unfortunately, I just don’t see it.

While I am watching many things to determine if the facts are actually changing, there is one metric in particular that has to turn for me to get more constructive fundamentally. I am talking about personal income growth excluding government transfers. Until this shows some signs of life, I will remain highly skeptical that additional policy stimulus will end differently than what we have recently experienced.

Exhibit 6 tells the sad story of our current plight and how this current rally will likely end. Until then, I will look forward to my next lunch with Adam Parker.


Average:

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 kbit 
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Well the risk assets have been more than afloat so far in 2012, but look at what’s happening out at sea.



Yes, that does appear to be a more than 50% drop in the Baltic Dry Index that tracks international shipping rates of dry cargoes at sea – iron, ore, coal, steel, grains, fertilizers and the like – and something that may suggest the world is not awash in economic recovery as some may say it is.

Often, changes in ocean freight rates act as a leading indicator of the health of the global economy and so it may be worth watching when the BDI drops by 1000 points in a month to score a 50% fall that recalls shades of 2008 when the index plunged from 12000 in May 2008 to less than 700 in December 2008.

Interestingly, the Baltic Dry Index started to decline again significantly in the summer of 2010 and well ahead of last August when the Dow Jones Industrial Average and the other risk assets corrected as shown below.



In fact, the BDI’s bearish lead on the Dow is almost absurd and it seems to tell us that QE2 never hit the high seas having preferred the dry land asset inflation train.

What seems to make this interesting is that the BDI appears to be speaking to some real world economic softness as the risk assets march higher on economic recovery hopes and a march that may be forced back down whether some QE3 comes in 2012 or not.

Now maybe some of the BDI’s recent weakness has to do with some highly local events, but it is hard to believe that a more than 50% drop in international shipping rates in about a month is not somehow providing a picture of what’s going on with the international economy.

Should this prove true to any degree, it seems the BDI may have the lead, and perhaps a very early one, on the Dow.

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 kbit 
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I'm to lazy to go over everything tonight but those spots I identified in post 181 are still pretty much in effect so keep your eyes open.....

The bulls got a little shock today so at least now we might go up and down a little instead of just grinding up continually....will post more thoughts later

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 kbit 
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I'm a little nervous about 772.5....so be careful with that one....it's looking like it could visit the 767 area so keep an eye on that one.

Just remember you should look for some kind of PA around these spots before jumping in...that's the safest way

On the ES watch 1298.75....but that 1300 area is a bit sloppy....as of this writting the monthly vwap is at 1296.25 so.....

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 kbit 
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Kind of looking like 784.5 might cap this off today.....not 100% sure on that but keep it in mind.

on the ES 1310.75 might hold it ....maybe 1311.75

Look at your charts , see if you agree ....I could be way off on this one but those spots should mean something..,

--------------------------------------------------------------------------

Bigger picture wise we could continue to just make new highs in the coming days...but I will continue to take it day by day and see how it goes

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 kbit 
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I guess apple(anticipation) pushed everything up at the end of the day...I didn't figure on that and I think that's why those spots I pointed out for a possible top had a hard time holding and as you know were taken out.

Anyway 794ish and then 801.5 are still areas to keep in mind.
it may drop down a little in which case keep an eye on 788 ......further down watch 784ish

Should we drop below 784 I'll have to do some homework and figure some more spots....I'll post something later

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 kbit 
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Wanted to give you guys a heads up....

Just noticing the way things laid out last night....looks like a possible reversal here that might push this thing down.
It's still a bit early and I want to see some confirmation but.....


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 kbit 
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I didn't elaborate much in the previous post but at this point you probably want to view this as a head and shoulders deal....
if it breaks below 781ish it's likely to go down....

I can kind of seeing this going up so I will focus on a short unless it gets over 789....in other words looking for some kind of PA I like to try a short but if it gets to 789 I will write off the idea.

I don't like the breakout stuff...I want to get it at the best possible spot so somewhere around 788 would be nice providing I see something to jump on.....

Just a last thought, this could be just a trap and if that is the case it's no big deal if you wait for PA you won't get burned...no PA no trade.

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 kbit 
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This is the EMD
you can see a big fat engulfing bar(the one above the 1/25 stamp) that was confirmed and an entry generally is at the mid point of that bar....which is pretty close as of this writting about 933.5 so let's see what happens around here

Bear in mind the stop technically would be at about 938 ...I'm more interested in the TF but just wanted to point this out

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 kbit 
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I'm short TF at 795...tight stop
As it turns out that bearish PA was a trap....it didn't hurt me any becuse didn't get anything I liked around 788...garbage

For those of you that look at this thread know 794ish was a spot I said to keep an eye on...

What I wanted to say here is that now that they took out all the stops there is a fair chance we go back down through all this stuff ....got to get through 91.5 and then 787.5ish area....

For those interested it might bounce back and you could get in on a double top or failure of some kind though it might be getting late and with the FOMC deal it might not really drop much.....

It's to bad I didn't go long earlier(had some PA for that) but with what I was seeing it was to risky. There was a long trade after the news on the ES but I'll tell you about that some other time

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kbit View Post
I'm short TF at 795...tight stop
As it turns out that bearish PA was a trap....it didn't hurt me any becuse didn't get anything I liked around 788...garbage
...

Just to make sure i follow your train of thoughts, what exactly did you perceive as a trap ? was it PA around the 788 level ? I ask you this as i don't see what could be considered as a trap of any sort except for the fact we got a retracement to the RTH open (785.4).

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Just to make sure i follow your train of thoughts, what exactly did you perceive as a trap ? was it PA around the 788 level ? I ask you this as i don't see what could be considered as a trap of any sort except for the fact we got a retracement to the RTH open (785.4).


I'm talking about that big fat engulfing bar on the EMD and that formation I pointed out this morning on the TF....it was more of a big picture type view but what I should have also mentioned is that with FOMC thing going on it wouldn't have surprised me to much if that got taken out.

Tha's why in part I picked 788 for a entry area providing there was supprting PA there. It would have been a lower risk deal with small stop had something lined up.

As to why I picked 788 it was based on the overall bullishness lately and it was at least 50%(I like to get an entry on this stuff at 50%) of that formation and we had a high there a couple days ago...On a normal day(not FOMC ) I may have just jumped on it at the 50%( I don't recommend that for others though)


I realize it may be a little confusing (I'm not a great educator) ....without you actually looking at my charts and so forth what you see on yours might not jive with mine and some of this might not make sense.

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 kbit 
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I just thought I should mention here that the spots I point out here do have some kind of significance...I don't always explain where I get them from (look at a chart and you'll see what I look at generally).
So if you get PA at these spots and for some reason your trade doesn't work you should be able to get out at even at worst because they are strong enough to pull them back for a test if nothing else.

You guys should just look at those spots on a chart(s) and see why I picked them and then you'll have a better understanding.

Also if what I babble on about doesn't make sense feel free to ask but really just focus on those spots and look for PA and you should be ok

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 kbit 
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This is one of my TF charts, just thought I might tell one way that you could play this...first of all Identify an area that you would look for a trade....in this case it was the 794 area that I mention previously.

Look for PA, which showed up in the form of a engulfing bar

Then look for confirmation...meaning the following bar is going the same direction

Then look to enter at about 2 ticks under the engulfing bar...stop 3 ticks over the high

I should mention you should have targets in mind or at least identify problem areas

A lot of times it will bounce off first target and come back to your entry so if your a one lot guy just take it at the first target or trail with tight stop....guys with multiple lots just peel something off at first target and let the rest ride while keeping your original stop.
Once it gets past the first target you can move your stop to that area...and so on with sucessive targets..

There are other ways as you all know like follwing it down with a stop above the high 2 candles back and so forth....

Ideally you want to try to hang on until you see contrary PA setting up.....

I should also mention that often times you will get contrary PA right off the bat but once you get past that your good....don't let it scare you because providing your trade is in a good spot you will win...That's why I always say that location is KEY


Ok that's it for today's Kbits Klassroom..

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 kbit 
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Well the S&P closed above the level that probably confirms its bullish Inverse Head and Shoulders pattern.



“Probably” because the real level of confirmation comes at 1375 if the highest point of the neckline is included as it should be and the reason that this pattern stopped looking good to me after that October 28 vision-for-a-plan to save Europe rally. It makes for a very extreme looking pattern and so to soften it a bit, and even the 1350 used up until last week’s note, 1325 seems like a fair compromise considering the number of trendline touches that it includes.

In turn, unless the IHS goes bad to cross back below its neckline in a serious way with 1300 as one level to watch, this pattern suggests that the S&P is going to rally nearly 20% higher to that pattern’s target of 1575 with the levels suggesting that this is now the dominate technical aspect at work and especially if the S&P closes above that 1375.

That being said, this dominate technical aspect still doesn’t look good to me in the longer-term charts that highlight a severe looking Rising Wedge that is a piece of the fulfillment of the real Rising Wedge at work along with a gorgeous Head and Shoulders pattern with targets of 1075, so low you don’t want to know and 860, respectively.




Nor does it make sense to me in the context of a global economy that remains vulnerable to the eurozone credit crisis that is probably in its early stages still along with a very fragile housing market in the US and an employment situation that needs to find sustained footing in a way that puts the millions of people who have dropped out of the job search all together back to work along with those included in an artificially but still-high unemployment rate. Perhaps it is for a combination of all of these reasons among many more that the Fed elected to keep the fed funds rate near zero through 2014 and something that would seem to provide reason to worry about the health of the real economy not to mention the fact that this particular business cycle will be delayed de facto by another three years.

All of this is a grossly inadequate way of saying that the fundamentals do not support that Inverse Head and Shoulders pattern in my view, but do seem to support the slowing buying momentum that has created the Rising Wedge that could give way to outright selling if the fundamentals all of the sudden shift down with plenty of big numbers out next week here in the US to test it along with the possibility for something less-than-pleasing to come out of Europe at any time.

This is only my view, though, and it makes more sense objectively to treat that IHS as a confirmed pattern even if done with caution ahead of the S&P taking out 1375 if it should do so at all.

If it does, this is the level that will prove to me technically that the S&P is going to try for 1575 in 2012 or 2013 and my current skepticism around the possibility will be replaced by some sort of faith that the pattern will work out.

Clearly 1375 requires a bit of a climb on the part of the S&P yet with the wait carrying the potential for frustration on my part and so it seems to make sense to use the Dow Jones Industrial Average and the Nasdaq Composite as previews for the S&P perhaps climbing to 1375 and this means watching to see whether these indices take out the respective high in each last spring.

If yes, the S&P will probably close above 1375 to then climb toward 1575, but if no, there could be a lot of Rising Wedge patterns confirming and fulfilling down to some degree.

It is that potential degree that would determine whether the S&P would then try to go for just bearish or simply sideways, but ahead of that even being a real possibility by a potential cross below 1250 on the S&P, it seems that gruesomely bearish may have it and a good reason to treat the S&P with some of that original care

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 kbit 
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I don't know if I should even bother to post downside spots at all any more

Looks like 800 is coming quick...sooner than I thought anyway. I remember posting a while back about not much holding it back once it got past 765 but I thought it might move up and down a little more ....

Anyway remember that 801.5 is a spot to keep an eye on ...don't know what will happen exactly once it hits 800.
it could drop right off the 800 and dance around or maybe get a decent drop off 800 and come back up and make you think it's going to blow through 801.5....or the way things are going it might just blow through everything(unlikely though)

I'll have to spend some more time to see some spots beyond that. With Bernanke considering more easing who knows where we could end up.

I saw over on Bugsbunnys thread he's thinking around 850 area bigger picture wise but when I saw that I thought more into the 60s but anyway that's a ways off.

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 kbit 
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Nothing special to report...only thing of note really is that the ES bottomed out on the exact spot it TESTED after the FOMC news which on my chart is 1309.25.

I don't focus on the significance of this really but you could consider this as a pivot of sorts.....if we get below that and hold it could drop about 20 points from there...well works it's way down anyway.

On the TF it did not come down to it's "pivot" though it was close.

I guess the point is it could rise from those spots to get higher...namely 800 on TF so look to long around there...I would watch around 785.5 and 788.5

I would say the actuall FOMC number is 786.4 on the TF so at this point 788.5 might be the best spot to focus on.

Like I said a million times just look for PA you like at those spots and act accordingly.

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 kbit 
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The above is a daily chart.

Just so you get a glimpse of some of the things I look at...Notice the blue line which is at about 801.5 and further notice that it is a S/R spot (if you look at your chart you can see even more touches on both sides).

Take note of the 2 red lines...if you measure the disance between the two and add that amount to the top line number and you end up in the same area (801.5 area)

So as you can see that should be significant.

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