Intra-Day Update: Go trading bots, go!!

UPDATE 11:00am EST: So, right at the open we cut through the 890/86 RL like a hot knife through butter. I think the important lesson learned here is that RL percentages lose a bit of their luster during holiday weeks. I’m not complaining mind you – 900 is in reach right now and I couldn’t be happier. Give me 20 more points, Santa, I’ve been so nice naughty all year, after all! What? I have to wait another year now? Craaaaaaaapppp!!!!

Otherwise I have not much to report – I would recommend keeping your exposure small. Yes, I know I sound like a broken record and we have rallied quite a bit since the 850s but let me remind you all that we’re not running a casino here. As traders we need to realize when market forces reach a level of randomness that exceeds our ability to predict our edge. We had a nice run to the upside – the Zero called it – let’s take profits if you’re long and call it a year. 2009 is going to be fun – that’s for sure. I personally am pumped – how about you guys?

UPDATE 11:30am EST: Ding Ding Ding Ding!!!! 900 reached and VIX is below 40 – smashing, baby, yeaaaah!!!!

UPDATE 12:13pm EST: I just checked the medium term stochastics on the averages and boy, are we overbought.

Maybe – just maybe – I should not be greedy and start loading up on long term options right here. My greedy little reptilian brain tells me to wait for 920 but looking at those stochastics I think a drop is imminent.

UPDATE 2:25pm EST: Sorry for being quiet in the past two hours but I had a long conversation with Berk on whether or not to grab our long term puts at 900 or not. We were looking at SPY June 65 puts and while we’re debating the issue, flipping through charts etc. those buggers suddenly change from 2.20 to 1.95 (has pushed back up a little since). And I’m asking Berk – what the heck just happened – did we rally or something? And sure enough – seeing the SPX at 908 changed the equation.

Thing is this – we have breached the 903/94 RL which posed massive resistance – maybe we have not breached it permanently but it shows that it’s vulnerable. The next RL is 923, which is light years away. In between is some strong resistance based on our TA around 911. Berk and I are watching that level like hawks as we are ready to pounce. I doubt that we hit 923 today but 910 might be in the cards assuming we get an EOD rally.

Either way, the odds are that this rally will complete either right here, at 911 or 923. We might see 957 next week, but does it really matter if we grab June puts at a VIX sitting below 40?

BTW, in other news – crude just rocketed 12%+ today.

UPDATE CLOSING BELL: Well, Berk and I crossed the rubicon and started to load up on those June SPY puts – we got them at 2.09 – damn market had to drop at 3:59 – LOL. Now, I think this is a pretty defensible play. If we hit 911 I’ll scale out again and re-grab them at 923 – same game if we breach that one – re-load on 957. BTW, in case you don’t know – it’s 4:05pm right now and the main index puts (QQQQ, SPY, IWM, DIA) trade until 4:15pm – good to know if you change your mind about loading up.

Anyway, Happy New Year to all of you leeches – it’ll be a great year for us, I’m sure – just make sure you stick around. I’m off to the strip joint to get my favorites booked for that NYE party 😉

Yeah, baby, yeaah!

Contrary to popular opinion today’s tape turned out to be very productive. I bet the weekend bears were already lining up at the will-call counter for the expected joy ride into the abyss. I have to admit, even I was sweating yesterday afternoon when I saw the NDX only one point away from thrashing the entire wave count (the December 12 low). I don’t think I have ever been so happy to watch those black boxes kick into gear and hold the 855 support line which is now firmly established. Those cheeky monkeys – at least they had the courtesy to program their trading bots to ‘hold the fort’ so to speak while they’re out of town blowing their taxpayer funded year end bonuses on strippers and Cristal.

So this evening we find ourselves 35 points to the upside, which puts my favorite two scenarios firmly back into reach. There’s really not much to add as to how this scenario is expected to play out. As we made it into Level II of the ‘House of Whipsaw’ today (light green area) I expect us to chop chop chop around here for a while. Don’t expect much of fireworks based on what you saw today. There is a buyer lurking around 855 which simply turned out to be a catalyst for driving the tape up to 890. Several high probability retracement levels were taken out today and I never saw the Zero signal above 2.2 – that usually does not happen and I chalk it off to Post-X-Mas-Pre-New-Year-Limbo. I also think that 890 will take some real momentum to overcome – if we fail to push past that tomorrow morning then it’s back to Level I again.

Note that the blue scenario remains to be my favorite – despite the overbought conditions. The orange scenario shares its path with the blue one until the separation point around 920 (E). But in order to see any of that happen we need to start climbing up, either now or when the big boys return on January 5th.

As for the downside scenario – obviously after yesterday’s scare it’s a probability I want to entertain once I see 855 taken out – until that happens it’s not worth wasting any bits on it. Why do I call it a ‘scare’? Because I am hell bent on loading up on April/May puts if we are so blessed to reach the 920 level. That was on my wish list for Santa and so far I have been cheated out of my well deserved (and evil) Christmas present. I have the means to melt that damn North Pole into a steamy sauna, so Santa better cough that up before I lose my composure. That would happen at below 855 which would force Berk and I to load up on puts at vastly inflated prices. How about that ‘going out of business’ clearance sale? Make my day!

Something really strange happened last week – the CPC dropped to the floor for apparently no reason. This was a great cause of concern for Berk and myself as those extreme levels usually precipitate massive drops in the averages. Didn’t happen though – all we got was chop chop and pop. Serves me fine right now (see above) but the CPC is on notice for now. For the record – it’s almost impossible to trust any blasted correlation or indicator since early December.

Lest you forget the strange environment we are in currently here is the NYSE Bullish Percent Index which is still stuck at very overbought levels. But it seems that as the market was able to entertain extreme bearish conditions for a while it can now remain overbought. Frankly – I think we’ve overstayed our welcome but I also reckon we might touch 60 and thus 900+ on the SPX before we drop. Maybe that’s wishful thinking talking but hey – we rallied today, right?

However I want to point out that the spread between the Moody’s BAA Corporate Yield and the 30-year T-Bond Yield is still around -5.7. As some of your remember – that particular spread has done a great job of signaling the medium term trend for equities throughout 2008. During the entire November/December rally that spread has remained at record highs – a harbinger of bad things to come for equities and that probably sooner than later.

Sometimes, my dear ladies and leeches, we find ourselves at an inflection point without knowing it. Only the high priests of the Elliott Wave cult are sometimes able to see the tea leafs and realize their significance. Seriously – the Dollar is at a very important fork in the road here. IF we would see another leg down below the 76.2 low it would have significant implications. This would constitute a motive wave to the downside and the short to medium term impact on commodities as well as equities would be significant. If we hold above that level the count is a bit different and the medium term probabilities continue to indicate further upside potential for the ole’ buck.

I rarely talk about bonds but this is a special occasion. For the unintiated amongst you leeches – the TLT is an ETF that tracks the Barclay’s (used to be Lehman) 20+ Year Treasury Bond Fund. For more info point your browser here. The reason why I’m bringing it to your attention is that Berk and I think that a major drop is imminent for several reasons – wave count being the primary one – the second one being that the daily sentiment index for the TLT is now around 97 and rising. Frankly, my dear rats, it doesn’t get much better than this. Based on my stochastics and some other indicators I expect a tiny bit more upside or at least sideways tape here. But bonds are about to deflate and the downside potential is quite magnificent. Keep an eye on this guys – this is huge – and I don’t say that very often.

Let’s finish with Gold – as usual. I think the precious metal has a few more upside points in it and I also believe that it’s possible it’ll overshoot that diagonal resistance line by a few points just to reel in the last remaining gold bug. Similar to the TLT the DSI is at record levels right now – a very bearish sign for us contrarians. I’m patiently waiting for this opportunity to load up on puts. Again, we’d know very quickly (and cheaply) if we’re wrong. Doesn’t get much better than this – something to look forward to.

I think this ought to keep you guys busy for a day or two. I strongly encourage all of you leeches to make use of this precious opportunity to gather intelligence on future victims. Starting January 5th the party is going to blast off with our without you.


Intra-Day Update: Chop Chop Pop Drop

UPDATE 10:06am EST: I have to say I have mixed feelings this morning. On one hand I’m happy that we’re pushing up as this leaves us with a glimmer of hope that we’ll see higher prices before the inevitable big drop. But I’m also getting a bit frustrated with a market that cannot stay in one direction for more than one day. Maybe the smart thing is to refrain from trading until January 5th – I’ve kept my exposure very small until now which was the right decision based on some of the comments I see floating around here and on the slope.

The markets right now are going wherever the market makers want it to be. Yesterday the NDX turned on a dime one single point away from 1157.41 – the December 12 low. Coincidence? I think not – the remaining big players running the tape are intent on teasing this thing out all the way to the end. Had the NDX breached that point the current wave count would have been defeated, which in a way would have been a good thing. The way it is now we’re back in limbo and anything can happen. Caveat Emptor!

UPDATE 11:04am EST: If you look at my Zero chart you’ll know that I was actually pretty surprised that we breached that first 877 retracement level. And what do you know – we actually pulled back and are now wedged between the Camarilla 878 pivot and the 877 RL. Maybe the big dogs went out for an early lunch and a lap dance. If you tried to chase the market (always a bad idea) you’re now being punished for it – and rightfully so.

Although I dropped a few bucks on THI and GNK I’m actually pretty pleased that we’re going up. If we can keep going here there might be a glimmer of hope that we’ll actually see new December highs before 09. As you might remember – that was the big X-Mas present I failed to get this season.

UPDATE 11:19am EST: Fibs baby, fibs!!!

Even in the thinnest of markets it always comes down to fibs. We just popped from the 38.2 to the 61.8 fib line and are holding thus far – spot on those fibs. Neglect them at your own peril.

UPDATE 1:18pm EST: So, I know feel vindicated as I was aghast at the fact that we blasted through that the 877/63 and 882/79 RL on a weak signal. We all know the mice have a habit of dancing on the table while the cat is out of the house but it was quite a push and looked like good ole’ program trading that kicked in right at the open.

As you can see by the blue line/dot combo and the blue blocking dots on the RL the Zero told us to hold off on adding long positions until we would breach the 890 RL. Rightfully so, as we are now below the 882/79 RL again. Frankly, we shouldn’t even be here and as I posted earlier – hot air can only lift you that high. I expect another whack at the 882 towards the close and maybe we breach – if not I think we’ll chop around here for a while.

Another lesson learned is the amount of RL pain the MMs seem to be able to exert. I think right now it’s about 3-4 SPX points on an 80% RL – this might change when velocity picks up a bit and the RLs move further apart. So, seeing 885 being touched on an 882 RL was to be expected and is something I am already taking into account with the current version of the indicator.

Valuable lessons learned for going forward. If nothing else this tape seems to provide a great training/tuning environment for the Zero. So far I’m very pleased with its performance – in particular given the current conditions. I cannot wait to throw this thing at a real trend and see how it holds up. Remembering even some of the old charts (i.e. starting mid/late November) in combination with prior versions of the Zero I think this should be very interesting :-)

BTW, whoever gets my ‘computer says no’ reference gets 5 gummi points.

UPDATE Closing Bell: Well, I be damned – we actually made it to the 890 RL. Based on my current RL/Zero algo a 2.2 signal should have been blocked at the 882/79. A 79% RL under normal conditions needs about a 4+ signal to be taken out – I’m sure we did not see that today. But it’s thin tape, so anything can happen I guess as there is nobody around to defend important resistance/support levels. And I remain very hesitant to weaken the threshold on that algorithm until after Jan 5th when we see some real volume. My old mantra – never optimize an indicator during holiday tape. So, if you feeling lucky (punk) feel free to ignore the blue lines and just trade the direction – meaning if you see a blue line just interpret it as either a green (pointing up) or red one (pointing down).

I’m elated however as it puts the old wave count (and my X-Mas present of SPX 920) back into play. I’ll hop over to the gym now but will be back later this evening with a forecast. All in all this was a very good and productive day my dear rats.

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