Target Practice

I still have family from Europe in town, so this is going to be the silent movie version of my  usual weekend post 🙂

Everything you always to know about Primary wave {2} but never dared to ask:

• We’re quite overbought after four up days, so we probably drop into Minute {2} on Monday or during ‘turn around Tuesday’.
• I think any sort of retracement early next week is going to be fairly shallow – aim for the 1001 – 1015 cluster. Rest assured that the bulltards are not going to give up their coveted four digit mark – at least not yet 😉
• After that expect a nice third wave to the upside – it should move along quite nicely as the last remaining retail traders are jumping into the fray of fear of ‘missing out on the new bull market’. There should be some institutional profit taking around the 1045 mark which is the top of Minor 4 of Intermediate (3) of Primary {1}. If that one doesn’t register we also got the 61.8% fib mark of Intermediate (W) of Primary {2} around 1050.
• Target zones for Primary wave {2} are around 1070 and 1100 – barring of course any major events that might catalyze a drop to the downside.
• Target dates are the first two weeks of September – if we run late we might push into the third. As a side note –  the September 16 date mentioned below would be almost too perfect to be true.

I hope Woody Allen would approve… after all he’s all into disappointment, self esteem worry, and drama – we’ll be dishing out plenty of that in Primary {3}. Maybe he can put together a nasty little play on Broadway play on the excesses of Wall Street once we touch 400 on the SPX. Theater usually seems to thrive during economic depressions – if you can get your play financed that is.

This chart offers some interesting statistics and definite food for thought.

Also, remember my time fibs? Primary 3 lasted 512 days – 38.2% of that would be ~195 days which gets us to September 16. Some of you are wondering why I am so early in bulking up on March puts. The reason is that some exogenous event (i.e. political, military, scandal, etc.) could catalyze the market early. Market forecasting is difficult endeavor at best – when it comes to long term trading I rather prefer to be early than fashionably late. So, please quit blasting annoying SMS and emails my way – I am very happy with my approach – let’s just see who’ll have the final laugh come next March.

So far we are on track – last weekend I had already accounted for a push higher into the 1050 zone – let’s not haggle about another 20 – 50 SPX points 😉

I mentioned this chart on Friday but it’s worthwhile a repost for anyone who didn’t see it. While we have been pushing higher the BAA-TYX spread has been slightly widening as well (highlighted on the chart). It’s only a little curl at this point and I will keep my eye on this. TYX ran up a little on Friday but I think that’s due to the looming auction – my homie Jeff over at the Housing Timebomb explained it just nicely:

The 10-year was up sharply today as the bond market nervously awaits the results of the next round of massive auctions. You need to be careful in the short term if you are shorting treasuries right now.

A credit trader explained to me that these rises in yield prior to auctions is an “old school” bond game from the ’70’s. The bond market sells off treasuries heading into the auctions so that the PD’s(primary dealers) can buy up whats left of the auctions the following week at a cheaper price.

Then once the auctions get completed, treasuries rise and the PD’s turn around and sell the bonds and make a nice profit on the spread.

In any case – we want to keep an eye on this spread – if it keeps creeping to the upside it’ll be additional confirmation that bond traders are reducing their risk exposure and that is a bearish alert signal.

This week saw a sudden downside correction after a promising run up – currency games galore. It really doesn’t matter though – we might go sideways for a bit and run up from here, or descend into 76 and then blast higher. Upside risk at this point far outweighs downside risk – it’s hard to find any Dollar bulls these days and we are in single digit territory, which is exactly why I expect the Dollar to find this year’s bottom in a very short order, if it has not already.

To summarize:

How’s that for target practice? Fall/Winter 2009 is going to be a lot of fun for the bears – get ready 😉

7:16pm EDT: Bonus chart:

Nice retest of that support line – great opportunity to reload IMNSHO.

9:11pm EDT: Bonus Clip – Joe Saluzzi strikes again:

‘I am not a bear – I’m a realist’

Exactly.