61.8% Fibonacci Retracement Fulfilled

The recent rally since the hammer on 5 Feb 2010 had fulfilled a 61.8% Fibonacci retracement (more than the requred 50% retracement) for the Dow and Nasdaq Composite Index. For S&P500 index, the retracement is almost 61.8%. The major index is now free to continue with its downtrend (assumption is that the Jan 2010 high is the start of the big correction).



For SPY, we need to look for a confirmation candle before we can short the SPY. The target is way below the Feb 2010 Low.

Cheers !

PersianCat (Millionaire-in-progress)

A Great Hammer is Formed

[Opps ! Made a typo error - Supposed to be a Hammer (not a Hanging Man)]

It has been 2 horrifying days (Thursday & Friday) for some and profitable for others. For some others, it is best to stay in the sideline.

As for me, I was caught in the wrong footing on Thursday. My trading psychology was not even average. I've got burnt somewhat. But I make it up with a strong showing yesterday - playing ES (S&P500 e-mini futures). I played the market until 2pm EST. Thereafter, I was too exhausted and shutdown my PC. I do not want to return my profits to the market.

Looking at the SPY chart today, the market actually took 4.5 hrs for SPY to drop about $2 but took the next 2 hrs to rise up and ends positive. It thus created a Hammer in the daily chart.

What does it mean then? To me, it might give me the opportunity to long the market (at least on the Intraday basis, once the SPY breaks Friday's high. I will try to keep the Stop Loss small - have to look at the Intraday chart on that day.

Based on the current behaviour of the market, general market can still drop further. However, for the market to be healthy, the current drop needs a short rest and create a short rally of least 50% Fibonacci retracement. The question is, where will the short rally starts. (I am looking at a basic ABC wave.)

The Hammer with an extremely long shadow but small body looks like a very good reversal candle. It looks like a good place to start the short rally. If indeed, it is, then the rally will reach at least at 109.85 before continuing with its downtrend.

If the market breaks the last Friday's Low and stay below, the market is then signalling that the current downtrend from Jan 2010 High is still on track.

Cheers !

PersianCat (Millionaire-in-progress)

Could have been a Great Intraday Play on SPY

Last Tuesday night (SG 11pm), I mentioned to my handholding class, a possible set-up to play the Intraday trade on SPY. Unfortunately, at that time, we are all about to call it a day (leave for home). So we just watch the market for a while and did not put in any live trades.

However, I have documented how I would have played if I am at home, trading comfortably from my study room.

The SPY (S&P500 ETF) was trading in a range after the market open on 2 Feb 2010. Traders are waiting for the Pending Home Sales figures at 10am EST. It turned out that the figures are better than expected. As I mentioned in my previous posting, the major indices are expected to have a short rally of at least a 50% Fibonacci level. This news just give SPY a perfect excuse to go up.

At the handholding session, after the slight false break (after 10am EST), I mentioned to the class that I would have long the market at 109.00 level for an intraday play. My stop loss would have been 108.85 (very small). My first target would have been 109.80 (one of the resistance level). I would have played either a Feb or Mar 109 Call, or played ES (e-mini futures).

They are many levels where one could take profit. One way to take profit is when SPY closed below the EMA 13 (at 109.97). That is US$97 for every 100 shares of SPY or about US$48 for every 1 contract of options or about US$450 for every contract of ES e-mini futures. It would also mean that you have to stay up until 2.10am SG time or 1:105pm EST.

Cheers !

PersianCat (Millionaire-in-progress)

Next Target for SPY

When we forecast the (possible) directions of a stock, index, etc, we do it based on certain assumptions. When that assumptions are proven wrong, we have to be flexible enough to change our views of the market.

Last Tuesday (about 8pm SG time) handholding session, I updated the group that, provided that the 29 Jan 2010 Low is not broken, I am expecting the major indices to experience a very short rally of at least a 50% Fibonacci retracement from the Jan 2010 Low to Jan 2010 High. Thereafter, provided that the Jan 2010 High is not broken, the market will then continue with its down trend breaking the Jan 2010 Low. If the current short rally broke the Jan 2010 High, then the assumption that the market is heading downward do not hold water anymore.

For SPY (S&P500 ETF), one can then expect it to move up to at least the 50% Fibonacci retracement (around 114.14) before contunuing with its downtrend breaking the Jan 2010 Low.

What does it mean then to me? I would short the market again when the market is closer to the Jan 2010 High.

Cheers !

PersianCat (Millionaire-in-progress)

Is this The Correction?

The general market gave 3 red candles over the last 3 days (the last 2 are great long candles). It had been 3 great trading days for me. I started playing ES (S&P 500 e-mini futures) again 2 days ago after a long break. Many indicators are already showing at least a short term correction is in process.

The market is long due for correction and is just finding an excuse to correct itself. The excuse for now are the tightening of bank lending in China and U.S. President Obama's reform of the US financial markets.

The big question is whether this is the big correction of at least 38.2% Fibonacci level. That will bring the DOW to around 9,100 or below. A great correction will bring the DOW to at least 61.8% Fibonacci level at 8,100 or below.

Currently, the DOW 30, S&P 500 and NASDAQ Composite indices are resting near or at the support line (see the trendline drawn on the charts above) - around the October high. The next milestone is for the major indices to break and stay below November 2009 low. Following that, we should then track the swing lows and the Fibonacci levels of 50%, 61.8% ....... If this is the Correction, we could expect the Correction to last for at least 2 mths - depending on how low the market wants to correct itself.

Cheers !

PersianCat (Millionaire-in-progress)

Market Overview - Pre-Christmas Week

The market is still technically on the uptrend. However, the major indices are currently in consolidation since early November.

The volume on 18 Dec 2009 - a quadruple witching day (expiration of options and futures of both the index and stocks), for Dow Jones 30 Index was more than twice the average. Despite the high volume, the major market did not really budge from the previous day price. Based on such volume, one could expect a major move soon.

It is important to note that there are reports about major fund managers locking-in their profits as they are also protecting their potential bonus - after the market had rally since March this year. Should we then expect the market to correct soon. We shall see.

The major indices needs to break the following levels to convince us that the uptrend for the equities market is broken:

• Dow Jones 30 index needs to close below 9679 level
• S&P500 index needs to close below 1029 level
• Nasdaq Composite index needs to close below 2024 level

Cheers !

PersianCat (Millionaire-in-progress)

Jewish Holidays in 2010

Just a reminder. During the "no work permitted" Jewish holidays, the market for equities, forex and others will significantly drop in volume. Significant drop in volume could dramatically skewed price movement.The Jewish holidays for 2010 could be found in:

http://www.chabad.org/calendar/holidays_cdo/aid/672022/jewish/2010-Holidays.htm

Cheers !

PersianCat (Millionaire-in-progress)

2010 U.S. Market Holidays

January 1 - New Year's Day
January 18 - Martin Luther King, Jr. Day
February 15 - Washington's Birthday/Presidents' Day (3rd Mon. of Feb)
April 2 - Good Friday
May 31 - Memorial Day
July 5 - Independence Day (observed)
September 6 - Labor Day
November 25 - Thanksgiving Day
November 26 - Half-day due to Thanksgiving Day
December 24 - Christmas (observed)

- extracted from http://www.nyse.com/

Cheers !
PersianCat (Millionaire-in-progress)

The Wait Worth Waiting For

The Market moved as expected starting a retracement from the last two weeks of October. Based on the price movement of the equities market and the US$, it seemed that the retracement is for real this time. However, the major indices needs to break the following levels to confirm that the uptrend for the equities market is broken:

• Dow Jones 30 index needs to close below 9430 level
• S&P500 index needs to close below 1020 level
• Nasdaq Composite index needs to close below 2041 level

The Nasdaq Composite Index which tends to lead the market is closer to the critical levels than the other 2 major indices.

Once the critical levels are broken, the downtrend could last till Mar to Jun next year.

My position:

I have locked in my profits and open new positions with a set of Jan 2010 104 Put for SPY and a Bear Call spread 104/109 for SPY on last Friday. For SPY, the stock needs to close below 102 to confirm that the uptrend is broken.

With the downtrend in the U.S. equities market, the U.S. $ is expected to strengthen. Some would argue that the strengthening of the US$ leads the downfall in U.S. equities market. It does not matter who leads who for now as long as we know, as the US$ strengthen, the commodities (e.g. metals, oil, coal) prices could fall.

Cheers !

PersianCat (Millionaire-in-progress)

The Big One This Week?

Since my last posting, the market pushed further upwards. I have been playing intraday strategies, shorting at the intraday rally and closing my position when market shows signs of reversal - thus making small profits here and there. My mindset till the end of the month is that I am not willing to long the market when I feel that the market is overbought and can drop at anytime.

This week is critical. It's the last week of October. Normally, if any drastic things were to happen, it tends to happen in October. Currently, I think that the market is just looking for an excuse to retrace downwards.

The EUR/USD currency pair makes a new high 1-year high today. GBP/USD pair has started its divergence from the EUR/USD pair. It seems that it is starting its way down in Aug while EUR/USD is still creeping up. Normally, EUR/USD and GBP/USD pair move up and down in tandem. And as the EUR/USD and GBP/USD pair goes up, the U.S. stock market goes up, i.e. the value of US$ goes down. Is the GBP/USD then leading the pack?

So what's next? If there is any major retracement in October, it tends to happen unexpectedly. The big problem that has been happening is that "short squeeze" had occurred 3 times since August this year. "Short-squeeze" happens when those with short positions may be forced to liquidate and cover their position by purchasing the stock. If enough short sellers buy back the stock, the price is pushed even higher.

Will another short squeeze happen this week or two or will the market finally make a breakdown and move south for the next 6 months or so? We shall see.

In the meantime, I have bought 108 Puts and sold Bear Call Credit spreads (108/113) on SPY with a tight stop loss. The initial target is 104. Then the target will be moved to 102 with a timeframe of three weeks if the 104 level is breached.

Cheers !

PersianCat (Millionaire-in-progress)

Double Top Forming?

The Week In Review

The major indexes (DOW, S&P500 and Nasdaq Composite) are now attempting to test the September High. If it breaks the High, it will test the resolves of those who shorted the market. I would love to see a double top formation, where the September High is one of the double top.

My own view is that the market might see a correction towards the end of October. Someone asked me, what if I am wrong. I said to him, so be it. At the current stock price, I am not willing to long the market anyway. Let the bubble grow bigger and explode. If I am right, I would want to be ready to short the market. Depending on how the market moves, I might short the market by end this week or early next week.

My Trading Position:
Last Tuesday, I updated my handholdees that I have closed all my Put positions on last Monday (lock-in my profits). I am back to playing ES futures and intraday SPY options (and Forex in the day).

Cheers !

PersianCat (Millionaire-in-progress)

Jewish Holidays over the next few weeks

Take note of the "No work permitted" during some of the Jewish holidays over the next few weeks. Market volume can be expected to drop significantly on that day.

Yom Kippur No work is permitted.	Sunset of September 27 through nightfall of September 28
Sukkot No work permitted on Oct. 3-4. Work is permitted on Oct. 5-9 with certain restrictions.	Sunset of October 2 through sunset of October 9
Hoshanah Rabbah Work permitted with certain restrictions.	October 9
Shemini Atzeret No work is permitted.	Sunset of October 9 through nightfall of October 10
Simchat Torah No work is permitted.	Nightfall of October 10 through nightfall of October 11

Cheers !
PersianCat (Millionaire-in-progress)

September Peak?

Last Wednesday, I shared in my handholding class that I have placed (on Tues, 22 Sep) a Mar 2010 107 Put on SPY when SPY was around 107.30. At that point of time, the highest point since March low was 17 Sep 2009 (at around 107.55). My hypothesis is that the market is likely to have reached its Top in Sep. Then a retracement will follow. The market will then try to test its September High and fail. An October big drop might then follow.

At the point of entry, the risk is minimal while the reward is huge. Whether I am right or wrong, it does not matter. What matters most is whether the decision was correct at that point of time. Refer to my presentation slides to the Options Traders Club Meeting at http://persiancat04.blogspot.com/2009/09/v-shaped-or-w-shaped-recovery.html for some of the reasons.

My decision was reinforced by the price actions that took place after the FOMC meeting on 23 Sep.


The price tested and break the 17 September high but the price could not hold. It then broke the session low and went much lower. It represented the beginning of the recent slide. My intraday trades for both the SPY options and Forex were great on that day. My swing trade for the SPY Mar 2010 107 Put was of course doing well. My losing credit spread on SPY is also now back in the black.

The question is now, would SPY repeat the pattern of having a short retracement as in circle A, B and C in the chart below.


Or would it break the Low in Circle C and B to mark the break of the recent uptrend. We shall see. While some others would ride on the bigger trend until proven otherwise (it is the right strategy most of the time), for now, I am testing my hypothesis and it is raking $$$ for now. I might lock-in my profits if proven wrong.

Cheers !

PersianCat (Millionaire-in-progress)

OptionQuestSM Online Game

I was alerted to this game by a friend. Thought it might interest some readers of my blog.

OptionQuest^SM Online Game
http://www.cboe.com/LearnCenter/OptionQuest/Default.aspx

It states "The options strategy game that will challenge your knowledge and help sharpen your trading skills. Whether you have just set sail to explore the world of options or conquered the “Greeks” in the jungles of option pricing, OptionQuest will be a daring adventure for you.".

Have fun!

Cheers!

PersianCat (Millionaire-in-progress)

V-shaped or W-shaped recovery

The slides presented at the OTCS Club Meeting on 19 Sep 2009 could be downloaded at:
http://www.mediafire.com/?tzomdzjzmhj

Cheers!

PersianCat (Millionaire-in-progress)

80-year cycle or 60-year Cycle ?

As traders, we always like to look for patterns in the charts - as patterns do repeat itself sometimes. When it do, we want to be ready to capture the moment and ride on the trend/wave.

At this juncture, we are now almost at the crossroads. The U.S. market is now going through either a 80-year cycle or a 60-year cycle.

The pattern for the 80-year cycle is similar to the 1929 October crash with its peak in 3rd September 1929. The market then went into depression for almost 3 years. It bottomed in mid 1932. If we are drawing a parallel, it would then be year 2012.


On the other hand, the market could enter a 60 year cycle. In 1949, the world economy comes out of the ashes after World War 2. The market actually bottomed in 1942. After the war, most if not all countries, flooded the market with liquidity even though they cannot afford to do it. In 1949, the market bottomed in Jun and thereafter the market is very bullish.


So which pattern would it be? Either one of the two or none at all. I will elaborate more in my presentation at the Online Traders Club (Singapore) meeting on Sat, 19 September 2009. Among the stuff I will touch would be the relationship between US$, U.S. equities market and commodities. Registration to the talk can be done at www.eoptionsclub.com.

PersianCat (Millionaire-in-progress)

Major Levels Broken - What Now?

The major indexes already broken the major levels.

• DOW broke 9000
• S&P500 broke 1000
• Nasdaq Composite Index broke 2000

The various indicators are showing that the market is tired and needed a rest. However, the market seems to be very resilient.

I practiced Scenario Planning in my previous profession. Therefore, I could not help but develop the possible scenarios for trading.

Scenario 1:
From here, the market could retrace a little, may be just at 23.8% Fibonacci level (measured from its recent high to the March Low) and then continue its climb. It may even break recent high. If this happens, the market might get a bigger fall in October. The fall could then be near the March Low or break below March Low. We could possibly see a last bottom before the market creep up from that bottom. For investors, it could be the best time to pick up stocks (Singapore, U.S. or elsewhere) - maybe in November.

Scenario 2:
A healthy retracement from the current position would be at the 50% or even 61.8% Fibonacci level. The market will then continue its climb. However, I still expect another retracement in October. The retracement would not be as great then. It would not break below March Low. The market will then tends creep upwards.

Scenario 3:
The market retraced all the way near March Low from its current position. The market then climb upwards before breaking down below March Low in October. From there, it starts to creep upwards.

In all scenarios, it would not be a V-shape recovery.

Cheers !

PersianCat (Millionaire-in-progress)

A Shooting Star was formed

The market defied the odds yesterday. It gapped up and reached a new high since Mar 09. However, it closed about the same price as the opening price - forming a shooting star. I would have preferred a longer shadow, but it is still a shooting star.

At 8:30 EST, the Advanced AGP results would be out. AGP is the broadest measure of economic activity and the primary gauge of the economy's health. It could move the market. For the market to reverse, it would be good if the today's market open much lower (gapped down) and closed below yesterday's close. It should then be followed by a series of lower lows.

If for whatever reason, the market continues its climb upwards, then we have to be prepared for a drastic reversal one day (perhaps in Oct 09) - another black October?

We shall see.

Cheers !

PersianCat (Millionaire-in-progress)

Shorting the SPY

[Click on the image to zoom it. ]

At the live trading session yesterday, we potentially have a winning explosive trade.

Prior to the market open, we discussed the market trend. I mentioned that my view of the market is that the market is at the tail end of the recent rally. It have to retrace soon. How soon we are not sure.

As the SPY gapped down on the intraday chart (5 mins candle) at the open, I mentioned during the session that the perfect set-up would be: the SPY fill the gap, hit Monday's high (which is the high of the recent rally since March), fill the buy stop orders of the other traders then retrace downwards. We would then want to short the SPY.

We watched. SPY did fill the day's gap but did not manage to break Monday's high. It then started to retrace. The participants shorted when the SPY was around 98.07. They bought the Sep 98 Put. The stop loss is 10cts above Monday's high. The SPY went down further. It happened that the SPY closed near our entry.

Theoretically, it was a good trade as the risk is extremely small but the SPY has the potential to drop by more than $10 in one month.

If the participants stick to the plan, they should not be stopped out yet. What they have lost so far is the time-value which is minimal for September options. However, what they have got if it goes according to plan, is a good entry point especially when the market gapped down and closed lower today, forming a potential confirmation candle (for a retracement - downtrend in this case).

My advice to the participants, once they have a good entry and they are correct about the trend, just ride the trend. When to exit? There are many ways depending on the situation, risk tolerance and trading objectives.

In the meantime, enjoy the ride when it comes to you..... Weeeeeee...........

Cheers !

PersianCat (Millionaire-in-progress)

The Major Indexes broke resistance but it is tired

The DOW30, S&P500 and Nasdaq Composite indexes all broke the resistance level. DOW30 also broke the 9000 level. Now, analysts are saying that S&P500 could target for 1,000 level (Current level is 979.26). The volume for indexes are not significantly high or even lower than average volume. Somehow, the US dollar did not follow the stock market pattern last week.

The current rally started 12 market days ago. It has gone up too fast too furious. In such market environment, I am looking for signs of retracement. The candlesticks are not showing much. The oscillators are showing signs of losing momentum - the market is now tired.

Basically, the technicals are showing that the market is losing its "steam". It is tired. If there is any buying left at this juncture, it could basically comes from retail traders and unenlightened institutional traders.

The negative effects from the total solar eclipse did not seem to materialise. However, proponents of such views said that the effects may not be immediate.

Bottomline, it is too late to enter the market now. I shall wait for the market to retrace and "short" as the market retrace downwards. It could happen very soon.

Cheers !

Rafee