Selling Will Accelerate Significantly

SGS Market Timer Status:  SHORT 
SHORT as of close of 7/24/2015
RTS Current Portfolio (2015)
RTS Past Portfolios (2008-2014)

As of close of Friday, SPX has corrected about 10% form its all time high.  SPX is very likely on its way to correct another 10% between now and late October.  It took nearly four months for SPX to complete its initial 10% correction, but the second 10% correction will be likely done in about four to five weeks as the pace of selling accelerates significantly.

The current sell off is a hybrid of two past sell off’s, the 1998 (“Long-Term Capital”) sell off and the 2011 (“End of QE-2”) sell off.  In both cases, sell off did not end until the Fed intervened.   In mid October of 1998, Greenspan lowered both interest rates that the Fed controls by 50 basis points in the middle of trading day.  In late October of 2011, Bernanke announced QE-3 (Operation Twist, “QE Infinity”).

So, the question is: What is going to save the market this time? The Fed is hoping that a 3% or higher GPD, good  earnings / outlook by companies, good employment data and generally positive signs of economic growth, at least in our country, would save the market.  I hope they are right, because otherwise, I have to conclude that there could be significantly more selling ahead and SPX could possibly go down to 780 to test its historical and natural 6% uptrend line.

Where Are We Heading Longer Term (Weeks)?

My guess still is that SPX would find PUL-0 by late October around 1720.

Where Are We Heading Shorter Term (Days)?

Shorter term, it's going to get pretty ugly as relentless torturing of Retail continues.  Chances are good now that SPX sells through its TUL-0 to test its August lows (1867) later in the week.  A weekly close below 1867 would signal a high likelihood of more selling in the next few weeks until SPX finds a bottom at or near its PUL-0.

My Plan:

I'm planing to do my final short sell shortly after the open on Monday.

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SPX: S&P 500 Index    D-SMA: Daily - Simple Moving Average
DJI: Dow Jones Industrial Index    D-EMA: Daily - Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ADL: Active Downtrend Line
OEX: S&P 100 Index    AUL: Active Uptrend Line
NDX: Nasdaq 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line  

Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

YoYo Is Back In The Second Half

SGS Market Timer Status:  SHORT 
SHORT as of close of 7/24/2015
RTS Current Portfolio (2015)

RTS Past Portfolios (2008-2014)

The Fed not raising on Thursday was a surprise to me.  It certainly spooked equity markets across the globe as market participants are wondering now what it is that the Fed is looking at and the Fed is scared of.  That worry and uncertainty, combined with the dim earnings outlook, is going to dominate the second half of the correction game.

Where Are We Heading Longer Term (Weeks)?

Shortly after the Fed announcement last Thursday, SPX sharply rallied on the back of short covering to back test two important resistance.  They were its DTL (13 EMA) on the weekly chart and PUL-1 seen both on the weekly chart above and daily chart below.  Both resistance held up well (i.e. no penetration). 

Failing to even put a dent on overhead resistance last Thursday means that SPX is on its way to test the August low (1867).  If that test fails, then chances are good that SPX would continue its selling to test PUL-0 somewhere between 1750 to 1700 depending how quickly and viciously it sells off.  The quicker and more vicious SPX sells off, the deeper it would go.  My guess is that SPX would find PUL-0 by late October around 1720.

Where Are We Heading Shorter Term (Days)?

Shorter term, it's going to be YoYo continuing its torture of Retail, but more viciously in the second half of the ongoing correction.  YoYo's masters are positioned short now and they want the correction to continue so they can cover their shorts with a nice profit.  Using Yoyo, they are pushing Retail to sell as they target the largest and the most vulnerable part of Retail which is the self-directed 401K.

The sell off that started on Thursday afternoon would very likely continue on Monday and Tuesday as SPX sells off to test support zone 1920 to 1910.  Should that support zone fail, SPX would sell more to test its TUL-0 and its August 24 low.

My Plan:

I'm still planning to do my third and final short sell as SPX sells and breaks through its TUL's (TUL-1 and TUL-0 in pink).

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SPX: S&P 500 Index    D-SMA: Daily - Simple Moving Average
DJI: Dow Jones Industrial Index    D-EMA: Daily - Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ADL: Active Downtrend Line
OEX: S&P 100 Index    AUL: Active Uptrend Line
NDX: Nasdaq 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line  

Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

It's Halftime

SGS Market Timer Status:  SHORT 
SHORT as of close of 7/24/2015
RTS Current Portfolio (2015)

Updated for recent trades

RTS Past Portfolios (2008-2014)

From its low in March 2009 to its all time high last May, SPX rose 1468 points.  That was a whopping 220% gain in about 6 years, an average of 37% per year!  A good chunk of that unprecedented gain was because of what the Fed has done since early 2008, namely keeping interest rates that they control at zero percent.

It's hard to quantify how much of that 220% gain in SPX was because of the Fed zero rate policy.  Some argue that all of that gain was due to the Fed and some argue none.  To me, it is a reasonable assumption that at least 25% of  that gain (367 points) is "the fluff" due to over eight years of "free money".  Now that the era of free money is about to come to an end this coming Thursday, the fluff will continue to come out.  So far 173 points of the fluff has come out in the first half of the ongoing correction. 194 more points are to go in the second half. 

It's half time now and the second half is still to come.

Why The Fed Will Raise This Week:

• Credibility.  The Fed, Yellen especially, has been saying for a while now that they are "data driven".  The most important data they are looking at are employment and growth.  They both look good and the Fed will raise to show that they are credible and the Fed does what the Fed preaches.
  
  
• The Fed is aware of the fluff that they have created in equities with their zero rate policy.  The Fed wants the fluff to come out, but come out in an orderly fashion (i.e. a correction).  They are also aware of the fact that the more they wait, the bigger the fluff gets. The Fed is a student of history.  Both recent and not so recent stock market history clearly shows that when a big fluff comes out of equities, the order gets thrown out of the window and chaos (i.e. a crash) takes over.  Nobody wants chaos.
  
  
• Stock markets are discounting mechanisms.  The fluff in a market eventually comes out either via a correction or a crash.  Now that a correction has already started in our markets, the Fed wants it to run its course to get the fluff out sooner than later in an orderly manner.
  
  
• By raising rates a modest 0.25%, the Fed puts a "silver bullet" in its otherwise empty "belt" to be used later if necessary (i.e. cutting rates if needed to prevent a financial crisis).

Where Are We Heading Longer Term (Weeks)?

Chances are excellent that SPX retest its August low (1867) within the next couple of weeks.  Chances are good that the test fails and SPX sells off to find a bottom at its PUL-0 somewhere between 1750 and 1700 by mid to late October.

Where Are We Heading Shorter Term (Days)?

Shorter term, it's going to be volatile this coming week.  SPX very likely rallies on Monday and possibly Tuesday to test several downtrend line resistance levels around 1970 to 1980. Those tests would very likely fail and SPX would sell off later in the week as the Fed announces its first rate hike in eight years.

My Plan:

Per my plan I did my second short sell of three on Wednesday (DIA, QQQ and SPY, equal $ amounts).  I will do my third and final short sell as SPX sells and breaks through its TUL's (TUL-1 and TUL-2 in pink).

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facebook (daily updates)

opader@gmail.com

SPX: S&P 500 Index    D-SMA: Daily - Simple Moving Average
DJI: Dow Jones Industrial Index    D-EMA: Daily - Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ADL: Active Downtrend Line
OEX: S&P 100 Index    AUL: Active Uptrend Line
NDX: Nasdaq 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line  

Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Algorithm "YoYo" Is In Control Now

SGS Market Timer Status:  SHORT 
SHORT as of close of 7/24/2015
RTS Current Portfolio (2015)

Updated for recent trades

RTS Past Portfolios (2008-2014)

There are three players active everyday in the global financial market.  They are (1, BM) Big Money (Goldman, JP, PNB, Barclays, Credit Swiss ... ), (2, Hedgies) hedge funds and investment funds (insurance, pension ...) and (3, Retail) small investors (individuals and their 401K's, IRA's, savings ...) and small traders (me, possibly you ... ). 

BM is by far the biggest player and more and less he controls the entire global financial market.  BM and Hedgies are in a constant state of war in which each side is trying to take away the other side's money (more on that later), but everyday they both go after the easy money and that's Retail.  

In order to get Retail's money, they employ various techniques ranging from misinformation spread by their talking heads in our mainstream media to subjecting Retail to relentless financial torture via their algorithms and programs.  

Near tops they have their talking heads  encourage everyone to get in long  ("buy buy buy", "Apple should be your core holding", "SP500 will be trading at 2500 by year's end", ...).  As BM starts to unload its long positions, their talking heads spin every dip as a buying opportunity ("my wife says this is a buying opportunity and I trust my wife").  Once BM and Hedgies have unloaded most of their long holdings and have opened their short positions, then at that point,  their talking heads tell everyone to get out ("I don't know, but this is ugly and might get uglier"), pushing market more down.  For the Retail that does not watch or listen to their talking heads, BM employs programs and algorithms to torture that Retail financially until remaining Retail gives up and gets out.   

One of BM's nasty algorithms that he unleashes half way through a correction is an algorithm that uses index future contracts to push cash indices to extreme levels of high and low on daily basis.  I have named that algorithm "YoYo".  YoYo's job is to make it extremely painful for Retail to stay in and forces him to give up and exit.  YoYo is active now and will remain active until a bottom is made.

Where Are We Heading Longer Term (Weeks to Months)?
 

 
Job data that was released on Friday was much better than expected which has made it almost certain that the Fed will raise 0.25% in September.  That expected rate hike is being priced in now, but the focus is shifted to "the Fed statement and their future actions"  until FOMC meeting on 9/16 and 9/17.  I expect YoYo to stay in control until then and volatility (torturing of Retail) to continue.

Bottom line is that the golden age of free money is over. Now reality is setting in and there are consequences, 7% is already done, about 13% to go between now and mid to late October.  If the Fed is right and our economy continues to grow at a healthy rate of 3% to 4%, then the bull market of 2009 would continue.  If the Fed is wrong, GDP shrinks, earnings / forecasts disappoint, then we would be going to hell to visit SPX 666 (March 2009 low).

Where Are We Heading Shorter Term (Days to Weeks)?

Shorter term, indices are oversold and chances are good that they rally to test important technical and psychological resistance (DTL, ADL-2 and SPX 2000, good points to dump longs).  Should SPX sells off and breaks through its TUL's (thick pink), then it would take a big leg down toward its objective of 20% correction around lower 1700's.

My Plan:

Per my plan I did my first short sell of three on Monday (DIA, QQQ and SPY, equal $ amounts).  I will do my 2nd short sell as SPX comes up to test important resistance this coming week.  Should SPX sells off and breaks through its TUL's, then I would very likely do my 2nd and 3rd short sells.

twitter

facebook (daily updates)

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SPX: S&P 500 Index    D-SMA: Daily - Simple Moving Average
DJI: Dow Jones Industrial Index    D-EMA: Daily - Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ADL: Active Downtrend Line
OEX: S&P 100 Index    AUL: Active Uptrend Line
NDX: Nasdaq 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line  

Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.