Monday, August 31, 2015

Monday Morning Market Update

Reviewing the market action of the past 2 weeks:
Sucks to be an investor, but this is some of the best trading we've seen in years; can't eat; can't sleep, love it! I would like to see high volatility continue, but that doesn't happen going into a holiday. With Labor Day only one week away expect more short covering.

Look back at the past 2 weeks: The crooks who run the Casino Stock Market, first robbed the retail investor in a 3 day shakeout which started by triggering a widely accepted sell signal ($VIX 20+) which was cleverly taken out when few expected it (on OPEX), and then they robbed the retail short (in a historic run-up in energy, oil and more). The oil trade is another story, but that turned out to be an even better trade than the broader market reversal.    

Today the retail investor remains overly bearish, and it doesn't take a genius to know what comes next. The market doesn't care if you want to see a pullback or not. Volume confirms the trade, and this is some of the best we've seeing in years. Either fight it, or enjoy it, but don't let your emotions get in the way of your trade. This is the whole purpose of watching the $VIX.


Speaking of the $VIX: The only way we get a retest of the 1900 level, or a lower low any time in the near future is if the VIX can return to 50.

So I'm reiterating my bullish short term outlook, as it becomes obvious that the $VIX is about to be taken down below 20, and when that happens it's going to bring panic buying by those who continue to insist that "volatility is going to continue", and the "the worst is not over" crowd. Sure there may be more pain ahead in a few weeks or more, but these snapback rallies always continue further than you think they will, and this one is far from over. We haven't even identified a tradable pattern yet.

Once we see the bears capitulate (talking about the market here not Oil) I expect to trade into a confusing consolidation pattern on low volatility - probably after the Labor Day holiday - and pullbacks into consolidation patterns, are far more difficult trades than these short squeeze rallies are. High volatility is where the big money is made, and lost, so stay nimble.

This morning We're seeing a little pullback in futures, but considering that the $VIX is trading in the mid 20s, and headed higher, we could've seen a lot worse than 20 points down on the $SPX. If we see a bigger pullback we'll be watching the 1950 level.

Watch my Twitter feed for up to the minute chart updates throughout the day.
 
Take Care, Anthony Allyn

Wednesday, August 26, 2015

Key Support levels and Breakdown targets

 They say; "It's better to teach a man how to fish than give him a fish", but finding key support levels is an art, and I don't teach art.  


Earlier this year I Tweeted a key support level and showed a long term chart view of the NASDAQ $COMPQ and told folks to make note of it. I'd bet a nickel that not one single person wrote that target down, so I'm going to give it to you again. The number is 4250, and this key support level is determined by the pink line on the chart below. When you see a pink line on 1 of my charts with a circle on it, this is what it represents.

When the market looks like it's breaking down, and all your short term charts are broken, it's time to STOP panicking and time to start looking at your long term charts. If these long term support levels start to break down on high volume, you will see disciplined veteran traders cut their losses. This is also where shorts start working in a big way, because the next support level tends to be a lot lower than the previous one, and in some cases hard to find. This is where decision making is removed from the equation. It's a case of, "shoot first and ask questions later".

Veteran trader Dale Pinkert alluded to this phenomenon (@ 5 minutes) in my April 24, 2015 interview FXStreet.com, but I was nervous, and the term he used was one I was unfamiliar with, and I'm afraid that important point was glanced over too quickly. I have been wanting to touch on it again ever since, and this turns out to be the perfect time!

I've created a fresh chart in order to make it easier to see.



There are also 2 more important indicators apparent on the above chart:

1. Volume is relatively low. Granted the month isn't over but volume doesn't support a market breakdown, and especially at this time of year. Markets are cyclical: kids are back in school; Money Managers are returning from summer vacation and that liquidity is about to return to this market. I also suspect this 3 day market "Rout", was the result of a few clever hedge funds conspiring to take the market down, or shake the weak hands. The fact that the $VIX was driven above a widely accepted bearish signal (20+), precisely on OPEX, supports that view.

2.  The Force index has not rolled over. Again this points to a thinly traded sell-off in which a basket of market movers - several of which I pointed out yesterday (the $MERK and other) were taken down suddenly, and what better time for a bear raid than just before the bulls return from their summer break.

As far as finding these support levels on your own:

1. This only comes with expedience and it took me a few years to really get it.

3. Look for a rising line that has worked in the past. Clone that line, and then apply it to current levels. Like I said in the beginning of this article this is an art.

3. Experiment with different time lines, and chart views, until you find the one that is working.


Take Care, Anthony Allyn











Monday, August 17, 2015

Market may be setting up for a massive rally

 

Market setting up for a massive rally

 
I see a trade coming that could turn out to be one of the best we've seen in years.

Note: I've had to rework and revise this article (originally published 8/17/15) after the recent global market Rout. "Rout" is the cutesy term the main stream media has decided to run with when trying to explain away a shake out in global equities which basically only lasted only 3 days. This was after trading sideways for almost 5 months! Not what I would call a capitulation top.

We did see the $TED spread (anyone who traded the '07 crash should be familiar with this indicator) make a sudden rise, which indicates a tightening of credit, but does not explain the selling of the past 3 days. I personally believe this retest of the lower end of the range has to do more with keeping the market from topping out at the wrong time, than anything else. All Signs were pointed toward Sept, and there's a lot of internet chatter from alternative media, and even supposed prophetic prophecy surrounding Sept 23th - 24th. Linked below is a little snippet of what I'm taking about. Financial Expert Correctly Predicted Black Monday Weeks Before Collapse

Before the recent market Rout, even I was a little nervous about what might really be going down in Sept., but now it appears that the timing has been changed.
 
It's been a while since I've blogged, but the market has remained rather dull, and directionless over the summer, which ended with an unexpected shakeout.

Re: "The $VIX" - If you missed my article on the $VIX I suggest you read it, and regularly review it. Not only will it help you to measure fear in the markets over the coming weeks, but it will help you separate emotion from your trade over your entire lifetime. The week August 22nd, we saw total panic above $VIX 20, and the huge market moves associated with a high $VIX. The Dow shed 1000 points as fear peaked out (in this case around 52), and volatility remains high, and the dow is now poised to rally 1000 points off the bottom, and if the $VIX remains high we could see the market gap up several days in a row.
 
Market breadth has remained lousy for some time, meaning although the market traded to new highs earlier in the year, many stocks and sectors have continued to under perform. Carter Worth made mention of this not soon after I began pointing it out, and to be honest I wasn't very familiar with the term at the time, but now every one seems to be talking about "market breadth". So what does it mean? The broader market remained in oversold condition even as it was making new highs earlier in the year. In other words; while the market traded to new highs, the majority of stocks did not, and according to my sentiment indicators the market remains oversold ever since the October surprise, when we saw the $VIX quickly rise to 31. Commodities; namely Energy and Metals, and more recently retail, China, emerging markers, continue to underperform, while Tech, Biotech, Healthcare, and certain defensive names chug ever higher. There's a very good chance we're about to see a rebalancing, and a return to normalcy. Either a sector rotation, or a broader market rally.
 
As most of you know I have been predicting for some time that the market will trade into a broadening top pattern, as a reflection of the larger broadening pattern of the past 20 years,  (AKA "a child fractal"), as I mentioned in my interview with Dale Pinkart at FXStreet.com, and a video blog (vlog) entitled "The Climax of the Broadening Top revisited",  I posted back in 2013. I have not given up on this pattern because this is exactly the type of emotionally driven pattern you would expect to see at a generational top.    


 
We've been watching this 1900 target for a long time, and although that could end up being the beginning of the great bear market, I think it's much more likely that we're going to make at least one more run at the top of the larger pattern (in blue on the chart above), into the end of the year.

 
For further study, and reference see Symmetrical Triangle
 
 
Elliott Wave Principal: Key to Market Behavior page 49.  Reverse Symmetrical Triangle