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Friday, January 20, 2012

SPX Update: A Discussion on QE3 and the Market's Potential for Disappointment

Since "to QE3 or not to QE3" is once again the big question on investors minds, I'm going to share my thoughts on this before we get to the charts.

The Federal Reserve Board meets next week, and as has become something of a tradition over the past several months, there's been even more QE3 talk lately.  The Fed is starting to sound like the little shepherd boy in that old Aesop's Fable, The Boy Who Cried QE3.  How many more times will this Virtual QE talk work?

Several top economists (I realize this is a bit like saying "several of the world's tallest midgets") are now predicting that the Fed will launch QE3 in the very near future.  Many seem to be predicting this based on the still-abysmal housing market, as recent statistics show that the ratio of homeowner equity to disposable income has fallen to an unprecedented low of 54%.  How more QE would help the housing market is beyond me... if 30-year mortgage rates get any lower, the banks will have to start paying us interest.  Call me old-fashioned, but the housing market's woes seem to be caused by the archaic principle of supply and demand.  Too much supply and too little demand are not going to be solved by the Fed firing up the printing presses again. 

Perhaps the theory is to keep inflation going up, thereby driving housing prices up, thereby bringing current underwater homeowners back to even.  But, my word, at what cost?  If that's their thinking, we're in even worse trouble than we thought with this bunch.  To achieve that level of inflation... homeowners wouldn't be underwater on their mortgages anymore, but gas would be $15 a gallon.  So we'd cure the equity problem, but we'd have the slight new problem that homeowners wouldn't actually be able to afford to heat their homes.  As Robert Heinlein said: "TANSTAAFL: there ain't no such thing as a free lunch."  I'm hoping the Fed has figured this out.    

In any case, I continue to believe that the Fed will not announce QE3 at this time, especially in light of the recent stock market rally.  There are two main reasons I believe this. The first is: why launch QE3 when you can accomplish the same thing just by talking about it?  I don't think it's coincidental that the Fed tries to make a very convincing case before each and every meeting about why they're going to launch QE3 any minute now.  But then Ben comes out of the meeting saying, "Eh, not today.  But we could!  Don't tempt us!" and shakes his finger at the camera.  These guys aren't idiots -- at least, not in regard to the PR department.

The second reason is that in observing the current board, this Fed does not strike me as a proactive body.  Virtually every major action they've taken, including both prior QE's, has been a reaction to the stock market and/or other factors.  There presently seems to be no blatant crisis to react to, since we all know that Europe is fixed for at least a few more minutes; the latest massaged economic numbers aren't horrible by any stretch; and everything has been coming up roses for the market lately -- potentially because institutions are front-running QE3.  The irony is that maybe in front-running QE3, institutional investors are preventing the very situation that needs to occur for the Fed to feel mandated to announce QE3 in the first place.  It may create something of a Catch 22... then again, maybe they just have more information than I do.  We'll find out next week.  

What really steams my boat about the whole thing is that the Fed created most of this mess in the first place -- and then completely failed to anticipate the backlash of their prior actions.  People can blame subprime mortgages and sleazy lenders all they want, but the Fed created that situation.  It's a bit like blaming the punk street dealers for your city's drug problem; the punks are just the pawns, and while they're far from innocent, in order to address the problem one really needs to blame the kingpin distributor.  Now somehow the kingpin Fed is going to "fix everything" by doing what the government always does when it attempts to fix the problems it's created:  it throws even more money at them.  (I'm aware that, technically, the Federal Reserve is not part of the government.  I'm also aware that back in 1995, technically, O.J. Simpson was innocent.) 

In my view, the problems are not going to go away even if the Fed does print more money.  This "hair of the dog" fix may continue to work temporarily, but it seems to me that digging the hole deeper isn't actually a solution.  As Albert Einstein said, "We can't solve problems by using the same kind of thinking we used when we created them."

Alright, off my soapbox and onto the charts.  The market broke through the key resistance level of 1300-1310, and the bears now need to reverse this move quickly, or risk an accelerating melt-up.  The 1300-1310 level hasn't truly been back-tested yet, but if it holds as support, the market could make a fast run to 1350.  Conversely, if it fails as support, the bears have a potentially powerful whipsaw to run with.  While there are numerous indications that the market is overbought, prior melt-ups have sometimes occurred from such levels. 

Today is options expiration, and as I mentioned last weekend, January's OpEx Friday has been solidly negative in 10 of the prior 13 years -- so maybe the bears will get some help there.  A good reversal back under some key levels would make the breakout a whipsaw, and whipsaws usually lead to strong moves in the opposite direction of the prior trend.

If this is indeed Minor Wave (2), it is allowed to retrace up to 100% of the prior wave without violating any structural rules.  However, this weekend I intend on revisiting the long-term charts in depth and doing my best to determine if that scenario still appears to be the most likely (usually this type of decision on my part is a signal for the market to decline immediately). 

Sentiment still seems to indicate that a decline is probable -- since bullish sentiment as measured by the latest surveys is quite elevated, and the put/call ratio is reaching unusual extremes.  There are a lot of investors looking for more rally here, which means there's a big chunk of money already committed to that rally, which means there are less buyers to actually drive that rally.  It would be unusual for a melt-up rally to start with investors as bullish as they are, because the market rarely rewards a crowded trade -- but past performance doesn't guarantee future results and all that.

The short term charts depict essentially the same counts as yesterday.  Both counts were expecting some further upside, which the market provided.  This wave remains one of the more difficult structures I've faced in the past few months.  The challenge is that the entire wave leaves a great deal to interpretation and there has been little in the way of clarity.  The blue wave 1 (below) could conceivably be 1-2, i-ii (see second chart).  The entire third wave is a mess of structures that look more like a-b-c's than impulse waves. As a result, I have simply felt unable to nail down the short-term with much confidence. 

The first chart shows that there are enough squiggles to count this as a complete 5-wave move, although the one-minute chart suggests 1320-25 could still be in the cards for this wave.  1315 could possibly be the top -- but if this wave were behaving normally, I would be more inclined to think 1320ish.  Not surprisingly, it's very unclear. Below 1302, and I would no longer consider 1320 probable over the very short term. 


The second chart is the more bullish interpretation.  The count below suggests that the rally is moving into an acceleration upwards.  I have a hard time wrapping my head around this possibility, because of the ridiculously bullish sentiment and all the bearish secondary evidence.  But I'm trying not to let that evidence blind me to other possibilities, because as I said yesterday, price action always rules.

I think there's a dangerous tendency bears have to look at a rising market and say, "Are these people clueless as to what's actually going on in the world?"  Maybe. Maybe not.  The market doesn't generally do a very good job of pricing reality into the equation, otherwise there would never be crashes in the first place.  For example, the problems of 2008 (and beyond) were all written on the wall in 2007 and earlier -- but the market kept going up anyway, because the majority was simply oblivious. 

To draw another example, the housing market was quite obviously in a bubble for years, but prices kept going up anyway.  It usually takes the majority a long time to catch on, and while you did well to sell your house and walk away in 2005, had you somehow been able to "short" houses and started doing so in early 2005, you would probably have been hurting by the time the housing crash actually got rolling. 

Conversely, the problem with ignoring reality is that the masses tend to catch on all at the same time, and the exits suddenly get crowded fast.  Traders have to walk a fine line in both regards.

Objectively, the action yesterday was bullish.  Price broke out of the bearish "three drives to a top" type pattern that the market was in, and MACD also broke out to the upside.  Bears really need this to be a blow-off head fake, because the market was signaling strength yesterday.


In conclusion, the bottom line is that bears need a quick whipsaw to stay in the game over the short term.  Based on all the evidence, I'm inclined to think the bears will pull out an upset soon.  If indeed institutions are front-running QE3, and no QE3 comes, perhaps that will be the catalyst bears need.  In any case, theories, sentiment, and indicators aside, the current price charts have to be respected.  Trade safe.

The original article, and many more, can be found at http://PretzelCharts.blogspot.com

294 comments:

  1. Good morning, PL.

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  2. Holy QE Pretzelman...I've been wondering about this all night. Thanks.

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  3. PL, your article says "tomorrow is options expiration" but it's today!

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  4. Ugh, thanks.  It was yesterday when I started writing.  I do that a lot.

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  5. For some reason I can't get Word to launch, and I need to get this bagged for Minyanville.  So Imma reboot and see if that fixes it.  brb

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  6. On OpEx ....

    I am now holding some 131/130 PUT spread on SPY. The pre-market price is 131'ish.

    If that is the closing price at closing, my spreads are worth zero. If however, it closes at 130, then my spreads are worth 1 USD each.

    Typically, it will take a quick dive  near 130, and then work its way back up to 130 and still closed minimally negative for the session. In the past, I would have held out until closing and hope that I'll collect the fully $1. Now, I know better and collect whatever profits the market offers.

    Be warned. :)

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  7. "back up to 130" should have been "back up to 131", sorry.

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  8. Good Morning PL. Is the "top in" :)

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  9. Holy crap, if I have any more computer problems, I'm thowing this thing out the window.  Now my USB ports won't work, and half the programs are crashing.  Great job fixing this, HP!  Back in a few...

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  10. Mother board issues...

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  11. Umm... no change since the update.  Unless the market opened and no one told me!  :D

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  12. Would that cause programs to fail install?  I've been trying to update stuff, like Windows service pack, etc., and it starts intalling, then "hangs" forever.

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  13. Now 60% of SP had reported. EPS meet or exceed/Top line miss is the trend.

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  14. Gd Mrning/ Aloha!  exciting time in the charts.. 10 of last 13 Option expiration days have been down days..  feeling lucky? lol 

    VIX is working back up to 20..  Anyone playing VXX or TVIX today?

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  15. Take out the battery and let it sit for a minute, reinstall the battery and see if that changed anything. If that doesn't work, try reinstalling Windows (path of least resistance). In the meantime, head down to the ABC store and get another laptop. I'm a redundant redundant kind of guy.

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  16. Do you think Greece will really 'voluntarily' give a 70%  haircut over the weekend??  ouch..  i dont..  how long can the can get kicked in Europe?  How does this play out in the VIX  n  SPX :)

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  17. Existing Home Sales for December will come out at 10am EST.    Maybe it will help move the market downward a bit??

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  18. I drew this channel yesterday.  Unless we break below it, we will not close in the red today. 

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  19. GSC5 'final top', is the hardest market call I've ever seen, and I think it is because it is totally computer driven.

    It is a balloon that keeps floating up, for no logical reason, except for 21st cent. linear indoctrination, to let computers fully think for you.  So, how far can computer-led insanity go?  To infinity. Until something explodes the balloon, and it's air goes out at once.  This is mass megabyte madness, because no human moneymanager under 40 truly cares about fundamentals anymore, it's all about technical momentum, support levels, divergences, etc, etc, all establish and CONTROLLED, by their company's computers.
     
    Just look at the 2 last major spx resistance lines, that it easily crossed over the last 30 days, it went through them like nothing, no struggle, on weak volume, as though these major multi-month trendlines were not even there, at 1255 and 1295, prespectively.  So, how can far this non-thinking balloon go up?  Forever.  Until it pops, of course.

    As it's ALL based on charting technicals now, fraction of second algorhythyms, no worry about anything else, nor even about DEADLY serious world banking SYSTEMIC risks, they are just shrugged off, with moneymanager yawns. 

    Since it's only the technical immediacy of the moment, for those that computerized 'manage', other people's money. 

    Therefore, since it's all technicals, and it's not their own money, when a MAJOR BANKRUPCY (cascading) event does occur, as it CERTAINLY will occur, and soon (because it is OBVIOUS to anyone that can actually THINK, that it will, due to quadrillion dollars in world debt, 20 years in derivative's making, and will NOT go away, no matter what ANY CB's comparative pennyante illusionary qe's), THEN everyody's computers will be 'SELL' triggered at SAME time (since they all use, more or less, similar programs and tech parameters), thus---it's everybody out the door at EXACTLY same time, with NO buyers.

    Flash Crash #2.

    last time, it was a -1000 dji points in 15 minutes, if I recall.  this time, I say MINIMUM -2500 dji points, in 15 minutes. straight drop to spx1050, where computers will buy again.So, I again reset MY 1-day crash target, to a 200+spx points.

    However, as to when, and as to from what level, I do not know.Because all I see now, are 2 closes way above h&s neckline spx1295 ,so, can this balloon keep floating up, ignoring the next major resistance?the answer is yes, because it has already done it twice, it can do it a 3rd time.

    For MYSELF, the primary clue is gold.  Gold is still holding under MY major resistance of $1680,and as long as it does, I continue to consider that 'flashcrash #2', can happen at any minute, any day.But, if $1680 gold were to (incredibly) break upward, then---all bears instantly should run for the hills,it is a BULL market in everything, for at least some time longer, since gold's next target, is $1760 area.

    That said, I have only 1 more stab at killing this 30yr bull, and I am holding it back, until I see spx back under 1300.

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  20. lol - Where I grew up, the ABC store sold liquor - never saw a laptop there...

    Alcoholic Beverage Control under state jurisdiction.

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  21. how much did you pay for spread?

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  22. Having trouble gettin DISGUST to load. IMO stay the course, if 1209 ES holds tight see a good drop today.

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  23. LOL, good housing numbers probably gonna cause some red, since it lessens the need for QE3.

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  24. Having trouble gettin DISGUST to load. If 1209 ES hold there will be a drop today.

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  25. PL, 
    I've got time for one quick post and this is actually something I have quite a bit of experience in as I am my family's tech support guy (including extended).  If we knew each other better, I'd suggest installing a R/C program and I would examine every little detail.  jbg1911 has given alot of good advice.  But before reinstalling windows I would suggest running a chkdsk to look for bad clusters on the hard drive.  Yes, the HDD is new but there's always infant death of hardware.  It will take awhile so you might want to wait to do this until you go to sleep.  Another option is for you to run the on-board diagnostics.  HP computers have a seperate logical drive that contains diagnostics that will automatically test the hardware: motherboard, CPU, display, etc.  This will help to seperate the world into SW or HW.  The on-board diagnostics can be accessed during the boot-up process (F11 I think it is on HP).  If the HW is clean, then your best bet is a clean install of Windows followed by dedicated time for updates.  Always run your updates with the PC plugged in, not on battery.  Also, when installing the updates from a fresh Windows install, don't install any new drivers until last.  Finish all non-driver updates, then create a restore point.  IF you install new drivers after that and they cause problems you can then go back to the last good restore point and you've found the problem. 

    Hope this helps.  I'd be happy to help with walking you through anything or any questions you have, but I'll need to wait until my lunch to do it (12PM E.T.).

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  26. gluck to all. its friday yay.

    Beware of small expenses; a small leak will sink a great ship. Benjamin Franklin (1706-1790)

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  27. So backwards, but I'll take any help I can get.

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  28. 25 cents.

    I usually try to shoot for 1:3 risk reward ratio.

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  29. All of this machination was a series of ABCs goin in around opening bell to establish the EW2 top (1309 area) on the 120 ES. Go look at posted chart on last thread. Once the 3 down initiates, it will be pretty spectacular. And constant. Trade your own charts. This represents my chart read, yours may be different. No one has the holy grail.

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  30. Do you have a target for 3rd down?

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  31. Interesting that we had an attempt at H&S yesterday afternoon, another one that you charted last night and now another at the open this morning; all on ES 10 minute.  On the SPX, it appears all as one H&S spanning the date line.  Does that still qualify?

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  32. $SPX tradin' +5.5 above ES

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  33.  I forgot...spent a couple of years in VA/NC area....18 drink in, 19 take out. ah the good old days of everclear shots and doing stupid stuff (and amazingly surviving).

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  34. These are all the same. It is only one. And it worked out if you do the math involved. More than worked out to downside...

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  35. ty, I'll try to figure that stuff out later.  :)

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  36. Much better than my next suggestion ... While at the ABC store purchase an inexpensive framing hammer, work gloves, and a pair of safety goggles.

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  37. I am having major technical difficulties right now.  Plus I'm exhausted from working roughly 10 hours straight (while having computer problem).  Anyway, the computer seems to be getting worse, and I'm too tired to mess w/ it right now, so I'm going to need to sign off for a while. 

    GL    :)

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  38. what is the basic requirement?

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  39. Anon20, you bring up an excellent point regarding flash crashes. It makes sense for all short-side swing traders to put crash sell orders in ahead of time. It is a challenge to decide on the price level for the orders though since the exchanges have updated their circuit breakers. From here to spx1050 is -20%. So maybe set the level for -15%? And if you are holding inverse leveraged ETFs or put options, the exercise gets even more interesting.

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  40. And good luck to you...

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  41. oil (uso) now down 2.20%, proposed it was a leading indicator

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  42. Absolutely. I always had stepped sell orders in for my TZA both during RTH and AH. It was my nuclear failsafe.

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  43. ES tgts EW3 If 1305 is broken
    1302
    1299
    1294

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  44. I can almost hear hear the hum of the  HFT servers right now.

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  45. isn't cheaper oil good for economy

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  46. It is, but that's for later. Right now, it is saying that oil traders think demand was over-anticipated, and that implies they think the spx is too pricey.

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  47. Lol! I couldn't agree more.

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  48. Yes, but it's also may be an indicator that demand is slowing.

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  49. USO down 2.51%, ES down .36%

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  50. Scotty_Doesnt_KnowJanuary 20, 2012 at 6:07 AM

    PL,
    Thanks again for another very informative article.
    Good luck with the PC issues.  http://www.apple.com/macpro/

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  51. Significant market highs are indicated by the requirement that at least one index of the major indices (small cap, mid cap, large cap, COMPQ) close above the upper Bollinger (20,2) band.  I use the RUT and SML for small caps, MID for mid caps, and SPX for large caps.  This did not occur since the late Nov low until 1/19/12.

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  52. katz, really appreciate your detailed posts.  I am watching the real time ES chart and learning a lot by following along.  Thanks and keep it coming!

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  53. This has nothing to do with the economy, it has to do with reading the waves and harvesting money from the market.  ST to IT plays. ES which represents $SPX has a good component of oil in the 500, XOM, CVX, COP, OXY, etc.

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  54. PL; great insights. Given u r already paying $5 a gallon on maui, $15 ain't a far stretch ;-) Everybody owns a house by then, but nobody can afford to drive to work to earn the wages needed to pay the mortgage... 

    DJIA up, due and solemly due to IBM, cause SPX and NDX down due to GOOG and the likes: bearish divergence!

    SPX currently making lower lows and lower highs. bearish sign.

    1310 is tuff nut to crack; we'll probably hover around that today IMHO

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  55. you must make your own decision exactly where.  all I can say, is look closely at the spx chart for last few years, since 2008.  the 1020 area looks like a temp stop to ME, and phead and others target between 1050 and 1000.

    I will add one more thing to MY comment above:  I strongly opine that the 2011 dow industrials market closing top of 12810 area, will NOT be broken in a close.  Because, IF it is, I would have to say the bull is still alive, and 2007 top, over 14000, is the next target, believe it or not.  So, I think that holding 12810 dji is extremely important, to bear case.  And 12810 dji is not that far away, now.

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  56. Skimming the cream until there is none.

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  57. katz,

    Why do you use USO instead of OIL? Just curious, not that they are that different today. :)

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  58. My charting platform will not allow oil futes, I only pay for ES feed. So chart USO along on ES chart.

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  59. Man, the sucker is putting up a good fight, and doesn't want to go under water (1300). :)

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  60. European markets close - DJIA gives in...

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  61. oh ok i guees ev1 day trader. i not . too discouragement for me to daY TRADE

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  62. think 05 broken, see how it tests that import pivot level first, bounces, then comes back down and breaks..

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  63. katz,

    QQQ seems a very good lead indicator as well - for today. :)

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  64. PL:  Always interesting insights.  My investment buddy and I often ask that question: "Is everyone blind?" but we have started think of the markets as a kind of "musical chairs" game where the "players" are not clueless and blind.  As you said, ALL signs of a bubble were written on the wall, yet the market kept going up.  I would argue that people were not oblivious; rather, they did not HAVE to care until suddenly they DO care.  The music stops playing, and everyone rushes to sit, but chairs had been disappearing one by one until there are not enough.  The Fed, our DJ, has been playing an ugly tune since October.  Surely it's time for a break?  Have a great weekend!

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  65. I don't think it will drop significantly until after AAPL earnings on Tuesday.  Hope springs eternal and AAPL is one for the bulls to look forward to.  They will likely keep the market in this top range until at least then.

    Any unforeseen events would change that, of course.

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  66. Here's a thought...we're thinking a few points/nibbles at a time...like mice...which we are in relative terms of the real money interests.  TPTB think in larger terms because that's their relative scale. That has it's advantages and disadvantages for both the mice and giants. Since TPTB are in it to win, they have to win in accordance to their scale. It is in their best interest to run this game to it's very limits to accommodate their risk reward requirements whenever possible. We are merely subsistence hunters/poachers taking the gazelle with our slings and arrows, but they hunt the elephant that we are riding. They are just waiting until we feed our elephant enough so that it grows to trophy size. Just a thought.

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  67. AAPL and GOOG both tanked today. They had been two of the horsemen leading SPX up. DOW is up today, however. Until DOW also tanks, SPX drop will be modest.

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  68. IBM and HPQ are popping up DOW.

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  69. And INTC and MSFT - of course. :)

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  70. any input on the TVIX ? 

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  71. Anyone been watching SI? Going coocoo for coacoa puffs. What’s the trigger?

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  72. The bottom of the channel I charted is at 1307.5 and so is the upper 5 min BB.  Looking  to turn back down soon.

    If not its probably bot time. 

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  73. that seems like great crack you are now inhaling, send ME some.
    mice giants gazelles elephants, do you see cockaroaches on charts.

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  74. For ones who have not experienced a flash crash before and having put options and inverse ETFs what would be the best advice: when and how to get out?  A flash crash definitely would result in closing the market. What will happen after that? If you have still positions left what would you expect the following days?

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  75. uptick in oil hampered down ES move...

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  76. unstoppable market.  just astounding,.

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  77. Oil's decline, looks like it may be done for the day. 

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  78. eur:usd about to break it's bear flag...going to 1.2800 to back test the trendline since October 27th.....then it will fill the gaps all the way back to 1.31....hope i can catch most of this ride.

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  79. not market, it's unstoppable computers.  until they crash. 
    then, 1-day crash 200 spx points, probably in 15 minutes.

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  80. I think AAPL is setting up a bear trap and will rally on Mon. and Tues. before its earnings.  Its dropping today to kill call buyers.  In doing so, it will embolden the bulls to take the market back up to or above yesterday's high.  Just my opinion.  There are no guarantees.

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  81. No crack...lions and tigers and bears maybe... no cockroaches (though I did tackle and shackle a guy who was seeing centipedes once)...just a thought. Computers absolutely programmed by flesh and blood...no biggie. you just have to play their game, and just keep an eye out for sudden rule changes.

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  82. To clarify, it will embolden the bulls when(if) it rallys on Mon and Tues.  If it drops from here and misses on earnings, EW 3 (down) is almost sure to begin.

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  83. what happens next day?  much worse. 
    a closed market creates greater panic.
    every night, fear adds.  human nature.
    loss panic is much stronger than greed.

    if market closes for several days--bank runs.
    and after bank runs, closed banks, comes--
    hunger, rage, armed robbery, murder.

    good question, you are smart. prepare.
    bullets, I keep saying, will be regulated.
    stock up on bullets.  they are the future.
    best usable item, best small light barter.

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  84. From Investd Central:

    "Equity Only Put/Call Ratio (EOPCR). 
    Currently this relative ratio is at the highest level we’ve seen in more than a year.  The last 2 elevated readings indicated that we were quickly approaching a short term top in the S&P 500."

    Contains an interesting chart:

    http://www.investedcentral.com/blogs/index.php/2012/01/20/complacency-at-extreme-level/

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  85. AAPL has a history of disappointing the market post-earning. Not because their earnings, but because of their sand-bagging. :) They want wiggle room for their next Q. :)

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  86. you're saying this signal was triggered yesterday? 

    were you long since 11/29 due to one of the primary markets closing below the low bollinger?

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  87. could see a dip in ES if the eur:usd does in fact breakdown here...but cobra is seeing a bull flag and we're at a resistance line in ES from last week.

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  88. VIX and VXX are sinking like stone. Just heard that people are leaning into it further by buying out-month puts. They are expecting VIX to dive towards 15 - its historical average.

    In light of Euroland's unresolved problems, that is in your face taunting. :)

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  89. Look at the recent move up in GLD / SLV.  Maybe it's a pump-and-dump before the disappointment of no QE3 next week???

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  90. truerangeballisticJanuary 20, 2012 at 8:02 AM

    CPCE put/call ratio is at a very low .47. I am not sure if this is an indicator of a reversal soon but in the past being this low was not good for bulls. Maybe this time is different???

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  91. I am expecting a pullback - anytime soon.

    Today is an outlier - IBM, HPQ, MSFT, INTC are pulling DOW up, because of earnings. Everything else is ready to tank. NASDAQ was pulling the market up in the past few weeks.

    Today, it turned red. :)

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  92. truerangeballisticJanuary 20, 2012 at 8:09 AM

    Sorry I did not see your post here when I mentioned the same thing. My apologies.

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  93. Yes, the RUT/SML, MID, and COMPQ closed above the upper Bollinger (20,2) band yesterday.  There was no reason to talk about the top of 2 without this first occuring.  My trend system gave a buy signal on 11/28 however, if you would look at the indices going into the end of Nov low you will see that the MID, SPX, and COMPQ all closed below the lower Bollinger band on 11/21.  All indices (RUT/SML, MID, SPX, and COMPQ) closed below the lower Bollinger band on 11/23.  A close below the lower Bollinger band on at least 2 indices during my trend model sell signal indicates that a local low in the market is near.  I have developed an alternate signal that looks for the following conditions:

    - 2 or more of the above indices close below their previous 20-Day low
    - These 2 indices close below the lower Bollinger band
    - These 2 indices 5-Day RSI is below 20

    A pretty good indication of a local low either the same day or over the next several days before some type of market rally.

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  94. truerangeballisticJanuary 20, 2012 at 8:13 AM

    I agree about the NASDAQ but what do you make of the support in the XLF and KRE? I would think these two would need to head south as well. IMO

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  95. Can we conclude that 1308 (cash) was supported? Or is it too early to tell?

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  96. They are testing resistance at 14 (XLF). They have been up quite a bit. Odds favor down. But .... :)

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  97. Exactly.  Last quarter they actually raised estimates even though they missed.  In this case, I think that they will guide in-line to down, and that will trigger the thought that AAPL's best days are over (at least for a few weeks or months).  That's why I think it ramps until Monday or Tuesday's close, taking the market with it. Then Wednesday could be a gap up and drop or just a gap down and drop day.  Wednesday also brings the FOMC meeting results.

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  98. VIX dropping on rumor.  someone bought roughly 60,000   ,  puts on VIX FEB's.  they are committed buyers now..  if/when they get there wish based on greece .  i think its blast off to upside from there to mid 20's...   pain before pleasure... 

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  99. oil starting down again . . .

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  100. 1311 is 100% fib extension level from the previous fib count that I used, based on Nov low, Dec high and low, intraday. Yesterday it broke that upside, today it backtested it. There is the appearance of resistance starting to morph into support.

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  101. I ADORE girls that freely say, 'pain before pleasure'.  Actually, I live for them.  In chains, of course.

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  102. AAPL has it's own behavior, like it's own index. It's always interesting and often the dumbest stock (read as easiest to play) because of its aura.

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  103. It depends on how you define a QE program by the US Fed.  Most people define a US QE program as an expansion of the Fed’s balance sheet, e.g., printing more new $USD and causing a debasement of the US Dollar.  Based on this definition, the Operation Twist, Central Banks’ Dollar Swap, and ECB’s LTRO are not pure US QE, even though they are designed to save the banks and therefore can help move up the US stock market.
    Operation Twist is neutral to the Fed’s balance sheet—selling short term treasuries to buy long term treasuries for the same amount.
    Central Banks’ Dollar Swap is also neutral to the Fed’s balance sheet—with the Fed loaning ‘recycled’ money to EU banks.
    ECB’s LTRO is a European QE, not a US QE.  It’s an expansion of the ECB’s balance sheet, NOT the Fed’s balance sheet.  This actually causes the US Dollar to rise in relation to the Euro—One reason why Gold has been down since Gold is priced in $USD.
    While these 3 programs have positive impact on US stocks, the impact is nowhere near a QE1 or QE2.  And Gold does need a pure US QE like QE1 or QE2 to keep rising.

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  104. 'rocketscientist', I have been expecting a 'pullback - anytime soon', for 3 FUCKING MONTHS.
    BUT NOW, that MY priori 1295 spx h&s neckline was easily broken like a whiny bitch, NOW,
    I expect this sucker to test limits of endurance, and to ME those are---12810dji, $1680gold.

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  105. Hey, I have to make bets base on my expectations.

    What the market wants to do, however, is entirely out of my hands. I can only do damage control if it goes against me. I learned this the hard way:

    The market is always right. :}

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  106. Very interesting study SJ. Thanks!

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  107. you know nothing, dont waste your time writing here, poor amerikan ignoramus retard. 
    CB actions worlwide, are pennyante nickel dime shit, in proportion to world debt.
    it is all a wizard of oz illusion, for poor dumb folk like you, as their turkeys. 
    gobble gobble, shame your idiotic amerikan 'thanksgiving', passed.

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  108.  You're such a dom Anon...Ya made me go and spit coffee through my nose...LOL

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  109. Good points.

    I believe that the market support is all a question of liquidity in the system.  Op Twist really doesn't change the liquidity.

    However, QE1, QE2 and the LTRO do increase the liquidity and therefore the pieces of paper that can be exchanged for US Stock.  I'm not sure if the Central Bank's $$ swap increases liquidity or not.  What we've been told is that it doesn't but I have the suspicion that the 'recycled' portion of what the Fed is getting is not worth what is being put up... sovereign bonds for example.  So I suspect that almost all the action from the CBs are increasing liquidity.  We've also been told that the LTRO is an exchange of collateral for a 3 year loan at 1%.  We know that if I give you something that is close to worthless and you give me something that still has value (at a low interest rate) there is now more liquidity.  And I'm going to try and make something better than 1% on my new liquidity.  And if I expect that the ECB will do more stealth printing it might be nice to park my new liquidity in US Stocks in US $$$ paying dividends in the perceived last refuge.  And, truth be told, US Companies are doing everything they can to remain profitable and keeping large cash holdings to tide them over during the coming flood.
     
    I'd really love to be able to tape some of the conversations the Central Bankers are having!

    So, while the different actions will have different immediate effects on different asset classes.. gold rising vs. SPX rising vs. US Treasury prices etc. the ultimate effect is just extreme distortion.  These distortions (oscillations of liquidity chasing one asset vs. another) will eventually reach a snapping point.

    The one question I would like to have the answer to is;  "Tell me what QE will be the one that has no effect?"  That will be the time to go 100% short and hold on for the ride.

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  110. oil fallin, mrkt will join... break of ES 07 starts ball rolling

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  111. thanks. i was wonderring why the dji and spx was going down.

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  112. Anybody watching longer term, US Treasuries and interest rates.  10year rates have moved from ~1.835% to ~2.0335 over the last three days.  This is a fairly substantial move over this short of a time frame.  Suppositions;
    (1)  GQ public:  Stocks are going up.  Bonds not yielding enough to retire.  I'm going to sell my US bonds and jump into stocks.
    (2)  Big guys (banks, hedge funds, pension funds, etc):  Greece will default in a couple of months but the central banks will backstop so I'm going to sell my 'safe' US bonds and buy something else with a better return.
    (3)  Everyone:  We don't believe the world will end so we are not going to hold US Treasuries for some paltry yield ~2% yield over 10 years.

    Fed response:  Oh s#@*$&!  Crank up the printing.

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  113. Huge positive money flows in the market today. Can this define a top? I always thought there was strong distribution on most tops.

    http://online.wsj.com/mdc/public/page/2_3022-mfsctrscan-moneyflow.html?mod=topnav_2_3022

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  114. My experience with OPEX is that unless there is a sharp drop to 1300 or a rapid ascend to 1320 soon, it will most likely be treading water at around 1300. And is like watching paint dry. :)

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  115. That was quite a move for oil to break down like that after it's bounce.   I traded it back when it was around 103, and have sort of kept a lazy eye on it.  Often what I had seen is one big  move during RTH and done.  Then if the move during the US markets was big enough, it would typically be correct some by Asia & Europe.   Perhaps oil is the catylyst for this move.

    I just checked and copper is breaking down as well

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  116. drop starts monday...but unsure if it is just for wave 4 or the top...I'm playing it for the top.

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  117. It's about time for Dr. Copper to come down from the high horse. :)

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  118. My understanding is that the banks are taking the LTRO at 1% cost and then parking it at the ECB for a 0.25% gain. So it seems that they are simply buying cheap insurance 0.75% in the event of the SHTF. They will be capitalized. It's future QE. Now is the ECB then taking those deposits and purchasing sovereign debt? I call bullshit on the play.

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  119. Switched back to the 15 min. from the 10 min. that showed off the H&S better. Unheard of tests in this mrkt, prone to test the most ardent chartist. Shows how hard it is to break the bullish factor. Did we make any new high after yesterday's H&S? No. . .  Calcs on that H&S were perfect and in a normal higher volume mrkt the 4 tests would not have occurred. These are labeled incorrectly, the last 'C' to the right is correct. It was a double ABC, when nothing else works throw an ABC in there. lol Single ABCs will resume original direction, are basically a pause; a double ABC is a reversal of the direction.

    Oscillators on my favorite 120 ES are too big for my taste, a sign that this mrkt is not fully exhausted to the upside. THink this down I am calling for will just be a EW4 move, and that we will have one more trip up, I got 1319 ES. BUT, the problem with this plan is that it can go awry quickly at the EW4 level, especially if some world event turns investors negative. EW4 is set at 1290 to 94. BTW, my tgt of 1309 was broken by 2.5 ES points. I should learn to push the tgts a bit higher in this bullish mrkt.http://www.screencast.com/users/katzo7/folders/Jing/media/d9d9069e-7191-4a33-b220-68c3747c9ec7

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  120. SPX is sitting right on fib 100% so is an unstable pivot point. Big picture, if above, the next target is 161.8% at SPX 1378. I see a bullish sentiment and no upward momentum. It takes a leap of faith to shoot for 1378, so far away, so won't happen. That's the big picture assessment, anyway. Chart posted.

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  121. The point to mull over is the huge gap from 1311 to 1378. There is no half way because Fibonacci is the lord of price.

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  122. Tomorrow, the Patriots will host the Ravens.

    A blowout or a shutout? :)

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  123. Wow. That's firework to close green.

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  124. Bears and bulls have gone home early for the weekend.  The bots have the market all to themselves.

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  125. The fact that my Texans had a chance to beat B'more with a 3rd string QB late in the 4th quarter, and the fact that Tom Brady is vastly superior to Joe Flaccid (especially at home and especially when he feels he has something to prove) makes me think Pats by 24 (45-21)... a behind-the-woodshed arse whoopin'  I also like the Niners by 3 over the Giants (24-21).

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  126. This is a powerful move and changes the count I suggested.

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  127. SPX will go to 1350. Agree? :)

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  128. Pl, others; what is the implication of NDX breaking thru 2011 high over the last few days, does this chage your LT count?

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  129. You don't think they'll be able to force Brady into a running game?

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  130. Don't think that's a foregone conclusion. Next week can be bears' week and just as easily wipe out all the grind up. We're still sitting on this pivot - and can for a few more days. :)

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  131. As you mentioned, it is best to let the market dictate its direction; and just play on the right side AFTER it makes its direction clear. You may not get at the maximum profit, but you should get a majority of it with less risk.

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  132. Patriots win, Giants win and Giants win again

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  133. You have to respect half a trillion Euros, with more to come. Not to mention the Fed smiling on the sideline. :)

    That's enough liquidity to re-float that ginormous Costa whatever off the Italian coast. :)

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  134. like is said, this mkt isnt going down.  EVER. maybe next year.

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  135. That's true - have to respect the market. If nothing good happens for the bears next week, I would throw in the towel at that point and say, enough of this swing trade nonsense. Let's do intraday only, long or short.

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  136. I'd not be surprise.

    After the 4th ring, it is hard to be motivated to kill for the 5th. :)

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  137. if its any help- January effect over, options expiry over, next week should be the first 'normal' trading week of the year.  whatever that means.

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  138. It can go to 1350+, but may pull back first.  The bus needs to pull back to pick up more riders on its way to the top.  The question is when and how big of a pull back.

    What's concerning to me is that many people are calling a top at SPX 1310-1320, but we haven't seen a lot of bears come out to short.

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  139. So buy on dips it will be. Have a nice weekend. :)

    Go Patriot.

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  140. oh, by- DJI at pre-eurpe levels, near may 2011 high.  nice run bulls, this board is permabear i thought its be a little more objective- top calling for 5 weeks now- not bad just not good in a bull mkt i think.. PL doing good work still!!

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  141. To me, it wouldn't make to see a lot of short selling at a major top, else it wouldn't be a major top. It won't be the shorts that make this a top. It will be all the longs that come out suddenly. Just my opinion.

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  142. Yeah, this board has been pretty wrong for last 4 weeks. I don't think it's a permabear issue. It's just a tough business

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  143. Croatia will have a referendum to join the Euro. Go figure. :)

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  144. You have to pay attention to his Alt counts. Especially these are not normal times. :)

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  145. Agree that it's not a permabear issue.   I think I've underestimated the power of low volume!

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  146. i don't think people here are permabears.  i am pretty sure that they will go with the direction of the market.  all the talk of the big drop is because of the evidence that they see that others do not.  are you long now?

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  147. Look at the daily. From 12/21 forward, the up moves have been on small, little increments, and much on overnight futures, as many noted. I've understimated the power of complacency!

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  148. Have a good weekend, everybody. It's been a tough two weeks for me. Next week will be the decider for this phase of the war.

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  149. Permabull, bermabear, permapress, who cares. This is where I went in, the red rectangles. note where the oscillator and MACD are now, contradicts my earlier statement that there was a lot of up pressure on this move. Yes, on lower time frames there was but on the 60 it is non-existant. I get stopped out and I will go in again. Old tricks are not working normally in this mrkt. EW5s are bitches to call.

    http://www.screencast.com/users/katzo7/folders/Jing/media/e3feef57-b367-48db-859d-5597ddc1b2eb

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  150. seems like PL's alternate count is more and more in play. My call for a top yesterday was brave, bold and stupid indeed. BUT, see it as the top for this week ;-) so I am not entirely wrong.  

    My outlook: The trend line connecting the October 2007, May 2011 and July 2011 highs will be at 1,328 next week. Failure of the S&P to move above might cause a correction (given the max 1.5% pullbacks of the last month, that be 1300-1310 area ). The next significant resistance after 1,328 is the upper head and shoulders trend line that kept a lid on prices in May 2011. This trend line will be around 1,365 in the coming weeks. There you have it; all in line with PL's alternate count and chart.

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  151. That last big upbar was totally artificial, isn't it? I see what you mean by the MACD negative divergence.

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  152. To be fair, there is only a "right" or "wrong" in hindsight. The board and it's participants provide a very wide variety of information and opinions. Most of it is very useful. It's definitely a tough business, but comments like this are like slap in the face with kiss to say I'm sorry...

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  153. FYI: I don't know where I read it, but somebody somewhere calculated that the FED's money swap to ECB on Nov 30 and ECB's LTRO of Dec 20, could each pull the SPX up about  ~100 points, before the money runs out. From the 1160 low of October to the 1365 trend line is almost exactly 200 points... Go figure... coincidental???

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  154. The Dow is incapable of going down - ever.  Actually, since October futures never went red and that has now just translated to the cash market.  I'm not going to look short until we have topped, not just talked about it which has been going on since 1230 SP

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  155. I meant pretty wrong in the result, not in the process. If/when the reversal comes, those who were right, particularly as of the first week of 2012, will be shown to be fools in reading only trends, moving averages, and nothing else, waves in particular. I have a huge short position, so obviously I have a certain disbelief in mere trend following.

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  156. Delete the word stupid. No not stupid, this is akin to knowing which Olympic swimmer will come in first. It is an art not a science.

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  157. VIX closed below it's lower Bollinger Band... Wait for a good close above lower band and get ready to short!

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  158. Well, in hindsight, holding short for a counter-trend swing trade was pretty dumb, considering that on a reversal, not catching the first red bar would only amount to missing only about 20 or 30 points. In the Aug - Dec timeframe, up or down reversals have been quick to appear. Ever since the break above the multi-month down trendline in late Dec, the character has changed.

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  159. Yeah, I'm gonna give this sucker another week to prove my bearish position right. If not, then we really don't know what's going on.

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  160. So in recent days the  RUT, COMP & DJI had  at least one close above their upper Bollinger Band.   The SPX has yet to finish that high.  RUT actually had two closes above, the previous two days, it pulled back some today as did the other indices, including SPX. 

    With 3 indexes having hit those key levels, I''m of the opinion its not that important for the SPX to hit that level.  Just upon my quick glance back at the past year, there were cases - particularly in July when some of those indices had as many as five closes above the BB before pulling back, so it's not necessarily a one and done.

    I suppose its possible, but I didn't notice  any instances in the past year where there was a gap of even a single day between closes above the BB - i.e. they were consecutive, thus it's not likely that RUT, or COMP would do so again this rally, and by extension SPX will likely not either. 

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  161. As I wrote earlier today, it's longer than just 5 weeks, it is actually about 2 months, since spx was in low 1200's, that p-head has had a wrong preferred daily count, more than 75% of the time.  I have been wrong about 50%, because I have turned faster than him, in seeing that low spx 1200's rsi and macd were way oversold then, and then turning again faster once 1255 spx trendline was easily broken on dec. 24, and now again with 1295 area upward breakage, all of them meaning  more that he thought.  No longer matters to ME, though, I already paid maximum price for MY errors today: zero. 

    However, it is GOOD to read that someone else herein, other than MYSELF, has the guts to take the pretentious, ever-preening  p-head to task, for his continual daily ERRORS, even if it is from a smirking cynical jackass clown like yourself.   

    Because, yes, the p-head always provides infinite secondary and terceriary counts to cover his butt, so one is eventually bound to be,  'eventually right.'  And it's about fucking time some else commented on this, his daily erroneous preferred counts. 

    As to MYSELF,  I make MY decisions, and pay for them, WIN or lose.  However, I am used to WINNING, and I am in a fucking RAGE, that I have lost so much over last 3 months, chasing this LAST TIDAL wave down.  And SOMEONE else will pay  ME for it, I ASSURE you.  I WILL find way to WIN.

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  162. You have to work on your trolling skills. You were obvious after just a couple of posts in. You let just a bit too much sincerity and concern in way too early. You wouldn't last more than two minutes into a weak interrogation. Just sayin.

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  163. It is DOM, not dom.  You have made same error twice.  possibly because you are a nurse.

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  164. same here DD.   what are you short on?  i think there is soo much optimism from Dec 31 the sky is falling to Jan 01, load the truck..  the analyst on TV are sucking everyone in for the takedown (at some point)  then again, thats how this game is played.  timing is everything.. uggg

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  165. I went in short at 1278. With some options expired - that was the worst part. Will have to be very careful to not get trapped in an explosive short squeeze up from here.

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  166. Good FYI... Say it ain't so...manipulation...well now there's something to keep your eye on.

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  167. It's just like reading an EKG....some science...mostly art

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  168. I'd suggest looking back at some previous tops, closes above BB and see how long it took before the market had a real pullback from those tops.  If you haven't already, you would at least have a relative time frame to look for before pulling the plug. 

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  169. Your outlook seems reasonable to me.  However, I suspect that the correction/pullback will be bigger than that.  If the Big/Smart Money has been selling at the 1300+ level, they will drive the market down quite a bit to buy back the shares at lower price, and then set themselves up for another rally right after the next ECB's LTRO offering on Feb 28.

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  170. From 1320, a pullback to 1250, which is -5%, makes sense to me. That would be the March 2011 low.

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  171. ANON, I believe Sandy is a guy here :-)

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  172. When you do option, you have to be very careful. It is worse than stock because you've to know not only target, but you are running against time.  That is why option spread is  a better way to express your view on the market. It limits your upside, but it also lowers your cost.

    Also, you have to have an exit strategy. When things go against you, you have to get out. It is tempting to do nothing and hope for your view of the market to prevail.

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  173. Something from another site "Tom Demark calling market
    top, TD count is 9, careful new longs." 

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  174. Looks like you found a lil' buddy piglet, Maw should be real proud of ya!  Since he's long and your short, sounds like a match made in heaven - bend over and enjoy, although it sounds like you've had plenty of reaming this day!
    I must say that I'm pretty disappointed in you for your lack of patience in this market. When your a home run hitter who can't hit sliders and change-ups, you gotta wait for the right pitch kiddo, complacency not there yet but real soon.
    And BTW your critiques of PL and others here have grown quite lame, non-constructive and not as amusing. Although, you do seem to have quite a following here who salivate on every word that spews from your mouth - very strange, I guess people deep down love to be spanked by the bad boy. Tell Maw I said hello and enjoy the honeymoon, send pics wantcha please!

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  175. Just took a look at it. In past year, closing at or near upper BB and RSI at or near 70 would mark a top. One or the other would not have to actually meet the line, but the other would. Right now, the index is very near the upper BB and the RSI is 68.91. Pretty close. If it doesn't turn next week, then we're in a bull market.

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  176. Annonn, I'm tired of listening to you bitch about me *in every post you make*.  And I'm tired of your warped version of the truth.  This is your last warning.  Next time, I won't say anything, I'll just delete and ban you faster than you can create new accounts.

    It's hard enough dealing with this market.  I'm well aware of when I make a bad call and when I make a good one -- I don't need you constantly attacking me and overstating every mistake.

    Again, this is your last warning.  Quit yer bitching or move on.

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  177. To answer the how many days question, it seems that if you combine the BB and RSI together, it should take only a few days, or it doesn't happen at all.

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  178. It's one of the things I plan on studying with my free time this weekend, so that people can bitch about my conclusions.  That makes me feel like its time well spent.  :)

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  179. Is this guy a troll?  I'm so naive...  I actually liked him.

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  180. the bears are utterly demoralized.  doesn't seem like it would take much from here to make you all capitulate.   the s&p was up a fraction today and some are responding like it was up 20.  the correction will come.

    as for erics snarky comment about pretzel and permabears.. haven't you been calling the market higher for several weeks now?  i'm a little surprised you would sound so bitter after all the money you've made.  instead of throwing insults out you should have been laying out the case for this raging bull market that was apparently so obvious. 

    lashing out and blaming others for your problems doesn't change the fact that this business can be a real bitch sometimes. 

    pretzel does a heck of a job, he has been saying for some time now that there was a legitimate chance the market would go to the very levels we see today.   if someone here is smarter than him why don't you publish a daily forecast and we'll compare results. .

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  181. Hi, welcome, sorry about Annonn20, he's got anger issues.

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  182. Curious how the discussion here has evolved since the first of the year.  Which is not patronizing so much as making mental note.  The level of confusion is telling though.

    This has actually been an easy market to short or go long the last week.  Because the entry points for either have been obvious.  The week before that not so much, but it's not hard to fathom what's going on here.

    A meaningful correction downward is coming soon.  It's the only logical outcome of a market that has traded sideways in a twenty point range for two weeks, then this last week made a convincing stab higher just long enough to make people believe it.

    My guess is that the move down starts after Wednesday and after the Fed announcement that there is no QE and we'll see another couple bad Euro headlines to go with it.  Earnings have also simply not been strong enough. 

    This remains one of the biggest fakeout 'rallies' we will ever see in the next few years.  It may even go quite a bit higher than this before it's all over, but it's important to keep in mind that it's driven almost entirely by central bank intervention and nothing else. 

    It's pure money dumping along just enough feel good news reporting to keep grinding incrementally higher.

    Which is partly why this market also remains easy to short.  There has never been a new high reached that does not also see at least five to seven point fallback. That's important to keep in mind.  Those fallbacks are IMPORTANT to understanding the action.  They are happening for a reason.

    The basic mechanics of the market are simple:  make a new high that gives additional hope to bulls and is convincing enough to rip sellers out of their positions and abandon.  Fall backjust enough to start the process over and lure shorts back in.  Then back up again to repeat.  Longs get minor wins along the way.  And are lulled.  Retail and run of the mill shorts get wiped out along the way.

    It's intended to fuck all comers here.  Longs aren't making THAT much money, though they're doing okay.  Most sellers who don't have the balls to add to their positions on each march up are getting ground to pieces and having their confidence blown.  And it seems there is no discernible end in sight.  That's the most important thing the market it trying to make you believe. 

    But since it's a market intended to screw over all participants, the market has to get it's money back from longs who've bought in soon.  Which will require a fall to at least 1,260-ish at minimum.  And probably a dip down below 1,250 to really get longs to start bailing.  The Street is going to get their money too before this is all over.  And that's coming soon enough.

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  183. katzy, never heard of tom demark..

    does he have a track record of successfully calling tops/bottoms?

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  184. To all the critics of PL and his "permabear" position, he gave everyone adequate warning and stops almost a 100 points ago and correctly identified 1310 over and over again as a target for a last lunge and/or a turning point that would refute his wave count if it traded convincingly above.  If you didn't follow his advice or thru ignorance you want to claim he never gave adequate warning, go someplace else.

    I'm not going to go thru all of his posts, which I have been printing out since March, and quote what he said but the warnings were there.

    If you followed his observations from early last year you should have made plenty of money.

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  185. Sold his research to "SAC Capital, Passport Capital, Tudor Investment Corp., Soros Fund
    Management, Omega Advisors, and others."

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  186. Rich, thanks -- I actually meant to mention this occurrence in today's article, but got side-tracked with endless computer problems and forgot. 

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