Friday, June 8, 2012

Week Of Hope and Helium.

Pardon me for referring my older posts to bring home the points because mostly we read selectively and remember what confirms our belief. This is called “Confirmation Bias”. Yesterday I wrote: “Is the rally over? Somehow I do not think so. I think it still has few more days of fuel left and we may see the uptrend resumed tomorrow.”  So we have had today. I wish all my calls would be always so correct!

But the overnight action was not very convincing and in the morning I decided that I will not hold positions over the weekend. In a headline driven market, where the market acts in a schizophrenic manner, it is too risky to leave open positions in a counter trend rally. In any case the bounce has been weak so far.  I expected 1340 would be taken out by now but we are still struggling to get past the high of May 29th. So in the morning I sent out tweets that I plan to exit all positions during the day on a bounce. It is better to take profit when you just had a 500 point pop in DOW over hope and helium. I still have GLD which I will hold for now.

So now we are in cash and cushy.  No tension going over the weekend and worrying whether Spain will be able to save its crappy banks and kick the can down for few more months. If Spain does ask for bailout, it may either start a new wave of selling or start a relief rally. I do not know and I do not want to take any chances.  If you have noticed carefully, today the big boyz were totally absent and the volume was almost half of normal. No wonder we had a melt-up in the afternoon. But unless Uncle Ben shows up with the money bag, I have no intention of going long. I may play between support and resistance in a very small scale, but that is not investing. That is gambling and you have to be very clear that you are risking your capital in the hope of finding space between elephant’s toes. And I do not recommend it to regular folks looking for safe investing. Now is not the time yet.

So what’s next going forward? I am conflicted whether we will follow plan “A” which is to follow the script of last year or plan “B” which is to follow the Presidential election year cycle.  It is quite possible that we have seen the bottom on June 4th. But it is also possible that more selling is to come given all the uncertainty. More the reason to be careful and not commit to any particular position. As I have said before, I am sure we will have a test of the lows but I am not sure of lower lows. If that is the case, then I have a nice Elliott Wave chart to share with you.

It has been made by Jamie Seattele, who is a currency technical analyst by profession and does this for living. I respect Jamie’s work and I thought it is worth sharing with the readers. But it does not mean I agree with him. It’s just another possibility.

If 1267 was the low for SPX then this plan plays out. But we do not know. Either way, the point A in the chart coincides with my call for bounce and we are almost done there. May be little bit more on the upside on Monday. Why do I think we will have some more bounce on Monday? Mainly because of the price action of Euro.

From this hourly chart of Euro you can see that Euro broke the trend-line and is now re-testing the lower part of the line. In all likelihood, it will go up to test 1.2550-1.2600 level and fall back. That can happen on Monday.  When that happens, it will be a good place to short. Another potential short candidate is Crude if it reaches $ 88 and fails there. In the afternoon, while SPX and Nasdaq flat lined, Crude started going up and I hope it goes up a whole lot more.

But McClellan Oscillator is at a level from where market cannot go up much higher and the logical route is down.

So now we wait for the correction and see where it ends.  That will give us an idea which plan we are going to follow. There is no rush and we are not going to miss anything worthwhile by being careful. End of the day, hopefully you are going to thank me for my relentless call for safety and cash. When we are playing with our future and retirement funds, it pays to have a cautious coach.

Enjoy the beautiful weekend with your loved ones. Thanks for reading Please forward / re-tweet / post it on your wall and join me in twitter. (Twitter @ BBFinanceblog)(Stocktwits: Worldoffinance)