Monday, October 22, 2012

Indices Dig Out Of Hole.

The selling momentum of last Friday continued for better part of today but the last hour was a good turnaround. DOW covered more than 100 points to close in green. In terms of chart pattern let us see the favourite of the Boyz, /ES or emini (SPX futures).

The following is a 4 hour chart of /ES

This is the 2nd time /ES has bounced from 1420 level which is a good support and the last breakout happened from here. The next line of defence is 1400 level.  And the indices still held the low of 10/12/2012. The cash SPX actually bounced off the lower BB and is sitting just above the 50 DMA. Possibly the bears are allowed only up-to this much for now.

The fundamentals are not that great. With corporate profits down and fiscal cliff hanging in front, there are quite a bit of distributions going on for the last many trading days. Most likely smart money is getting out before the uncertainty hits home. But the last bit of shenanigan is still ahead of us and the Boyz will melt up the market for at least one more time. Therefore it is time for patience and not the time for taking positions. I plan to take a long position by end of October but not in any stock or indices. In my view, the least risky trade would be short bond and therefore TBT.

As you know I am long term bullish on Gold and Silver. But if Gold and Silver do not make new highs by mid-November, it may not be a bad idea to step out for a short while. However, if you are not checking your investment portfolio everyday and are comfortable to hold it for a long term, then there is no need to hop in and out.  In fact every weakness is an opportunity to scale in.

Nat.Gas did sell off today. From $3.65, it closed at $3.44. Yet it has not given the sell signal. It has to close below $3.40 for a meaningful correction. I am waiting for it to correct some more for a good entry.

Coming back to short term equities cycle, the 1st reading had bottom around 24th October. Subsequently, 24th October inverted to top and cycle bottom moved to end of October. In situations like these, it is screaming confusion and the best course of action is no action at all. The crystal ball is fairly clear after 29th/30th October till mid- November and that is when I plan to take a long shot for a short while.

Hope you have been in cash and cushy. Cash is the king in times like these. Good opportunities are ahead of us and we have to keep our emotions in check. If you were long, hope you did not close your position because it will turn around very quickly. Problem is, none of these turn around are for real.

We may see some more selling in a day or two but it does not matter. Unless the bears break down 1400 with conviction in the coming few trading sessions, we are looking for a swing high around 1480-1500 range by mid-November.

That’s all for this Monday evening. Thanks for sharing my thoughts. Be safe out there please.