Friday, October 31, 2008

Dare to short this?

Closed at all time highs again.

The highest site traffic of week always coincided with local tops and bottoms so far.

Tuesday, October 28, 2008

Congestion between 1050 - 850 continues ...

Market rallied strongly and closed at ES=940 as I expected....From intraday and daily charts, S&P appears to be trading through the setup I saw yesterday.

If this will still be the case for tomorrow, we should gap up above 950 and sharply rally towards 970-980 before any pulling back.

I am planning to take some profits before the FED but I expect more upside after the FED till Thursday. I do the selling because of the increasing risk due to the FED.

I am currently up about 85 points on ESz / SPz and about 700 on YMz. I will get rid of 50% of each tomorrow.

Edit on October 29, 2008:

Sunday, October 26, 2008

Collapse of Market Fundamentalism

Most of the investment methodologies are built on a theory called market fundamentalism. Market fundamentalism suggests that markets are self-correcting and eventually revert to the mean.

Mathematical definition of the theory is based on a simple statistical assumption that deviations from the mean occur in a random fashion and you can calculate a distribution and expect the market to return to the mean over the time. In other words, overshoots from the mean in both directions always offer investment opportunities over a long time.

This theory is wrong. Markets do not revert to the mean always, because the markets are reinforcing. Markets are not perfect and under the right circumstances, trends can feed on themselves.

Under the right macro circumstances like political, economic and social, market fundamentalism appears to work for decades / centuries. But when those major conditions change or no longer exist, your statistical model is refuted in time.

"Buy American, I am", by Warren Buffet. I think the markets are about to make a historical example out of this man who used market fundamentalism successfully for all his life. Survival of the fittest in finance is based on adaptation to the trend created by underlying factors. I do not think he will live long enough to realize it.

Now what all this means for an investor? I think it means this may not be a time to find the next GE to invest for the next 50 years. I think as soon as the market hits a reasonably low P/E, like 8 to 10, it will trade in a 30-50% range until P/E once again justifies further sell off... That is, S&P may rally 30-50% off the lows, this doesn't mean we are getting back to the mean. From an analytical perspective, I know exactly where the mean is and it is impossible to achieve any longer. While we trade in a range, corporate earnings will further decline, this will eventually blossom into another cyclical sell off in coming years.

However, I am thinking this is the time to apply that false market theory to China. I think market fundamentalism will work for China for the next few decades. I am waiting for the right moment to enter that market for the long run.

Saturday, October 25, 2008

Example to a parabolic curve

I received this email from a reader:

Sol & Attilla

You have a great blog! I have observed Attilla's trading skills for at least four years mostly through his postings on TT. When you opened the blog this summer, I decided to simulate Attilla's trades in a trade competition.

I executed his market calls using index ETFs and I have been over the top among thousands of participants for at least two months now. However, I achieved better results in my personal brokerage account because the trades I place get executed immediately unlike the competition web site which has 15-20 minutes delay. I believe Attilla would love to see my results:

Please accept my gratitude for everything you have done so far.



Friday, October 24, 2008

S&P500 may drop additional 20 - 25% next week

My EOD and EOW data indicates that there is more than 50% chance for such a move. If it happens, I think it will complete the bear market.

Monday's open will be very important indication. I am partially positioned for the move however I will decisively initiate new positions based on Monday's opening.

Sold ES at 873 - 875

Thursday, October 23, 2008

Tuesday, October 21, 2008

This is where any IT rally will end

Do you remember the following chart? It is the normalized index chart I have been posting a while ago. Here is what this chart was like two months ago or so. Well it is now unrecognizable because we crashed so deep that the H&S formation now looks small overall. H&S target was broken and now acts like resistance. This resistance is where any IT rally will end.

And following is a daily PC ratio indicating that OEX folks bought puts yesterday getting ready for a sell off but read the explanations on the chart. Devil is in details.

Following is 10DMA charts of the PC ratios. 10MA of CBOE indicates we hit the spot again.

Monday, October 20, 2008

History may not resemble this time.

A while ago, when I called the bottom at 850, it was clear to me that the market undercut its fair value due to the panic selling. At the moment S&P fair value is around 930 based on normalized forward P/E.

We were in a selling climax and the pattern ran its course. DJI punched through its 30 year trend line initiated by the crash of 87 and closed the week above it. In other words, pattern resembled the originator as I predicted weeks before the crash.

Considering we have passed the most intense part of the credit bust, and we had a capitulation phase in the market, it is likely that we will make a smooth transition to the expansion cycle from here on. These were my fundamental thoughts.

A few days later, Warren Buffet came out and told us that he is in shopping spree followed by John P. Hussman, trying to justify current valuations with a letter to his clients.

One of my trading and investing principles is to search and keep an opposite opinion to my positions after I begin trading a new trend. This opinion helps me to awaken when I am soon-to-be-wrong.

As usual, I have been seeking them since the the day one and I haven't find much in the fundamental universe but they were all on the charts.

Very long term trend structures are severely distorted, some of them are completely broken. And these investment titans, orchestrating a market bottom is disturbing me. They have never been right about market tops and bottoms at the right time and they will likely be wrong about this one too. Of course they can stand through another 20-30% selling and be eventually right but this is not what I can stomach.

While I must still keep a bullish stand going forward, because of the reasons I mentioned above, I am watching for the unexpected to come in true. Keeping an eye on the things that bother me because all along my career, it's been my experience that the writings on the charts eventually became the reality.

stopped again

Atilla must be right, looks like we are going higher. Shorts are not working

shorted at 959

stop at 964
target same

stopped at 957

shorting ES @ 956.75

good fill at 956.75

this is a day trade

target 895

stop 957

Sunday, October 19, 2008

Bermuda Triangle?

Was October 10, 2008 the bottom?

Looks like you all having fun while I am away, well actually I have been reading as often as my condition allowed me and I must say I have never seen times like this, I have never seen Atilla like this because the market had never been like this since the day one. I am absolutely speechless.

When I saw the numbers of comments to his crash call and bottom call, I immediately checked the site traffic. The following chart indicates that Atilla had 13K+ followers on October 10, 2008, all time high for xTrends as far as I know.
From my experience, this chart works better than classic VIX indicator :)

Friday, October 17, 2008

Thursday, October 16, 2008

Friday, October 10, 2008

Fully long

ESz from 870
SPz btw 850

All accounts deployed.

We will close 5% or more higher today near SPX 1000

This was the great opportunity for those long term and intermediate term investors.

We are coming out of the selling climax, upside will be as vicious as the downside.

We will never see these levels for the next 6-9 months.
Edit on Wednesday October 15 2008, 10:30ET:
I expect the rest of the option expiration week as follows. Tomorrow's opening is important for this scenario to play out. (ES open > 932)

Added 25% ES at 865

now fully long ES from 870
I am also buying SPZ around 870

Added 25% ES long btw 865-870

making total 75%

I will likely make it fully long in the morning
I will also start accumulating SPZ in the other accounts

Thursday, October 9, 2008

long ES @ 876-77

total 50% position including previous ones, average @ 876

long ES at 875

30% position including previous one

long ES at 874

10% position

covered the last 25% at 880

I will start initiating long positions tomorrow if we gap down around here or little lower

Covered 25% more around 885

for 155 points profit on ES
for 140 points profit on SP

this leaves me with 25% short

Covered 25% more at 915

50% left

Covered 25% ES and SP around 925

still short 75% from ES=1040 and SP=1023

4-sigma move is underway

I believe we are about to see the sharpest sell off of the bear market in the next two hours. There is a possibility S&P may undercut 900 intraday.

If it happens, most of you will remember this for the rest of your lifes. I definitely will. I think this is the time span we come across in books and memories of those who capitalized on such moves. Livermore, Tudor, Soros . I am not betting on it, because I placed my bets long ago...

I placed orders to cover under ES 900, every 10 points in case it happens. I may change them based on new developments but if the market starts to move faster than my typing skills allow me to enter orders, you know that I am there covering between 850-900. Otherwise, I will post my exits as usual.

Surprise intervention this morning.

Hey, It's been a while I haven't woke up without domestic or global intervention. What a change !!!

I know it is the historically extreme oversold condition that is attracting the army of suckers to this. But washout is inevitable, the question is when and how.
Considering that there will not be another intervention this morning, here is how I see it.

If we open higher, which looks like we will, we will print a top around 1005 or 1015 on ES. It is been pretty clear to me that during this final leg that started with a breakdown of 1055 level this week, we kept printing lower highs, starting with 1042, then 1026 yesterday, I think it will be 1005 or 1015 this morning.

Soon after the opening bell, we start selling. I expect a test of 940-950 range sometime intraday. From there we reverse and close the day above 1015 on ES

This is my final trade on the short side in this cyclical move. I am not crazy about it. These last few weeks has been the best times of my entire career. In two weeks, I almost tripled two of the futures accounts. I am up over 70% overall. I have been trading this market on the short side for months now. I think we are pretty close to the end of this era.

Again, this is my last index trade on the short side in this cyclical move, I plan to shift to the bull side after I get what I want. If not, then as I said, I can let it go around 1040 if we pop there. Not a big deal after all those profits of 100s SP points.

Wednesday, October 8, 2008

Suckers are delaying the inevitable

I was expecting the washout today but suckers are too impatient and there are millions of them out there. Some of them are in S&P pit, some are on the floor, millions are on their computers....
They are delaying the inevitable. It is like an elephant trying to walk in a pool filled with trillions of ants. But we will get there, one way or another.

Staying short ES from 1041
and big contract from 1025

True bottom will be printed today

I expect ES to test 950 before we reverse for a multi-month rally.

The current gap up due to the globally coordinated rate cuts will completely fade in my opinion and we will be down like 40-60 ES points (from yesterday's close) this afternoon. This will create a true panic and washout.

Later in the day, I expect a reversal. We will probably reverse to close the day between ES=1050-1070. If it doesnt come before the close, we will gap up and never look back. I think ES will close the week above 1130.

I will post intraday updates at critical junctures.

Tuesday, October 7, 2008

short ES at 1041

fast markets, i mentioned this in comments

closed ES long at 1022

Bus must be too crowded. .....I think we will make marginal new lows...

Monday, October 6, 2008

added 25% ES @ 1014

100% long

added 25% ES long at 1011

Long ES @ 1016

50% position

covered last 25% at 1015

for about 200 points

covered 25% at 1017.5

for 200 points profit

this leaves me with 25% short from 1217

covered 50% ES at 1022

for about 100 points profit

I closed those I opened last week

This leaves me with 50% short from 1217

Friday, October 3, 2008

Houston, we have a problem.

I think bail-out was the eye of the hurricane, I expect this side of the hurricane to be more vicious. To be clear, we may have a black Monday or Tuesday. In other words, if we lost 200 SPX points in 3 months, we may loose another 200 on Monday and put a long lasting bottom.

I am 100% short on ES into the next week:
50% from 1217
25% from 1130.5
25% from 1131.25

I have no predetermined target for the selling climax yet, although I mentioned a few important pivots, it is wise to maintain trailing stops on all positions.

I think the Market will crater regardless the bill

Put a stop at 1162....

If I get stopped out, that will give me:

57 points profit on 50%
30 points loss on the other half

This is on top of 100 points profit I took on 50% position on Sept 29
46 points profit on 25% position yesterday.

If the market plunges which I think it will, you know where we are going. Otherwise this whole trade is still one of my best on the short side this year.

See you later

Thursday, October 2, 2008

Added 25% ES short btw 1131-1131.5

50% from 1217
25% from 1130.5
25% from 1131.25

I think we open around ES=1100 tomorrow followed by a selling climax towards 1000 level which is a very important psychological level

We may print a tradable bottom before touching SPX 1000

Added %25 ES short at 1130.5

50% from 1217
25% from 1130.5

target 1060,
mental stop 1162

Will they let it climax tomorrow?

I believe we will finally get that selling climax tomorrow. SPX 1060 is the place we should test intraday.

Riding the cyclone with remaining ES shorts from 1217.....

I expect a gigantic gap down followed by an immediate selling that should climax sometime midday.

covered 25% ES at 1126

for 46 points profit....

This leaves me with 50% short from 1217.

Wednesday, October 1, 2008

Short 75%

25% from 1172.5
50% from 1217

I will short more if it pops on news ... which I think it won't

I expect SPX to test 1135 tomorrow October 2, 2008

Short selling will be blamed but it is not the reason, on the grand schema, this is a needed move.

For those who was asking about my gut feeling, I can not describe how I feel relieved now. If I had the balls of titanium like the guy in the video, I would have laid a full line but I think we will not crash yet, just a 35-40 point scratch coming tomorrow ...

shorting ES around 1170

25% position

Closed 50% ES short at 1145.5

This leaves me with 50% short from 1217