Some live Forex Day trading

Closing EUR/GBP Short for +600 pips

Back in December 2008, I opened a short trade on EUR/GBP because it was finishing a blow-off climax top. I was a bit early, and suffered early drawdowns, but I held tight. I'm closing the trade today at .8650 for a +600 pip gain.

You can see that price has retraced nicely after the climax. However, price action has been choppy, and not in the typical 5-wave pattern I like to see for an extended move. Instead, it looks more like a 3-wave correction. Price is currently sitting near trendline support as well as the 38.2% fib. It looks to me like the GBP could be setting up for another drop (EUR/GBP rally), so I'm taking my nice profit while it's there.

Divergences Galore

Today, SPX made a new high. However, MACD is forming the first divergence. See this chart:

Furthermore, the VIX (see below) did not make a new low. In fact, on a highly bullish day, VIX actually rallied. This is the second divergence:
Finally, XLF has not come close to making a new high to match SPX. This is the third divergence. 
Looks like a fakeout rally to me. Good luck!

ABC Flat nearly complete on SPX

I last posted about the overall market here. My record has been pretty bad over the course of this rally, but I'll offer some additional analysis now that we've popped to new trend highs. I believe the 950-975 zone should contain price action, and we should very shortly start a downtrend towards new lows.

The above chart shows the E-mini S&P 500 futures (/ES) over the past 2 years. I think we've seen an irregular flat ABC correction since the November 2008 lows, where Wave-b and Wave-c both overshot the bounds of Wave-a. This excellent scenario prompts the bulls to capitulate the end of Wave-b, and the bears to capitulate at the end of Wave-c because a "breakout" occurs. Ultimately, I think this recent bullish breakout will fail because prior to breaking above 942 (the December 2008 high), a triangle consolidation formed. Triangles normally occur before the final thrust in the trend. It all works out perfectly: the final thrust is Wave-5 (terminal) of Wave-c, it brokeout above the previous high (942), and now we have MACD divergence. When you take a look at current sentiment, it's not hard to imagine why a top is near.

Taking some profits on CNEH

CNEH has had an awesome run over the past two months, rallying from 1.25 to 3.48 in just three months. I suggested going long around 1.50, as you can see in this post. I am unloading about half of my position at 3.25 today, as I think we'll see corrective action over the next few weeks/months.

Notice the clear 5-wave rally. I believe this rally should complete Wave1 out a new uptrend that should take CNEH above $5. I think we will soon see consolidation for Wave2 on decreasing volume. I will try to add to my position on a drop to the $2-$2.50 range.

Precious metals getting ready to explode upwards

I've been think bearish on precious metals for the past few months, (as seen here), but I think the basing pattern we've seen recently indicates that metals could rally further. I went long AGQ (2x bullish silver ETF) today with a stop at $40.05. My target is $60-65, but if things pick up very fast in the next week or two, I will hold longer and trail my stop.

The daily chart of AGQ shows a beautiful cup and handle basing pattern. Notice the decreasing volume on the downswing, and the expanding volume (especially on the up-days) on the upswing. Then, there was decreased volume during the handle. Finally, price has broken out to the upside on above-average volume. This is a very bullish pattern and implies much higher prices for silver

The chart above shows the COT data for silver. The blue line is the 78-week index for commercial traders. As you can see, this indicator has been quite accurate for catching tops and bottoms. Currently, when silver was bottoming around 1200 (12/oz), the COT index reached close to 100. This indicates that silver is likely getting ready to explode higher.

Some long term charts

Taking a longer term perspective reminds us of the bigger picture in the market, and helps to prevent the general sentiment from clouding analysis. Right now, I would say the market sentiment is quite bullish, with many company releasing better-than-expected earnings. However, on the back of 7 straight weeks of gains, I think it's time to remember to "sell the rallies" in a bear market.

The 20y DJIA chart above shows that price broke through two very long-term trendlines that had been supporting the market for decades. The market has now retraced to the intersection point of these lines, implying the selloff should resume in the coming weeks/months.

The 10y QQQQ chart above shows that price has been controlled by a descending channel. Notice that we're currently at the upper boundary of this channel, and we've been rallying on decreasing volume. Previous support has also become resistance in the 33.50 zone. I think this implies a drop to new lows at the channel bottom.

The chart above shows the Advance-decline volume trends. This indicator shows whether the underlying market-breadth exists to support futher upside. Notice that adv/dec volume has been trending down as the market is making marginal new highs. In the past, this sort of divergence led to declines.

The 10y AAPL chart shows a very nice controlling trendline that was breached to the downside in Fall 2008. Price has since recovered to the bottom of the trendline and dropping volume, telling me that there won't be enough strength to break back above this line. If the market believed AAPL's medium-term potential was as strong as the earnings release would have you believe, I think we would have seen higher volume on this rally.

GS is bumping up against its 2000 highs after rallying 160% from its lows. Are the banks really doing that well?

AAPL trends

Apple released stellar earnings yesterday, shooting it to new highs since it started uptrending a few months ago. I think this pop won't last, and we will start seeing a new downtrend soon.

The above 10-year weekly chart of AAPL shows that price is hitting very long-term resistance. The trendline has been controlling price action for the past couple years. The fact that we've seen 7 weekly gains on drastically decreasing volume tells me that we're due for a strong pullback, especially in the proximity of this trendline.

Distribution is back

The market is carving out a nice looking topping formation. I think the stage is set for a quick decline to 780, followed by much lower prices (bear market low). You can see my last post about the overall market here.

Notice in the above daily chart of /ES that price has finished Wave-iv of a long-term ending diagonal. Furthermore, Wave-c of Wave-iv was an ending diagonal, which implies an abrupt drop. Finally, notice that there have been 5 distribution days in the past month. This signal has worked perfectly over the past year for indicating a topping formation, and implies lower lows to come. (Check out these links for past examples of 5 distribution days in a month: Distribution is back in the Dow, The Q's are Making Me Flip-flop, More Distribution taking Place in the Dow 30, Distribution Days in the Dow.)

Buying some FAZ

As you can see here, I am bearish on the overall stock market. Today, financials rallied almost 15%, culminating in a buying panic near the end of the day. Subsequently, 2x- and 3x- financial inverse ETF's got killed. I think, however, that the waterfall action we saw today is indicative of a bottom, so I bought some FAZ under $11. I think FAZ could easily double or triple in the next few weeks as the market starts to decline.

The 5m chart above is very telling. After dropping steadily for a month, the downtrend has culminated in an intense waterfall decline, brusing stockholders with a 91% decline. However, there are several signs that this stock is ready to bounce hard. First, notice that the waterfall occured significatly after it had broken support around $20. Notice that the decline ended with huge down bars, dropping 3-5% every 5m! This is the exact kind of action that I like to fade, because it indicates total disgust, capitulation, and dispair. We should start rebounding very strongly very soon, as panic selling like this indicates that we're running out of sellers ;).

A broken record

I've been claiming that we're "near the top" for almost a month now. Yet, every time we have another bullish day, I feel more confident that my analysis is correct. I last posted about the overall market here. I feel that the market will print a long lasting top in the next few days (perhaps even today), and that we should soon start a sharp decline.

The above daily chart of SPY highlights my elliot wave count. As I mentioned in earlier posts, I think we are in an ending diagonal since early Nov. 2008. We are currently near the peak of Wave-iv. You can see that since the Mar. 2009 low, price action has unfolded in 3-waves. Wave-a was a standard 5-wave rally, whereas Wave-c appears to be an ending diagonal. You can see that there is substantial resistance in this zone:

• the upper trendline of the 5-month ending diagonal
• the upper trendline of the Wave-c ending diagonal
• the 61.8% fib extension of Wave-a

In addition, volume has been contracting as the ending diagonal has worked higher, a very bearish sign, and price is diverging with the MACD histogram. I think it's worth mentioning that WFC's magic earnings today have convinced everyone that the worst is over. However, I would think this is bullish near a low, not after a 30% rally.

As usual, time will tell if I'm right, but many signs point in the direction of lower prices in the coming days.

Looks like this stock could explode soon

I last posted about CNEH here. The downtrend continues, but the bullish picture hasn't changed. I think the ending diagonal could have one final down leg to $1.20 or so, but when this stock breaks out to the upside, it could be sharp! My first upside target is $2.50, but we could bounce much higher given it's 1.5 P/E ratio! It just reported excellent earnings, and there appears to be some strong accumulation going on at these levels (volume is expanding but price is holding steady).

Lest we forget....

I don't think anything has changed in the bigger picture. Sentiment is too bullish and there are negative divergences emerging. According to expert analyst Willl Rahal, the NASDAQ should underperform in this last bear leg, so I'm adding to my short position via QQQQ Sep 09 31 puts. 

Above is the 5y, weekly chart of QQQQ. It appears that we're nearly done with a Wave-4 flat correction from the November lows. Using a 1:1 Wave5:Wave1 projection, we should bottom around $18, posting MACD-divergence to set up a nice rally.

We're nearing the upper trendline in what I believe is an ending diagonal on SPX. We should have one final downtrend to complete the diagonal. This is congruent with the analysis on QQQQ above.

The chart above shows the ADV/DEC count with a 5- and 10-dma. Notice that while SPX is making a new high today, the 5/10dma's are making lower highs. This divergence indicates that the past 2-day rally has had lower participation and indicates an impending selloff.

Finally, take a look at the 3-year Put/Call chart ($CPC). Somehow, while we're still down 46% from our 2007 high, market participants are as bullish as they were at the beginning of 2007 (when we were still in a bull-market). This optimism tells me that we have further down to go. A market bottom should have a high Put/Call ratio, not the opposite.

All according to plan:

I last posted about the RUT here. Price is performing as I would expect, forming a topping pattern. I think the RUT will now drop precipitously to at least the 380 zone.

Notice in the 1h chart above that price broke out of the diagonal triangle very strongly, and has since been retracing up to the lower trendline. Once it hit the lower trendline, it reversed on strong volume, which makes me think that we're headed down to break through the beautiful Head & Shoulders pattern. Hopefully everything continues as planned in the future!