JPM and WFC report earnings with JPM beating but WFC laying an egg. WFC dropped over 2.5% on the news and is now down 3.6% pre-market. JPM bounced slightly on their news but drifted lower ever since and is now down one percent pre-market. AMD lowered estimates last night and is taking the pipe pre-market down 10% to 2.9-ish. INTC is down today in sympathy. AAPL is up less than two bucks pre-market. With the banks weak, tech and chips weak, and copper weak as well, it is a mystery how the S&P futures are up five points.
For today, watch the utilities sector closely. The bulls need to punch up thru UTIL 481.36 to signal that a sustainable upside market rally is at hand. The market bears are fine if they keep UTIL under 481.36. Into the close, drama will occur since Keystone's algorithm will be tracking UTIL 478.43 next week, thus, watch the action into the close. If UTIL closes under 478.43, the bears remain in good shape into next week. If UTIL closes above 478.43 today, Keybot the Quant will be in position to potentially flip long on Monday morning.
Watch RTH 44.50, JJC 46.45 and VIX 16.80. If price moves across any of these price levels the broad indexes will take a strong leg lower. For the SPX today, starting at 1433, the bulls need to touch the 1444 handle to launch an upside acceleration and place the bulls back in biz. The bears need only a tiny smidge of red to create a downside acceleration at the bell but alas, the futures are green. Interestingly, however, in the time it took to type this missive, the S&P's are now up less than a buck. A move thru 1434-1443 is sideways action today. Pay attentionn to AAPL which will affect tech. Also watch AMD, INTC, HPQ, DELL and MRVL to determine the strength, or weakness, in tech and chips today which will push the markets in that respective direction. The COMPQ vesus SPX percentage moves are important since tech leads the market direction. VIX starts the day at 15.59 above both the 20-day MA at 15.09 and 50-day MA at 15.44. Consumer Sentiment will create a market pivot point at 9:55 AM. The AAPL iPad mini is tentatively scheduled for release on 10/23/12 two days before earnings. The euro is 1.2980.
Note Added 10/12/12 at 9:43 AM: Flat markets so far. Watch VIX now deciding if it wants to maintain the 50-day as support and start heading higher, or not. UTIL 479.20. RTH 44.77 only 27 pennies above the danger level. Retail Sales numbers hit on Monday. JJC hanging on to the 47 level so far. Consumer Sentiment in ten minutes. Keystone needs a couple heart pills.
Note Added 10/12/12 at 10:27 AM: UTIL teased the 480 psychological resistance level twice so far today, now printing 478.96. VIX is 15.26 and traveled down to 15 losing the 50-day MA; see if it can regain this level at 15.39. The retail sector may finally be giving up the ghost, RTH is 44.74 only 24 points above danger. The markets are not yet tipping their hand, the action is sideways. Keystone took profits on the overnight FAZ trade exiting the position. The puking in WFC made the trade work.
Note Added 10/12/12 at 11:52 AM: UTIL falls on its sword, staying under 481.36 and even more importantly well under 478.43 (important for all next week) now printing 475.73. This is very bearish for markets if it holds all day. RTH is hanging on by a thread at 44.64. The bears will accelerate the market downside if RTH loses another twenty cents. JJC lost 47 now printing 46.92. VIX approaching 16.
Note Added 10/12/12 at 12:22 PM: SPX 50-day MA is 1428.36. UTIL price is 475.55, the 20-day MA is 475.26 and the 50-day MA is 475.82, a confluence, the price action here is important, watch for a potential collapse. AAPL is down three at 631 and looking weak. COMPQ is -0.18% while SPX is down -0.38% so tech is not leading lower today. This keeps the bulls in the game and allows them to keep the RTH's head above water. The SPX tagged the 50-day MA so traders are now deciding if they want this support to hold, where they will run in and buy, or, if they are going to let her go. Failure of the 50-day would lead to support levels at 1419, 1406 and 1403.
Note Added 10/12/12 at 1:29 PM: The SPX test of the 50-day MA continues. Tech leads and AAPL was first to lose the 50-day MA, then the Nasdaq and QQQ's fell thru a couple days ago. The RUT has fallen thru the 50-day MA and the SPX and Dow Industrials are teasing. Since tech leads, one would figure the bears have the edge since the broad indexes should follow tech's lead. Further, tech and small caps are the market leaders so if they are leading down that is bearish for markets. RTH is hanging on at 44.65. Gold keeps moving lower now off eleven bucks to 1760. Weak copper is a bearish indication moving forward. JJC is 46.90 starting to move towards the 46.25 danger level (these numbers fluctuate slightly so watch 46.25 now). VIX remains at 16. UTIL continues to play around with the support confluence at 475-476. If RTH, JJC and VIX remain in the bull camp today, the SPX 50-day MA will carry clout as well as UTIL 478.43; the latter two will provide an early indication for Monday's trade. Tech is not leading downwards today so this allows the markets to be fickle about deciding if they want to bounce, or die. If the COMPQ (now -0.22%) starts to lead the SPX (-0.40%) down, the markets will tumble lower.
Note Added 10/12/12 at 3:54 PM: UTIL is at 475. RTH, JJC and VIX staying on the bullish side as they started today although considerable weakness has appeared. The VIX is sneaking up over 16. SPX is sitting directly on the 50-day MA so it will be a photo finish.
Note Added 10/12/12 at 4:10 PM: UTIL finished under 478.43 so the bears are strongly in the driver's seat. UTIL 478.43 is important thru next Friday. Retail Sales is Monday setting up lots of drama for RTH to start the new week since 44.40-44.50 will cause the broad indexes to take another leg lower. DLTR warned. Telecom sector got pounded this week. Keep watching copper, JJC, and volatility, VIX, which finished over 16. The SPX finished at 1428.59 only 21 pennies above the 50-day MA at 1428.38, the bulls and bears agreeing to park the indexes on the fence and decide direction on Monday. Tech and small caps lead the markets and AAPL, the Nasdaq, QQQ and the RUT are all under their respective 50-day MA's.
Question for Keystone and other traders: Why do you use inverse ETFs instead of shorting directly? I guess for short term trades the re-balancing losses are not important, but why deal with that and potential tracking errors? Is there concern about getting kicked out of the trade if your broker can't borrow the shares? Are you trading in 401ks or IRAs or something where you aren't allowed a margin account? Just trying to understand why one wouldn't want to trade the "real thing" whenever possible. Thanks.
ReplyDeletePersonally, I like the inverse etfs for the reason you mention, I trade only in cash, no margin (been there and been burned), plus if I feel pretty confident in the trade I can leverage it up with an option on the 2X etf. Not a strategy I would recommend to anyone with less than 10 years experience trading options....
ReplyDeleteBang, there's the SPX hitting the 1426 that many here ID'ed as the downside target, the 50-day MA. Meanwhile, back at the SOX Ranch, AMD took one in the crotch but is hanging onto 2.90 after flirting with 2.80s and HPQ is still up after the indices tanked. In a way it was picture-perfect: the tag of the upper Bollinger at 1470, the drop to the lower BBs and the 50-day MA. Textbook. I blew it by not being short but alas, we're at the point now where shorting is risky. Despite the ugly charts, I suspect we bounce here, it doesn't feel quite ready to waterfall--but I could be wrong... bought some AMD on KS's game plan for next week. KS 80/20 rule playing out, somaybe a pop back to 3.20 is possible.
ReplyDelete1426 definitely important, I was expecting more of a bounce here, but the previous bounce off the lower bollinger was already quite weak, and the price action today just does not look like an easing-down 5th wave to conclude a decline, it looks more like the 3rd of the 3rd, etc... about to smash through the support (my count also shows the price action preceding the decline to be an incredibly weak structure). If it breaks I expect a quick collapse, I think this aligns with Keystone's on-the-razors-edge indicators. I will likely short with a tight stop on a break. I agree with the risk and I prefer to fade price action rather than trading triggers, but we have to go with what the market gives us.
DeleteAgreed, this could be like May where it cascaded down to lower support.
ReplyDeletei agree. the bulls are walking a very fine line. i did buy some SSO for 60.25 for "da bounce", will see if it works or not. i've given up on ewt counting for a while, cause it's a mess: either an ABC, with this being a C, or a 123, with this being 3, etc. I do see some positive divergence creeping in on daily TI (RSI 5, SSTO 5,1) as well as on 30min, 60min MACD. so be careful guess. Spain is still the wild card and may very well ask for a bailout this weekend (those things tend to happen on weekends...) and then POP goes the market in pre-open...
ReplyDeleteIMO this is not ambiguous. Look at what would be your B wave and tell me how to count it as a correction. Most importantly, do it on ES, there is no way you can count 1439-1471 cash as an impulse on the futures, it is a triple zigzag, so it can't be C of B, and the whole structure (1430-1471) is an expanding ending diagonal triangle to conclude the entire ((truncated) triple zigzag) rally from the June 4 low. IMO there is not any other way that that price action can be counted. Let me know if you think you can because I have looked hard. Since this means it can not be B, the recent move down can not be C of 4 or anything else. There will be no new highs. I believe 1471 cash was the orthodox peak of the entire zigzag with contracting ending diagonal triangle C from the 2009 low and marked the highest point that will be seen for decades. Obviously a rally above 1471 invalidates the analysis. My only remaining question is how deep the minor 2nd wave goes before crashing or whether it is already complete.
DeleteSorry for the long post, hopefully I'm not annoying Keystone too much talking about waves on his blog.
Nope, all analysis is welcome, all the e-wave info is very interesting and important.
DeleteHello all, having computer issues today. The UTIL 478.43 is very important since that says weakness continues into next week. UTIL is now 2 or 3 below there so this is very bearish for markets. RTH 44.50 is real important, if that fails today that will tell you that lots more downside is ahead. Ditto JJC 46.35. Ditto VIX. Watch the RTH, JJC adn VIX levels mentioned htis morning, if any of hte three fail that tells you markets will continue lower. Markets are determining if one of the three will fail, or not. If these three remain bullish, and UTIL ends the day bearish this will point to a sideways market on Monday. SPX 50-day is 1428.36 so this carries clout. Price is now printing 1427.89.
ReplyDeletehopefully your computer issues will resolve soon! thanks for all the info!!!
DeleteDoes the fact that the 50 day was already tested twice in July (and 200 in June) affect the chances that it will break in your opinion?
ReplyDeleteThat is an interesting question. It is not so much about affecting the chances of a failure occurring but it has more to do with how much respect price shows to a given MA. This is true for trend lines as well. It is all about the number of touches but more so for trend lines rather than the moving averages. By default, we simply know that the 20, 50 and 200 MA's are important, as well as 100 and 150, and other numbers from the Fibonacci sequence, so it is more of a given and there shold be no real inference to draw here. For trend lines however, say price touches a trend line twenty times, that will carry serious clout, but a trend line made up of only a few touches the trend line is not as important. Watch the indicators instead as price attacks a MA, for the SPX right now the lower low in price is met with weaker RSI, MACD, stochastics, so this says lower prices are likely. The long and short of it is you simply have to let it play out using the important moving average levels, especially the 20 and 50-day, as the important decision levels which will lead to an extended move either way once price fails, or bounces.
DeleteI have seen other traders take for granted that tests of support/resistance weakens it and seem to have applied that equally to moving averages, but I can see it either way, as you have described. Good to hear an opinion from an experienced hand, thanks.
DeleteOn trades versus ETF's, all of the above comments are correct. The answer is not easy since there are a multitude of things to consider, risk tolerance, total funds available, any monetary needs in the near future, and on and on. The main key is the chart itself. Even though an ETF for an underlying index or a stock making up the index or ETF should move relatively the same there are many subtle differences, so the chart dictates the most attractive play for stock versus ETF. The ETF's tend to be automatically diversified as well instead of owning one stock, it may fall a lot, but an ETF can be more of a basket wher one stock will not take you down, in this manner ETF's are better to play than indivdual names, you can maintain general exposure to a sector while keeping risk lower.
ReplyDeleteSometimes the market maker cannot find shares to borrow for shorting so an inverse ETF is handy. Keystone does both and all of the above. If you want more bang for the buck the 2x and 3x ETF's can be considered, the triple X's are the ones where you will lose some the longer you hold it due to decay and are best for only short term trades and not recommended for inexperienced traders or traders just starting out. 100% agree about using leverage. You should trade at least five to eight years before dabbling in a little bit of margin. That goes for the 3x ETF's as well. Even when you decide to use margin, after trading experience is gained, you will get hosed and beaten and realize how dangerous it can be. It is a rite of passage in trading, trading teaches you a lot about yourself, it is a long adventure in psychoanalysis when you get down to it. You should trade a few years because you have to wring out the mentality about markets simply being one way bets up or down. One way bets on margin are the ones that wipe folks out. Use smaller amounts and many plays so you can always live to play another day.
Diversfiication is key where you try to keep a balance of shorts and longs and different sector exposure so you do not get burned as bad should somehting go amuck. As you become more comfortable trading, you will realize it is about the war and not the battle, you will have many bad trades but taking losses is part of it all. What matters is when you tally all the trades at the end of the year. Try to maintain short term and longer investment type longs, as well as shorts, some ETF's, individual plays, and get used to juggling all these plates in the air, then you can venture into using leverage after a high level of comfort is established.
Thank you to both you and Charles for the responses.
DeleteThis has been consolidating at support for 2 hours, no power to bounce, this is bearish IMO. This may need a C wave squirt, but would only serve to end the correction before falling. Thoughts anyone?
ReplyDeleteRTH is at 44.60, it is slipping. A breach into and below 44.40-44.50 seals the deal for the bears.
ReplyDeleteKS, Working on that circus juggling & sweeping up the broken glass.
ReplyDeleteWill RTH 44.50 and Vix 16.60 be in play all next week also or will/may those numbers change at the close today? Thanks in advance for all your great work, Rich
Yes, those will be in play, maybe more like RTH 44.40 and VIX 16.90 but we can identify them before Monday's open. Retail Sales is Monday so it looks like the retail sector will be a huge focus to start the new week.
DeleteLooking like a flat to me, C=A=1424.5, looks more likely to do 1.618*A for 1427.25 which is also resistance from a previous bottom (of possibly a nested 1, not really sure at this point). Rather fuzzy though, don't put too much stock in the numbers for this small of a degree. Numbers ES, add ~4 should get you close enough to cash levels.
ReplyDeleteOK then, really didn't think it would reverse at the first target, but that is what it looks like now. Shorting with very very tight stop, could just be the start of a larger correction.
DeleteAnyone have any thoughts? I feel like I'm talking to myself here, which makes me feel like I'm just annoying everyone.
No, many are here, some not commenting (where's Zig?) FWIW I don't see any crystal-clear alignment in stuff I follow, but VIX is going nowhere, suggesting the correction is fading, ditto NYMO which didn't touch the BBs but did reach levels of previous bounces. Both the DJI and SPX pierced the 50-day MAs and recovered, a classic test. Stochastics are below 80, pretty oversold, and the MACD is still above the neutral line. It looks to me like we bounce in OEX week (next week) which would be usual, to strand as many options as possible, at least to the 20-day MA. Maybe we roll over there, which would be nice, or stumble around until late Oct., seesawing and whipsawing in a range to drive us all nuts.
ReplyDeleteGood point about OpEx, SPY max pain says 145.
DeleteThis market has certainly been good at going nowhere for awhile, this bounce still just looks so weak and I'm not seeing how to count it in a bullish way, though it could continue sideways for awhile, but even then I don't see it lasting very long (say, a day or two, just to give an idea of what scale I'm talking about). Of course, sometimes the count is only obvious after the fact.
I picked up a small amount of November puts, we'll see.
What does OPEX SPY max pain at 145 mean? how is this determined? ie. market will reach 145 by expiry?
Deletetks in advance.
SPY is the S&P 500 ETF, so I just grab that as a proxy, "max pain" can be found at http://www.optionpain.com/, I am not versed in the details, I found it not real long ago from someone else that posted about it (not here) and found it interesting. "Max Pain" simply means the point at which the maximum number of options expire worthless. Some say that the big banks that are the primary sellers of the options manipulate the market to this point. I don't put much faith in that, I think rather that it is primarily "dumb money" that buys options and "smart money" that sells them, therefore, most of the time the sellers win, plus the fact that the market has to move fast for options to make you money, and the market only moves fast a fraction of the time it moves slow, so options don't work out for the buyer very often (though profits can be huge when they do, adding to the allure of buying them). Make of it what you will.
DeleteLooking for one more push down sunday night/monday am to 1412ish ES. Then I will try a big long.
ReplyDeleteSPX 50-day 128.38. Close 1428.59 and still settling out.
ReplyDeleteMost importantly, UTIL is under 478.43 to start the week which is very bearish moving forward. New moon Monday night and trend of down Monday's may all point to down Monday. OpEx Tuesday into Wednesday is typically up, so a bottom perhaps Tuesday. Can only take hour to hour, however.
Guess I should adopt a name if I'm going to be posting here. Things get confusing if more than one Anonymous drops in.
ReplyDeleteNice selloff into the close, which brings up another question: I recently read that retail tends to buy at the open and institutional at the close, therefore a strong open is bearish (contrary to the "dumb money") and a weak close is also bearish as institutions ("smart money") are unloading shares and vice versa. This seems reasonable enough to me. Any thoughts by anyone here on that?
Yep Kid, that is true, the first hour of trading is nick-named Amateur Hour because of that relationship. But, like all of these high probability things, there are always times, or days, when they do not work, but the general idea is correct.
ReplyDeleteWe should keep in mind that HFT machines account for 75%-90% of all trading, and they are mostly momo-driven. It seems markets rally at the open to test the waters (and let insiders unload), then the HFT kick in. It is weird that the usual "save" in the final 15 minutes has been absent. That could be interpreted as bearish. On the other hand, any momo-spark to the upside will send the HFT bots buying, a positive feedback loop. Looks like Oct. will be "interesting".... (grin)
ReplyDeleteJust want to add a quick thank you for answering my questions today and note that you have built a very nice blog here Keystone, thanks for making all this great information public.
ReplyDeleteAlso, one of the characteristics of strong markets are up Friday's and up Monday's and visa versa for weak markets. The downward trend on Monday's has been in place the last couple months or more, if the Friday's start to finish weak as well, which they are now four Friday's in a row are down, thus, down Fridays and down Mondays are now trending, this is a very bearish indication for markets moving forward.
ReplyDelete