Thank You Mr. Bear

Bears continue to own the tape but I advise being careful if you are positioned heavily short. Short is OK but not heavily so. Not only are we pushing the extremes in breadth but we are also nearing my February 2, 2010 date.

I exited virtually all my short positions on today's open which may have been a bit premature but I've learned to not want to time the exact bottom. There are various indications that we may pause around these levels. That being said, the risk is definitely to the downside until it isn't.

Here are a couple of charts....

McClellan Oscillator


SPY (Positive Divergence on RSI(9) - 120min timeframe)



USD/CAD (Positive Divergence on RSI(9) - 120min timeframe)



GDX (Positive Divergence on RSI(9) - 120min timeframe)


Note: GDX has been somewhat of a leading indicator.

However, despite the technicals (a) the trend is down and (b) the forecast also says down.

Intraday ES Forecast


If the scaling is correct, we could see a print of ES 1057 by February 2.

Overall the week was probably one of my best to date. A had a few blunders here and there but by and large I stuck to my rules, and more importantly, I didn't try to catch a falling knife - other than today ;) ...I am human after all!

iDon'tKnow

This is what I think about the iPad:

Lessons From The Past

If you're not practicing the habit of reviewing previous trades, price patterns, etc you are hindering your trading. By developing this habit you'll start to pick up on the nuances in your methodology. The following is such an example of a nuance in the forecast...

REVISITING THE PAST

A few weeks ago - December 17, 2009 to be precise - I came across the following scenario whereby the scaling of the 'regular' forecast seemed to be 'off' as of the close of that day (i.e. the fit was not good). It turns out it was 'off' for a reason - namely, that the 'What If' chart had started to take effect. Hopefully that makes sense.


Intraday ES Forecast - December 17, 2009 ('What If' chart)


As you can see, the price action the very next day (December 18, 2009) matched both the scaling and direction of the 'What If' chart very well.

Today we're seeing something very similar. Below is the 'regular' forecast:

Intraday ES Forecast


And here is the 'What If' chart:

Intraday ES Forecast - 'What If'


If the same pattern is to repeat itself going into tomorrow we would see:

• A sell off to ES 1075
  
• A strong rebound back to ES 1100

It will be interesting to see if this unfolds.


GOLD/SILVER RATIO

The Gold/Silver ratio is on a MASSIVE sell alert having now breached the 65 resistance area so holding a core short position continues to be prudent trading.

GLD/SLV Ratio (Intraday)


GLD/SLV Ratio (Daily)


Here is Bob Hoye talking about the GOLD/SILVER ratio as well as various other topics - a must listen indeed: HERE

Update

Nice move!

Intraday ES Forecast

Trends

It seems things are finally picking up again so let's get to it...

Let's take a look at the intermediate and long term trends - as defined by the 50, 150 and 200-day simple moving averages - in various indexes, commodities, currencies and bonds.

Indexes

Without question the intermediate term trend remains up in all indexes - international and non. However, Asian markets seem to be displaying relative weakness.

$SPX


$CZH


Nonetheless, the intermediate trend remains sideways-to-up at a very minimum. When the larger moving averages in the US markets begin to rollover or even flatten out that is when things will turn very, very cautious.

Commodities

I exited 100% of my gold stocks on January 13, 2010 and it seems my timing could not have been better. I suspect that $GOLD is setting up for a significant correction that could surprise many gold bugs. However, just like the indexes the intermediate term trend remains bullish. Ditto for crude oil.

$GOLD


$WTIC


Bonds

While today has all the hallmarks of a liquidation day (see VIDEO), the intermediate term (down)trend has not changed in the bond market.

TLT


Likewise, interest rates continue to move up.

$TNX



Currencies

Everyone and their bad-ass uncle knows that the $USD is in severe doo-doo. However, it seems to have picked up a bid in the past day or two. This has had a very negative effect on the Euro.

$USD


$XEU

So what does all this mean?

The short answer is "Not a whole lot." If 2008/2009 was any indication to follow the primary trend then let's make the effort to practice that going forward. I will say, however, that the movements in the currency markets and today's big run-up in bonds is something to keep an eye on over the very short term.

Whether THE top is in is completely irrelevant to me. If there is a 2nd lesson to have learned in 2008/2009 it is to have not tried to call tops/bottoms every 2nd day. As a trader you need to not only appreciate that fact but also incorporate it into your trading psyche.

VOLATILITY

Daily volatility has picked up which is a great sign that what we saw in December and early parts of January was simply a spill over effect from the holiday season - at least I hope it was!

Daily Volatility


Meanwhile, the VIX/VXV ratio continues to make higher lows and broke above - albeit closed below - the 0.875 level that has typically acted as support.

VIX/VXV Ratio


To my mind, all this means is that people are finally considering hedging their bets via short term puts. I don't think it necessarily means that a major top is in but it is noteworthy.

All-in-all the big picture has not changed. I expect a pullback into February/March so short deltas are advised. Short term, however, I am bullish.

Here is the forecast...

Intraday ES Forecast

'bout Time!

I promise I'll pick up the posts if this actions keeps up. Have a good weekend.

Intraday ES Forecast

Rigged?

Hi Everyone,

Seriously, until something different happens in the market this tape is going up and up forever. I have been bombarded with Tweets, e-mails, etc and it seems everyone is on the same page: this market is absolutely retarded.

I have never been a proponent of the rigging or maniuplatin of the equity markets but the MASSIVE volume spike we saw today on the ES futures contract is truly a one-in-a-lifetime event. The size was absolutely ginormous.

I highly suggest you read the following article from Zero Hedge: HERE



Here is the forecast...

Intraday ES Forecast


P.S. As I write this the market is once again creeping up AH on dead-ass volume - unreal. Trade safe.

Correlations Revisted

While the 1938 fractal has reduced its correlation with the current market, it is still something I am keeping an eye on. If it should remotely resemble the current market we would see a top on Thursday, January 14, 2010.

1938 vs. Current


Likewise, I have found that the next closest correlation in 'crash years' ('29, '87, etc) is of all things 1987. It also suggests that a correction is coming - again, assuming the timing of the fractal is the same. Here, the turning date is today - Monday, January 11, 2010.

1987 vs. Current


Now, I am not suggesting that a crash is imminent - that's important. I am, however, saying that a correction is incredibly likely though.

My forecast also suggests that a correction is due. It's turning date is Wednesday, January 13, 2010.

SPX Daily Forecast

Curve Fitting At Its Best

EDIT: Sunday, January 10, 2010 at 4:30pm PST

Here are videos in response to the discussions in the comments section...





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I may go long on Sunday night. I think we're in for a hell of a ramp up on Monday.

Intraday ES Forecast

Look. Volatility!

Here's a quick snapshot of the average historical daily range on the SPX on days when the VIX closed under 20. The average of the averages is about 10 points.

Monday Monday

Who knows what's going to happen on Monday. On one hand the trend is firmly up but my forecast suggests we could go down. As it stands I don't think there is a strong edge either way unless we see weakness towards the close.

99.999% of the time I do not curve fit but in light of the incredibly messy tape, I have taken the liberty of adjusting the forecast to something more legible, so to speak.

Intraday ES Forecast


The only trading days that have been curve-fitted are January 7 and today. The rest is as is.

Here is the more normal forecast...

Intraday ES Forecast


This market is in a truly sad state of affairs with clearly zero participants. I'm not one to blame others but in this particular case we can all blame Uncle Sam and his bailout buddies.

Tomorrow's Leaders

If you've been a reader of the blog you'll by now that I am an avid watcher of the GOLD/SILVER ratio. I believe it ranks amongst one of the best indicators that lead the market.

You can see that since January 4 it has taken a beating from the 65 to 62 level (-4.6%) in four trading days. This is the primary reason - aside from the forecast - that I thought this week, particularly after January 4, we would see a rally.

GLD/SLV Ratio


I'm closely eyeing it now for any signs of a recovery back to the 65 level.

FORECAST

The forecast suggests that a big move is coming on Monday, however, I am hesitant at this point to agree that it will be as big as the scaling suggests. Remember that the scaling on the forecast is quite arbitrary - the primary purpose of the forecast is to TIME the market.

Intraday ES Forecast


I guess we'll soon find out.

As the market begins to pick up my posts will be become both more frequent and detailed, but until such day I'm not going to try to find something to post about simply for the sake of posting. I want to give you - the reader - the best quality information I can when the times are appropriate.

Around

Hi Everyone,

I'm still around but with this endless 'nothing-is-happening-ess' I feel there is no need to comment on the market until something of substance occurs. In the meantime here is the forecast...

Intraday ES Forecast

Confusing Confucius

If you've been a reader of the blog for any time now you know I have been juggling between the possibility of a large move down (albeit not past SPX 666) or a huge ramp up into the SPX 1200-ish area.

Absolutely nothing - other than sentiment figures - suggests a big correction is coming. All important moving averages are pointing up and breadth figures are confirming this latest run up.






However, I would be lying to you if I said I felt very confident about my revised prognosis - Revised Long Term Prognosis. While I still maintain it is the highest probability outcome based on everything I look at, there is always that chance I am dead wrong.

On my office wall I have a general forecast (unrelated to the one on this blog) that has tracked the market very well for that past 15-20 years and it suggests that we see a correction down into the SPX 800-ish area by mid-to-late 2010. So, as you can appreciate nothing is exactly clear at the moment.

To my mind the key will be what happens towards the end of February. If we continue south past mid-March, I would say that SPX sub-900 is coming. Otherwise, we ramp up into the SPX 1200 area.

Here is the forecast...

Intraday ES Forecast


If you are interested in receiving intraday updates (3X per day) with respect to the forecast, send me an e-mail at a.grant@ambgtrading.com

Changing Market Conditions

If you haven't done so already, please read my last post entailing the very serious downside risk at the moment - HERE.

_________________________________________________________

VOLATILITY

2008 and 2009 were very special years and ones I will frankly miss and remember (and reminisce about) for years to come. They were quite literally a once in a lifetime opportunity and I suspect it will be some time (other than the possibility in 2010) before we see that kind of volatility again.

What we all experienced (particularly in Q4 '08) was truly extraordinary realized volatility. In fact, I'll never forget the few days in October '08 when we saw a 1000-point range in the Dow Jones Industrial Average. I'll always remember the sound on the trading desk of absolute panic and amazement - what a rush!! The point is that the volatility we have seen - in a historical context - is not just abnormal, it is profoundly abnormal.

Below is a chart I compiled on the Dow Jones Industrial Average that measures the following:

Running 5-day Average of Monthly Range as % of Monthly Close

Dow Jones Industrial Average SPX (1928 to Present)


Don't get too caught up with the formula. All it is is another measure of realized volatility that I personally like to keep track of. It clearly suggests that over the last 80 years we have seen several instances where realized volatility peaks and subsequently reverts back to some mean. However, this is not to say we cannot have various extreme peaks and troughs in volatility in a short period of time just like we did in the 1930s. But we must keep in mind that the average volatility (on a monthly basis) that we're currently experiencing is actually more normal than we'd like to admit. In more general terms average volatility in the markets has been:

• 100 point range (daily time frame)
• 250-300 point range (weekly time frame)
• 600-700 point range (monthly time frame)

Rather than express volatility as a percentage, I find it more useful to view them in absolute terms. The question is 'Why?'

As a trader - regardless of the time frame you choose to trade - one of the most important things you must use as part of your money management system is the average volatility of the instrument in question. If the stock/index you trade has a daily average range of 10 points, it's very unlikely long trades are going to be profitable if you establish them when your stock/index is up 10 points that day.

So what does all this mean in the context of the overall market?

As Bob Dylan once said 'The times are a-changing' and so you must also change.

2010 and beyond will bring new market conditions including different price patterns, volatility and even volume so you must be able to adapt to those changes quickly. If not, you will find trading over the next several years very difficult.

PLANS FOR 2010

Webinars

My own financial goals for 2010 are challenging to say the least, but this blog is not just about me. I created it in order to help you - the reader - achieve your own financial goals and to particularly help you get past the oh-so common pitfalls that are really unnecessary (albeit in hindsight).

To that end, I will be hosting free webinars over the coming months to touch upon the most frequently experienced mistakes traders go through, and provide 100% practical advice on how to conquer them. My aim is to give you as much quality information (based on my own experiences) as I possibly can within the confines of the blog.

A few of the topics I hope to cover are:

• Setting goals (this is massively important!)
  
• How to let your winners ride, and cut your losers
• Conquering F.E.A.R. (very important!)
  
• Finding your trading niche
• Simple systems you can trade
• How to manage stress in your trading
• How to use volatility in your trading
  

And much, much more.

As you can imagine the topics to be covered are endless and if you have any recommendations for further topics please e-mail me and I'll absolutely put something together (a.grant@ambgtrading.com).

These will be no-hold-barred webinars. There will be no fluff (100% fluff-free!) and I will give everything you want to know in every practical detail!

Mentorship Program

Outside the blog, I am creating an important mentorship program that I hope to release in the first half of 2010. As you can imagine creating such a program requires an immense amount of work and time so it will be some time before I open it so I ask that you be patient.

In the meantime, however, if you ever feel bogged down in your trading I am more than happy to answer your questions over e-mail (a.grant@ambgtrading.com).

Risk Right Now - Downside!

I was going to post a long run-down of the improvements I want to make to the blog in 2010 but I thought it would be more prudent to put out a warning that the risk at the moment is to the downside - do not be fooled!

Without a doubt the most reliable contrarian indicators you will ever use are of the sentiment variety. At the moment, those sentiment readings are far too bullish to be entering new long positions. In fact, sentiment has got so bullish that we are now exceeding the bull/bear ratio that was established in October 2007.



So, please, please, please keep this in mind if you are long!!

Also, if you look at the raw data of % bears, we are now hitting levels that are very scary if you are a bull.



While there is still a chance we 'correct and rally' (See Revised Long Term Prognosis), I am no trading fool! I realize the extent to which the masses have bought into this 'recovery' and am mindful of the downside risk.

The only thing I know for certain is that the move in 2010 will be MASSIVE! MARK MY WORDS!

So the plan for the time being is to stay short until at least the end of February and gauge then where we stand with respect to my prognosis. If 2008/2009 was a lesson to avoid dogmatic trading behavior, let those lessons trickle into your mind in 2010.

If you continue to short until the end of February and we do not rally March onwards, you stand everything to gain on the downside.

This blog is not about fancy forecasts as it is about trading the markets properly in either direction and I'll continue that mantra in 2010.