Confused and Conflicted

By -

Before I start today’s post, can I draw your attention to the
post of October 3
. There I wrote the following:  Normally
the 1st break, up or down is a head fake and the real move is opposite. 

After 5 trading days, you can see the validity of that statement. SPX broke the
triangle to the up side and now stands at the bottom of the Bollinger Band.

The cycle low which was expected today did come on schedule.
However it closed below my target line which was 1430 in SPX futures. At the
time of writing this post, /ES (Futures) have broken below that line and is
sitting at 1422 which is convincingly below the line.

Few things are conflicting and need to be resolved before I
can make the next call. While both SPX and Nasdaq are on sell zone now (not a
sell signal, mind you), I am rather expecting a bounce because:

  • + SPX had 4 red days in a row and is sitting on
    the lower end of BB. However, one more scare is due around 16th


  • + McClellan oscillator in Keltner channel is
    deeply negative and a bounce is due.

Mcclellan oscilator in kelter channel

Therefore I expect the market to behave in
line with the cycle and go up from here. What I am not sure, whether we will
see 1500+ by mid-November but definitely it will test 1470 again before the
final good bye.

  • + SPX and VIX are both red together on the same


  • + Cycles indicate a bounce.

The earlier low in SPX futures was 1424 on 26th September
and today it broke below. This is a warning shot.  But the 4 hourly chart is oversold.  You can see the red line in the following
chart and I do expect a bounce from there. This is the point from where the
earlier breakout happened and normally prices come down to test that breakout

Es 4 hr

Euro 2 hour chart shows a possible double bottom:


Unless we see Euro breaking down from this point and goes
below its low of September 29/30, which is 1.28, I think a bounce is more

As of now QE infinity is not giving the desired result that
Bernanke hoped for. On the other hand, all past QEs have resulted in a 5% sell before
taking off. Therefore, fence sitting is warranted and unless I get a definite
sell signal, I am not going to short. Just because the market sold off for four
days, does not mean the end of world is here, more so when the cycle told us
before hand about this sell off. The same cycle is showing a higher high by
Mid-November. In all these confusion, commodities behaved rather well. Silver
actually gained 0.18% and gold lost 0.03%. Oil sold off but I have written
before that oil will settle around $88. 

I see market technical weak but liquidity plentiful. I see
short term cycle bottomed and an important cycle showing major top by mid-November.
Unless a clear picture emerges, there is no reason to jump in a trade. Just
imagine had you gone long after QE 3, you would be so unhappy now. I decided to
sit out then and I am willing to wait now. 
The rules of this game are simple but very difficult to follow:

  1. Do not lose money.
  2. When in doubt look at rule # 1.

Most of the time we lose money by being impatient and
following what we believe not what the market is telling us.  It is possible that the prices will bounce
from here and this is indeed just a correction. Therefore, I prefer not to
front run and wait for clear direction. Hope you get my drift. There will be
many opportunities in many sectors, to either go long or short and we will have
to pick up our bet. I quote from Josh Brown of reformed broker; When in doubt
switch off the TV and read a book. Better still take a walk. The fall colours
are here and it is looking beautiful outside. 
So often we forget that there is a life outside the stock market. In the
honour of the fall, I have changed the look and feel of the blog, just for the
fun of it.

So we wait to see what tomorrow brings. Don’t worry that we are going to miss out the big move. No, we will catch most of the major
moves. Rest, we will give it a pass. 

Thanks for all the
donations and supports. Your continued help and support is important to me to
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A special thanks to
Tim of SOH and all the other slopers. MS has invited me to Vegas in next May
and I very much plan to be there.

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