Trade Ideas for 11/02/09

It appeared Thursday that the bulls may have dodged a bullet, but Friday reversed the prior day's gains and then some. We now have a rejection at the 50-day moving average in the S&P, and the Dow closing (narrowly) below its 50 for the first time since July. The possibility that the move down from the 22nd was merely a correction remains but becomes even more remote. The Russell 2000 is already on life support. If the nearer-term trends align with the long-term bear, be mentally prepared for powerful downside surprise.

In Elliott Wave terms, there are more than a few ways to count the move down from 1101 as a impulse wave. They tend to be variations of the following two counts:

The count on the left has the fifth wave down underway/nearing completion; the second count has the third wave underway/nearing completion. Next up, some kind of bounce. There's a positive divergence in RSI on the 30-minute chart between Wednesday's and Friday's lows, and in the recent past the slightest such divergence has led to monstrous rallies. The dollar has yet to make a higher high even as the major indices made lower lows, which is another divergence. Also, volume on the downside was high Friday, suggesting a selling climax. But if the bear market has truly resumed, down moves will extend. Putting it another way, if the market does bounce substantially on Monday, it would give more weight to the possibility that the move down has been a correction and not a serious resumption of the bear market.

That said, if the market does fall more Monday and closes near the lows, it would be a good opportunity to book partial (10-25%) profit in our existing short positions. In addition, I'm going to ratchet back the sell-stop on TWM and see if it can work as a longer-term trend holding rather than a trade. If you wish to continue treating it as a trade, use the alternate sell-stop.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Addl Exit Guideline	Chart
TWM	27.58	32.10	+16.4%	26.99	Alternate sell-stop: 29.99	Chart
DUG	12.33	13.60	+10.3%	12.28	N/A	Chart
SDS	38.78	41.41	+6.8%	39.08	N/A	Chart
QID	22.51	24.16	+7.3%	21.93	N/A	Chart

In case the market does bounce Monday, I have some long ideas. Be careful not to risk too much.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
ACF (Americredit)	18.19	17.49	N/A	Chart
KRC (Kilroy Realty)	28.02	26.86	n/a	Chart
CEF (Central Fund of Canada)	13.46	12.99	n/a	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.

Update 10/30/09

After a weeklong drop, the market roared back today, recovering much lost ground and closing at the highs. This was no sideways straggle but a sharp impulsive move that can resolve as either a last-gasp type of counter trend rally (i.e., wave 2) or the beginning of the next leg up, potentially to new recovery highs. Another wide-ranging up day tomorrow, especially with a strong close, would favor the latter. Given the way the Russell 2000 has broken down, however, I put more stock in the former scenario.

Sold today were EEV, SRS and DXD, the latter two for losses.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Addl Exit Guideline	Chart
TWM	27.58	30.42	+10.3%	28.63	N/A	Chart
DUG	12.33	12.70	+3.0%	12.28	N/A	Chart
SDS	38.78	39.24	+1.2%	38.79	N/A	Chart
QID	22.51	22.96	+2.0%	21.93	N/A	Chart

Update 10/29/09

Tomorrow is the 80th anniversary of Black Tuesday, one of the most famous one-day crashes in stock market history. This might've been a bad omen as today the market made a wide-ranging move down (its third in four days). Remarkably, this plunge was done steadily; there weren't any waterfall declines. Just lower lows and lower highs. We may get a bounce tomorrow. But if the trend has truly changed—and it certainly appears to have done so—these bounces may be disappointing. Let's take a look at March when the medium-term trend changed from bear to bull:



I've used arrows to denote the pullbacks. Note that the initial pullbacks only barely entered the prior days' ranges; they were shallow and over with quickly. It won't necessarily play out inversely this time, but if it does, bounces will be very difficult to play (and for purposes of this system, not worth it.) Also of note, we actually got our big bounces last week, when the S&P rose from 1075 to 1095 and then again from 1075 to 1090—typical behavior prior to "the point of recognition." If we assume today is such a point, the next bounces we see may end up being sideways, e.g., 9 points instead of 20-25.

The possibility exists that the bear market rally has not yet finished. The major indices still have uptrending moving averages, even though price has fallen below the 50. So stay humble and continue to use sell-stops. We bought all of yesterday's ideas, but since two of these were re-ups, there's only going to be one new entry in the table.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Addl Exit Guideline	Chart
TWM	27.58	31.64	+14.7%	28.63	N/A	Chart
DUG	12.33	13.28	+7.7%	12.28	N/A	Chart
EEV	12.42	14.01	+12.8%	13.11	N/A	Chart
DXD	33.51	34.39	+2.6%	33.12	N/A	Chart
SDS	38.78	40.96	+5.6%	38.79	N/A	Chart
QID	22.51	23.72	+5.4%	21.93	N/A	Chart
SRS	10.21	10.87	+6.5%	9.86	N/A	Chart

No official ideas for tomorrow. But if you feel light on short positions, you can try entering any of the current holdings on a pullback (i.e., market bounce), risking to the sell-stop listed in the table. The strongest charts of these are SRS and TWM; they're both around their October highs. SKF is another strong chart; on a pullback with that one, risk to 24.96. The flipside is the idea that DXD, being the laggard, has the most potential to "bloom" should it decide to follow the performance of its peers.

Trade Ideas for 10/28/09

Tuesday the market dipped down just a tad and consolidated. No Black Tuesday. Instead, we have a pattern of a large downdraft (several days' worth) followed by a narrow-range day, a pattern that has led to bounces in the past. At this point, I don't know whether a bounce will occur, and if so, whether it will be tradable. A major difference this time is that a sizeable minority of charts on my screen look terrible, so my guess is not a tradable bounce.

Regardless, if you hold many short positions, it would be prudent to book a little profit tomorrow and/or set sell-stops for some/partial positions at Tuesday's low. In any case, do keep a core holding. The possibility of a waterfall decline from here cannot be discounted. Once everyone expects a thing to happen, chances are it won't, because markets are perverse.

We bought QID today.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Addl Exit Guideline	Chart
TWM	27.58	29.67	+7.6%	26.99	N/A	Chart
DUG	12.33	12.53	+1.6%	11.79	N/A	Chart
EEV	12.42	12.85	+3.5%	11.67	N/A	Chart
DXD	33.51	33.63	+0.4%	32.09	N/A	Chart
SDS	38.78	39.50	+1.9%	37.17	N/A	Chart
QID	22.51	22.72	+0.9%	21.29	N/A	Chart

The market's at critical support. Failure could mean a sheer drop down. So far during this rally the market hasn't failed critical support yet, so in that sense tomorrow's ideas are long shots. Don't partake heavily of them. DUG is a re-up; if elected, set sell-stop for entire position to 12.28. DXD is also a re-up; sell-stop for that one is 33.14 .

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
SRS (Ultrashort Real Estate)	10.21	9.62	9.19	Chart
DUG (Ultrashort Oil & Gas)	12.84	12.28	N/A	Chart
DXD (Ultrashort Dow 30)	33.93	33.14	N/A	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.

Trade Ideas for 10/27/09

Today brought a lower high and a lower low, and, following the pattern of the past few sessions, featured a sheer drop in price at one point. The brakes were applied mid-day, and now price could be setting up for a kickback, maybe even something more. A third wide-ranging down day, on the other hand, would be unprecedented for this rally. Should it happen, it could prove to be the "moment of recognition" definitively signaling the end of the rally, and it could be devastating. Even now, the market has been successful in cultivating a sense of complacency within its participants. It seems as though there's an invisible hand keeping prices from falling too much in a single day. If you feel this way, recognize that the market has done its job. Note that Black Tuesday occurred on October 29, 1929, 80 years ago this Thursday.

Our URE hedge was a bust. We bought SDS and DXD. I'm using perhaps unnecessarily conservative stops on our current holdings, but the recent volatility makes me wary. If you wish to be more aggressive with the sell-stops, use today's lows.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Addl Exit Guideline	Chart
TWM	27.58	29.01	+5.2%	26.99	N/A	Chart
DUG	12.33	12.74	+3.3%	11.79	N/A	Chart
EEV	12.42	12.43	+0.0%	11.67	N/A	Chart
DXD	33.51	33.64	+0.4%	32.09	N/A	Chart
SDS	38.78	39.16	+1.0%	37.17	N/A	Chart

A couple of short-side laggards for tomorrow, in the off chance it turns out to be a Black Tuesday. If you already own short positions, there's no need to pyramid heavily.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
SRS (Ultrashort Real Estate)	10.21	9.19	N/A	Chart
QID (Ultrashort QQQQ)	22.51	21.29	N/A	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.

Trade Ideas for 10/26/09

Friday capped off a volatile week, but looking back, the market has been in volatile trendless mode for two weeks now: going nowhere, but choppily. The market has experienced trendless consolidation periods of 1-2 week durations several times in the past few months, which has been its way of marking short-term tops. The difference this time has been the larger-than-normal range (30 S&P points, rather than 20) as well as the absence of doji candlesticks. This last observation means that the market has tended to close at the extremes of the range. Considering examples from the recent past, the next move is for the market to either make a higher intraday high before falling, or to begin falling without further preamble.

One other chart I want to share is that of the Russell 2000 the past two weeks. Price action reveals a potential dome top in the making, which can result in a sheer drop if fulfilled. The pattern is similar across the averages but pronounced here.



The volatility and closes at the extremes wreaked havoc on the daily setups. The losses that sting come from whipsaws, which we had plenty of, losing SKF, SRS and newly-purchased DGP, as well as AONE. SKF and SRS were stopped out by less than .10 early on. If you didn't get stopped out (likelier for SRS than SKF), new stops are at Friday's lows.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Addl Exit Guideline	Chart
TWM	27.58	28.41	+3.0%	26.99	N/A	Chart
DUG	12.33	12.36	+0.2%	11.79	N/A	Chart
EEV	12.42	12.13	-2.3%	11.67	N/A	Chart

If the market should make new recovery highs, I have two long ideas we could play in URE and GE. Given the market's tendency to rebound off intraday highs, it might make sense to book profits should the market reach a new high. The other two ideas are shorts. If the market breaks below Thursday's low, these should trigger. However, if the trendless volatility should continue, we could see yet another whipsaw. Given these risky conditions, prudence suggests risking less all around.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
GE (General Electric)	15.59	15.09	N/A	Chart
URE (Ultra Real Estate)	6.02	5.72	N/A	Chart
DXD (Ultrashort Dow 30)	33.51	32.09	N/A	Chart
SDS (Ultrashort S&P 500)	38.78	37.17	N/A	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.

Trade Ideas for 10/23/09

What a volatile session! After completing a 27-point drop early on, from 1101 to 1074, the S&P climbed back 21 points. On the back of yesterday's gyrations, this is turning out to be quite a wild week. This whipsaw may even continue: a similar series of back-and-forth price action occurred several weeks ago (highlighted in gray):

Under that script, the market reverses tomorrow and continues its descent. But that was a very unusual-looking pattern. The flip side is the possibility that wave 5 is currently underway. Yesterday I shared my interpretation of the current wave count, showing a completed 5. But as labeled in yesterday's graphic, wave 4 and 5 could've been red herrings, and really we had an irregular flat correction ending today. If so, new recovery highs would prove it.

The wild gyrations of the past few sessions do happen around turning points; the result is that it makes it extremely difficult to establish medium- and long-term positions. We certainly experienced that the past couple of days, as we entered several short ETFs (today's entries were SRS, EEV and DUG) and are in danger of getting whipsawed out of all of them.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Addl Exit Guideline	Chart
SKF	24.37	23.45	-3.8%	23.32	N/A	Chart
AONE	24.31	23.89	-1.7%	23.22	N/A	Chart
TWM	27.58	27.32	-0.9%	26.43	N/A	Chart
SRS	10.07	9.40	-6.6%	9.38	N/A	Chart
DUG	12.33	11.88	-3.6%	11.49	N/A	Chart
EEV	12.42	11.93	-3.9%	11.67	N/A	Chart

Moving forward, the key levels are yesterday's high and today's low, but with such a wide range the market may just finish the week somewhere in the middle.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
DGP (Gold Double Long ETN)	25.56	24.90	N/A	Chart
DXD (Ultrashort Dow 30)	33.51	32.16	N/A	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.