the Yuppie Pig

The market ended last week just like it started it... all crazy! Every 5 minutes, the S&P500 was either up or down another 5 points ending on a rather poor note. I did take the opportunities that the market presented to me, to cover my ANF short just above the lows (more luck than skill) and closed out my POT long just below the highs (even more luck). In reality, the market is so heavily technically driven, one has to put buys/sells at these points. Everything in between moves like a hot knife through butter. That leaves me long SQNM and WMT and about 70% in cash. On to this week...

The SPX looks bad. Real bad... Since we've actually gone through the November lows, we could be on the cusp of a waterfall type sell-off. This is one of the reasons I felt compelled to flatten out my positions. It wouldn't shock me if we saw the SPX at 700 or 650 in short order. But when things are this oversold, a counter trend rally can wipe out shorts real fast.


I'm going to outline one of the methods I use to "trade" the market. Typically, you need to decide on the type of environment you are in. I think it's pretty clear it's a bear market and in those times, you want to trade.

The 3 or 4 major time frames I look at are the daily, 60, 15, 5 minute charts.

We already know the daily chart is heavily oversold but when the VIX is at these levels, it moves too slow to capture many of the significant moves. The 60 minute chart is oversold and is in a strong downtrend. What I will look for is a break of the downtrend line, and the MACD HISTOGRAM (in blue) to cross over and go positive. Typically, I like to see this occur when the MACD itself is oversold as it is now. As you can see, it is at -6.752. Typically, I consider it oversold when it is from -5 to -10.


The 15 minute chart paints a slightly different picture. While oversold, the MACD HISTOGRAM has just crossed over to the downside... On this time frame, this would suggest a little more downside which would also suggest that the 60 minute chart isn't about to break out to the upside.


And finally, the 5 minute chart looks like it is crossing to the upside, but it is not at a very oversold condition. To me, this looks like we can see at least a little more downside before I'd try to enter a short term trade to the upside.



With all that said, on tomorrow's open I don't want to be jumping into any long positions until the technicals line up a bit better. And since we might be in for a waterfall sell off, I definitely want to see some fear in the market, which to me, honestly does not seem to be there. There are some pockets of strength in unlikely areas. Retailers for one!

Be prepared for anything!