folks, there’s really not much to add that hasn’t been posted here lately. we have what looks to be pretty clear sell signals across the board with both price (trend line breaks) and many other metrics and indicators such as the $NAAD trendline breaks, the VIX and VXN breaking out of text-book falling wedges a key support, various oscillators such at the RSI at extreme levels which have preceded significant sell-offs in the past, etc, etc, etc.. now the million dollar question is “when (not if) we finally get a real pullback, will it be a buying opportunity, and if so where?” -OR- “will it be the start of a much deeper and longer lasting downtrend… possibly even the highs for 2012?”
i’m sure there were a few chuckles at that last “possibility” however, let me say this: first of all, while i might like to say that i have no idea where the market is going, if i told you that, i’d just be lying or playing both sides of the fence to C.M.A. like most trading sites or bloggers do. i do have a pretty good idea where the market is going. maybe not in the next week or month but at some point within the next few months and into the rest of 2012 i do have a pretty good idea. it might be the wrong idea and i am all eyes right now if the charts want to change my opinion in the next few weeks/months going forward. however, as for now, my primary opinion has been, and continues to be, that we are in the first counter-wave of a primary bear market that officially kicked off when the market peaked on may 2, 2011.
unfortunately, like all potential (emphasis on the word potential) market junctures, i do not have an ultra-high degree of confidence to bet the farm on it. if i was forced to give odds, i’d say maybe between a 50-70% chance that the next 30%+ move on the market is down vs. up. it’s a whole lot easier to call tops and bottoms verbally than it is to push “all in” (a poker reference of putting all your chips in on a bet) and although i’ve nailed a lot of both top and bottoms over the years, i’ve certainly had my share of pain trying to catch many that didn’t pan out. to wrap this up, let me say this: i can make a solid case for both the bullish and bearish scenario going forward (near-term overbought correction or sideways consolidation notwithstanding, of course). in fact, i’ve been planning to put together video overviews presenting both cases soon, which hopefully i can get to over the weekend. however, for the time being, as my overall bias remains that the odds still favor, albeit not as much as i can say with a high degree of certainty, that we are at, or very near the first primary counter-trend rally (aka as “primary wave 2 up” by the elliotticians). again, trading (and longer-term investing) is all about the risk to reward ratio (R/R) potential of a trade. for a longer-term investor that refuses to be shaken out of his AAPL or BAC stock due to all the current euro-noise or expected pullbacks along the way; are you highly confident that AAPL will see 600 before it sees 400, or even 300? if you are, you should remain long. if you can’t put the odds at much better than 50/50, isn’t that just a crap-shoot with your money? at least they give free drinks (and maybe a nice suite) to the top rollers in vegas.
again, there’s not much that i can add to support my case here that i haven’t already discussed in detail over the last few weeks so let me just end by saying this: i’m not blind or deaf (i mean that in the most figurative way, i do not mean to offend anyone by that statement). i see and hear the mounting evidence that an economic recovery is in progress; that the potential crises for the US and European financial and sovereign debt systems seem to be abating. however, having a fairly strong background in fundamental analysis (as a business major in college and 13+ yr career as a stockbroker/wall-street insider) let me say this… using fundamental analysis and trading/investing off fundamentals, both private sector research and gov’t statistics, is the closest thing to driving in the rear-view mirror that i can think of. just about any traditional fundamental “leading” indicator is usually a coincident indicator as best, at least when it comes to predictive value. the useless gov’t economic reports, CNBC, money magazine, your (former) stockbroker, etc.. didn’t tell you to get out before the market topped in 2007. (yes, i was one of the few screaming it from the roof-tops but that story another time).
i won’t expand too much on that and i want to be clear that i am not making an absolute statement that fundamental analysis is completely worthless, as i do think it has it’s merits with selecting specific securities (stocks/bonds/privately held companies, etc..) for long-term buy-and-hold investments, as evidenced the very few who are really adept at it such as warren buffet. however, when applied to macro-economics, i challenge anyone to point out a economist or analyst with anything but a hit or miss record over the long haul. you’ve all heard the old joke: “Economists have correctly predicted 9 out of the last 5 recessions.” well, ditto for recoveries. maybe this is the real-deal and we are on track for a solid recovery and some big stock gains for the remainder of 2012. the thing is that based on the charts, if we are, then we should know soon enough as the longer-term continuation of the bear market that began back over 8 months ago will very soon be nullified, at least from a technical perspective, if the primary indices advance much further above current levels. again, over the weekend i will try to do an updated overview of both the bearish and bullish scenarios (and the third possibility that many often seem to forget exists..an extended sideways trading range).
for now, i remain very cautious/selective with taking or holding any longs and my bias is highly slanted to the short side in the near-term with a consideration that any short entries on or near currently levels have the possibility to morph into much larger swing trades than the current near-term, counter-trend, over-bought pullback trades that i am targeting at this point. only as we see the next correction, or series of corrections, unfold, will we be able to determine if a potential intermediate-term trend change is likely at hand.
as always, i will do my best to continue to post the best trade ideas, long and short, based on the chart patterns that i find, irrespective of any current market bias that i might have. my goal of this site is first and foremost to continually share the best looking trade ideas, long and short, that i find by manually combing thru literally hundreds of charts per week…. period. as traders and investors, you will decide which patterns fit your own trading style and current market views. a distant second is to share my own market thoughts and analysis, right or wrong as well as share what i’ve learned over the years as both a trader and investor as someone who has seen how the game is played on both sides, first hand. good luck and be careful over the next couple of days. options expiration is friday and with the VIX recently making a solid breakout, things could get bumpy in the near-term.