The Weekly S&P 500 Chart

I hope everyone is off to a good start this week. I had to take a little hiatus last week, hence the lack of posting, because I had to prepare for a criminal jury trial that was supposed to start this morning. After spending most of last week preparing, I found out just yesterday that the government's key and also necessary, witness was not going to testify and hence, the charges were dropped against my client. This is great because now I get to get back in touch with the market.

I thought that looking at a weekly chart of the S&P 500 would be in order because the longer time frame chart helps us stay in touch with where the market is within the grander scheme of things. Personally, I think the equities markets will continue to rally for 3-6 months, with a few dips along the way and then they will hit some resistance and fall hard...very hard. Here's the weekly chart of the S&P with my TLT Trender v2, a stochastics and the fisher ma indicators. As you can see, the S&P is in buy mode according to the TLT Trender, but it is overbought according to the stochastics. Overbought readings on the stochastics are not uncommon during rallies, especially when the rallies are achieving new short term highs. I would not allow the stochastics alone to keep me out of the market, I would just take it as a word of caution. Now, if the stoch pulls back into neutral and maybe even into slightly oversold territory, then I will use it to determine when to buy the dip.

Also, I drew a box around some of the price action and posed the question of whether this area will be the new range. I would not be surprised if it does indeed turn out to be the range. The market will likely test the upper end of that range within the next 4-6 months, and the reaction to that test will be what is important to watch.

One other observation right now is that the Pound has pulled back a little from it's massive rally and this pullback may provide a good opporntunity to jump on board this trade if you're not alreay in it. Just make sure to set a hard stop and stick with it!

Have a great day.

TLT

Update on the Pound

The TLT Trender v2 gave a sell signal on the Pound Friday afternoon and then it gave a short signal early this morning. Here's the chart:Needless to say, I'm short right now. We could see a decent move down given that douple top formation that recently formed.

On a different front, the first automated system based on the TLT Trender v2 has been coded and is now in the testing phase. I had it coded with lots of different options in order to make it as flexible and diverse as possible. I've been pretty busy the past few days running tests and trying to work out a few kinks (like the system not exiting on a sell signal...has only happend a couple of times but still...yikes). I'll post about the system sometime later in the week.

The equities markets are selling off a little today, which is probably a good thing because these type of dips offer good entry points. I'll be keeping an eye on OSK today and if it looks good, I might buy the dip.

Have a good day.

TLT

TLT Trender v2 Update: Coding is Finished

My TLT v2 Trender indicator is finished and I'm very happy with it. As I described in a previous post, the indicator breaks down trends into 4 categories:

1. Blue: Accumulation--exit shorts and get ready to buy or go short again;
   
2. Green: Mark up--go long;
3. Yellow: Distribution--exit longs and get ready to short/or go long again;
4. Red: Mark down--go short.

Here's and example chart:Here's another chart, this one is more recent and it's the hourly chart of the pound:
For those who check in with my blog often, you'll probably remember that I was recently long the pound, however, I exited that position a couple of days ago and I bet you can guess where and when based off of the above chart. In fact, I exited the position within one day of my chearleaderish "Pound Keeps Rockin" post...guess my own excitement level over the trade could have been used as a good contrarian indicator as a topping signal. Luckily I stuck with the charts and not my emotions on that trade.

I'm trying to figure out how to incorporate the TLT Trender v2 readings into the blog. I've been toying around with the idea of posting daily, 4 hour and hourly charts of the eur/usd and the S&P, or something like that. Let me know if you have any ideas.

TLT

Some News Items

• Nikkei closes out the worst year ever!
  

• Time to buy Double Long Crude?

• World markets gain from energy...haven't heard that in a while.

• Tough times for Gazprom

• GMAC gets $$$

• Obesity tax in NY gets support

• FED orders Florida bank to stop paying dividends!

• Potential triple bottom for GBP/USD, or just setting up a trend extension?
  

• Dr. Steenbarger on the market's potential reverse head and shoulders

I hope everyone is still having a good holiday season. As an FYI, I normally will not post links to news items like above because there are plenty of others that do a fantastic job of sorting through and posting links to news items (Charles Kirk, Trader Mike...). I posted these links today because the others are on vacation and not actively posting, so I thought what the heck.

The game plan for today is the same as yesterday...short gold and short the pound. I've seen several articles that speak of the coming strength of the pound, which makes me think that there might be a little more room to short the currency.

Gold is still showing some good signs of falling and it will probably fall pretty quickly if the Israel and Hamas skirmish comes to a halt...although Israel doesn't seem to be in any hurry.

Only two more trading days left in 2008, lets make em' good ones.

TLT

The Set Up Looked Good but...

Just as gold looked like it was setting up for a great trade, Israel and Palestine (or Hamas) broke out in an "all-out war" and gold shot up like a bottle rocket on the 4th of July. This is one of those events that reminds us why stops are very good to have...namely to keep us in check when we're wrong and secondarily to lower losses. Here's an hourly chart of gold...notice the big gap up.

You can also see how gold has formed a flag pattern and any break from this pattern will likely be a significant move...so keep an eye on those levels.

Besides gold, the Pound is on my radar screen right now. The GBP/USD pair has been falling for quite some time and today it has fallen below a support level that has been previously tested 2 other times. The past couple of times prices poked through the support line (the red line), they were rejected rather quickly, as indicated by closes above support.
It will be interesting to see how both Gold and the Pound fair this week...maybe we can catch a good trend to bring in the New Year. Supposedly, currency traders are beginning to bet on the pound instead of against it...see this article. As always, I'll believe it when I see it because all of the significant time frames (monthly - daily) within my system are giving the pound a sell signal.

Good luck out there.

TLT

Tough Times for the Pound

An article on Bloomberg today notes that times are tough for the Pound and it cites several things that are much more expensive for Brits to do now than they were around a year ago.

The pound has dropped 18 percent against the euro and 24 percent versus the dollar this year as the Bank of England reduced interest rates and the U.K. economy slid into its first recession in 17 years. The pound bought 1.1173 euros today, falling for a sixth day against the euro, and money changers are charging close to one pound for one euro before commission.

“The pound is hopeless, it’s time to dump it,” said Ian Wright, 53, an upholsterer, as he waited to board a train bound for Antwerp in Belgium for a bachelor party. “All this British tradition stuff about keeping the pound is rubbish.”

If I were a fundamental trader I might be inclined to start fading the move based on such a negative sentiment...however, I'm not a fundamental trader and I would only short the pound at this point because it's been dropping pretty hard (don't fight the trend). Check out the weekly Eur/Gbp chart...no wonder the people in the article are so disgruntled with there nation's currency.
As you can see from the chart, this currency pair trends very hard and once it gets going, it keeps going. Although it's been steadily trending, articles like the one above provide hints that we may be getting closer to a top and to be on the look out for a trend reversal. Only time will tell.

Good luck out there.

TLT