FAST MARKET - 7/31/08

The S&P got close to unchanged for the month but could not break it. The blame goes to a bad Jobless Claims number.

Today should have been an UP day, but the news trumps the pattern.

Going into tomorrow's NFP number, we are at risk of another breakdown.

We must watch the lows of 1265 and see if they hold.

I tried to play a bounce today, buying 1271.50 and getting stopped out at 1273.50. I could have dumped it for a 10 pt gain, but held on as I thought we would get a rally into the close.

As you can see, the analog of 4/17 did not hold up. This is a BEARISH sign.

LOVE IS IN THE AIR - 7/29/08

We are playing out the pattern that was established in April 2008. Just look at today's graph and compare it to 4/16. We have very similar features.

This is the SLINGSHOT trade. A RELAPSE and sentiment gets horrible on light volume. This creates energy for a SLINGSHOT trade. It feels too scary to trade, but it is a completely BULLISH pattern.

KEY FEATURE: GAP UP runaway open.

I continue to be short the 1200 puts. The hard part is now looking to roll up strikes.

EPILOGUE:
I did not trade today well.
I bought 1272.50 figuring we would only have a gentle dip before rallying to close at the highs. Instead, we closed the gap down to 1264 before rocketing higher. I stopped myself out at 1269. TOO TIGHT!

Tight stops are great for tactical trades, but what am I really trying to do here? Flip for a few points? Or get into a big rally (which is what I've been calling for). I have just not been good at this. This is a THEMATIC ERROR to consider. I think I'll call this NERVOUS NELLY.

Fortunately, I am still short my puts, which is minting money.

SLIDE TO OBLIVION - 7/28/08

I expected 1237 to hold in this sell-off, but we sliced right through it. The market does not seem to be selling off on panic selling with any volume. It just slides quietly. Its like a quiet smothering death. No struggle, just suffocation.

I will start reducing my risk on the 1200 puts. The market is selling off way too much for my tastes. We may need a re-test of the lows before it satisfies all the sellers.

I tried to bid 1241.50, but took a 5-point hit. I also tried to buy a break-out of 1244.5, but this failed pretty quickly. There was simply no buying out there. No short-covering. Nothing.

RELAPSE - 7/24/08

During a Bull Move, which we have with our S4 regime, there is always a RELAPSE move, i.e., a big sharp sell-off. The tone of yesterday's sell-off as a quiet slide. There was not a lot of volume. Its like the mega-short-cover rallies suck all the oxygen out of the air, and so there is nothing for the market to fall back on.

The net effect of this move is to make bears comfortable again and not buy, or not short.

Look at the similarity between yesterday's move and the move on 4/11/08.

RELAPSE is just a part of REHAB, as Amy Winehouse knows.

Blow-Out Spasm - 7/23/08

I was looking for a BLOW-OUT SPASM today. Another S4 with extremely high INTENSITY. PUMP-N-DUMP mutation said that the risk was certainly for a such a pattern.

I was short 1276.50 overnight, but as we hit a high of 1284.50 overnight, I knew that a SPASM HIGH was certainly possible. I covered for a small loss at 1277.00 and looked to re-short at 1287.00. Market went as high as 1291.50 on the SPASM.

It was quiet trading before, and after. This is typically how the SPASM works. Very quiet exhaustion.

This high of 1291.0 should hold for the next several days. We will get another scary sell-off soon. That will be the time to re-load the put shorts.

I covered all of my put shorts yesterday. IWM Aug 60, sold .85, bought .13. What a move!

The end was inconclusive. We need to review the sentiment tonight.

BOTTOM PATTERN - 7/15/08

It is instructive to look at bottoming patterns.

On 7/15/08, we hit what was to be the bottom to this BANK PANIC. On 9/21/01, we hit the bottom of the 9/11 disaster. Whereas today, it takes 2 days to bottom in these panics, back in 2001, it took a week of trading.

Several things to consider:
1. New ETFs like UYG allow anyone to short.
2. Electronic/Algorithmic trading means that people move in/out much quicker. It also means that there is a more prevalent use of STOPS.
3. No downtick rule means that people can just buy UYG like crazy and cause arbs to go nuts.

The market is adaptive. We are in a new, highly volatile trading regime. It is a war of attrition, just like in Paths of Glory.

PUMP-N-DUMP MUTATION-7/17/08

We had a mutation in the PUMP-N-DUMP pattern:

1. Break of O/N highs after the bell.

2. Inability to break the lows.

3. Mid-day rally to new highs.


The break of the O/N highs mutation is an indication of bullishness. The inability to break lows is also bullish.

The mid-day rally was on the back of OIL. Signal shifted to S4.

It all feels pretty bullish.

PLAYING DEAD - S3

Today is a pattern I'd call PLAYING DEAD. Like a spider or snake, the market plays dead and has a DROOP at the close. It makes the BEARS feel comfortable and no longer scared of the short-cover rally. This is a pattern that occurs near the tail end of a Bear move.

Watching the tape, unlike manic spikes, today's rally was a stair-step march higher. Again, playing dead. Its like Jackie Chan's DRUNKEN MONKEY. You try to take a swing at it, and it just droops in response.

It was a deadly market. The right way to trade was to bid close to 1200. I didn't do that.

I waited until 1220 before I took action and began selling calls. I didn't capture all the upside, but I identified the pattern and captured a good chunk of it.

The trick will be the follow-up. More tomorrow.

TO SQUEEZE OR NOT TO SQUEEZE-S2

Scary open in Europe. Banks down hard. Euro near highs. Gold up, oil up. Bernanke, Paulson, and Cox were cued to speak.

As soon as the notes were released, we had a sharp sell-off. This fits the GAP DOWN, GO DOWN pattern. However, several weeks ago, this would've resulted in a slide all day. Now, it results in a panic morning and recovery.

The market was trying to create a short-cover squeeze based the Ben & Hank show. Hank talked about having a "bazooka" to scare the market with. Oh boy!

The market tried to play the squeeze through 1230 several times. It even made it as high as 1235 before cracking.

1221 was the short set-up. It closed at 1211.

The basic observation is:

1. Europe down, wait for V-spike and buy. New pattern.
2. Squeeze play during day. Watch tape for set-ups.

FANNIE & FREDDIE SLIDE

Today was the day to buy Fannie & Freddie. It is doing the NT and LU dance. We get a massive scary open, and then it rallies. From its lows to its highs, it was up 77%!

The pattern today was DRY TINDER. CNBC was doing the classical LIVE FROM THE ACCIDENT SCENE reporting. The eerie quiet in the markets around 11,000 on the DOW, combined with the inability to totally break new lows was a classical sign of DRY TINDER.

I took the opportunity to unload some Aug 60 puts on the IWM (Russell). Beautiful trade as the Russell has been much strong than its large cap brethren.

Sure enough, Bernanke hit the tape with the news that he'd let FNM & FRE go to the discount window. Bonds were already getting hit on the idea that the US govt would assume all the debt. Its the SELF-IMMOLATION trade. George Soros breaking the Bank of England. PHOOEY! How about breaking the Federal Reserve!!!

Anyway, we got our pop. I saw on the chart a tradeable pattern. We broke the previous spike at 1241.50 and got up to 1250. On the retracement, I just bid there at 1241.50 and offered at 1250. Quick trade. In and out in less than 10 min.

The HINEY SPIKE did not turn into massive SCR because:

1. We already had one this week and it failed.

2. We did not break 1263.

3. If I was thinking about a Bernanke statement, others were anticipating it too, and sold into it.


So overall, we are left with a classic bear market: unable to rally, just full of misery and loathing for all.

BADA-BING - S3

We had the PUMP-N-DUMP short-cover rally failure yesterday. That was an easy trade.

Market ticks annoyingly higher overnight. You set-up a short pre-open with stops above overnight highs. The market never even challenges you. Short 1277, cover 1268. The market will chop for 3 hours, and then make a swan dive in the afternoon. I covered too soon. Maybe look at re-establishing short for afternoon next time.

Today's market call was a BADA-BING. First of all, the set-up overnight was for a rally. This is what happens after the PUMP-N-DUMP. Generally, this late into the sentiment cycle, a PUMP-N-DUMP does not occur again. Instead we get the back-n-fill. Hence, the BADA-BING.

The first trade is to short the spike waiting for a re-test of the lows. Then it is to re-short the re-test of the day highs. We made another run at the lows later in the day.

I shorted 1254.25. Got nervous as we went up to 1258. But we had a dump down to 1237.5. I covered at 1253.5. Took the money and ran.

What should I have done? I guess the risk was lose 4, make 10+. So, I should've kept the trade.

Microsoft Mary program is pretty good and telling me where volume is transacting. Its a series of poker bets. The flop is when you break a certain level. Pretty easy game when you look at it that way.

I need to log these patterns going forward.

Welcome to the Jungle!