May 11-15 – Sunday morning prep.

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Strong like bull, but rapidly approaching more 200 day Moving Averages


Well the market does not want to give up the ghost. The action is mostly sideways. The indexes are catching up to the Nasdaq (/NQ). While the NQ sticks around its 200 day MA, the other indexes have move up substantially.
The biggest change this week was the breakdown of the US dollar and drop in prices of US Treasuries/rise in interest rates (/ZN and /ZB), and the shift from Tech/small cap to Midcap (/EMD), and larger cap indexes S&P500 (/ES) and Dow (/YM).
HAPPY MOTHER’s DAY – Don’t forget to call your mother…

I have made the cut with my trading firm. My prop desk trading this week has been very solid. And now I will be at the big desk. This week also prompted me to create a trade sheet when I get into the office. As a reversion to mean style trader, I come in and look for:
1) Calculate Pivots of major stock indexes at the close.
2) Products which have broken out against another in the previous few days.
3) Look for a flattening of the trend or reversal of that trend in multiple time frames
4) Look for underlying to approach designated support or resistance with unconfirming internals
5) Fade that index against one of my top 4 mean reversion candidates.
6) See how the underlying reacts around the Support or Resistance pivot.
Any readers of this blog know I have been double crossing myself with my desire to fade the most powerful bear mkt rally in my history. Any breaks in the trendline have just re-established a less steep trendline. I have mistaken those breaks for selling opportunities.
This week looks to be a MAJOR inflection point week.
I like the way Jim Ellis of TimeFrameInvestor.com puts it

We have some strong warnings that tell us to be ready and watching the short term chart very closely. A move below the bottom of that rectangle on the hourly chart would be an early indication that the price has been stopped by resistance and the prospects are growing for the daily chart to start a pullback. But we will need to see either a new downtrend develop on the hourly chart, or for the price move below the close from Thursday to confirm that a daily chart pullback is developing. Until we see either of those things happen the price is holding up at the highs and we would not want to fight against that fact. But with the warnings on the daily chart, the risk is so high at this time that we would want to treat any upward move as just a daytrade type situation.

SPX
The SPX is rapidly approaching the 200 day MA @ 940, and the 38% retracement 962. I believe this should offer incredible resistance. And it will give me the opportunity to sell SPX against weak indexes i.e. NQ. The nature of how this reacts should tell us alot. IF the NQ breaks UP as the SPX holds. That would seem to be bullish overall. IF the NQ breaks back below 200 day MA (now 1359ish), I think that maybe our tell to the short side. However, support has come in around 1375.
SPX 5.10.gif
Now I know not to judge history as future, but doesn’t this March through May pattern look familiar? 2008… Remember how we were Out of the Woods.
SPX 2008.gif
NDX – Nasdaq
We have certainly seen relative weakness on the back of relative strength. The break above last week’s topping tail faked out a number of shorts, including me. I covered a few shorts into that break of the topping tail. And I used Thursday and Friday weakness to hedge a few of my shorts with half as many MNX 142.5c calendars.
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I believe thursday’s relative weakness will provide substantial overhead. The top of the Bollinger Bands and 38% retracement level is overhead resistance worthy of consideration. The downward sloping 200day MA, causes me pause for any sustained bullish case.
INDU – We have broken the downtrend line (8400). Target remains 9029 (38%) retracement. 200 day MA – 8900
RUT – Russell 2000
I am really pissed at myself for this one. I had the PERFECT opportunity to cover my roll my long May/Aug 44p calendar spread. I wanted to roll to June 44p. But I missed it. We bounce right on the trendline. I could kick myself, but the penalty for loosing money is punishment enough. I was wrong on the “short of the week” index. However, my style of trading is on relative weakness, and that was an extremely good call. The Russell was a great short hedge against the large cap longs (S&P and Dow).
This week’s action remains bullish. As we moved higher OVER last week’s bearish candle pattern, move above the 38% retracement, and downturning DMI. However, I am still VERY aware of the 200 day MA and the previous swing high of the 2009 highs (519). This could be another worthy short against NQ.
RUT 5.10.gif
Euro
We had a breakout on Friday, although significant resistance @ the 138.50 level upcoming. I am a buyer of the Euro on pullbacks.. Especially in the 1.36 area. A breakout and uptrend is in place. This is buyable via the URR (28.50-28.75) or FXE or /E6.
But I believe we still have to fight through the 1.3850 level to go higher. Another play is to buy commodities with this same trend in mind. DBA, DBC, FCX. I also like pullbacks on the XLB. 23.79 level will be ideal.
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Have a great week, and don’t forget to CALL YOUR MOTHER!

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