Sunday, March 1, 2009

DoctorMad Update - Fantasy Bull Market…

The General is showing us those battle maps again - appreciate it, Doc!
With a weekly and monthly close well below the 2002-2003 lows and back at levels last seen in 1997, I think it's now fair to say that the "greatest bull market in history" was actually something else that starts with bull....

Like Friday's close, however, that is all past history and the important thing from a trading perspective is where we are heading.

On the 20 day chart I've labeled my favored count. I will be keeping a close eye on both the new pink down channel as well as continuing to watch the yellow wave 3 channel. Break both of them convincingly to the upside and I plan to exit at least my index shorts. I may keep a few positions like SPG and BAC short on depending how they react to a rally. Once we break the momentum, however, I plan to bring home the majority of my remaining troops consolidating my gains and wait to see how the next market move sets up.

For the daily chart I am using the ES although the picture is roughly the same on the SPX. The bottom of the blue wave 5 channel and the channel for the entire bear market are going to be in the 675-700 range throughout next week. If we continue to tank I would expect us to at least catch a short-term bounce from those levels. Keep in mind though, that back in the wave 3 of September we crashed right through the bottom of what was the bear market channel up until that point. It later turned out to be just the top of the BIG BEAR channel when we crashed right through the bottom. We could be on a similar path to a much lower trading range and until we break the current bearish momentum any long play is front-running, dangerous front-running.

For bonds I'm going to include a chart of the TNX which shows yield on the 10 year versus the ZBs which show the price of bonds. I think this chart offers the best window on long term gov bonds and what to expect early next week. The tone could be set right at the open. If the bond bulls can send prices up and yield down right away they could have a double top in play from which to work. If the bears push the yield up you will have both a breakout and confirmation of the bullish engulfing candle from Friday. Stay on your toes early next week if you are in the bond trade.

- DoctorMad