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Saturday, July 25, 2009

07/24/2009 Market Recap: A mail from a veteran trader


Still suspect the current rally but I'll sure not trade against it.

Still expect a short-term pullback.

  Trend Momentum Comments - Sample for using the trend table.
Long-term Down   Idea for trading intermediate-term under primary down trend.
Intermediate Up Overbought  
Short-term Up Overbought  

1.0.0 S&P 500 Large Cap Index (Weekly), the most common believe I saw is that this is still a bear market rally, the target could go as far as Fib 61.8 at 1250. The rally could last until Oct or next year.


And after the rally, there'd be a long last bear market similar to 1929. Borrowed a chart form Tim Knight’s Legends of the Fall, in which most believes that we are now within the green zone of the chart.


Well, is it true? Or is it possible a bull market has already started? Frankly, I have no idea about the market direction now because my signals are arguing for a top but the bullishness of the market makes me afraid of believing those signals. In today’s report, I’ll simply put all those signals together and let you make your own decisions. The bottom line is that I don’t believe this rally, but since almost all my intermediate-term signals are yelling for buy now therefore I won’t trade against them (This probably means I’ll trade lightly on the long side at the very beginning or simply stand on the sideline). Also via the Long Term Liquidity Flows from, we can see that the liquidity has reached the previous bull market level. So unless something really really catastrophic happens which makes the Fed stop its money printing business, the market would find itself very hard to drop. And right now, via my human brain (which is already badly damaged by the recent bullishness) I really couldn’t think of anything that catastrophic.


Indicator Explanation: Long Term Liquidity is a measurement of Liquidity Injections flowing into the market from M3 and Foreign sources. Liquidity Expansion means that money inflows are at an expansionary rate which drives the market up. Decelerating Expansion is when the rate of inflows are decreasing while still net positive. Liquidity Contraction means that money inflows are being withdrawn from the markets at a level which is "net negative", and when this happens, the contraction results in a correction or pull back.

0.0.3 SPX Intermediate-term Trading Signals, NYADV and NYUPV negative divergence plus VIX:VXV sell signal plus various negative divergences. This chart is the main reason that I’m skeptical.


Compare the above chart with the 2003 bottom. It didn’t have above problems with the same indicator set. (VXV wasn’t introduced in year 2003, so there’s not VIX:VXV indicator.)


A longer history about NYADV and NYUPV negative divergence listed below.


2.3.3 NYSE Total Volume, I cannot explain why volume keeps decreasing since media paints so bullish about the market. 8.0.6 Use NYTV to catch the market top/bottom, here’s a longer history. Normalized NYTV as an indicator is pretty reliable.


2.3.4 Nasdaq Total Volume/NYSE Total Volume, this still looks like a top. 8.0.1 Use NATV/NYTV to catch the market top/bottom, here’s a longer history. Again, normalized NATV:NYTV is reliable too.


1.2.1 Dow Theory: Averages Must Confirm, $TRAN hasn’t confirmed the $INDU’s new high yet. Personally, I don’t consider this chart as very important because $TRAN may catch up later.


Short-term, I still expect a pullback.

1.0.3 S&P 500 SPDRs (SPY 30 min), Bearish Rising Wedge plus lots of negative divergences.


Zweig Breadth Thrust from Telechart, very overbought.


Before I finish this report, I’d like to show you a mail from uempel who has been a trader for more than 2 decades. I believe he’s trying to tell me, in a very diplomatic way, that I shouldn’t be too bearish. I think the mail is suitable for all the bears who visit my blog often. Sometimes, stop and take a rest could be the best strategy. Well, I’m not saying that he’s right about the current market. Just I respect whatever he says.

I lost some money yesterday, because I was fooling around with the SPX at 960 – I was expecting a small drop. The up-move caught me by surprise and I had to jump out in a hurry.

But it was entirely my mistake – I had not studied the charts without a bias, I was not neutral.

I’m not sure if you are familiar with P&F charts, but this chart shows two things quite clearly, 1.) the trend is to the upside and 2.) the next resistance levels are at 993...

And something else: a great EW analyst, an Australian by the name of Zoran Gayer, got completely messed up in 2003. He just did not notice the change of trend in March, failed to understand that the market was heading north again. For 3 years he kept on making bearish calls. There is also a tragic aspect to the story: he died in 2006. You can read all his posts in the archives at Safehaven com, search for Zoran Gayer. It’s worthwhile taking a look at them, because they are really good charts and what he writes makes sense. But Zoran was wearing blinders.

Why am I writing this: the lack of enthusiasm for this rally will propel it to the upside. The SPX could easily be 150 points higher in a few months time.

I shall be going to my mountain house for a few days. No internet connection there, I shall do the lawn (no high-tech), plant some trees (I intend to plant many birches around the house) and last but not least: I want to forget my work and the market for a little while...


  1. Cobra, in my 20 or so years of trading I have never encountered a "bull" run this strong. I would not short anything right now, but rather buy on weakness.

  2. I will not be going long, but will wait until the downtrend.

    There's no organic volume right now due to HFT. When this turns South, it could do so in a dramatic way.

    That said, I'm not going to stand in front of it either. Cash is a position.

  3. Q3 earnings in financials will be absolutely disastrous. Most of the "good" earnings this quarter were one time sale of assets that won't occur again for some of the crap banks like Bank of America and Citigroup, which are doomed to fail. The XLF will make new lows. If they bring back mark-to-market -- instant market crash. Sorry bulls, time is running out. However, I agree with the sentiment expressed at this blog. No sense trying to guess when it starts, but trust me, it will start this year.

  4. As an addition to my post above, please observe that the bear market has already resumed in financials with relation to the market.

    Note that the financial sector is nowhere close to a new high on the year, while the market is pushing into the stratosphere. BE WARNED. DON'T BUY THE HYPE.

  5. higher highs .higher lows....until that changes...I see a lot of readers here trade what they believe....Not an easy habit to shake...

  6. Technicians are calling for higher highs ignoring the fundamentals...Shanghai is making parabolic move, up 100% from the lows.

    Looks like market is about to turn

  7. lets see...the trend is not your fundamentals...and overbought must revert trade for a living there anonymous shanghai parbolic?

    go all short then... and dont cover till the McO is below 0....and POST YOUR TRADES not just your OPINIONS.

  8. Hello Cobra,..and Uempel,

    I had followed Cobra's blog for awhile before I decided to share my cycle and sentiment based work here. In part the decision was due to Uempel's posting here,..I always admired and respected his work.

    In particular, a couple months ago Uempel did a post on Gann Timing and cycles which I found to be very worthwhile. Thank you very much Uempel for sharing your work,...(and to you Cobra, thanks for posting it).

    I sincerely hope Uemple continues to post here after his time off from the market,..and that spending time at the "mountain house" gives him a fresh perspective when he returns.

    In general, I would tend to agree with Uempel that the longer term trend is turning up here,.. and that for the remainder of the year we are biased to the upside.

    But there still should be down moves, and there should be ample opportunity to profit from both sides (Long and Short) just as there were in 2008 when the primary trend was Down.

    Personally, I have had very good returns with an end of day Rydex SP500 fund managed trading program I am participating in,..

    and will share some recent experiences in an update here at end of month (next week).

    Thank you again Cobra for posting Uempel's email note.

    Regards, Jim P.

  9. Hi,

    77% of the SP 500 companies which reported earnings last week were more than the analyst's expectations.. (
    This weekn another 146 going to report the earnings and it is likely that they likely to report more than the wall st expectations on earnings.. keeping this mind SP 500 likely to be more than 1000 this/next week. Which also happen to be 21st week from sp 500 low in March this year. This might be a medium term top and might result in at least 23% to 38% decline..
    Has anyone got more precise timing on this?

  10. Papu,

    There is some good work here:

    He is looking for a turn between 07-29 and 08-05.

    Regards, Jim P.

  11. Jim P.
    Four Seasons Capital Growth 4csns was looking very interesting until I looked at their performance during this recent rally from March 9th. The S&P500 was up 45% but 4csns only did 24%.

  12. Hi Jim,
    Thanks for the response..
    Full moon is on 6th August.. So around this time (perhaps just few days before), market will make a new high.. I will not be surprised if you see a buying panic (like what we saw in October last year but reverse direction) and it might add another 100 sp500 points to current level..!!

    Good luck to all

  13. Hi Paul,..

    You are right with your numbers, and about the 4CSNS program not keeping up with the SP500 off the March 9th low.

    In general this is a program that is not short term correlated with the SP500. In fact, from a June 13th high, when the program was up 52% YTD,...there has been a 10% drawdown, which as of Fri 07-24, has retraced by half. So the program is still about 5% below it's all time high of June 13th.

    I started with the 4CSNS program in mid Feb. of 2009. Shortly after that, in early March,..we had our first drawdown of over 10%. Took my acct negative for YTD, and was very disheartening. BUT, having watched the program for all of 2008 I was prepared for the drawdown, and stuck with it.

    Since that time, there have been three such periods of drawdown, with three subsequent periods of recovery. Very important to me, as I am near retirement and abiliity to recover from drawdown is most important.

    I am comfortable with the 4CCSNS program and have stuck with it. Very glad that I did. Since starting in mid Feb, my acct is up almost 50% YTD, vs the SP500 which is up 8.42% YTD. So, no complaints.

    My suggestion is simply to watch the 4CSNS program,..over the next 6 mos, or over the next year. (That is what I did in 2008, ..I was up 12% in my own trading, while the 4CSNS program was up 120% for the year, then I made the decision to put funds there.) If you watch it for 6 mos or a year, then you will get a feel for how it trades.

    In particular, watch the 4CSNS equity plot graph at There you will be able to better see periods of drawdown and subsequent recovery time, etc. Also, there is a link for "historical Trades" which gives a listing of all trades.

    This program is short term focused, very next trading day direction, and changes position frequently, fact almost daily.

    As you can tell, I am a big fan of this program.

    If you have any questions, you can email me at

    Regards, Jim P.

  14. Cobra said: "I shall be going to my mountain house for a few days. No internet connection there, I shall do the lawn (no high-tech), plant some trees (I intend to plant many birches around the house) and last but not least: I want to forget my work and the market for a little while..."

    Please watch out for the real, live bears in the mountains! lol -- Don't forget to take heavy duty garden gloves for tree planting so you don't get callous and sores on your hands, so you can type when you get back! If there is a nearby town and they have a public library, at least drop us note to let us know how your doing!

    I've been following your work for sometime now and never posted here. Your hard work, attention to detail and timely posts are very much appreciated!!! The silence of your absence will be deafening!!! You will be sorely missed!!!

    Thank You for all you do!


  15. Hi, guys, thanks for the comments. My computer is broken and I'm busy setting my new computer now, so talk to you later.

    MH, thanks, but I'm not the one going on the moutain. It's uempel.

  16. When the market defies the ST technicals to make higher highs in OB like we have seen recently, you can bet we are heading higher in the interim term. Numerous studies on all three majors support this contention. I think pull backs of anykind should be bought.

  17. Buy or regret -

    He has called every turn right until now, so deserves listening.

  18. Hi, Jim, is there any simple way to show me a chart about your cycle? Thanks. I think I need to "borrow" more cycles from others.

  19. Hello Cobra,...

    Unfortunately, no simple way to show a chart.
    But,..verbally I can try.

    Basically, I track FOUR 13 market day cycles concurrently.

    Each of these cycles has likely pivot dates separated by 13 mkt days. A simple static count.

    No way in advance to pre-determine whether these dates will be Highs or Lows,..merely these dates are likely pivots, or change in Trend (CIT) dates.

    Cycle 4. was 06-16, then 07-06, then in the series is Tue 08-11 Then Fri 08-28.

    Cycle 1. was Tue 06-23, then Mon 07-13, next is Thurs 07-30, then Tue 08-18, and Fri 09-04.

    Cycle 3. was 06-26, then 07-16, next is Tue 08-04, and then Fri 08-21.

    Cycle 2. was 07-01, 07-21, next is Fri 08-07, and then We 08-26.

    That is the order I plot them in ...Cycle 4, 1, 3, 2.

    I keep these on a wll chart by hand. From time to time, I will drop one of these counts and replace it IF another count becomes more viable.

    They way I use these likely pivot dates (Thurs 07-30. Tue 08-04, Fri 08-07, Tue 08-11, Tue 08-18, etc) is to watch the DIRECTION of the market going into the CIT or likely pivot date, and be open minded to a reversal of that direction.

    For instance,..near term,..IF we were to have a
    pullback into Wed 07-29 ( I suspect we might), then I would be open minded to the next likely pivot date on Thurs 07-30 being a likely turn UP form that 07-29 Low. If instead, we were to rally into 07-29, then vica versa,..I would expect the 07-30 CIT to be a turn Down from that High.

    As you know, none of this is clear cut,..simply this is just another tool in the box. And although my main focus is on cycles and sentiment (to identify likely near term change sin market direction), reality I combine other indicators, such as those you regularly feature here on your blog.

    Tahnk you again for making your blog available and for sharing your work.

    Hope this helps. Best Regards, Jim P.

  20. Jim, thanks, I'll see if I can draw a chart based on your info. I'm very busy so that's why I ask you to give me your whole picture again instead of I looking back to all your comments. Sorry about that and thanks!

  21. Cobra, You are very welcome, pleasure. is only 3:10 pm, but as of right now SP500 is UP modestly, and VIX (at 24.56 is also UP 1.57,..up 6.47%),....

    so BOTH SP500 and VIX are up,..if that holds into close, would suggest (per your chart) likely LOWER for tomorrow (Tues 07-28).

    Have a good afternoon.

    Regards, Jim P.

  22. $vix is up nearly 6% right now.

    Anyway, this week is 21 weeks up from the March low and there was a 21 week low-low up down decline pattern going into the March low.

    McClellan summation index, $nysi in the chart above, will be approaching its all time high level by the end of the week at this rate (which was achieved back in May). Can the market breakout to new highs with an index approaching its all time high??? It's doubtful that we'll get a gentle 7%decline this time to work off an overbought condition.

    ---Mr. Panic

  23. I've got very confused signals: both VIX and SPX are up which means a down day tomorrow. But CPC < 0.8 and CPCI just is aound 1.5x which is too high, so both CPC and CPCI may mean an up day tomorrow. Also VIX is not very reliable recently. So the answer is, right now (may change later), looks like an up day tomorrow is more likely.

  24. I believe Larry McMillan said in a speech in June, that the put-call ratio didn't work in 2000 because institutions were heavily hedging their positions. $CPCI is indicating that in my opinion. I read that an institution bought the equivalent of 720,000 SPY puts at December 95 on Thursday that had local trader's heads spinning and many wanted to know who did it and why. (It was a bearish put-spread).

    ----Mr. Panic

  25. Thanks Cobra,..You are likely right.

    As Uempel noted, next resistance level is 993.
    I am going to miss Uempel's updates.

    Regards, Jim P.

  26. PS...Also look at Sentimentrader's STEM.MR models,..for both NYSE and NASDAQ,..surprisingly, BOTH are at oversold levels. Jim P.

  27. Cobra, "fire works" setup triggered?

  28. Also we got vix green and spx green, I forgot, that means green next day too right?

  29. It means a down day tomorrow. But it has been wrong twice recently. I think I'll give CPC more credit this time.

  30. I bought a lot of bearish ETFs today. I was looking for a doji today (hanging man is just as good) We are completing the pattern from January 6th. I don't see the sp finishing the week above 950. If it does it will be a bullish monthly reversal which doesn't make any sense with the McClellan summation index at all-time high. Mark Hulbert's sentiment index is back at the early January highs (that was last week). And we might get the third minor change reading a row from McClellan oscillator since breadth really didn't change from Friday.

    ---Mr. Panic

  31. Anony above, "I don't see the sp finishing the week above 950." Well, you better hope it doesn't, but I view 919 as more important. If we close anywhere above 919, that'll mean 5th consecutive up month and that's not good for bear case at all...

  32. Mr. Panic, but how can I don't see McClellan Summation Index is at the all time high? You can check my chart 0.0.3, it's not all time high.

  33. Cobra,
    It will be by the end of the week at the rate it is rising right now.

    --Mr. Panic

    P.S. I use the raw data from McOscillator. If you want to check their 10%,5% component readings they are very overbought, right at the levels from early Jan and early May. They have a historical database going back to the start of the year. Oscillator is rising at +200 a day, any strong upday will increase that number so we can tack on another 1000pts easily to the summation index by the end of the week if the market is flat to up.



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