I am sharing without any further disclosures, you are on your own to use this analysis, if you are interested in the execution, just PM me. I really try to trade much much less than before at critical times 1-2 times per month for my trading and an handful of times per year for asset management...
SPX Analysis:
Market rallied for the first time with the advancing-declining line (ADL) divergence and generally poor leadership. There is a new recovery high in S&P 500 index, but this is not confirmed by the ADL. The energy sector led and the growth lagged. The small caps, evident from the ADL, also lagged substantially. These are generally terminal rallies that target the short stops.
These rallies may continue as the short sellers pile up with the expectation of an imminent break down at every sharp pull back. Although, these kind of market structures eventually top and decline substantially, the timing of these declines are usually very difficult and the prices may rally much higher than any short seller can anticipate how much higher that last high may come from.
Our model generally predicted higher prices into August since June and then a decline in fall. The market structure since June still confirms these views. Currently, the most substantial cyclical structure is still the same 68-72 week cycle and it is due for a low in January of 2013. Having the deteriorating market structure in mind, the big picture is to find when such a break may occur in fall and ride higher the pull backs until the exhaustion becomes even more apparent. Statistically, the market will not rally more than 1-2 months with this kind of deterioration.
The initial expectation for July-September since late June has been a two stage rally which may have already started, the lows were expected around this week, but once again the lows came a few days early. The short covering fueled frenzy is likely to continue after last week's gains are a bit consolidated this week into August. There is a sell off toward the end of August per the 10 week cycle low due around late August, regardless the markets are likely to rally substantially one more time into September. The markets are generally expected to remain volatile until a top occurs into September.
So to summarize, (1) we will buy any sell off this week for a trade, but we will not chase the prices higher. (2) We will be alert after one more rally for a sell off into late August, (3)(a) and either look to get long one last time, OR (3)(b-) wait to try to sell short a last rally depending on how a sharp rally in August happens, if it happens. (4) We expect a sell off later in the year, but possibly from higher levels, in fact new highs for an important top.
These are some of the supporting statistics at the moment, the analytical projections are still too fuzzy to present at this juncture, but the cycles are roughly rallying from a 8-9 week (mid channel pause) zone for a last rally ahead of possible 10 and 18 week cycle lows (since June 4 lows).
Trading Plan:
Buying the lows this week and hedge for sharp 2-4% rally or break down possibility into August (possibly a strangle with bullish bias balanced with calendar spreads, vega long, theta neutral).
For illustration purposes only.
Edited by arbman, 30 July 2012 - 03:37 AM.
