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Weekly Wizards

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Notes from a Trading Diary

Wed, May 27 2009, 05:51 GMT
by Mike Paulenoff

AdviceTrade.com

Here's some of what Mike has been saying today (Tuesday May 26, all times Eastern), along with other of our Wizards:

8:25: MPTrader.com: We walk in this morning to lower gold and a higher dollar, precipitated we are told by this weekend's provocative nuclear bomb tests by the North Koreans. While those tests, as well as the seemingly innocuous response from the global community, certainly are unnerving, one look at the enclosed comparison charts of Euro/$ and Spot Gold suggest strongly to me that in fact the market response (as distinct from the emotional response) has been relatively mild. Actually, both the Euro and Gold prices went straight up for the past few session, and otherwise “needed” a rest/pullback/digestion period -- from a strict technical perspective. As of this moment I cannot conclude with any degree of confidence that either the Euro or Gold prices have hit anything other than a very near-term peak. After a few more hours of orderly correction, let's see if the dominant uptrends reassert themselves -- N. Korean aggression or not.

10:09:49: From Jack Steiman, SwingTradeOnline.com: The ONLY time this market becomes a short is when we lose the 50 day ema and that's not happening any time soon for even if we went there, we'd bounce hard on the first test. Pick your spots. Not here.

10:40: MPTrader.com: So far, today's action in the U.S. Natural Gas Fund ETF (NYSE: UNG) has the look and feel of the conclusion of the sharp decline from the 5/12 high at 17.73 to this morning's low at 13.22. Although a test or two or three of the 13.30/00 area might still be forthcoming in the upcoming hours, the UNG should be making a major secondary “stepped-up” low (above the April lows at 12.69), after which the price structure will embark on a powerful new upleg that revisits the 17.73-18.00 key resistance plateau.

11:17: MPTrader.com: Although the first hour vertical assault on the entrenched shorts from last week feels like the start of a new upleg, my pattern and momentum work argue the opposite: that this strength represents a countertrend rally, which when complete should reverse into a nasty decline that presses prices towards another test of key support, at 878-875 in the S&P 500 emini futures contract, that will be violated on the way to 855/850 thereafter. Only a climb that hurdles the prior high at 923.50 will alter my anticipated scenario.

12:21: From Gary Dean, MarketsPath.com: OK, we are in the 1st resistance zone for the SPX, which is the 904-907-915 area. I still believe we are heading to 907 today with pretty good odds 915 will be in play. They caught the shorts and caught them hard. The news is anything but bullish and they used the "crash mentality" to take the higher. This is NOT how you build a sustainable rally that will last months. These types of moves last days, but the tape can scream higher. The only ones making money are the ones making the rules (GS and the rest of the puppet masters). I have received a ton of fan mail about missing another great move. My response has been -- at what point would you have gone long? The gap down? Just after the confidence report? Friday? Folks, these moves are coming out of left field, like they have for this entire rally. 3-5 days a month are making up 85% of the gains since March. So we sit back and wait to fade the short covering rally. Once they are finished getting squeezed, we usually have ended up right back where we started. So we wait for our pivots to come into play, layer in a short side trade and use the 915 area as our line in the sand.

1:11: MPTrader.com: With the equity market flying, the "need" to buy dollars has lessened, which has lifted the Euro as well as the precious metals. Both the Euro/$ and spot Silver have recovered most of their earlier losses. If both markets go positive, we should see short covering and prices accelerate to the upside towards 1.4250 and to 15.20/40.

1:52: MPTrader.com: Purely from a technical perspective, I would be looking to enter the long side of the ProShares UltraShort SPY (NYSE: SDS) in the vicinity of 57.00, where both my pattern and momentum work argue that the current decline from 61.60 should be complete -- within a larger developing bottom. Of course, should the SDS plunge beneath its triple low between 55.80 and 55.70, then all bets are off.

2:05: From Harry Boxer, TheTechTrader.com: They are squeezing the daylights out of the shorts today! What a terrific session for the bulls indeed! But let's see what they can do over the last 2 hrs! Plenty of time for a stronger pullback if the bears have anything to say! (Not so far though!!)

3:15: MPTrader.com: My hourly work is telling me that the vertical assault that began during this morning's first hour is getting tired, and that the S&P 500 emini futures has either peaked at 911.00 or will climb to one more marginal new intraday high at 912-914 prior to a downside reversal that initiates a decline at least into the 890-885 area next. If such a scenario unfolds, then we will have to evaluate the larger pattern at that juncture to see if we should be expecting yet another loop to the upside, or downside continuation within a larger corrective process off of the May high at 929.50.

4:41: MPTrader.com: The BIG picture of the S&P 500 emini futures is fascinating because all of the action during the past 14 sessions has represented a "sideways battlefield" between the bulls and bears. Today's action represented the 4th key reversal day since the May 7 high at 929.50. There have been two key downside reversals -- on May 7 and May 20 -- juxtaposed again two upside reversal days -- on May 13 and today, which tells us either that reversal days are not so technically meaningful any more AND/OR that we have a very powerful standoff between bulls and bears being played out across a 50-55 point range. Whichever side prevails should trigger continuation to targets either into the 930-50 area, or into the 830-820 area. Right now, after today's strength the bulls have the upper hand, but we will have to see if upside continuation continues tomorrow, and whether it can propel prices towards a test of key near-term resistance at 920-923.50. If not, then we should expect another downside reversal the presses prices for another test of 880-875.

Published on  Wed, May 27 2009, 06:00 GMT