So Far So Good.... Now "Buy the Dips" ??

OK... the first phase of the Bear Market Rally theory has gone very well! Some excellent action out there that makes me think it may actually continue.... but of course pullbacks should be expected. In the chart above you can see we cleared the first benchmark of the 50 day MA. We went back and touched it today and it acted as support. But we are right at the resistance of the downtrend line forming the descending triangle. At this point, the resistance is clear. It would be natural to see some tests of support which, the higher it holds, the more bullish it would be. Futures are down a touch as I write this. I will be watching the 50 day, that rising 8 EMA and the price support around 1325-1330 on a pullback to see if the bullishness emerges again. Remember that 5 minute pattern... the inverse head and shoulders? On any pullback, seeing that again on the would be exciting. With even more bullish confirmations coming along this week, I want to maintain this posture shift and slowly build out a "buy the dips" mentaility as opposed to the "sell the rallies" mentality of the past few months. We are still very close to where this can be proven wrong and the risk is lowest and hopefully for everyone some nice profits already in the bank. If we can get through a pullback and to a higher high, there will be less wishy washyness in the outlook.

We are at resistance and still in an intermediate and long term downtrend even though the intermediate term trend may be changing. For this reason I peeled back some profits today and bought a few puts on SPY just in case. The next few days are going to be very exciting!! If things hold up generally well, look for those bull flags and pullbacks to support for buying in the next leg up above this resistance. If resistances broken this week fail to hold as new support... well see you on the other side. I will try to post some bearish plays on the message board before the open. Things might get scary on a pullback here but as long as supports are holding, it is OK. There is much evidence that accumulation is taking place.... such as the chart below....


Here is the $IRX... 3 month treasury bill... where everyone goes to hide their money from the big bad bears. Finally the relief rally in yield on Monday as we rallied in stocks. This is people putting their money back to work, fear lifting at least in the near term of the credit crunch. Thus it is further confirmation that we may have something here that will last a while. Note that no other rally attempt in stocks recently has seen this.

And here are the timeframes of the SPX... 5 min, hourly, daily and weekly. This clearly shows how this rally is countertrend. Short term timeframes are rising, longer term falling. The short term timeframes build out into the longer term timeframes so as long as the hourly keeps trending up, eventually and uptrend will appear on the daily. The hourly is now trending up nicely and can support a decline of 30 points or so while maintaining an uptrend. Now that the hourly is trending it is the dominant near term structure. The 5 minute takes a bit of a back seat.... it is now more important when the 5 minute turns back up to move with the hourly than down against it unless we get major extension in the hourly. The turns down in the 5 minute are more likely to be supported close by until weakness in the hourly emerges. Hope that makes sense. I will expand on it at some point.

Perhaps soon I can get this blog to its original intent. To find the big opportunities in the market and manage them as they progress. I can't help but think if I just could have maintained it last summer everyone reading it would have gotten rich, rich, rich, on that gold run. But alas... trying to start the blog exposed my main problem... professionalism, or the lack thereof. Maybe soon.

Good luck

Bear Market Rally vs. Bull Market Breakout

Here we have the last three bear markets. These are weekly charts with....
10 week EMA - Blue
30 week SMA - Red
40 week EMA - Green

Easy point here is that any bounce off the low here can not be assumed to be the end of the bear market. We are below the declining 30 and 40 week MA's which is to many the definition of a bear market. Investools coach Jonathan Thatcher puts it in the easiest words....

10 week above the 40 week.... bullish
10 week below the 40 week.... bearish

I am a fan of Stan Weinstein's stage analysis and use of the 30 week MA.

1998 Bear Market was wickedly quick and made a big double bottom on the daily. The strength of the 1990's bull market did not even allow the bear market to trend below the MA's. Notice as the double bottom was confirmed, the 10 week was above the 40 week and they were both rising.... bear market over. Of course the bear market had "bottomed" weeks earlier with a gigantic hammer at daily support. But until that confirmation it could not be seen as anything but a bear market rally.

2000-2003 Bear Market was long and tough. Trended nicely below the MA's for years. The current 2008 position of price and the MA's clearly looks similar to this action as we are trending below the declining MA's. Notice in the 2000-03 Bear the counter trend, bear market rallies were common up to the 30/40 week MA's. This is the type of action that I would anticipate as "best case" for us now. Just a bear market rally.

As tempting as it may be if we do progress into a nice rally to call the bear market over, these charts should be enough to show the futility of the task. There is no way to know so there is no reason to waste brain space thinking about it. Until the "10 week is above the 40 week" it is just a bear market rally. Even then, as with my 5 minute trading, I'd want to see a higher low and higher high above the MA's lest it just get above and roll back down into another bear leg.

Given the current position, I would assume that the eventual breakout into a new bull market will look more like the 2003 breakout than the 1998 continuation of the mega rally of the 1990's. We will see what happens but the birth of a new bull market is just that.... its birth. Even though it is off the low, things are just then getting started. We should also see entire sectors make this weekly turn into a bull market BEFORE the market does. This is not yet present and we are in fact still seeing long term break downs.

So if we do rally the name of the game is Bear Market Rally which keeps the posture situated with the long term trend; There is no shock when the bear market reasserts itself. When a new bull market is born, this too can be recognized so when the "we've come too far too fast" crowd comes out, they can be laughed at as the charts will show us back in bull market bliss. These jokers were out in force in 2003. I was not trading in 1998 but from the looks of that chart I'd have to assume they were going wild! lol.

Letting the weekly chart do the thinking for me has served me well.

Jim