timwest
Short

S&P500 Euphoria SPUphoria Graphically Displayed

BATS:SPY   SPDR S&P 500 ETF
1017 14 11
S&P500             EUPHORIA = SPUPHORIA

For those of us who have been trading a long time, S&P             futures were called SPU's (sounds like SPOO) because the first contract was September and that means you use a letter U after the root code SP             for S&P500             .

What I find interesting is when signs of EUPHORIA shows up in the price action and this time there are two of them, back to back. There is a smaller, third wedge also. It is merely a price formation where stacking corrections take less time and have generally less price depth, so that the resultant mentality becomes "BUY THE DIPS" or "Hooray! Another dip to buy". When making money becomes this robotic, then likely something very different is about to happen.

What also happens is that "sell stop" orders can accumulate under previous correction lows and then a short, sharp correction ensues.

The longer term forecast I had published near the beginning of the year forecasted the market to move sideways to higher for the year, so this forecast is tempered by that longer term structure. Of course, any guess is just a guess and my ego is not involved in this analysis. I am only offering a vision into the setup that I see in place in the market and the path of least resistance that lies ahead for the stock market . I hope we can adjust our positions to profit from this pattern setup.

All the best,

Tim
1:57PM EST Wednesday, June 5, 2013
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timwest PRO
3 years ago
Typically the most important "time" is at the "point" of the wedge, when the converging trendlines meet at a time in the near future.
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LEONES PRO
3 years ago
Interesting, let's see if this theory works
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timwest PRO LEONES
3 years ago
leones, I wish I could show the many other wedges I have found in the past that have panned out. The interesting part of this pattern is the very high reward to risk ratio inherent in the structure of the setup. There is a very high implied move after the wedge completes, to retrace the entire move previous to the wedge in 25% of the time of the wedge. The downside is that the odds of catching it just right are low, so often there are many attempts to catch it before it unfolds. So, at the end of the day, you may lose 5 times in a row and then win on the 6th time, but in this setup, you win 10x-20x's your risk. It ends up being very profitable, but trading these patterns is the hardest and least popular because of the low probability of a profitable trade.
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timwest PRO
3 years ago
So far the market is moving along the path that I charted out. I see a nice top formation forming in many stocks. I see a H&S top in Citigroup (NYSE:C), for example. I see sharp breakdowns in safe utility stocks and a sharp breakdown in long term bond prices. Safe places to hide have been taken out and decimated - from gold, to silver, to mining shares, and that money is flowing IN to the overall stock market. The money that needed to flow OUT of bonds and INTO stocks to rebalance portfolios appears to be complete. Last year and earlier this year I had presented that a reason to expect stock market support was from the fact that money could flow out of bonds and into stocks. This formed a major thesis for a sustained, steady advance in stock prices. That support is now no longer in place, from what I can see. There is merger-mania, take-over madness and buy-out-bonanza thinking more omnipresent than concern that prices are far too high to absorb the typical shocks and volatility along the way to a small, meager gain from here. Why a small gain? There isn't enough earnings power to drive current valuations. We can only hope to sustain these valuations over time. Sustain = volatility with no price gain. That is called "risk unrewarded". My view from here is flat to down for the balance of the year. The only hope is a big drop in oil prices from here to justify additional price gains in stocks. Call me "concerned".
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Excellent. Also noted ... "short squeeze" was one of the top 20 Google Searched terms a few weeks prior. "short squeeze" top google searches have marked every peak since 2009.
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timwest PRO QuantitativeExhaustion
3 years ago
Indeed JR. Very good point. There is one chart that has had me concerned for some time and that is the level of margin balances at brokerage firms. It appears that people have been borrowing from their stocks to buy investment properties (houses for rent, apartments for rental, condos, land, etc.) It looks to me that it is difficult to assess what will make this trend turn but it might just be the loss of upward price momentum that induces a slight reduction (selling) in the debit balances. I am sorry to sound an "alarm" but I am at least turning on my caution light and advising to protect against a 10% drop in stock prices over the balance of the year.
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I concur. We are in a equity bubble and we are topping right now.
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LEONES PRO timwest
3 years ago
Working well so far. I understand the theory but where do you enter the short trade in practice
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LEONES PRO LEONES
3 years ago
It seems the right time to short it, another one or two days..
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The Grabbing Hand Theory
http://www.economist.com/node/186317


Helping Hands Grabbing Hands
http://www.economist.com/node/238108

"In the Welfare Trap"
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timwest PRO
3 years ago
The market is properly responding to the dangerous signal provided by the Shanghai Interbank Offered Rate, which went soaring well before Bernanke presented his tapering views to the general public. The magician was cleverly at work shifting your attention away from the important factors going on in the background, while the collective stared at the less meaningful distraction provided by Federal Reserve Chm Bernanke. What often makes contagion spread is the "justification" that can occur with a market move, especially those that sound best to clients of money managers. If you think about what "sounds best to clients" then you can often find the opposite side of that trade and sleep better at night.

Enough "contrarian theory" for now. I did want to just state that we certainly are at a dangerous level for the market given the very low RETURN ON ASSETS of the stock market at current levels. The sluggish economy despite the global money creation by central banks is astonishingly disappointing on a collective, global scale. The "free money" from "selling Japanese Yen and buying Australian Dollars" is over as that trade has collapsed in grand fashion.

Where do we go from here... sideways to down... to catch up to my sideways to up forecast from earlier this year...

9:20AM Monday, June 24, 2013 Eastern Standard Time
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timwest PRO
3 years ago
The last rally was much more than diagrammed, so, I'd like to see how the market responds to the current "roll over" in order to keep this multi-wedge pattern in place which would imply that buyers have tripped over themselves to buy stocks and that only stop loss orders exist under current prices. Time will tell.
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Delta_Zulu
2 years ago
Hi Tim, could you by any chance give us your latest thoughts on the direction of the SPY? I would really appreciate it. Many thanks.
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