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Weekly Update

9/6/2009 7:54:09 PM

Current Positioning:

SPY: Short 50%
QQQQ: Short 50%

General Commentary:

The system for the SPY is on a Sell signal __ __ __ __

The system for the QQQQ is on a Sell signal __ __ __ __

The markets don't seem quite ready to rollover just yet, but it seems that a corner was turned this past week.

Tuesday marked the start of September and a time when most fund managers return from summer break, you'd think that they'd come back relaxed and ready to put some money to work, but instead they sell!

The selling pressure is even more surprising given that the ISM came in better than expected and actually now shows expansion for the manufacturing sector.

So what's going on?

Well, It's the old "buy the rumor, and sell the fact" scenario. The way it works is that good news gets priced into the market and so when an announcement is made, the professionals sell to those that rely on announcements (the ones that are late to the party).

Where we find ourselves now is that the market has spent six months pricing in all the good news and in the absence of something that is dramatically positive, the market is likely to take a breather and sell when the opportunities present themselves. Remember that the market is rarely rational as the short term is driven by emotions.

To sum it up, even though the market was able to recoup part of its losses from earlier in the week, we now seem to have turned a corner and momentum to the downside should gather pace within the next few weeks.

The week ahead looks like we'll go a little higher early on but lower again by the end of the week.

On to the analysis...

SPX Chart - Bigger Picture

While there was some volatility during the week, the bigger picture is holding steady. We seem to be building up to a point where fireworks will happen (and chances are that those fireworks will be to the downside).

The MACD histogram continues to show negative divergence and the bearish rising wedge also remains in force.

SPX Chart - Shorter Picture

The S&P broke out of the mini bearish wedge to the downside last week with larger volume and finished the week on a positive note, although on very low volume.

This coming week could retest the 1025 - 1030 region but we're not likely to see new highs. So far buying the dips has been paying off, although the dip we had on Tuesday seems to have more conviction this time around, and also the jump on Friday was on the back of the lowest volume we've had all year.

When you add the negative divergence on the MACD to this equation, you get a formula that points to a bearish argument.

For the week ahead, support on the SPX is 980 - 990 and resistance is at 1025 - 1030.

NDX Chart - Shorter Picture

The shorter term shows that we're at resistance here but there is a possibility of breaking higher from here. The most likely scenario is that we go sideways here in the short term.

For the week ahead, support on the NDX is at 1565 - 1585 and resistance is 1640 - 1670

The VIX Picture

The VIX burst out of the blocks on Monday and Tuesday but became complacent again by the end of the week. Two key things happened however, 1. We got a higher high and 2. The MACD got above zero.

If the MACD crosses lower, the markets are likely to hover higher again, although even if that happens, it's only likely to be a short-term move. The mid term for the markets is looking more bearish now.

The VIX measures the premiums investors are willing to pay for option contracts and is essentially a measure of fear i.e. the higher the VIX, the higher the fear in the market place. It tends to move inversely with the markets.


We're using a starting capital of $5,000 for each market and allocations are based on 25% of this or the remaining balance.


Entered L/S Price Qty Value Closed Price P/L Balance
26 May Short 33.21 37 $1229 26 Jun 36.12 $108 $4,892
11 Jun Short 36.72 34 $1248 29 Jun 36.44 $10 $4,902
31 Jul Short 39.56 31 $1226 24 Aug 40.36 $25 $4,867
07 Aug Short 39.91 31 $1237        
31 Aug Short 40.16 30 $1205        


Entered L/S Price Qty Closed Price P/L Balance
11 Jun Short 94.05 13 $1223 30 Jun 92.72 $17 $4,976
23 Jun Short 89.47 14 $1246 30 Jun 92.72 $45 $4,931
15 Jul Long 91.81 13 $1194 17 Jul 94.06 $29 $4,960
31 Jul Short 98.65 13 $1282 24 Aug 103.39 $62 $4,898
12 Aug Short 99.56 12 $1195        
01 Sep Short 101.95 12 $1223        

Quote of the Week:

The quote this week is from Stephen Covey, "We are the creative force of our life, and through our own decisions rather than our conditions, if we carefully learn to do certain things, we can accomplish those goals."

Feel free to email me at angelo@stockbarometer.com if you have any questions or comments.

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