Objective Trader

Big Short - Part 3 -

For those who did not read the initial " Big Short Articles", please click on below 3 links

Big Short 21 August 2012

Big Short 22 August 2012

Big Short 25 August 2012

 

As said prior, my believe is that we will see a sharp pullback into October 2012 to continue the 1998 Chart Pattern of S&P500.

Besides the fact that September and part of October is seasonally the weaker part by average, we have now 2 more indicators that support my assumption that we will see a such decline

NAAIM SURVEY OF MANAGERS shows a staggering 82% of BULLISH PERCENTAGE.

Needless to say that those extreme high numbers do not bode well for the market to rally much further. The odds are very high being on the short side.

 

SENTIMENTRADER COT CHART reveals that we have the largest Commercial Net Short Position seen for awhile. Needless to say, that the last time that happened was April 2011 before the Storm started and we saw a sharp decline into September and 1st week of October.

NYSE SUMMATION INDEX remains on SELL SIGNAL and it should NOT be ignored

SPX 1998 Comparison Chart / 2011 - 2013

The odds that the below scenario will occur are increasing !

 

Again, back in end of September and first week of October 2011, OT highly recommended to turn bullish ( please check archive Oct 2011 ) and now we turned bearish for next 2 month or so.

Summary :

OT refrains from shorting Miners & Precious Metals as previously highlighted. Needless to say that our usual Perma Bears are trying hard to do so. OT also refrains from shorting the EURO.

OT does not short oversold sectors with the least bullish percentage.  OT likes the low bullish percentage and oversold monthly charts in this sector.

WE already know that we reached the 2008 trendline and a breather is necessary to take us beyond. In addition we have extreme bullish sentiment, several sectors with high bullish sentiment, divergence in stock above 200 DMA, sell signal in Summation Index and very high Net Short COT Numbers.

Perma Bears that kept shorting the strength of this market are highly likely out of funds and have waved the white flag.  The Paper Trader Perma Bears, who on a daily basis carry high double digit shorts for past year or more, are certainly not effected as they dont really trade. If they would really trade, they would not short on a daily basis and would be far more prudent with their shorts. To short a market takes far more patience and of course anticipation as the down moves are very fast unlike the climb of the wall of worry.  Such fast decline usually makes it very difficult for bears to enter. By the time they enter, the market has either a strong B rally or is near the bottom.  

 

SUGGESTION

Most traders or investors do no know how to have the patience to short as rallies in between are likely to take their stops. They might enter to early or even to late. Hence, my suggestion is to reduce equity position to a personal comfort level and await the re-entry once we reach specific oversold levels that allows to take the adequate risk to re-enter.

For those who have more expertise to short the market, it does not make sense to bet house & farm on it due to reasons of greed. An adequate percentage of total portfolio is highly recommended and NOT ALL IN :-)

Good Trades and Happy Holidays 

EURO - US DOLLAR - HUI

Despite our Perma Bear wishes that Euro drops to submarine levels, OT remains bullish in Euro, bullish in HUI and bearish for the Dollar. We keep saying it since May 2012 !

EURO WEEKLY Chart shows an obvious buy signal !

US DOLLAR WEEKLY Chart shows an obvious sell signal !

HUI WEEKLY Chart remains on buy signal and needless to say that it will continue to climb. My personal LONG TERM target until 2014 is at least 800 in the index and is based on the oversold monthly chart we posted several times here on OT

Now is the Time ( by Bong Trader )

Don't we just love the Clown Perma Bears ( CPB ). Only yesterday another " Now is the Time " video of our mascot bear appeared and as he has done hundreds of time telling everyone to short in past 3 years the opposite happened.

The best perhaps is that he has tons of GDX put options and is short again & again and not even ONE LONG position he mentioned.

All of a sudden this chart below appeared without a comment pointing at a breakout.  Is our mascot bear trying hard to make readers believe that he knew it is coming so he can pull it out at a later stage when GLD makes new highs. But at the same time, he has tons of shorts in miners and a large put position in GDX.  GDX is up + 4% today and we assume that we will never hear from our mascot bear again.

 

 

shaking my head and back to inhaling

End of Day 30 August 2012

So far we remain on track to the downside.  We should conclude soon the first part of the decline and should expect a bounce by next week latest. That being said, the trend remains down and even a bounce will not change the outlook.

NYSE Summation Index shows clearly a sell signal and we are not betting against it

SPX - MSWORLD MONTHLY RATIO

The Chart below shows that we just finished P3 and P4 is upon us.  In other words, the anticipated decline into October looks on this chart far better and serves as an additional tool. I have not shown this chart yet here on OT, but here it is :-)