I'll use this thread to post my views and trade signals from time to time so as not to interfere with others.

OK, so things are now getting interesting in the markets. Fundamentally the US and Asian economies are recovering but at a much slower pace than the speculators had hoped for. Thus we're seeing a correction which is now in the process of feeding on itself i.e. momentum is starting to turn the trend bearish now and this could lead to further technical-based falls and ultimately to a loss of confidence in the economy, increased unemployment etc. OF course, if we do see a big fall this time, governments are not going to step in like last time as they've run out of QE powder. Rates can't go any lower and the US and UK are actually trying to remove QE which is damaging market sentiment further. All in all, it could turn out to be a doomsday scenario in which case I head for my place in the old Transkei, make sure the solar generators and water supplies are running, load the guns and bolt the gate!

That probably won't happen so what are the charts saying for those who still have faith in the markets?

First the SP500 weekly:
Momentum went bearish the week of 22-Jan-10 but this is counter-trend so should only last for about 4-5 bars i.e. up to 5 weeks. However, if the down move is sharp enough it will turn trend bearish and then it becomes a whole new ball game.

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Moving to a daily chart....

Here trend does appear to be turning bearish which should give us serious room to think. Medium term traders should have exited all longs the week of 22-Jan (considering both weekly and daily momentum went into the red). But since the move was counter trend there was no compelling reason to short the market then. Yesterday served to break the bounce which needed to continue up to keep the up trend intact. It didn't go up and now trend is looking bearish. So in this case, shorts are justified but current levels are not attractive for new shorts.

However, I never underestimate the power of the equities market to suprise to the upside. I also know that volatility goes up with these big moves. So I am long a couple of May-10 call options i.e. have bought vols. But I have covered the delta on these to about 120% i.e. on a net basis I make money when the market gaps down. The idea is to lock in profits on the shorts whilst averaging down my option cost. At some point this market will bounce and the options will gap up massively as vols are so well bid.

Basically we are in for an exceptionally volatile period so you want to be long gamma (volatility)!

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Tomorrow could fire a crosscurrent buy signal for the Top40 assuming we carry on in bullish mode here. However, this would be a crosscurrent signal as the upwards momentum would be counter to trend which has now turned down. Therefore a better trade might be to look for a shorting opportunity once price reaches the mid-point of the bollinger bands / red trend line. So potential long from tomorrow for a few days with a tight stop loss, then potentially a good shorting opportunity.

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[Updated on: Tue, 09 February 2010 16:18]

The market is recovering because the " " is starting on Friday......thanks %$%&

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