Quick Update

Well, I added to my KSU short today, it hit my upper projection target where I wanted to short more, so I stuck to my strategy and we will see from here. I really like the set up. KSU hitting new 52 week highs during confirmed market correction. Talk about bull traps, just refer to my prior post regarding my initial analysis on KSU. I will now add even more if it starts to go in the direction I desire.
EEM looks poised to test $36.18 in the near future. I will be shorting EEM tomorrow, hopefully on some intra day bump up. The chart posted is for EEM

Conversations Regarding MACD.

UNP WEEKLY

I had a lengthy conversation on Friday with a young chap who happened to work at a hedge fund, while I was eating at a New York style pizza joint in Glasgow, Scotland. This was after a required meeting to gain my right to permanent residency in the U.K. The meeting was pure coincidence. He saw me looking at my charts while I was eating.
We got to talking about MACD. My point to him was while weekly MACD is currently crossed over down it was time to be short or in cash. He offered his views, but he was more of short term trader, scalper, day trader.
We looked at many charts while he tried to test my theory in a socratic manner. My theory to him was from a intermediate time frame and that while weekly MACD was crossed over down one should be short or in cash. Sometimes I am nimble will take a shorter term trade if conditions are right for me. Thus he pointed out that the market lately was not conducive to intermediate time frame trading, to which I concurred.
We then started looking at daily charts and comparing them to weekly charts in terms of MACD. Such as MACD can be crossed over up on a daily chart, but crossed over down on the weekly. My point was when this occurs they are short term long trades to the upside, but the larger more dominant trend will assert itself and the selling will pick up again, leading to lower prices.
One thing that I thing I think he walked away with at the very least was a new perspective regarding time frames.
We looked at many charts but the ones we focused on were the major indices and the rails. My focus was on the most recent bull from 03-07, as I think this is the most relevant for many reasons, but I will not labor this article with them at this time, because he did quiz me regarding decades of data and charts and why I think the most recent bull is the most relevant. If one looks at the SPY MACD history during the 03-07 bull market period, it was very predicative when to sell, get in cash or put on some hedges to protect your longs. As long as MACD is crossed over down the sell side was dominant and the daily MACD cross overs up are nothing more than counter trend rally's in the dominant time frame. Sometimes they even made new highs while weekly MACD was crossed over down and never crossed over up confirming the daily or weekly strength. Why not just be patient and wait for weekly MACD to cross over up then you know you are on the side of the dominant trade. The only caveat for buying on weekly MACD cross over down is you feel Mr. Market is mis pricing an equity or they are throwing the baby out with the bath water, this I can not argue against it. I just hope you have done your own DD.
Currently, for me I do have some longs for this attempt at recent highs, but I have spent most of my time strategically adding to short positions.
I also sold some of my miners that had nice gains, still have a few I am being patient with, but the leash is getting short.
One final thing is my wife is giving birth to our second child tomorrow, so I will update as I can, but for now I am adding to shorts at low risk points and the market will have to prove me wrong and take me out and that wont happen unless prices make new highs and weekly MACD confirms.

GOLD

I am already in this stock from when the daily MACD crossed over up. Those looking for a quick trade could enter this position anytime in the next day or two and expect it to test its 50 day. Which would be around a + $4 gain, as of this writing. Every other miner or PM stock has done so. Therefore I would expect this equity to do the same. Remember sectors move in unison. Plus GOLD is one of the stronger names in the group, but it is very volatile as well.

Switched

After reviewing charts over the weekend I decided to make a change to one of my positions. I closed out my UNP short for break even. I am now starting to build a short position in KSU instead. I entered part of my position this a.m. at $33.06. My other entry points are $33.85 and $34.20 or higher. My time frame for this trade is a few months.
Why the change of mind? If you look at all the other rails they have all breached their 90 days and KSU has not. Now KSU maybe the leader of this sector, but I doubt it. KSU may be in play for a take over, for all I know. However sectors move in unison and one stock in the sector will not be left unscathed, while the others get taken down.
How I see it is the others will bounce for a while before the whole sector gets taken down to test its 200 day and at this point KSU has the greatest risk reward potential for me based on my analysis.
I know this may seem counter intuitive but look at the volume recently in KSU. I believe the big money is exiting and shorting this. They are setting it up to play catch up with its sectors peers. Wall street must take prices higher to get people to buy, when they want to get rid of something. This is very different from retailers who must discount what they want to get rid of.
Also once price starts piercing its 20 week m.a. frequently, as it has been doing, its a tell tale sign that a significant move lower is on its way. Furthermore MACD must reset itself much closer to the zero line before the next up leg to new highs begin and MACD is still a substantial distance away from the zero line. If the past is prelude to the present price will try and move up to its recent highs and it may make new highs, marginally, but I don't think so this particular time. While all this action is transpiring in price, MACD should stay crossed over down and not cross over up, thus creating the divergence I am looking for that frequently happens in this sector right before a significant correction occurs.
I am posting daily charts for most the rails, so you can see how different the action in KSU has been compared to it's peers. The daily chart's show all the rails breaking their 90 day's (purple line)except for KSU. As I stated I do not believe this is the leader of the group, so it has a lot of catching up to do.

200 Day Moving Average

UUP DAILY

SPY DAILY

I thought I would point out some observations regarding 200 day moving averages. Of especial interest to me is what happens when price makes a first test of the 200 day, after putting in a bottom.
First lets look at SPY when it first tested its 200 day after bottoming in March 09. Notice how price broke through then moved down testing and finding support at the 200 day. During this time the 200 day was down sloping. Along the way price stayed above the downward sloping 200 day, allowing the 200 day to start its up sloping angle, signalling a trend change. If looking at charts making their bottoms during this time frame you can see how constant the pattern is.
I believe the same is true when price breaks down through the 200 day, it will break through and stay below for a few days, weeks. Then a thorough retest of the 200 day should occur and if the trend has changed then price should really never have multiple closes above the 200 day.
Currently the major indices are above their 200 day moving averages, but if they break this is what I will be watching.
However there are sectors, stocks where this is occurring now. One of the sectors is mining, so I think we will have a resolution as to whether the gold up trend is broke in a matter of weeks. On the other hand the dollar index has broke through its down sloping 200 day, so I will be watching for the subsequent testing of the 200 day which will occur for further clues regarding dollar strength and commodity weakness. Together this analysis should allow me to be on the right side of the market. If the dollar index holds it subsequent tests of its 200d and the miners can not get above their 200 days, well then it will be time to abandon the miners for me. As they are not a core holding for me. They are not something I like to hold for years.
Here are some other important indices,sectors below their 200 day worth monitoring, FEZ, any miners, banks.
Lastly, I do not think this market correction will be over until every important sector has tested its 200 day, so be patient on the long side for entry's and hold on to your shorts if they have not yet hit their 200 days, thats my plan and has been working. I am only long the miners because I am willing to pay to play to see if the dollar index has enough buying interest to change its trend and I tend to think not, but I am not married to that thesis and will jump ship if the above happens.

For the dollar index I substituted UUP and the yellow line on the charts is the 200 day.

UNP

I entered UNP on the short side yesterday at the close. I will add to it at the 50 day. My position size is small as general market conditions require at the moment. This also allows me to add to it if UNP nears its recent 52 week high and MACD is still crossed over down. This type of pattern in UNP occurs all the time or it did from 2006-2008. Until it quits working I will continue to trade it. My first target is the 200 day m.a. and then $55.50 area.

X Marks the Spot

I added to some miners on the long side. I bought GOLD yesterday at the close.
The premise for me buying GOLD is simple, MACD has crossed over. Normally I apply this simple signal to miners like GG and GDX, it has been a very reliable buy and sell signal for the past nine months.
I am posting the daily chart of GG. Notice the MACD pane and all the X's. They illustrate the price action after a MACD cross over. I am iffy whether will see new highs like past instances, but the pattern has a high probability of a nice pop to the upside. I do expect price to test the 50&90 day at the minimun for all the miners.
Also all the 60 minute charts of the miners have nice setups, which further validate's my thesis.
Full disclosure I am long AU,GDX,GOLD,IAG,GG.

Updating

IWM WEEKLY


IWM DAILY



Well I got stopped out of my DOW for a minimal loss. I kept it to a minimal because I knew the market was weak and kept my position size small and had little tolerance for weakness.
I did short IWM breaking the Jan 29 low. My target is now the 200d and 50 week m.a.. Any bounce to the $61-61.50 area I will add to my short position. Otherwise my targets are set.
UNP is on my watch list for shorting. Anything near $64 is where I will enter. I stared at early this week when price was a few cents away and I talked myself out of it. Lately I have been finding for me the hard decision's on entry's have been the right decision and the one's I enter without hesitation have been loser's. Therefore I will use that piece of information in my trading. Also longs are simply not working, which is another sign to stick on the short side until they quit working.
I have kept my AU options as they are leaps and time decay is not working against me at this point.

DOW

I bought DOW at its 90d m.a. this morning. I did not take a huge position because I feel like the overall trend in the market is weak. None the less DOW's daily chart is very nice, lets take a closer look.

Notice how volume is very strong at each successive higher high. The vertical blue lines in the price pane are just to illustrate where price was on those higher highs. The X's in the price pane are to show exactly what I see as far as volume is concerned and how price and volume are confirming each other and the X's in the MACD pane show a good entry points as far as momentum and timing are concerned.

The pattern keeps repeating itself and during the last higher high volume was strong again indicating no divergence to be wary of, as volume is a leading indicator. Therefore I took the trade and my stop will be placed below today's low. However I will need to see successive close below today's low for me to act on my stop.

A side note, I was asked why I alway's refer to the 90d s.m.a. in my charts. I feel its a moving average that is reliable in the intermediate time frame as far as acting as support or resistance and that time frame is my bread and butter as a trader. I will expand on moving average's and my philosophy regarding them in another post.

Laundry List of Longs

Here are bunch of stocks and my ideal entry points. Some are far away, but I have learned unthinkable prices often get tagged.

LFC, @ $52.00, which is where a up sloping 50 month m.a. reside's. Have a look at monthly chart to see what I mean.

CELG, between $53-51, this one is for more fundamental reasons, but it's charts are okay.

PBR, near $37 which is where a up sloping 50 month m.a. reside's. Have a look at monthly chart.

SYT, between $43-45.

IHS, near $47

VWO, near $35. I like the holdings of this ETF.