Sunday, August 30, 2009

2 Must Watch items this week (Head n Shoulders & Jobs data surprise)

1) Developing Head n Shoulders Pattern
(see chart, this looks identical to the formation of the prior head)

2) Unemployment "up-side" surprise caution on Friday (this explains how we are NOW entering the curve where a very large portion of people are now running OUT of benefits, hence the "monthly reportable numbers" may very well surprise even more over these next couple months)

1) Speculation here, but you can not deny the move up here is identical to the last formation of the previous head.

IF the black support line of this consolidation breaks, THEN look for:
Pullback to 988 (neckline)
Bounce to 1018 (right shoulder)??
Pullback again to 990 (neckline)???
....have a feeling IF this plays out, bears wont go bonkers at a "break of the neckline" nearly as much this time. Heck due to recent memory, I would not be surprised to see people buy it! (of out fear?) again, this is speculative for the overall playout here. However a break of the support line from it's current consolidation it is in now, looks like a short trigger w/ a target of 988 to me.

2) In regards to Friday's unemployment data, there are 2 things that I think are worth sharing.
a) last month, on Aug 7th, we had a nice pop from a "better than expected Unemployment number".
(read the link posted above, for why we should EXPECT a better than expected "reportable" number, yet things are not actually getting better)

b) last month, on Aug 7th, that very same mini-euphoric pop was also a very nice swing entry for a short trade for 3 days.
(see chart)

Another opinion of mine why this potential pullback here (988 target), is just a short term one and NOT a load the boat short scenario is this:

On a fundamental (my personal hunch) side of the house, I do have a strong feeling that the "3rd qtr GDP" is something that many bulls have on their calender and are front running here. And with the bigger picture, even though some are suggesting that we might have the "top" here and now. Even if that holds to be true, I have a feeling that we would then even yet make a "double top", around the announcement of the 3rd qtr GDP. Many people (smart), are watching sentiment here, AAII, BPSPX, etc, and everyone is looking for a "euphoric climax". Which makes total sense, as Prechter pointed out, there were only "3% bulls at the march lows". When sentiment becomes THAT one-sided, so does the trade.

So what kind of catalyst could give us "ultimate bullish euphoria" causing a one-sided trade?
- well the conformation and complete media blasting of a "Confirmed 3rd qtr recovery, POSITIVE GROWTH IS BACK!, GDP in the GREEN AGAIN BABY!" is my #1 guess.

My speculation is that the 3rd qtr gdp will be in the GREEN, and that may very well the euphoric climax the bulls have all been salivating for. (how the GDP gets there with the internal numbers, I am sure that Denninger and every other economic bear will be able to elaborate on that.) However Joe Blow, the common man of the US, he just wants to hear "positive 0.1" and he jumps for joy. Keeping things simple, as the powers that be have him fooled.

I can not think of any cliche or phrase that I have heard or read more often than "positive growth in the 3rd qtr". I swear I must have heard or read that 10,000 times over the past 6-12 months. So that alone, for the bigger picture, is why I think it has potential for being a large longer term buy the hype, sell the news and that if we do get a 988 pullback here, that is likely a short term move only for now.

Best of luck this week.

Disclosure: Long DZZ, Long EEV (will look to exit both early this week for a small profit, then wait for Friday's "potential of a surprise", for a potential better re-entry point)
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