ETFs Have Topped Out For 2011; Major Bear Market Coming Ahead? (XLF, SDS, TNA, TZA, VXX, FAS, FAZ)

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July 26, 2011 9:23pm NYSE:FAS NYSE:FAZ

Thomas Carreno:  This posting is maybe one of my top 10 postings of all time.  I want to say with a very good degree of confidence that the S&P 500 has topped out for 2011 and that it will be down from here.  Not in a straight line, but something close .  The market still appears like it is just drifting

 around, but underneath it the pavement is cracking from the summer heat creating huge potential pot holes.

The official BOT short signal for the S&P 500 was not triggered today by about 1 S&P 500 point.  I said the BOT short signal would be triggered on a closing under 1331 in the S&P 500.  Today we closed slightly higher than that.  It is likely that the sell will be triggered in the afterhours session or in the futures. 

Probability now is quite high that the sell signal will be triggered by the market open tomorrow.  So for all practical purposes I am BOT short at S&P 500 1331.

After reviewing several charts on many different time frames I am coming now to the strong conclusion that we have likely hit a major major top in the market in the current time frame and revert back to a previous post where I indicated that we are likely to see massive downside price action into the October 2011 time frame.

It is clearly possible to me now that August 2011 could be the ‘kick start’ month of price weakness that sets the train on fire and then we work down from there with occasionally sideways consolidations and then new down legs.  This should be the beginning of a longer term downward spiral over time.

I am not quite in ‘full tilt’ bearish mode yet, but I am getting close to that point fast.  Price action into the end of this week and then next week will probably confirm my most bearish suspicions.

I am looking for financials and the Financial Select Sector SPDR ETF (NYSE:XLF) to get absolutely CRUSHED in the months ahead.  August and more likely September will be devastating for the XLF and the financials.  The financials have been dragged along with the market rise but have not been able to hang on and instead have failed and broken back to bottom of range.

I don’t want to get too bearish all at once, but it could very well be that we are about to enter a longer term leg down in the market that is WORSE than the 2007 to 2009 (March) bear market.

The entire bounce up in the XLF financials ETF was only a 38% retracement of the 2007 to 2009 bear leg.  If I do a Fibonacci projection of the C to D leg down I get a negative number as the projection !.  This would mean that most financial stocks could end up going bankrupt assuming this leg down is a long term leg down.

I went long the ProShares UltraShort S&P500 ETF (NYSE:SDS) 20 DECEMBER Calls today near the close at 2.00

Some might argue (I proposed this thought as well earlier) that the market cannot drop big because too many politicians, media and other mainstream folks are predicting a market ‘calamity’.   But we need to remember that many have already learned from the 2008 plunge what is possible.  They have memory.  And this is why a decline this time around could happen much faster.  Many have been burned once in the stock market.  But when they realize it could happen again, they will be that much faster to pull the trigger and get out and take their ball home.

The other point is that the longer term charts are shaping up to be quite bearish and I have a lot of faith in the longer term charts.  But remember that in the longer term forecasting you can still get AMAZING robust rallies and have the market still be bearish.  The June 27, 2011 to July 7, 2011 rally was probably an early example of such a ‘convincing bear market rally’.


The longer term monthly VIX chart confirms my sense that we are about to enter high volatility and a big market break down.  The break down is targeted for August or September 2011.  Don’t let the current low volatility put you to sleep.  There are heavy under currents in the market not currently visible on the daily and weekly time frames.

It is interesting that the current monthly candlestick on the S&P 500 is a doji similar to the doji that occurred in the 2007 time frame.  This could mean that the market may still drift for rest of July 2011 and only activate real bearish price action in August 2011.

What would make this forecast wrong?

The first clue that this forecast is completely wrong is if the S&P 500 trades above 1347 this week, or next week.

Related ETFs: ProShares UltraShort S&P500 ETF (NYSE:SDS), Direxion Daily Small Cap Bull 3X Shares (NYSE:TNA), Direxion Daily Small Cap Bear 3X Shares (NYSE:TZA), iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX), Direxion Daily Financial Bull 3X Shares (NYSE:FAS), Direxion Daily Financial Bear 3X Shares (NYSE:FAZ).

Written By Thomas Carreno From Best Online Trades 

I started Best Online Trades because I really enjoy trading and I also enjoy writing about trading.  Writing about trading or trading strategies helps transfer thoughts that would otherwise stay in ‘theory’ and helps move them to more concrete form for me. And hopefully along the way you will pick up something useful as well.  BestOnlineTrades covers many different aspects of trading, from commodities to stocks, from indices to ETF’s.

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