GLD and Other Gold Stocks - Patience

Dollar's gain means gold's loss.  Breaking the 50 EMA today does not bode well.  If the dollar continues to rally, we could see further deterioration or side ways movement in price of gold.  Long term view is still extremely favorable - Gold is in an extremely solid long term uptrend.  In the short term, a replay of Feb-March is not out of the question.  Retracing to 104-105 area is very likely. 

S (Sprint Nextel) - Buying Opportunity

Remember, buy on weakness in an uptrend, preferably around the 50 EMA, and sell once the 50 EMA does not hold.

UUP (ProShares Double USD Index Fund) - Coming trend reversal

Keep an eye on the dollar, which is picking up momentum and looks like a trend reversal may take place.  The 9 month bull rally off the March lows may be put on temporary hold. 

$BKX - Financials Showing Weakness

Financial stocks which have led the rally off the March low have now become laggards.  20 EMA crossed under 50 a month ago on the $BKX, and it's had difficulty breaking the 50 EMA since.  However, there also appears to be strong support around $43.40.  The current formation shows indecision with moderate bearish bias, and the financial leaders like GS are well underway in a downtrend.

S - Buying Opportunity

20 EMA for S has crossed 50 EMA, giving the signal to buy.  Recent up days are characterized by heavy volume.  Overhead resistance at $4.50 and $5.50 - $6.00.  Possible inverse head and shoulders pattern developing in weekly chart, with 6 month target of $9 very likely.

Entry price:

Average: $4.10
Good: $4.00
Excellent: $3.85

11/26/2009 - Thanksgiving Update

First off, I wish everyone a happy Thanksgiving - keep in mind to always spend time with your family and eat plenty of Turkey. 

World markets took a nasty hit yesterday due to news out of Dubai, and Europe down more than 3% on indexes across the board.  Dow futures are down -243 at the moment (11 PM CST), and SPX down -32 at 1,077.  1,069 will be the number to watch tomorrow on the $SPX and I am expecting a big gap down across all sectors.  I don't think the US will be able to escape this global sell off, as many US companies are involved with investors from Dubai.  Tomorrow morning could be ugly as many will jump for the exit.

So will this be a buy opportunity or is this a signal to sell?  The market is currently still above major support levels and moving averages are showing a strong uptrend, so it'll be important to look at a couple of indicators tomorrow- 

1.  Volume - If greater than previous trading days even on a shortened day, extremely negative.
2.  Closing price on SPX - 1,069 must hold.

Do not try to second guess where the markets will go based on what you know about Dubai, because you really know nothing.  The global financial systems are more complicated than you and I can ever imagine.  Follow the trend, and make decisions based on what it's telling you.

Do not automatically assume that the gap will be filled - it may, but the time variable is unknown - it could take 3 years.  Your portfolio would be wiped out by then.  

A couple months ago for one of my very first posts, I drew out the fibonacci retracement of ~1576 high to 666 low, and the 50% mark was right at 1121.  The SPX's recent high is only about 10 points off, and if the market is going to turn, now would be the time. 

US Natural Gas Fund (UNG) - Still not a buy

Over a month ago when I first started this blog, I pointed out that UNG registered a sell signal way back in the 30's in July '08, and since then, it has remained in a downtrend.  Even to this day, this fund is still in a downtrend.  This is a perfect display of why the 20/50 EMA crossover is so pivotal in determining the trend.  UNG broke the 50 EMA a few times over the last month, but it was never able to initiate the 20/50 crossover. 

11/9/2009 - Market Update

The 50 EMA was recently broken just like mid July, it bounced back and busted through the 20 EMA on a large white candle.  The formation is nearly identical to July's bounce.  I have stated on 10/28 that this may play out exactly like July.   Once again, the market has defied all bearish negativity even with unemployment rising above 10%.  The overall trend remains up, so continue to hold longs that are still in an uptrend.

10/29/2009 - Market Update

Very strong rally today across all sectors, and it looks like a higher swing low from the dip on 10/2.  However, the market is not out of the woods yet - the $SPX must break the 20 EMA at around 1069 tomorrow and close above it in order to prove to me that the uptrend will continue.  If it does not by the end of the day, I am willing to dump 1/3 of the long positions that I've been holding since the uptrend started or hedge myself with some inverse ETFs.  The reason being that the Russell index is still below the 50 EMA.

10/28/2009 - Market Update - Danger

The market has shown its ugly face over the past week, and even though this is a great buying opportunity, there are some developments today that suggests the uptrend may be coming to an end.

1.  Major indices have broken the 50 EMA.  Russell 2000 was hit the hardest.

 2.  VIX has exploded to the upside and held above the 50 EMA on a long white candlestick.

One should stay long until the downtrend is confirmed.  The moving averages are turning fast, so the market must rebound within the next couple of days in order for the uptrend to stay in tact.

RDN Radian Group (RDN)

This analysis for RDN is done for a fellow blogger who shorted at 6.23. 

I think shorting this is still a bit too premature, as you'd be guessing right now, since the 20/50 didn't technically cross yet.  Also, the timing could have been a little bit better.  Remember the rule on the side bar:

Sell into strength in downtrends, buy into weakness in uptrends.

You instead shorted into weakness in a downtrend, which isn't so bad, but you're putting yourself at a disadvantage with little breathing room.  There's a couple things you could do and they're both up to you.

1.  Cover asap and take your loss.
2.  Wait for the 20/50 cross, and add to your short position once the price hits the 50 EMA.  If the price breaks through the 50 EMA, cover everything.  If the 50 holds, then you're good to go. 

China Green Agriculture (CGA) - BUY

Relatively new stock with little resistance showing strong uptrend on huge breakout volume.  Expect this to go higher.  Great buy.

Barrick Gold (ABX) - Possible Major Breakout

10/13/2009 - Market Update

The market continued to defy the masses and the media as it continued to rally.  When grandmas and grandpas are all crying for the market to tank, then you can be rest assured that the market will continue higher.  This is exactly how retail investors are left our of rallies and end up buying at the very top.  Do you ever look at charts and wonder - gosh, only if I had bought at that price!  Guess what, you are living through the phase when stocks are now around that price.  Intel just reported their earnings with higher profits AND revenue.  Futures up 75 points.

The chart below shows that the SPX is currently at resistance.  If tomorrow closes higher and breaks through, the market will continue its run.  Once again, stay long and do not short into this market.

Alcoa (AA) - Update

I overlooked the multi year resistance at ~15.00.  It may take a few tries to break this.  Entry modified to 20 EMA.

10/7/2009 - Market Update and Alcoa (AA)

Market closed flat today as it was waiting for Alcoa's earning announcement, although Dow did fall up to 50 points on a couple occasions out of fear, which presented itself as a bear trap.  Vix also dropped below the 20 EMA.  I have to say that break on the VIX did look very promising a couple days ago - but notice the 20 EMA never crossed the 50.  Alcoa beat nicely, and ended up after hours at $15 even.  I am going to initiate a buy on Alcoa at $15, with a short-term price target for 16.50.  Not much more to say other than stay long, and do not initiate new short positions.  (Unless you're shorting a short ETF).

SPDR Gold Trust (GLD) - MAJOR BREAKOUT

Gold will continue to go higher as the US dollar continues to lose value.  I believe this is also one of the reasons why the reason why the market is moving up.  Check out that breakout over the ascending triangle - that's HUGE.

10/6/2009 - Market Update

SPX broke through 20 EMA at 1044 on higher volume than yesterday with a very strong close without a selloff.  60 Min chart shows SPX breaking through the recent down channel, and then backtesting and the channel held as support - very bullish.  SPX may try to move up back into the bottom trendline on the bearish rising wedge - will see what happens.  Hold onto longs, initiate new longs if the stock of your choice is near the 50 or 20 EMA.  Do not short and hope for the market to fall - the market is still in a very strong uptrend.

10/5/2009 - Market Update

Market showed some strength today after being down 7 out of the last 8 trading days, but considering all technical points, this was a weak rally.

• Sell-off volume last week was in excess of 4 billion shares traded for the S&P 500.  The rally today only had $3.5B.
• SPX hit higher lows since August, but the MACD reached lower lows, and is now below the 0 line.
  
• SPX could not penetrate the 20 EMA - it didn't even touch.
• The SPX has fallen out of a rising bearish wedge (don't foget).
  

Until the SPX can close above the 20 EMA, I still wouldn't enter in new long or short positions.  I expect tomorrow to also be a light trading day as most are waiting for Alcoa's earnings announcement on Wednesday. 

Technical Analysis Tools

For those of you that are wondering what platform I'm using to create these charts, it's the thinkdesktop by thinkorswim.  You can download the standalone trading platform here.  It's absolutely free to use, and all you have to do is register (without actually opening an account).  The quotes are live streams on the charts only, and if you want the live stream for individual stock quotes, futures, and everything else, then you need to open an account with a $500 balance. 

For fundamental analysis I use Financial Visualizations, and stockta.com offers one of the best screeners.

10/2/2009 - Market Update

The market took a nose dive on Friday morning after the unemployment numbers were released, and these numbers were bad no matter how you tried to look at them.  The national unemployment now officially stands at 9.8%, although I do believe it's somewhat higher than that.  Conditions have been so bad in some parts of the country that dead bodies are piling up in morgues because the family cannot dish out $695 for cremation at the very minimum, if not a full scale burial.  Can you guess in which city that is happening?  I'll give you a hint, it's not New York.

The market showed strong support at around SPX 1020, and prices didn't quite hit the 50 EMA. Likewise, many stocks almost hit their 50 EMA (some did), and bounced back shortly after the first 30 min of trading. 

Take a look at the SPX chart below - I've drawn a channel starting mid August, and this is the 3rd time the market is hitting that bottom trendline.  What happens on Monday and Tuesday will hold little importance, as the market is anticipating Alcoa's earnings release.  I still would not recommend entering any new positions right now until it is clear where the market is heading.  That is, in order for the market to stay bullish, the SPX must break out of the 20 EMA 1044.  If the SPX bounces off the 20 EMA and cannot break, then that is extremely bearish, and you do not want to be a bag holder in long positions at that point.(Also, as a general rule, it's a bad idea to enter in new positions on a stock right before the earnings). 

The market has been down 6 out of the last 7 trading days, and some stocks have already broken the 50 EMA and are now showing extreme negativity  (X, BAC).  Watch the 1014-1020 area extremely closely, as it has tremendous support - once it becomes broken, it'll serve again as very strong resistance.  Be extra careful the next few trading days, and remember, do not become attached to any single stock, and you don't always have to be "in the market".  Sometimes the best play is to stay cash (or be very well hedged).

 

10/1/2009 - Market Update

The market moved BIG today as expected (yesterday's market review).  A lot of important technicals have also occurred, so listen up very carefully.

The market has broken out of the bearish rising wedge to the downside (as one would expect), and we're resting right above support at around the 1027  - 1028 area. 


If the market continues to fall tomorrow, then it is likely to test the 50 EMA at around 1014.  The next support area after that is 980.  If the 980 holds, then the 20 EMA should still stay above the 50, and the market would still be considered in an uptrend.  However, if 980 fails to hold, then heavy shorting should be a safe play. 

There are signs that the market could roll over and start a down leg -

MACD < 0
DPO at 0
ADX about to cross
VIX broke above 50 EMA again on a 10% up move.

However, the 20/50 EMAs on the SPX have not confirmed anything.

So, here are the logical decisions you should have made:

• Do not initiate new long positions until it is proven that the supports mentioned above will hold.
• Hold long positions if you have been riding them out for the past few months.
• Exit long positions positions if recently purchased at the 20 or 50 EMA and the stock has now fallen below.
  
• Hold all short positions.
• If your stock dropped >=10% today, SELL IT.  DO NOT HOLD.  DO NOT CONTEMPLATE.  I DON'T CARE IF YOU THINK IT'LL BOUNCE SOON.
  

9/30/2009 - Market Update

Some strange movements have been going on in the market the last couple of days.  We saw a 100+ point move on the DOW based on one of the lowest volume trading days I've seen, and then retrace just about all of that today.  Seems manipulated to me, but we'll save that for a different blog.

With that said, I do expect a fairly large move to occur within the next few trading days based on a couple of reasons.

1.  Symmetrical triangle on the 15 min chart.
2.  Market is now trading at the very tip of the rising bearish wedge.

The market can break out either way.  The coming movement will determine the direction of the next leg.

Advanced Micro Devices (AMD) - Buying Opportunity

This stock has recently broken out of a multi year down trend.  Enter in long positions at the 50 EMA.

Freeport Mcmoran - Buying Opportunity

CVG Convergys (CVG) - Potential Short

Keep an eye on this one.

Research in Motion (RIMM) - Short-term Short Opportunity

Good short entry at around $70-71 if stock retraces on Monday.  Cover shorts if prices break through 73.50.  When a stock gaps down hard like this on extreme volume, we will generally see a continued short term downtrend.  Good support at $63-$65 area - good area to cover if support holds and go long.

9/25/2009 - Market Update

The market got a much needed pullback this week and has presented some very nice trading opportunities.  If we take a close look at the SPY, a couple of important events occurred.

1.  The SPY filled the gap left from last October at 107.
2.  The SPY just about touched the 50% fibonacci retracement from the 150 high in 2007 to the 66 low in March.
3.  The SPY is sitting right at the support trend line going back to late June. (60 Min chart)
4.  SPY is sitting right at the 20 day EMA.

Monday will be a very important to day to watch, as many stocks are now sitting at their 20 day EMA.  If we break the trend line support on Monday and close lower, a retracement back to 100 - 101 area on the SPY is definitely on the table.  That would put the SPX at around 1010 - 1014. 

Nevertheless, today was a great buying opportunity to see if the 20 day EMA holds.  If you have been long for a few months, then the most logical play is to stay long until the sell signal is given.

Moody's (MCO) & Mcgraw Hill (MHP) - Potential Shorts

Both are now in confirmed downtrends, with high volume selling going on over the past week or so. Wouldn't recommend starting a short position right now - wait for the retrace back to 20 EMA.

MHP has even broken the $25 support - there's really not much there to hold it up below that point.

MCO is $3 away from the march low - also very weak support.

Eastman Kodak (EK) - Buying Opportunity

Update: The 50 EMA held on Friday despite being broken earlier. Will see on Monday if it continues to hold or break down and start another down leg.

VIX - Crucial Support

The vix has been stuck in a bullish falling wedge since since late last year and broke out of it in August, and is now actually resting on the upper trendline. The 23 area is now serving as key support, and if that breaks, then the market will continue with its rally as expected. If the vix breaks out to the upside, then a pullback of moderate strength could take place as the SPX is currently 30 and 60 points above the 20 and 50 day ema, respectively.

With that said, the market has built up a very strong buffer at this point, and the SPX could very well retest the 980-982 area before I would even consider a change in trend.

Investing Psychology - Herd Mentality

I have listed "trading alone" as one of the rules to follow, and here's an excerpt from psychologist Irving Janis on "Groupthink".

Irving Janis describes groupthink as, "A mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members' strivings for unanimity override their motivation to realistically appraise alternative courses of action." Eight symptoms of groupthink include:

1. Illusion of invulnerability: Feeling that the group is above criticism.
   
2. Belief in inherent morality of group: Feeling that the group is inherently "right" and above any reproach by outsiders.
3. Collective rationalization: Refusing to accept contradictory data or to consider alternatives thoroughly.
4. Out-group stereotypes: Refusing to look realistically into other groups.
5. Self-censorship: Refusing to communicate personal concerns to the group as a whole.
6. Illusion of unanimity: Accepting consensus prematurely, without testing its completeness.
7. Direct pressure on dissenters: Refusing to tolerate a member who suggests the group may be wrong.
8. Self-appointed mind guards: Protecting the group from hearing disturbing ideas or viewpoints from outsiders.

This type of behavior is inherent not just in trading, but all aspects of life - workplace, gangs, religion, cults, drug addicts, political parties, the list goes on. It is human nature to be accepted into a group, to think and act as a group, regardless of whether or not if it's the most logical path.

In trading, a group will often feel attached to a particular view on the market or a particular stock that they feel is destined to go down or up. Generally when this is the case, this group of people will seek out bits and pieces of information / articles that only support their view, while ignoring articles and charts that state the contrary (rule 3). Even when the charts are clearly pointing down and outsiders/some group insiders are starting to think maybe we're trading in the wrong direction, the sheer power of herd mentality and groupthinking will override any opposing thoughts, no matter how correct it may be - even the contrarian thinkers will start to doubt their own beliefs. This is why people ride stocks from $100 all the way to bankruptcy. I have seen it time and time again, and it will continue to happen for as long the market trades.

The sooner one frees him/herself from a group, the sooner he or she will start making winning trades. Trade alone and you will prosper.

Danger in Shanghai ($SSEC)

The Shanghai stock exchange ($SSEC) recently shed 25% since its highs on early August at 3478 to 2639 in early September, before bouncing back above the 3000 mark last week . The sell signal has been given on the SSEC, as the 20 EMA has crossed below the 50 EMA.

While it is possible for the US stock market to continue its rally in the near term despite the fall in Shanghai, the continued breakdown of the SSEC will inevitably drag down the US markets along with it. The conjoined twins of US and China have wed themselves into an economic partnership - till death do them apart. China needs US to buy its products, and US needs China to buy its debt.

Leap Wireless - LEAP

Missed this excellent short opportunity yesterday when it touched the 50 EMA...may not be too late. Close position if 20 EMA holds (19.00) or breaks above 50 EMA (21.50).

STEC - Buying Opportunity

Entry - $34 or lower. Exit position if stock does not close above 50 EMA by today.

Update - Closed position at $32.40. 20 minutes left and it still cannot hold 50 EMA.















Updated Chart: STEC broke key support levels on record volume - next support is at $28.45. There's really not much else below that. There also appears to be 2 unfilled gaps around the $6 and $11-$12 range - those could potentially be filled in the future.

9/17/2009 - Market Update

The S&P 500 index has decisively broken out of the bearish rising wedge to the upside, and has now cleared all major resistances. There is very little reason to be short in the market to this point, and I restate my believe that the market will continue higher with minor pullbacks. Another reason why I believe it's headed higher is because certain sectors such as shipping and airlines are just starting their run.















I've seen people claiming the market is overbought and how the P3 EW is right around the corner. Folks, there's nothing wrong with making a prediction, but if you're constantly wishing for an event while the opposite is happening, it means you're not trading on the right side. Predicting the market is a dangerous game, and that's not what trading is all about. It's about being on the same side as the market (following the trend), and changing sides once the trend reverses.

ENER - A disaster of a stock

ENER was a great shorting opportunity with the signal to short given back in Oct 2008. If you had shorted back then, the signal to cover is still not given. This is another example of why averaging down is a sucker's play. You don't buy a stock because you think it's oversold. You buy it because the chart says so.

Trina Solar Limited (TSL) and LDK Solar (LDK) Comparison

I have been following solar stocks for about 2 years now, and the analysis below shows the difference between TSL and LDK, two solar stocks that have performed very differently. I consider TSL to be the best of the solar stocks, and LDK to be the worst (based on technicals). Among others,

Strong: YGE, CSIQ

Weak: FSLR, SOL, STP, SPWR.A,B, CSUN, JASO