10/26/10 - Bubbles!

NFLX:

 BIDU:

10/26/2010 Market Update

The market's current position could be interpreted as near the top in a double top formation, and it's about to start a down leg, or near the top, and about to start another run higher.  The greatest profits are made near market turns, and this could be such an opportunity.  My intuition tells me that a small leg down will start near the Nov 2nd elections with first support at 10,900 on the dow followed by 10,730.  I do not see the DOW falling much more than that. 

GNW - Monthly cup and handle

AAPL - Short Opportunity Fizzled

The recent short opportunity for Apple did not materialize as the $242 support held for two consecutive days even though the price was pierced intraday.  That is tremendous strength, and the 2nd day even turned out to be a bullish engulfing candlestick pattern.

AAPL - Short Opportunity

While the market lost 9.46% since the top on 4/26, Apple has managed to lose half at 4.7%, and even made a new high on 6/21.  However, technicals are showing strong sell volume on down days and weak buy volume on up days, an indication that smart money is distributing and the uptrend is likely coming to an end unless earnings on 7/20 will prove to be another blowout.  In addition, negative divergence is showing on both the RSI and MACD.  Given that AAPL is currently the 2nd largest company behind XOM mobile in terms of market cap, both the earnings and outlook must be overwhelmingly positive for the run to continue. 

Three consecutive closes below $242 would result in a 20/50 EMA crossover and signal to short. 

7/9/2010 - Strong rally in downtrend - 20 EMA pierced

I remain bearish on the market despite the near 400 point rally that we've had over the past 2 trading sessions.  The 20 EMA was pierced on both SPX and DJI, but not on NASDAQ.  The downtrend remains intact, and all the major resistance points are consolidated around the 1,090 to 1,110 area, which will prove difficult to break and will present itself as a great short entry if we do end up getting there.  Do not go long until the 50 EMA is pierced on all 3 indexes.

6/1/2010 - Market Update

US markets are moving in tandem with the strength of the Euro.  As the currency is near oversold levels and positive divergence is taking place on the weekly chart, a short squeeze is definitely on the horizon.  Yes, that's right, weekly chart.  The daily chart for the Euro is completely broken by all means.  $1.20 should serve as the final support before all hell breaks loose.

Noble Corp - NE (5/14/2010)

Downtrend confirmed, breaking major support at 37.50.  Go long at $32.50, with a stop at $32.00

5/14/2010 - Market Update

The market is in trouble.  First off, the Euro is in a free fall, and transferring money from the left to right pocket isn't going to fix anything.  Think of the current debt problem as the soap scum on the shower door -- accumulated over several years, and will take more than a few scrubs to clear the glass. 

The downtrend in the S&P 500 is confirmed, and it's now time to be bearish. 

5/13/2010 - Market in Danger

The past 2 trading days were great days for long exits and short entries.  All the major indices are backtesting the 20EMA and failed today.  If tomorrow finishes below today's close then the markets are in serious trouble.  The crash last Thursday served as a warning and it definitely should not be overlooked.

5/6/2010 - The day the market broke.

They're trying to rewrite history today. This was a crash. A result of the simplest and purest of market physics. A "fat finger" doesn't explain 18 full minutes of selling at the bid in the Qs and DIAs which preceded the final plunge. There were technical factors as well: the 200 day Moving Average was breached right at the time that the plunge started, triggering natural selling. That was also the moment that the demonstrations in Greece became violent. And the DXY breached 85.

We're coming off a topping process. Markets drop faster than they rise. There was evidence of a gathering liquidity crisis. Long trades and carry trades were unwinding with increasing momentum. Oil inventory and new jobless claims reports this morning came in below expectations.

In other words we had a perfect storm, a setup for a crash. Sellers simply overwhelmed bidders. And in this low volume, exhausted market at a top there simply were unanswered offers as large positions were liquidated.
What is scary is how arbitrarily and capriciously the NYSE and NASDAQ could simply nullify legitimate trades. Why didn't the safety mechanisms kick in? Where were the trading curbs, the 15 minutes of suspended trading? Would they be canceling trades if the "fat finger" made the market rise? I think we know. The playing field is full of trap doors, booby traps, land mines and leg holds. Even being right doesn't help since you can be frozen out of trades, or they can be canceled.

We are witnessing a crisis: a crisis of confidence in our markets, in capitalism as it is being practiced today and in the legal and tax system. The events in Thailand and Greece fit right in with the notion that class warfare is not only brewing, but is being fought already in the virtual trenches. But the pervasive anger and disillusionment that cuts across traditional demographics is spilling over to communities and the streets.

GS - Goldman Sachs - Support

20 EMA broke down under 50, at key $150 support.  Break that then it's game over.

NFLX - Netflix - Overbought

Netflix - great fundamentals, growth prospects, but way overbought on daily, weekly, and monthly charts with daily RSI > 86.  Chart clearly shows a parabolic move.  Likely to break higher tomorrow in the AM for a quick pop on short capitulation and fall for the rest of the day. 

Short entry ~$110, cover half at $100, rest at $90, stop loss at $113.

Market Update - 4/10/2010

You may have noticed that this blog isn't updated regularly like some of the other trading blogs.  That is actually intended.  Over trading and over thinking is often a common mistake by traders, both experienced and novice alike.  When the trend is intact, just sit back and relax; no need to analyze on a daily basis.  I have noticed many bloggers angry and fed up with the market since the start of the run-up after the January correction.  Many believe that this run up is government induced, fake, and must crash soon.  Of course, these same lines of thoughts are repeated day after day, all the while the market is hitting 52 week highs.  Folks, we are now in a bull market, and there will be no crash.  Indexes are way above moving averages in a strong uptrend, and believe me, there will be plenty of signs if a crash were to happen.

IYR - Overbought

Catching tops is never a good idea, and I don't recommend it.  Certainly it isn't one of my styles.  However, sometimes you wait for the trade to come to you, and some tops are so obvious that they're just begging to be shorted, like BIDU and CAGC posted last week.  This week, it's the REIT index, or IYR.  How overbought is this?  Let me put it into perspective.

In the last 10 years, there was only one instance - just one, that shared the same run.  Hint 1 :  It happened in 2007.  Hint 2: It happened at the all time high.  Hint 3:  It happened a month before Bear Stearns became a penny stock.

The reward to risk ratio by shorting the IYR through puts on DRN is extremely high at the moment.  The IYR is currently at the key resistance of $50, at RSI levels that occur once every few years, at the heart of bull markets.

 

AA - Breakout

ry nice breakout today above both 50 EMA and SMA on decisive volume.  Two things to watch for here.  First the obvious, wait for a retest of the 50 EMA to see if it holds.  Second, this must break through the multi-year resistance at $15.    I believe that AA will trade between $14 and $15 in the next 2 weeks, and the earnings will make the decisive call.  If it's good, I see a breakaway gap above $15, and to $20 by the end of summer.  If it's bad then I see a potential head and shoulders playing out that will take AA back to $10.  Either way, keep an eye on the bottom trendline of the channel.   A close below that spells trouble for AA.

GE - Breakout

Late by a couple days, but nevertheless GE broke above the key $17.00 resistance and also the 360 EMA.  Wait for a pullback to 20 EMA before going long.  Most likely that will be between $16.50 and $17.00 over the next couple weeks.  Expect to hit at least $22 sometime during the year. 

BIDU - 3/10/2010

I hate this stock.  I hate it because it's everyone's little darling.  Now it seems retail investors are piling on in the very late stages of the run, weeks or even days before the collapse.  There are so many gaps in this turd that we'll have to go down to $65 just to tag them all.  Do I recommend shorting darlings of the market, in uptrends as strong of a trend as this?  No.  But it is worth the risk to buy some OTM puts?  Certainly!  Believe me, the gap at $395 will be closed sooner than you think.

We are VERY close to the reversal.  Take a look at the charts if you don't believe me.

3/17/2010 Update - It seems like the top put in on Monday will be the short term top, as BIDU is likely to retest anywhere between 500-525.  I predict that this is not the absolute high, as BIDU will hit $6xx sometime during the summer.  $700 is not out of the question.  Once that occurs, I will buy leaps as this will crash to fill the gap at $55.

3/10/2010 Update

Ok, listen up folks, there is a lot of money to be made very soon.  The charts are learning towards the bulls, so I am long term bullish, but short term bearish for the next 2-3 trading days.  Refer to the VIX comparisons below.

To me, such a similar pattern should not be ignored. 

 3/17/2010 Update:  Boy was I wrong on this call.  One powerful run we have here...

 

Dawn of new Bull Market?

Just kidding, but we are close...just a little more confirmation is required before declaring a bull market.   However, just by looking at Russell 2000's action over the past month, there is no doubt that the market wants higher prices.  In hindsight, the correction on 2/5 was as deep as we're going to see, bouncing off the 200 EMA with enormous volume by BIG MONEY.  If this correction was to dip twice (first being 2/5), then the SPX should not have held the 20 EMA for 3 consecutive days from 2/23 to 2/25.  That was sign to GET OUT of shorts and stay cash or go back to long positions.  I am optimistic that 1,150 will be broken by the end of March, followed by a period of consolidation and retest of 20 EMA at least once between now and the end of April.  That retest of the 20 EMA will be the next buy point to enter 50 or 33% of position to see if it holds.  If it doesn't hold, I'd expect more fakeouts below the 50 EMA to suck in more bears, in which case the 200 EMA will stand as the next logical buy point.

3/3/2010 Update

The market has been showing significant strength and is now facing a key resistance line that has held as support since Aug '09.  Looks very toppy to me - short term down movement is expected - will be very surprised at any kind of rally tomorrow, but hey, anything can happen.

STEC Revisited

Bubbles will come and go with time as long as the stock market exists.  The trick is to get out either before the bubble bursts, or soon after.  STEC inc is a bubble.  The bubble bursted September last year, and sell signals were literally on every technical indicator.  For the longs that purchased at the high, it wasn't a mistake.  There was nothing wrong with buying a stock at 52 week highs. Microsoft, Walmart, and Apple all reached where they are now by hitting 52 week highs.  The mistake is not selling when the trend turned.  Not every trade will be a win...some trade will be losses and it's crucial to understand when to get out.  Even if you got out in the 20's, a 30-50% loss is better than selling it at a 80%+ loss after hitting <$10 in AH today.  Another important point to be made here is to not average down.  There's no sucker play like averaging down in a downtrend.

CAGC - SHORT @ 24.00 NEAR CLOSE

Parabolic move up  = impending crash. 

Short @ 24, targets @ $19.50, $16.

Feb 15 - 19 Summary & Feb 22 - 26 Outlook

There were two key points that I have made in previous posts that I have put heavy emphasis on:

1.  Do not expect a crash this soon.  The market has risen above major resistance areas since the crash in 2008.

2.  Beware of headfakes with the 20/50 EMA.

3.  And more recently on 2/7, I suggested that the market will rise on low volume and the 20/50 EMA offered a good chance to release longs and initiate shorts or stay cash.

Indeed, the market rallied this week and the pull back since 1/20 stopped exactly at the 200 EMA mark.  Early next week will be absolutely pivotal in determining how the entire month of March may play out because it appears this move may be a headfake to trap the bears who shorted on 2/16 and 2/17 at the 20, 50 day EMA. 

Could this whole move during the past month be a headfake before SPX retests the 1,150 or goes even higher?  First, the market indices have been above the 50 EMA for 3 days straight.  Second, the EUR is getting oversold and fast approaching crucial support.  A massive reversal in the EUR/USD pair will move US equities higher.  The black candlestick on UUP looks very promising that equities could break out even higher on Monday as the UUP takes a break and retraces for a couple days.  UUP also hit the 38.2% fib retracement from the 3/9/09 high to the 12/1/09 low.  But make no mistake about it - the dollar is nevertheless in an uptrend and bullish, and will be a burden on equities.

There are still many technical signs suggesting a continued downtrend based on the $SPX.

1.  The 20 EMA is still below the 50, and this is a very easy way to flush out novice shorts or those without patience.  The trend is still down. Remember Jul '09 when the masses wear bearish and though the head and shoulders would play out, only to be rejected by a massive move up.  Guess what?  The indices were all still in an uptrend.  The exact same could happen now, except for the bearish/downtrend case.

2.  CCI and DPO have not confirmed the up move.  Both are still below the 0 line.

3.  I drew three separate channels based on movements going as far back as Aug 2009 and Friday's close is close to the border on all three channels attempting to break to the upside.  The more touches at the channel lines, the stronger the channel.  In that respect, the black channel is the strongest followed by the blue.

•  Black channel dating back to Aug '09 - attempting to break back into this channel.
•  Blue channel dating back to Oct ' 09 - right at the 50% mark.
•  Red channel - most recent channel that the most subjective of the 3, and it looks like Friday's close could be the top of the channel.

4.  Closed right under 61.8%  Fibonacci retracement from the 1,150 high to the 1,040 at 1,109.

5.  Closed 1 point above the 50 SMA (even though i don't look too much into the SMAs they are occasionally valid).

There you have it - more technical reasons for the downtrend to continue as opposed to a possible headfake and new highs in the market.  If the market breaks out Monday, become a bull again and expect at least a double top to 1,150.  If the market stays flat and trades between 1,109 and 1,115, then hold onto shorts until the signal is clear.  Trading is a business of probability and statistics - and right now the probability favors a continuation of a bearish move.

2/8/2010 - A look at the Euro

The Euro has been absolutely pounded because of the default fears over Greece and other European countries.  This "crash" is reminiscent of the 2008 financial crisis, and as long as the Euro falls against the dollar, US equities will continue to fall.  What's troubling is that the eur/usd chart has broken the 360 MA.  However, I do see a temporary bottom based on the reversal candlestick pattern, and we could see a sharp rally to re-test the 50 EMA soon.  This would give a chance to dump long positions. 

Selling the next bounce

Market decided to rally shortly after touching the 200 day EMA, giving a long tail on the candlestick formation otherwise known as the hammer.  The hammer is bullish, so I am expecting a higher chance that the earlier part of next week to be up days with light volume.  Any upcoming rallies will be opportunities to sell existing longs (keep a couple strong positions like AAPL, GNW, etc) and establish SMALL short positions or just STAY CASH.  The SPX has crashed through major support at 1,115 and 1,085, and these will now become key resistance areas.

There's a couple reasons on why it's crucial to scale in small short positions or stay cash.

1.  This a fakeout before reaching new highs.  In this case cover shorts as soon as the 50 EMA does not hold.

2.  Worse yet, consecutive fakeouts while the market trades within a channel.  This occurred in 2004 as the US emerged from the 2000 - 2003 recession. This zig zag scenario is a very likely for 2010, but no way to be certain.  Trading this kind of a market is extremely difficult, as it takes both patience and additional forms of analysis.  By strictly using the 2050 EMA rule, your account would take considerable hits from the fake outs. Nevertheless, it still can be done.

• The safest way to play this is to not play it at all - stay cash, or invest in stocks with great fundamentals and sell covered calls.
• Use channels once the first high/low swings are formed.  Sell/buy according to the top/bottom of the channels.  If the shorting at the upper channel and movement pierces to the upside, cover immediately.  Vice versa.
• Use the 20/50 EMA rule, but enter positions strictly at the 20 or 50 EMA during the BACKTEST after a trend break.  Get out immediately if the position doesn't go your way.  Wouldn't recommend holding more than 2-3 days.
• Out of the 3 options, I believe staying cash or selling covered calls will be the best play.

2/5/2010 - Noon Report

Market selling off on HIGH volume.  Big players want to get OUT.  Hedge funds are SELLING.  Do not think this is just another dip.  The trend has already reversed.

Remember:

1.  Don't catch a falling knife.  Every bounce so far has been sold off.
2.  Do no average down in a downtrend.
3.  If you absolutely must enter a position, do it at the end of the day, minutes before the close.
4.  OVERSOLD CAN BECOME EVEN MORE OVERSOLD.


You do not want to be the bag holder weeks or months from now.  More updates to come after market closes.

TREND REVERSAL

Thursday's action has officially put an end to the uptrend.  20/50 EMA cross over, VIX crossover, SKF and short ETFs broke out decisively from the 50 EMA.

U.S. Steel (X) - Short at $55

X is a great trading vehicle, and it looks to be the high has been put in for the year, unless it can break and hold $55.  X is heavily damaged from last week's high volume sell off, and I believe it has more room to go down.  Wait for the gap fill at $55 to short, although entering at $54 may not be a bad idea.  $43 will be key support so pay extra attention to that area.  Weekly chart suggests a right shoulder may be forming.  If $43 breaks, target to cover will be in the low 20's. 

PALM - Short @ 13.40 - Revisited

Initiated a short at $13.40, covered too early at $12.60.

SPX - Bearish

Bulls were crushed last week on high volume as basic materials and tech retraced hard.  The downtrend is almost confirmed - wait for the major indices to retest the 50/20 EMA and sell half of long positions and use those funds to add to short positions.  The trend has been severely damaged and I do see a continued sell-off to anywhere from 970 to 1050 once the 20/50 EMA is tested.  Do not be attached to any stocks.  It's time to take profits since the trend confirmation from April last year.

1/21/2010 - Crucial Moment

SPX index fell through 20 EMA and touched the 50 on a high volume breakdown.  Even though a 2 day retrace does not mean that the top is in, the high volume today shouldn't be ignored.  Commodities is the case in point, sold off hard on strong volume, which is typical of the beginning of a major trend change. 

Pay close attention to how the markets react tomorrow, and all of next week.  The indices must be able to rise above and hold the 20 EMA.  If the 20 EMA is proving to be resistance, then I'm willing to let go half of my long positions.  Given that the indices are above more support than Obama a year ago, in addition to uptrend moving averages, I don't see a sudden crash in the magnitude of 2008.  Downtrend is possible, but I don't see it taking place for more than a couple months.  If the trend does change, watch out for the 200 EMA.

PALM - Short @ 13.40

Shorted PALM at the close.

1.  Price > 50 EMA while stock still in downtrend.
2.  Tweezer top candlestick formation.
3.  1/2 volume of yesterday, lack of interest in stock. 

Target: $12.00

U.S. Markets - 2010 Preview

Everyone has heard of the phrase history repeats itself.  While this certainly is true as it pertains the notion of cyclical nature of events in relation to time, I also see this reflected in the stock market to some extent with the timing element slightly different with each repetition.  2009 was the year of the "stealth bull", as termed by Nadeem Wayalat from marketoracle.co.uk.  The rally off the March 2009 lows and subsequent uptrend reversal in mid-April across broad markets was a rare opportunity for investors to make some serious cash.  Of course, many people were left out of the rally, exhibiting every symptom of a drug addict in denial. Those who fight the market are dead wrong, as the market is always right.  To those who and simply followed the trend and stayed with the same direction as the market, congratulations to you.  Now, what will 2010 bring?

Unfortunately, there is no simple answer to this question.  However, in looking back 5-6 years, we do see some striking similarities in the way the SPX rebounded 00 - 03 recession as shown in the graph below. 

A, B, strong downward movements followed by rebound with lower high. 
C,D,E - inverse head and shoulders followed by strong rally, and uptrend
F - this is where we are in relations to 2003, at the "200 EMA" on the weekly chart.

As previously mentioned, the timing element is always different in the market even though similar (but not the same) patterns exist.  Seeing how 04-05 behaved, this could give us some insight as to how the market may perform overall in 2010.  2004-2005 was a relatively flat year.  Could 2010-2011 be the same?  The crash from 2007 - 2009 was more damaging than 2001-2003, so a greater snapback is expected, but just where it'll end is all guesswork.  Given that investing is a game of probability, I believe 2010 has a higher probability of trading flat than seeing additional gains.  Sector rotation will be key, and it will be far more difficult to profit than 2009.