Friday, July 24, 2009

UUP: Bear trap or Breakdown?

The stochastic looks oversold on the Weekly and bearish on shorter time frames. We are at the yearly lows now of 23.45 and the higher probability trade is to go short here, but it's not a very good set-up at this point, warren buffet notwithstanding.

Elliot waves shows we are in Wave 5 of a downward motive which is the completion of a larger Wave 3 down. If these are correct, the support of 23.45 will break this week or next.

Thursday, July 23, 2009

Talk of Green Shoots = Higher DJIA. Always?

Megan McArdle references headlines from the summer after the last deflationary crash in 1929. From July 23rd 1930:

[Hoover] Administration members reported telling Wall Street that business has turned corner, and should curve slowly upward until winter, becoming clearest in October. No forecast beyond that ventured. However, administration strenuously denies rumors of using "its influence to bring about organized support for the stock market."

Irving Trust July review says we may be entering "ultimate pit of the depression;" sees mostly bad news in June, including declines in most lines of business, lower commodity prices, stock market declines, and possible tariff reprisals. Nevertheless, advises remembering that "It is always darkest before dawn."

Sentiment improved by market support yesterday. Conservative observers still advise buying on dips and selling rallies, but if market can get above previous resistance, would be considered confirmation of uptrend and convert many observers to the bull side.

Banks reported deposit increase by $257M in past week, to $21.317B; most of money not employed; increase of $37M in loans and $82M investments.


Technical analysis: Next week is crucial to determining whether the current rally was due to fundamental factors or just technical. As of last Friday market had recovered about 50% of the June break. Bear test on Saturday and Monday then wiped out about a third of the rally gains. New support yesterday was encouraging; if market continues up, this indicates rally is due to fundamental reasons (increased business confidence).

Current month is the anniversary of the business slowdown; October will be anniversary of the stock decline. "Every succeeding day means we are just that much nearer a definite turn for the better." Meanwhile a Canadian broker points out: In the 1907 panic March 14 was the low, and the nearest low afterwords was 224 days later. Likewise in the 1929 panic, Nov. 13 was the low and the nearest low afterwords was 224 days later (on June 25)!

There's more, and you can go to her website for more newspaper quotes from July 23, 1930: Business improving, cash on the sidelines, technical improvement, fundamental improvement... yada, yada. We can relate the summer of 1930 to today, using Mamis' view of market bottom's. Traders and investors had all the same lingo we hear today and I'm sure were all "cautiously optimistic" and nobody wanted to miss the "recovery" which was just around the corner. I'll add the charts annotated with the Mamis points:

So, let's look to see what the intervening couple years had in store for all those investors' "green shoots". Ouch.

Of course this is a new century and the political and monetary minds may have learned something in the intervening 80 years; the Hoover administration was all about balanced budgets, fiscal restraint, and tight monetary policy and ignored the huge deflationary influence of increased capacity and rising unemployment. Thus we saw bank failures and a massive abrupt deleveraging of our indutrial and financial industries. Today, arguably we have a looser monetary policy and are flooding the market with liquidity. Will it have a material effect?

Investors and traders likely learned something as well and may be less giddy this time around. But all this is doubtful.

XLF not dying

I am constantly amazed at how wrong I can be. This is not an easy business. The charts supposedly say one thing, and the opposite occurs. No wonder traders actually look at the eclipse and animal entrails for "clues." This is just plain guessing...

Wednesday, July 22, 2009

Another XLF Update: top of channel

XLF for a low risk short here at 12.19-ish. The buy-stop is 12.25.

VWAP is 12.05 and the target should be somewhere above that level.

OR, this could be a sideways bull flag with the low volume (wave 4?) and then we will go higher. We'll see. Stop is set.

XLF Update: below support

XLF looked heavy yesterday and seemed a great short entry. The fake out at the close didn't deter me and I held my FAS short.

(Don't look at FAS/FAZ for anything but intra-day; better to use XLF for longer term analysis.)

I hate trading the triple leveraged stuff, but I made this exception, and almost never hold them overnight... so I broke a few rules.

The big question is whether this overhead resistance will hold, so stops should be set at yesterday's daily high as the set-up.

PNC keeps gapping down at the open, so I've been going short at the close, expecting to keep the position for a while, but since it was down a few percent at the open, I've been covering. I'd like to hold it short for a longer time period, but I can't resist the profits.

I still maintain that IF this whole thing blows up, the financials are primed to lead the way down, altho tech is starting to look overbought as well.

My 2 Cents on Sentiment

My summary on sentiment:

Upsidetrader says "Breakout!"

Ritholtz' FusionIQ is bullish, too.

Bearish Dow Theorist Richard Russell says the market has "turned bullish." (I ask : But has the transportation index confirmed?)

My sister is trading all her US dollars for Costa Rican Colons, says the US embassies are "dumping dollars".

Prechter says Elliot Waves indicate gold is going down. (Are EW's "sentiment" or "technical analysis"?)

My Mamis graph is trashed; I printed it out and used it to clean up my dog's business. He ironically pee-ed right on Point E: labeled "Aversion."

All that, along with the solar eclipse... I may go long Dress Barn tomorrow, WTF.

Oh yeah, and get more UUP at the open.

Tuesday, July 21, 2009

XLF looks heavy...

...following Eric's Rule of 3 on Support and Resistance lines. Sorry about the horizontal line, but you can also see a descending triangle developing.

Eric says I'm Funny?


Friday, July 17, 2009

SPY: What now?

“The true test of character is not how much we know how to do, but how we behave when we don't know what to do.”-- John W. Holt, Jr.

SPY: I have no idea.

Fully hedged.

It can go up... or, maybe it can go down.


Wednesday, July 15, 2009

Capturing Trend Days

A look at today's SPY trend day with explanation from Linda Raschke:

Monday, July 13, 2009

Causation and Market Rallies

OK, so I'll massage my confirmation bias for a bit.

Meredith Whitney upgraded GS? And that is going to save the market? In the same interview she also said she expects unemployment at 13%, the consumer to suck and mortgages to go further south. How do GS earnings help the rest of the economy, or the rest of the stock market for that matter?

Kernan made some comment about BAC earnings being more important since that would reflect the consumers' position, but I would argue that even that does not matter. The fact is that this rally is not *because* of anything.

The market was oversold, and it rallied. Full stop. This big triple digit day got us back to where, last Tuesday? The bearish technicals are still intact.

Intraday Elliot waves on SPY

Sunday, July 12, 2009

The Bear is about to Growl

...and I don't mean Urlacher (you'll just to wait a couple months for that one.) I've been out of town and busy at work lately so the posts have been sparse. The shorts have been doing quite well and I'll review a few that I've been holding and have presented in the past.

XLF looks the weakest of the sectors, along with KRE. This is confirmatory of the SPY as is IYR and IYT. I present XLF only because it seems to have the farthest to fall.

Another way to play this would be to sell FAS short; it has just indergone a reverse stock split and should have significant decay as the volatility pick up.

PNC is bank short of the month, although there are many decent set-ups. I've been riding this for a few bucks now and my target is near the the 61.8% retracement from the recent highs off the March lows.

Regionals in general look miserable.

RSX is the "Medvedev dissing the dollar" play. Methinks he doth protest too much and this one should get another buck to the downside.

Always set buy-stops with these shorts, but RSX tends to gap alot on the open and is only good for swing trading.

Charts and Coffee has an excellent discussion about the bearish technicals although I'm not so sure I'd put much stock in her sentiment indicator using Google Trends. I really like the idea of pursuing an objective sentiment indicator, however, website trends are not proven and I would add that while "bear market" illicits a decreasing volume of web traffic, so does "bull market" over the last few weeks. Of course, we could surmise that there is a general complacency about all things related to the stock market, but I'm still unconvinced this sentiment indicator is valuable... and C&C also recognizes this weakness.

Teresa Lo uses the 52-week high/low oscillators via Justin Mamis, and I guess I would defer to her judgement on this issue, although the oscillators tend to give little actionable information on a shorter time frame.

Regardless, Charts and Coffee has a top-notch review of the markets tonight and it is recommended.

Thursday, July 2, 2009

Why day trading has been so hard

Dr. Brett has quantified something that I have felt lately: the market has been gapping up and down on the open and the daily changes throughout the trading day have been muted. This makes trading positions intra-day very difficult if not impossible.

I would add that most of the daily change has been in the first 1/2 hour which leaves the rest of the day to listen to the crickets.

Because of this, I have pretty much refrained from day-trading and almost exclusively doing swing trades now.

Here we go...

RSX had a 1-2-3 formation (which corresponds to Elliot 1-5) from the March lows to June 1st. It looks like we had the a-b-c correction and may be starting a new Elliot 1-5 with a bearish motive. (Sorry I didn't put in all the numbers) The bear flag in white would be Wave 2 of a new bearish motive.

Currently, I am short this position.

XL is shown as a "winner" in Teresa Lo's workbook, but it's at the top of the momo chart which means this could be topping. She made a special comment regarding this stock as a "Three Little Indians" topping formation.

I have no position on this, but here's my analysis. My guess is that this breaks down with the rest of the market.