Is January Effect Intact?

The indices took off at the beginning of the year and the thesis states that as goes the first week of January, so goes the month of January.  That did not work out exactly as planned with the market taking the next two weeks off to ponder the "economic crisis."

However, the past week we have seen a nice ascending triangle forming in the Russell 2000 index of small cap stocks and the next resistance and price target is $48.50.  While it is unlikely the index will finish up for the month, the trend is upward and may continue to mid-February as the stimulus bill becomes reality.  Maybe sell on the news?

GLD: Update

Commodities had a nice punch upward Friday and the technicals are continuing to look strong from the November lows.  A couple things look good technically:

1. GLD broke resistance as well as a long term trendline which it has been flirting with for a year.

2. The 50-dMA now has an upward slope and is approaching the 200-dMA, which would form a "Golden Cross."

Isn't this a flight to safety of sorts? We're sort of running out of asset classes to trust and all the liquidity has to go somewhere. A lot of people are saying the US dollar will benefit, but gold is/was extremely oversold and was due for at least a technical bounce. And I would add that commodities tend to move for prolonged periods of time and tend to overshoot both on the upside and the downside... at least that's the conventional wisdom.

The other side of the argument is that goldbugs tend to be nutjobs with overdeveloped limbic systems and you can never predict what they'll do... they might cash out all their holdings en masse to go buy ammo and Spam.

Eric and I are having a discussion on liquidity and commodities.

Liquidity: There's more liquidity today than there was 2 months ago and nobody is going to give it away. No loans, no mortgages. So it has to somewhere. Sure relative to two years ago there is very little liquidity, but not compared to 2 months ago.

GLD has gone from 68 to 88 in 2 months-- that's a bull market in anybody's book-- only TLT comes close and the technicals on TLT aren't as good.

Is TA any good for GLD? Maybe not since so much emotion goes into the gold trade, more than any other asset class it seems. But nobody can argue that the year long trend has been broken. What happens now is only a guess. It's risk/reward.

New liquidity will be hitting the market and there will be more in two months than there is today. Where will it go? Mortgages, car loans, Treasuries? Maybe, but my guess is that some will go to commodities, too.

 

Which bank(s) will be gone by September?

Tell me which of these won't exist?  If anyone can tell me, then I'll buy the others... but until then...

Great graphic from here.  And XOM's market cap is greater than all put together, or something like that.

GERN: Sold at $6.52 for for 34% gain

I had bought GERN on Jan 20 and sold this AM at the open on their FDA approval.  Thanks to Brian Shannon for the heads up.  Sell on the news, baby.

Sector Update: Health care

Yesterday I published my dissection of the sectors that will recover out of the bear market (if there is ever a recovery):   health care and staples are the predicted winners...

...and lo and behold, we have a deal with PFE buying WYE and calls on CNBC that this could be the initial move in a wave of consolidation and bull move in the pharma sector.

One other note on the SPDR ETF on Healthcare, XLV: this is basically a pharma ETF and contains no significant exposure to medical equipment or HMO's.  Stocks like JNJ are more diversified and acts like a healthcare mutual fund unto itself. 

AAPL Update

    

I have been watching AAPL and covered my short a couple days ago when it broke above 79.20... which in reptrspect was the message that earnings would be positive.

Yesterday, the NAZ got a little ahead of itself and overbought near the end of the day, so I opened another short positionon AAPL at $89 and set an after hour cover order for $87... and it triggered.

Cha-ching for a little trade.  Not greedy.

Jan 23: Futures Down, WYE, GLD up

Technicians would say that the market has indeed anticipated the bad earnings with their interpretation of the graphs, with Brian Shannon at alphatrends saying (ad nauseum) "this is a day trading environment" and T.LO telling us to go to cash in September, etc.

The market and TA have been telling us, what Mamis calls the message of the market. We don't necessarily know "why" the market keeps going down... we will only know "why" after the fact. We can only know the "what" and "the what" is that financials are dead. D-E-A-D. Period.

We can conjecture all day about the "why"... and it's fun to do: maybe 25% of banks are insolvent and will be gone in 6 months, maybe BAC and Citi will be nationalized, maybe Obama is a stealth Communist and the market is factoring it in, etc... but the reality is that we cannot know the why until after the fact.

Aberrations will occur, such as the recent January Effect, but these are counter-trend rallies that cannot be trusted.  Like Kappa Kappa gamma girls: it's okay to play with 'em, just don't marry 'em... and it's time to stop playing and get back to work.

Sector Rotation and Calling "THE" Bottom

I've been doing some work on sector rotation and calling "The Bottom" over at Kalamazoo Post.

Can we really call this "The Bottom"?

Banks, biotech and gold

Which sectors will lead when/if we get a recovery?

From now on I will be using Trader's Log for all opinion on stocks, finance and the economy and will keep Kalamazoo Post only for comment on culture, sports and politics.  This should clean it up a bit.

Sorry, but the music stays at KaPo.

Update V: Increased short position at $43.69

I'll close out some of this before the close.

Update Noon:  Covered short at $43.03

GS: Short at $64.35

May keep for a day or two.

Update at 11:07 am:  Covered at $64.39.  Chickened out.

Update at 11:17 am:  God, I am such a wuss.  GS is in tatters and I covered.

IYR: Short at $30.41

Daytrade only.

Update 11:03 am:  Covered at $29.72 for 2.2% gain.

STEM: Sold at $1.81 for 6.4% gain

V: Short at $43.92

Maybe a little early on this entry.  I'll watch it carefully and if it breaks below $43.80 I may add some more to the short position.

XRAY: Short at $26.45

AAPL: Update on Short recommendation

AAPL had a miserable close and ended at $78.20, which was great for our short position.  After hours, however, there has been a recovery and it sits right at near-term resistance of $79.20.  This has been the third time AAPL price has bumped up against resistance, so be careful because it may break through to the upside.

Update at 10:16 am:  Puked in up and covered at $79.50.  Whisper number is that AAPL will beat earnings after hours.  Too rich for my blood.

Look out below, de-leveraging in process

Chairman of the FDIC Sheila Bair is on CNBC and talking about the banking system.  She said that when the FDIC took over Indymac Bank, the loan default rate was 22% and assets were sold at 37 cents on the dollar.  Yikes.

But she was quick to say that the banking system as a whole "is solvent."  My question would have been to ask how many individual banks are not solvent.  During the Depression of the 1930's, 25% of banks went bankrupt and while the number today may not be as high, the vast majority of banking activity takes place in a handful of very large institutions.  For all practical purposes Citigroup is dead.  Bank of America committed suicide by purchasing Merrill, and while that couyld be unwound it is still a huge negative for the banking industry.

How much more deleveraging needs to take place before we can see recovery?  I have no idea, but I'm not sure anyone else really knows.

Pretty chart of the day: RIMM Long

With the big sell off yesterday, I'm looking to go long on RIMM today for a day-trade.  I actually opened the position yesterday at $49.60 before the close.  On the daily, I see a nice upsloping curve that has broken through resistance.  

On the 10-minute graph (below), RIMM had a nice close versus the QQQQ which closed on a down-tick.  New money (if there is any) will gravitate toward quality issues like RIMM, but I'm going to be very careful with this one and watch the stops closely.

End of Day 1-20-09

Covered BAC at $5.53 for an 8.85% gain

Covered FSYS at $28.08 for a 4.7% gain

Covered V at $42.14 for a 5.1% gain

Sold QID at $62.04 for a break even  (stopped out)

Bought back STEM Long position at $1.7o

Bought RIMM at $49.60

Bought QLD at $24.18

Appraisal:  Good trading day.  I really should have held QID and with those thinly traded issues the stops should be more liberal.  I have some reservation about going long RIMM, but I fell that I should have a long position going into the open tomorrow after today's blood-letting.  I regret keeping QLD before close... I may try to unload it after hours if there is a market.

QID: Long at $62.04

APWR: Sold at $5.54 for 1.9% loss

AAPL: update

AAPL has broken down below $79.50 which was support and should now act as resistance.  Short opportunity and a small bear flag is forming.

APWR: Long at $5.65

STEM: Sold for 8.5% gain

GERN: Long at $4.86

V: Short at $44.42

STEM: Long at $1.64

Sell Stop at $1.48

FSYS: Short at $29.50

Buy-stop at $30.40

BAC: Short at $6.10

"Another down leg coming..."

“There’s another down leg coming. Normally the market comes down in five legs. We’ve come down in two. I think we’re going to test those lows at the very least, and eventually probably take them out.”

--John Murphy, chief technical analyst at StockCharts.com and the author of three books on market analysis. 

Pretty chart of the day: LVLT

Brian Shannon from Alphatrends has pointed out several stocks for short term trading and the one that caught my eye is LVLT.  This graph is showing the bullish "breakout-pullback-go" pattern.

Although it trades at near a dollar, the volume is pretty good at 20 million or so... enough to give it the necessary liquidity to trade.   Even with the over all market looking glum, this is one holding that can do well if the market recovers.  Brian recommends a buy if it goes above $1.26 and a sell-stop at $1.10.  Overhead resistance is $1.65 and if it breaks through, the target is $3.

Ugly chart of the day: BAC

Looking for the ugliest chart to short and BAC was reviewed by upsidetrader as well.   On the daily chart we can see the stair step lower lows and lower highs and now it has broken through support at $10.  This looks like a good candidate to go lower.  Both the 200-dma and the 50-dma are declining and the trend line is definitely negative.

Perhaps financials will reverse, but it's not likely any time soon.  This is a day-trade or swing- trade set up and I'll set my buy-stop at $8 for the day.  The real resistance is $10 and on a longer time frame this could be used for the buy-stop.

The ten-minute graph above shows the shorter term upside resistance which should be the day or week buy-stop.  

Barry asks if we are at another bottom!

While I read Barry Ritholz' Big Picture every day, I am sometimes amazed at the posts he throws up that are supposed to be examples of market research or insight.

He is now showing a trend line graph (at right) of the S&P from the 1970's to present and asking is we can count on the current point as a market bottom merely because we are 40% below the trend line.  In 1970 this same percentage did mark a bottom and the market recovered thereafter.

Perhaps Barry is asking a rhetorical question and thus making the answer obvious... "no, we are not at a bottom."   A couple data points over several decades are hardly an expository review of the situation.  

The commenters are on top of the situation with many taking the graph and the conclusion to task.

Futures down

As I type the Asian markets are down a couple percent but off their lows of the session.  The US futures likewise are down, but improving overnight.

The news this weekend that the UK will capitalize RBS has hit the markets hard.  We'll see if the US can withstand this bas news and follow through on the upside from Friday's gain.  

Obama's inauguration tomorrow may distract traders.  Also, the Israel-Gaza cease fire may lead to a drop in oil as tensions relax.

I am hesitant to trade financials either long or short since so much of the trade is sentimetn driven.  Fundamentals are meaningless and the technicals are becoming strained.  Having said that, my bias is downward and any rally could be an opportunity to go short either with FAZ or individual short positions.

Welcome to 2009

With the new year comes a new committment, and that is to study and perfect my skills in stock trading.  I have been a student of the market for over ten years, managing my retirement portfolio through good times and bad.  Nothing has been more satisfying, or humbling, than following the machinations of market fluctuations.

My journey started upon finishing a medical specialty residency in 1994 when I began to seek out opportunities to invest for retirement.  Where to put all that coin I was going to make?  To my initial dismay I found that objectivity was lacking in the financial markets.  I began by reading books by John Bogle and Charles Schwab about mutual fund and stock investing.  I joined an investment club during the tech boom of the 1990's and found that fundamental analysis can lead to very poor portfolio performance during times of irrational exuberance.

With the new century my interests have expanded to macroeconomics, money creation, the vagaries of the banking industry and the necessary role of government.  I am fortunate to be blessed with a healthy skepticism which has served me to avoid major disasters.  My medical training has taught me risk management which is very useful when managing assets.  Patience and study are also necessary in both medical practice and stock trading.  

Lately I have become enamored with technical analysis, trend following, support and resistance lines, and have even found some value in knowing about Fibonacci retracements and Elliot wave mechanics.  While I am hardly an authority, and lack a developed right-brain, I have become increasingly proficient in interpretation of the squiggly lines and the hard right edge.  Books by Alexander Elder have helped me get a grasp of day trading.

So with the new year I have carved out a giant notch in my schedule in order to pursue my love of trading stocks and ETF's.  My beautiful wife has given her generous support of my hare-brained scheme... as long as I am serious about it.

Join me and I'll make every attempt to keep it interesting.  The site will attempt to be real-time, but I fear that will not be consistent with day trading, so I may just put up themes on a daily basis and keep you up to date on my thoughts and concerns.  Most of all... it will be fun!