I hope your New Years will be better than mine, I can't enjoy this evening... too many expectations...
See you next year, look for my post on Sunday evening when I will talk about what will undoubtedly be a very eventful January in the markets. Funds have sold off in after hours trading and the futures markets, see you Sunday... have a great journey into the new year!
Thursday, December 31, 2009
Wednesday, December 30, 2009
Some Equities Looking Ripe for a Short
I'll be watching both GOOG and AAPL for shorting opportunities as their technicals are pointing toward a downward move. I feel that I want to wait till after the New Year, though, before I enter any swing trade positions. I'll try and post more info on these two stocks soon.
One note on AAPL: Back in 2007, AAPL showed some similar price movements and technical indications to the downside right after the Christmas holiday. It then moved 36% to the downside in the first 14 days of trading in 2008...
US Oil (USO) is also setting up very nice for a move to the downside. It is trading at $38.84 with potential to move down to $36. I'll wait till after the new year on this one too...
One note on AAPL: Back in 2007, AAPL showed some similar price movements and technical indications to the downside right after the Christmas holiday. It then moved 36% to the downside in the first 14 days of trading in 2008...
US Oil (USO) is also setting up very nice for a move to the downside. It is trading at $38.84 with potential to move down to $36. I'll wait till after the new year on this one too...
Monday, December 28, 2009
Beautiful People (Do they Affect the Market?)
I'm sitting in a cafe in Silverlake, CA, a neighborhood in Los Angeles you could probably compare to Williamsburg, NY. I'm reading some financial news but I can't help but be distracted by the beautiful people buzzing around me. I'm not quite sure if it is their looks, their style or just the way they carry themselves, but I can't help but be impressed by what I am observing. I spend time here a good part of the year, so I am not just awe struck by being in LA. Today just feels different, the people they are glowing. Do people glow in times of financial hardship? Did I mention some of the coffees on the menu cost $7? Did I mention the line is 15 people deep and out the door? Does this happen in times of economic distress? I would say no. Bottom line is that business is booming. Sitting here may not provide a clear representation of the national demographic, but it does show me that some people are spending money and having a good time.
Since we are on the subject of coffee, its funny to remember that everybody bet against coffee when the markets collapsed at the end of last year. Diedrich Coffee (DDRX), for example, lost 90% in 2008. If I could have been sitting here this time last year, maybe I would have bought some shares of Diedrich Coffee. Not too often do you see returns of 11000% in one year. Yes its true, had you invested $1000 in Diedrich's last March, it would have turned into $110,000 today. Hard to beat that 9 month return.
What else have I observed to help influence my thoughts about the market? Well, I do have to say people have been soliciting my advice lately, telling me they think it is a good time to get into the market, asking me what funds or securities I could recommend. It is exactly this mentality that can offer some explanation as to why the market continues to go up. It also helps cement my beliefs that we will soon be seeing a significant correction. As the market forms new highs into 2010, I would expect even more retail investors to buy into the market, falling into the trap of chasing the up-trend, buying the top and ultimately asking themselves how and why the market could turn against them.
Since we are on the subject of coffee, its funny to remember that everybody bet against coffee when the markets collapsed at the end of last year. Diedrich Coffee (DDRX), for example, lost 90% in 2008. If I could have been sitting here this time last year, maybe I would have bought some shares of Diedrich Coffee. Not too often do you see returns of 11000% in one year. Yes its true, had you invested $1000 in Diedrich's last March, it would have turned into $110,000 today. Hard to beat that 9 month return.
What else have I observed to help influence my thoughts about the market? Well, I do have to say people have been soliciting my advice lately, telling me they think it is a good time to get into the market, asking me what funds or securities I could recommend. It is exactly this mentality that can offer some explanation as to why the market continues to go up. It also helps cement my beliefs that we will soon be seeing a significant correction. As the market forms new highs into 2010, I would expect even more retail investors to buy into the market, falling into the trap of chasing the up-trend, buying the top and ultimately asking themselves how and why the market could turn against them.
The Next Four Days (The Last 4 days of 2009)
What is happening as we head into 2010? Well, the first item of "significance," is that the S&P 500 and/or the SPY closed above the range we have been trading in since mid November. This was part of an upward move of five consecutive days of higher highs and lower lows, including the three and 1/2 trading days last week leading up to the Christmas holiday. This would normally be a sign of unquestionable strength, however, it happened during a holiday week that saw limited trading volume. I'm not saying to ignore this sign of strength, but it can't be taken as a confirmation that the market is going higher either. What it does show is that we are seeing a strong market into the close of 2009 on limited trading volume.
I mostly talk about the S&P, but I want to mention how the other indices are trading leading into the new year. The NASDAQ, the RUSSEL 2000 and the S&P 500 all broke out to new highs last week. The New York Stock Exchange and the Dow Jones Industrial Average are trading right around their yearly highs, but have yet to confirm a break out above resistance (See Chart Below)
CHART: Major Indexes Over the Past Month and a Half
NASDAQ up 3.46% Last Week
and 3.22% above its prev high of the year
RUSSELL 2000 up 3.85% last week
and 1.4% above its prev high of the year
S&P 500 up 2.27% last week
and 0.65% above its prev high of the year
NYSE up 2.37% last week
but 0.42% below its prev high of the year
Dow Jones up 1.97% last week
but 0.19% below its prev high of the year
As you can see, there are some lagging aspects of the market. Neither the NYSE nor the Dow Jones have moved above prior highs like the NASDAQ and S&P 500 have. That may suggest that the market isn't quite as strong as it appears. To make an even stronger case against a continued move to the upside for the overall market, just take a look at the banking and financial sectors (i.e. XLF, BKX, GS, JPM). Not only have they not broken out into new highs like a large part of the market, but they have been moving to the downside for the past several months. Even amidst this down trend, the banking and financial sectors saw positive gains last week. My point is, last week's strength and whatever happens this week, shouldn't be considered real indicators for the bigger picture of the markets in 2010.
In terms of the next four days, I wouldn't be surprised to see more positive momentum in the overall market. Look for buying opportunities. Don't be greedy, don't look for runners, take your profits when you get them. I would expect more up days this week than down days. S&P Futures are trading higher as we speak, so don't be surprised to see an up day today. And if we do see continued strength to close out the year, be weary of the market heading into 2010. I will be surprised if we don't see a correction happen fairly quickly. More on this subject in the days to come...
I mostly talk about the S&P, but I want to mention how the other indices are trading leading into the new year. The NASDAQ, the RUSSEL 2000 and the S&P 500 all broke out to new highs last week. The New York Stock Exchange and the Dow Jones Industrial Average are trading right around their yearly highs, but have yet to confirm a break out above resistance (See Chart Below)
CHART: Major Indexes Over the Past Month and a Half
NASDAQ up 3.46% Last Week
and 3.22% above its prev high of the year
RUSSELL 2000 up 3.85% last week
and 1.4% above its prev high of the year
S&P 500 up 2.27% last week
and 0.65% above its prev high of the year
NYSE up 2.37% last week
but 0.42% below its prev high of the year
Dow Jones up 1.97% last week
but 0.19% below its prev high of the year
As you can see, there are some lagging aspects of the market. Neither the NYSE nor the Dow Jones have moved above prior highs like the NASDAQ and S&P 500 have. That may suggest that the market isn't quite as strong as it appears. To make an even stronger case against a continued move to the upside for the overall market, just take a look at the banking and financial sectors (i.e. XLF, BKX, GS, JPM). Not only have they not broken out into new highs like a large part of the market, but they have been moving to the downside for the past several months. Even amidst this down trend, the banking and financial sectors saw positive gains last week. My point is, last week's strength and whatever happens this week, shouldn't be considered real indicators for the bigger picture of the markets in 2010.
In terms of the next four days, I wouldn't be surprised to see more positive momentum in the overall market. Look for buying opportunities. Don't be greedy, don't look for runners, take your profits when you get them. I would expect more up days this week than down days. S&P Futures are trading higher as we speak, so don't be surprised to see an up day today. And if we do see continued strength to close out the year, be weary of the market heading into 2010. I will be surprised if we don't see a correction happen fairly quickly. More on this subject in the days to come...
Tuesday, December 22, 2009
Not a Lot of Great Trading Opportunities
We are sitting at the top of a market. There is not much incentive to buy unless you are just looking to pick up a .20c or maybe a .50c move here and there. The odds just are not really in your favor for a bigger move to the upside. The market is looking fairly strong at the moment, so any moves to the downside are also not likely, at least not today, and probably not tomorrow either. Part of the reason for this is a bit of an influx of positive news. In addition to this morning's GDP numbers, consumption growth looks to remain stable, consumer spending looks to be inline with the recent growth in retail sales (Personal Income and Spending report released Wednesday morning at 08:30 EST). We saw the increase in existing home sales this morning, which means tomorrow's report on New Home Sales (at 10:00 EST) should show better than expected results.
The fact that the market has remained high amidst the recent advance in the dollar, combined with good economic news flowing in, makes a retest of the bottom of the range unlikely before the new year. If anything, there is reason to believe the market will see new highs before the end of the year.
As far as trading goes, I wouldn't be looking to land any big runners (if you are trading the Spiders that is), I would just play the levels, look for some scalp plays and start building your trading strategy for the new year.
The fact that the market has remained high amidst the recent advance in the dollar, combined with good economic news flowing in, makes a retest of the bottom of the range unlikely before the new year. If anything, there is reason to believe the market will see new highs before the end of the year.
As far as trading goes, I wouldn't be looking to land any big runners (if you are trading the Spiders that is), I would just play the levels, look for some scalp plays and start building your trading strategy for the new year.
Home Sales Beat Expectations
There is some resulting market volatility, but no clear direction yet.
I am long SPY at $111.70
I am long SPY at $111.70
News This Morning
SPY showed initial strength but dropped when GDP Numbers came in lower than expected this morning. Existing home sales will be reported at 10:00am EST and could put some downward pressure on the market if they come in lower than the expected 6.25 million. There are many people who expect a lower number than this in lieu of artificially induced sales resulting from stimulus programs in September and October. I think if the numbers come in lower than 6.1 million (which was the existing home sales in October), we could get some selling pressure in the markets.
Looking ahead to Tuesday's Open (12/22/09)
Sorry to keep mentioning the pattern play, but if it ain't broke, trade it! As you saw yesterday, we got the Gap up as expected and now we are trading right at the top of the range. I have defined the top of the range at about $111.42. That doesn't mean we don't trade above that, but it has provided some steady resistance over the past month plus. So, that being said, if we Gap up above $111.42 this morning, look for a buying opportunity to get a small play towards $112. To be honest though, this is a tricky trade, unless you are experienced trading small plays like this, I would avoid it. A better odds play would be to short at $112. I'll talk more about that play if it becomes an opportunity.
S&P futures are currently trading right around the highs of yesterday, so that points us to a small Gap up to around $111.50 on the SPY. That won't give any good indication of a trade in the morning, so like I said, its probably best to just stay away. However, if we open below $111.42, look for a possible trade to the downside with a target somewhere around $110.77.
S&P futures are currently trading right around the highs of yesterday, so that points us to a small Gap up to around $111.50 on the SPY. That won't give any good indication of a trade in the morning, so like I said, its probably best to just stay away. However, if we open below $111.42, look for a possible trade to the downside with a target somewhere around $110.77.
Monday, December 21, 2009
Trade Plan for SPY This Morning
Buy Spy at $110.68 with a stop loss of .54c
Target to Sell at $111.50 or try and let it run to $112.
Target to Sell at $111.50 or try and let it run to $112.
Gap Up Tomorrow?
SPY finished last week in a small rally. The pattern play suggests we will gap up this morning. Today the S&P 500 futures are trading higher, so it looks like it could very well happen. However, SPY did rally right into resistance on Friday without moving through it, so we will have to wait till the morning to get a better idea. The dollar is trading flat, so that does not really give us any indication yet.
If we do gap up, I will buy SPY with a target to reach the high $111s to $112. Stop Loss, will be a couple pennies more than half of the Gap move. If we open below $110.34, I will wait and see if we can break through that level. Confirmation will give a buy signal. If we move down off $110.34, I will wait and see if it can confirm a move below $110. If that happens I will short SPY just like last Friday.
If we do gap up, I will buy SPY with a target to reach the high $111s to $112. Stop Loss, will be a couple pennies more than half of the Gap move. If we open below $110.34, I will wait and see if we can break through that level. Confirmation will give a buy signal. If we move down off $110.34, I will wait and see if it can confirm a move below $110. If that happens I will short SPY just like last Friday.
Friday, December 18, 2009
I am Short SPY
I scaled in starting at $109.78. I am now Fully Short after SPY confirmed below $109.60. Avg price of my short position is $109.68. Looking for target in the low $109s. Keep in mind though, if SPY can break $109 or specifically $108.75, it should fall hard, so I am going to give myself a chance to hold on to this trade.
However, the Pattern Play is still in effect and if it continues, we'll bounce off the $109 base and head back up come Monday.
However, the Pattern Play is still in effect and if it continues, we'll bounce off the $109 base and head back up come Monday.
Bought SPY $110.08
Bought half a position. Have to watch this trade carefully, if price does decide to turn down swiftly, it can be difficult to exit a position in pre-market trading as you can't place stops...
Watching dollar, if dollar futures move above $78.27 or SPY confirms below $110, I will look to go Short.
Watching dollar, if dollar futures move above $78.27 or SPY confirms below $110, I will look to go Short.
What I am Looking at this Morning
I am watching to see if SPY can move down towards the $110 support level. I have a limit to buy at $110.08 and $110.02. If SPY shows enough weakness to confirm a movement below $110, I will look to Sell my position and go Short.
Thursday, December 17, 2009
Markets on the Verge of a Major Breakdown?
We broke through and closed below two significant uptrend support levels today on the E-mini S&P Futures, the SPY and the S&P 500 Index. At the moment, it is not overly alarming because the S&P is not selling off in futures trading, it is actually moving slowly back up toward the uptrend, which is now resistance. We will have to wait and see how this unfolds. Even if we do not move down right away, I think this is clearly a sign of things to come, it provides more evidence that this is indeed a market top that we have been trading in for the past month and a half. If we can move down below $109 on the SPY, we could quickly head down to the $107s. What I have been planning for all along is a return down to $102. The sell off today is a clear indication to me that the path there has begun.
SPY Daily Chart Showing Up Trend
SPY Daily Chart Showing Up Trend Support, Closer Look
Even though SPY broke this up trend support, there is reason to believe the markets will bounce back upwards b4 the real down turn happens. This is because of significant support levels still below where the market is at now. In the case of SPY, $110 marks strong support. I will be looking to buy off that level tomorrow morning if SPY moves down to touch it. I actually expected us to bounce off that level today, but SPY only made it down to $110.08. Close enough, but I wasn't able to buy it there.
If the markets are going to move below $110, it will probably be with a significant Gap Down. The next support will be $109 to $109.30. If we break below there, the markets could see heavy selling pressure and downward momentum should provide the market correction many have been waiting for.
Even though SPY broke this up trend support, there is reason to believe the markets will bounce back upwards b4 the real down turn happens. This is because of significant support levels still below where the market is at now. In the case of SPY, $110 marks strong support. I will be looking to buy off that level tomorrow morning if SPY moves down to touch it. I actually expected us to bounce off that level today, but SPY only made it down to $110.08. Close enough, but I wasn't able to buy it there.
If the markets are going to move below $110, it will probably be with a significant Gap Down. The next support will be $109 to $109.30. If we break below there, the markets could see heavy selling pressure and downward momentum should provide the market correction many have been waiting for.
Wednesday, December 16, 2009
Covered SPY at $111.30
We didn't have to wait till tomorrow to fill the gap, nice! Turns out my Stop was set perfectly, SPY came within .2c of it at 11:30am. I also feel somewhat fortunate that I wasn't stopped out after the FOMC decision was released, turned out there was only a small amount of volatility to the upside...
Short Full Position SPY at $111.95
Candles show potential reversal pattern. Stop at $112.15. Tentative Target at $111.22.
If SPY confirms movement below $111.76, I will add to my short position.
If SPY confirms movement below $111.76, I will add to my short position.
Positive News and a Lower Dollar Before Market Open
We are Gapping up this morning near recent Highs as a result of better than expected housing and building permit numbers, stable core inflation numbers and slightly lower dollar. The question is.. do we short the SPY? Tough call as there is quite a bit of reason not to, the main reason being that this will be the 6th day that we test these levels. Six times is a lot. Every time we test this level there is a greater chance that we break it. On the other hand we have good odds for a Gap Fill in this situation. I plan to Short SPY with 1/2 a position, then add to that position if SPY moves up to $112 and looks to reverse. If it does not show signs of a reversal at $112, I will cover for a small loss.
Tuesday, December 15, 2009
Range Pattern Still in Play?
If you have been reading my previous posts, you can see that the range pattern could be respected again. Its too early to tell, but SPY is pointing in that direction. If SPY can Gap down below $111.40, it will negate some of yesterday's strength. The one caveat to the pattern play, is that yesterday we remained above the top of the range at the close of trading for the first time. Lets watch to see how it plays out. The range bottom could move up to the $110.34 area. I think it will be tough for the market to move below that level before the end of the year.
Monday, December 14, 2009
SPY Looking to Close Above Key Resistance
Right now, with less than an hour left in the trading day, SPY is poised to close above a key resistance level for the first time in what has been a range confined market over the past month. Though there is incredibly low trading volume, you can't underestimate the significance. Unless SPY can sell off at the end of the trading day and close below $111.42, SPY will be looking very strong, at least to close out 2009. On the same token, on a one day perspective, if SPY closes around where it gapped up today ($111.87), that would not be that strong of an indicator as it would suggest that it did not have the ability to move beyond its morning strength. Lets see what happens...
Sunday, December 13, 2009
The Dollar and the Market
The last few days seem to confirm that the markets are not trading so religiously in an inverse manner to the US Dollar. What does this mean for trading this week? First of all, just because both the dollar and the markets were in positive territory on Thursday and Friday, does not necessarily confirm that the relationship has been decoupled. We could see the markets play catch up and move back down to stabilize that prior relationship. All we know now, is that we can't rely that the markets will go down if the dollar goes up. We must also be prepared to react to potential volatility as the trading community adjusts and reacts to this decoupling. I suspect that nothing significant will happen in remaining weeks of 2009, but I have a feeling that the new year could get very interesting. I will definitely keep an eye on this and post additional thoughts in the weeks to come.
One inverse relationship that has continued and should continue, is the price of Gold and the US dollar. As you can see, Gold has dropped off significantly in concert with the rebound in the dollar.
One inverse relationship that has continued and should continue, is the price of Gold and the US dollar. As you can see, Gold has dropped off significantly in concert with the rebound in the dollar.
Watching a Couple of Big Dogs, AAPL and GOOG
Bearish on AAPL
Apple has been on a down trend for the past four weeks making lower lows and lower highs since its all time high on 11/16/09. The trend should continue this week. If AAPL confirms a move below $194, I will enter a Short position (with a tentative stop at $195.70). However, if AAPL moves up, I will short at the first sign of a reversal between $196.49 and $197.80 (tentative stop will be $198.55).
Trade Target: Cover AAPL: $190. Or for a more ambitious trade, cover at $189 or a slightly longer term target at $186.50.
GOOG looks very strong, but I see an opportunity to bet against it.
GOOG has a very solid up trend that has persisted since the overall market rally began back in March. I look for GOOG to reach $600, at which time I will sell it short with a target to cover the position at $576.20. Stop Loss will be around $605.
The exact point that I enter these trades will depend on market conditions and technical indicators. I will post the exact price for these trades when I enter them.
Apple has been on a down trend for the past four weeks making lower lows and lower highs since its all time high on 11/16/09. The trend should continue this week. If AAPL confirms a move below $194, I will enter a Short position (with a tentative stop at $195.70). However, if AAPL moves up, I will short at the first sign of a reversal between $196.49 and $197.80 (tentative stop will be $198.55).
Trade Target: Cover AAPL: $190. Or for a more ambitious trade, cover at $189 or a slightly longer term target at $186.50.
GOOG looks very strong, but I see an opportunity to bet against it.
GOOG has a very solid up trend that has persisted since the overall market rally began back in March. I look for GOOG to reach $600, at which time I will sell it short with a target to cover the position at $576.20. Stop Loss will be around $605.
The exact point that I enter these trades will depend on market conditions and technical indicators. I will post the exact price for these trades when I enter them.
Thursday, December 10, 2009
Taking a Short Position of SPY at $110.96
I would advise not trading in this market, but this take has OK odds for a reversal back to $110.60. I will cover half my position if it gets there and then see if we can move any lower. Only negative to this trade is that we are hitting a resistance level for the third time which often leads to a break through... Stop loss is around the highs of the day or a little over them, depending on your risk...
Decoupling of the Dollar and the Markets This Morning
Strange behavior as both the dollar and the markets are positive this morning. This also happened the morning that Employment numbers beat expectations on 12/4. Nothing as significant happened today. In news, Initial Claims were worse than expected, Continuing Claims were better than expected. But one item of possible significance was that the trade deficit beat expectations, improving from -$36.8 billion to -$32.9 billion. Regardless, the positive dollar this morning is what forced me to exit my position. It was a surprise to see the markets move back up while the dollar also continued up. This is something to watch closely. I will be keeping alert for a possible sell off in the markets.
Sold SPY at $110.60
Upward momentum was short lived, we should have moved higher on the initial push. Also Dollar strength forced me out.
Wednesday, December 9, 2009
Lets Talk About the Recurring Pattern as we Look Ahead to Tomorrow's Open
I've been mentioning for some time now about this recurring pattern where the markets trade in this range that we have seen for several weeks now (see charts below). The pattern suggests we will Gap up tomorrow and move toward the top of the range ($111.42 give or take). I am in no way saying that markets repeat themselves, because I don't believe they do, but at the same time, I think it is worth mentioning. The way I am going to play it is, if we do Gap up above $110.34, I will go long in morning trading and set a target of around $111.40. Thats about all I have to say for now about trading tomorrow. Have a look at the charts below to refresh your memory about recent market behavior and how the pattern has been respected thus far.
SPY 15 Minute Chart (a)
SPY 15 Minute Chart (b: a closer look)
Looking Back at Today's Play Now that the Day is Done
Had you played the Range as I described in the previous post it would have turned out to be the perfect play on the day.
Assuming you went long at the upper part of the range-bottom ($109.30) and Short at the lower-part of the range-top ($110), you would have made three round trip trades for .70c profit/share per trade.
Trade Size:
100 shares = $210 profit for the day
1000 shares = $2100 profit for the day
That is a solid trading day.
I can't say that I listened to my own advice though as I got caught day trading multiple times within the range and ended up negative for the day...
Today's Play
It is beginning to look like the market won't really break significantly in any one direction today, so I am looking to do some range plays. The range suggests going long between $109 and $109.30 and Shorting between $110 and $110.30. I had a limit to buy at $109.01... SPY moved as low as $109.02, missed it by .1c. Too bad, that would have been a nice take. I did buy half a position at $109.29, so at least I got a little piece of the action. SPY is currently moving up, lets see if we can get past two minor resistance levels that intersect at $109.60. If we can move past that and the 50 Day Moving Average, we'll then just need to get past the 100 day moving average. If that happens we will cross $110 and see the top of the range I mentioned above. FYI, I placed my Stop at $109.21.
If SPY does move back down and moves below $109, I will look to Short.
If SPY does move back down and moves below $109, I will look to Short.
Sunday, December 6, 2009
A Billionaire Said...
I read a quote of a quote on John Carter's website. He quoted billionaire Felix Dennis who said, “If you cannot treat your quest to get rich as a game, you will never be rich.” That simple statement struck a chord with me, not that my quest is to get rich, because it is not... but my quest is to put myself in a position where, with the help of having a large base of money, I can pursue other interests that I am passionate about. So, when I thought of treating this process of “working my ass of to get ahead, while putting myself at substantial risk” as a game, it made me realize that it can be fun more of the time. And, if Felix Dennis is right, it needs to be fun. Going forward, I may refer to trading the financial markets as a game...
Friday, December 4, 2009
Employment Data Shows Improvement?
Did unemployment really improve from 10.2% to 10%. Seems a little fabricated to me. There was a rumor yesterday that the jobs data would be worse than expected. Was this completely false? Regardless, in premarket trading, the markets skyrocketed after the news.
But Even so, SPY only climbed .20c higher than yesterday's highs and as of now is moving down. The fact that we didn't climb higher this morning, to me, is a sign of weakness and another confirmation that this market must head back down.
I'm still surprised though, I was certain the jobs data would spill out as expected and that we wouldn't have had to see this hiccup. This descent sure is not an easy thing to play...
But Even so, SPY only climbed .20c higher than yesterday's highs and as of now is moving down. The fact that we didn't climb higher this morning, to me, is a sign of weakness and another confirmation that this market must head back down.
I'm still surprised though, I was certain the jobs data would spill out as expected and that we wouldn't have had to see this hiccup. This descent sure is not an easy thing to play...
Thursday, December 3, 2009
Markets DO Move Down. How to Play Tomorrow's Open?
If you did make the move to Short the market ahead of the last 30 minutes of trading then nice work. Now the question is how to play tomorrow's open. I covered half of my Short Position at $110.38 (.4c above a key support level) and will be awake in pre-market tomorrow to catch the Jobs Report. Employment data will be released at 8:30am EST and is key to determining how the markets open. I suspect the jobs numbers will be negative as expected. If so, expect SPY to decline at least to $109.25 in early morning trading. If the jobs numbers beat expectations, you should probably cover your short positions immediately.
SPY 15 Minute Chart Showing End of Day Decline in Synch with the "Three Day Up Followed by a Decline" Pattern.
Note How I predicted the move down to $110.34 on Monday's Post (It just happened a day later).
Note How I predicted the move down to $110.34 on Monday's Post (It just happened a day later).
Pattern Still Holds, Do You Play It?
The pattern mentioned earlier this week has proven to hold and has reached the end of the upper three day range (see shaded blue range in chart below). If you decide to play the Pattern, then you believe the Market will Gap down tomorrow morning and reach the bottom of the range. You would want to cover the position in the low $109s, perhaps, $109.25.
SPY 15 Minute Chart Showing Recent Pattern in Which We See a Gap Up Followed by Three Days of Trading in the Upper Part of a Three Week Range. The Next Day in this Pattern Shows a Gap Down. If the Pattern Continues, it Suggests a Gap Down and Move to the Bottom of the Range.
Wednesday, December 2, 2009
A Weak Move to New Highs
More proof that this market can't go too much higher, that this bull rally is getting weaker, that we are at or close to a Market Top, is evident by the way we moved higher this morning. We broke a new high for the year, we broke a resistance level that has been holding strong since the 16th of November, yet when we finally did break through, we couldn't hold that level for more than one hour. That's a pretty weak move and a nice bull trap. Now we are trading back down below the top of the range again. Lets see if we can move below $111.20 - $111.15 now. Like I said yesterday, if we can confirm a down move below that, we should be able to get down close to $110.34. Some levels to be aware of are support at $110.92 and at $110.70 that may slow the descent.
SPY Reaches New High and We Take a Closer Look at Patterns
Generally speaking, by the time you recognize a chart pattern, the price movement of the underlying equity, currency or futures contract will probably stop adhering to the behavior of that pattern. Case in point my observation yesterday of the pattern in the top range of the SPY. We entered into what would have been the third repetition of said pattern yesterday. This morning we saw the pattern break down. We should have declined into early morning trading but instead SPY went up and retested yesterday's high. Yesterday's high also happened to be .8c below this year's all time high. Two things indicated that we would break that high. Number one, it is the 4th time we have tested the high. The chances of breaking through a resistance level increase with each subsequent attempt at breaking that level. The fact that we tested it again today gave better odds that we would break it. On top of that, we recognized a pattern that suggested the price would stay below that resistance high. Based on what I just said about patterns, by the time you recognize a well formed pattern, chances are that it will break that pattern. The key to playing a pattern play is to anticipate the pattern before it becomes obvious. So, because this pattern became obvious, more traders recognize it and more traders alter the way they trade to try and anticipate movement. This will ultimately break the pattern as a result of a change in trading behavior. So, with this logic, you were provided with compelling reasons to buy into SPY as it retested the highs. What happened? We broke through resistance and created new highs for 2009. What does this mean going forward? I will post a follow up shortly...
Tuesday, December 1, 2009
Lets Talk Some More About the Range
Well, we are at the top of the range again for the the 3d time (see charts below). Take note of the shaded blue boxes in the charts, they represent the previous 2 times. Note that the SPY Gapped up in each case, then stayed around the upper half of the range for three consecutive days. On the 4th day we gapped down and traded at the bottom half of the range for two days. Will this pattern continue? I don't know, but a shorter term trend worth looking at shows that each of the previous first days of the range pattern (11/16 and 11/23) declined from their highs and continued the down trend into the next trading day.
We failed to break new highs today after touching the top of the range for the third time so you can see that the down trend into the close indicates the pattern is being respected. If this is the case, expect this trend to continue into tomorrow's trading. If we can Gap down in the morning below the 100 day moving average and below today's open of $110.92, we should be able to move down towards the $110.34 level on SPY.
SPY 15 Minute Chart Showing Range with Pattern Elements Shaded in Blue
SPY 15 Minute Chart Showing Range and Target Price of $110.34
We failed to break new highs today after touching the top of the range for the third time so you can see that the down trend into the close indicates the pattern is being respected. If this is the case, expect this trend to continue into tomorrow's trading. If we can Gap down in the morning below the 100 day moving average and below today's open of $110.92, we should be able to move down towards the $110.34 level on SPY.
SPY 15 Minute Chart Showing Range and Target Price of $110.34Since we did not break new highs today, Shorting the SPY for a swing trade now would also be a descent move. Obviously you would pick a Stop Loss price somewhere above the $111.74 mark and look for a target around $109.25. This price point would likely be reached on Friday assuming the pattern plays itself out for a third time...
At the Top of the Range
We are at the top of the range (on the SPY) dating back to the 10th of November. It feels like we could potentially break out as the high of $111.74 is soon to be tested. A short play here is not a terrible move, but being that it is the third time we are testing the top of this range, I don't think it is a great play. I would wait for confirmation that we don't break through $111.74 before shorting the market. In the case that we don't break above the range, look to short SPY if we move below $111.20 with a target somewhere around the $109.25 price point.
Saturday, November 28, 2009
Significance of Dubai Debt Concerns
The fact that the Dubai government asked to defer $20 billion in upcoming debt payments influenced European markets to trade lower on Thursday and had an equal effect on financial markets around the world. The sell-off continued in US markets on Friday. Although US firms have minimal exposure to any Dubai debt defaults, one thing to be aware of is that the dollar could see some buying interest as overseas investors may seek a safe haven amidst the sudden increase in risk. This short term upward move in the dollar would provide the downside correction in equities I have been waiting for.
Don't expect any drastic reactions to the Dubai situation in the coming week. There is still a lot of uncertainty regarding how much debt really exists, who is responsible for that debt and if the failure to repay that debt would influence the collapse of any banking institutions. The Royal Bank of Scotland underwrote $2.3 billion of the Dubai World Loans. RBS only declined 4.7% on Friday, not that much considering the news. At the same time, HSBC Holdings (HBC) has the greatest "known" exposure in the United Arab Emirates with $17 billion in loans in 2008. HBC declined 5.86% on Friday.
What is most alarming though, is if Dubai has hidden their debt problems since the financial crisis began, how many other institutions are hiding financial distress? If a multitude of previously concealed financial burdens are brought to the surface, we could see severe turmoil in the financial sectors and the markets as a whole. I can guarantee that there is a whole slew of negative balance sheets that we don't know about. A swift market correction is something we must be prepared to react to at any moment of any trading day in the coming days, weeks, months.
Don't expect any drastic reactions to the Dubai situation in the coming week. There is still a lot of uncertainty regarding how much debt really exists, who is responsible for that debt and if the failure to repay that debt would influence the collapse of any banking institutions. The Royal Bank of Scotland underwrote $2.3 billion of the Dubai World Loans. RBS only declined 4.7% on Friday, not that much considering the news. At the same time, HSBC Holdings (HBC) has the greatest "known" exposure in the United Arab Emirates with $17 billion in loans in 2008. HBC declined 5.86% on Friday.
What is most alarming though, is if Dubai has hidden their debt problems since the financial crisis began, how many other institutions are hiding financial distress? If a multitude of previously concealed financial burdens are brought to the surface, we could see severe turmoil in the financial sectors and the markets as a whole. I can guarantee that there is a whole slew of negative balance sheets that we don't know about. A swift market correction is something we must be prepared to react to at any moment of any trading day in the coming days, weeks, months.
Tuesday, November 24, 2009
Covered SPY at $110.85
The Short was a nice setup, but too much good news pushed the markets higher.
The Fed raised the 09 GDP target: from -1.5% - 1.0% to -0.4% to -0.1%. Also, the FOMC assured that the recent fall in the foreign exchange value of the dollar had been orderly and appeared to reflect an unwinding of safe-haven demand.
The Fed raised the 09 GDP target: from -1.5% - 1.0% to -0.4% to -0.1%. Also, the FOMC assured that the recent fall in the foreign exchange value of the dollar had been orderly and appeared to reflect an unwinding of safe-haven demand.
I probably should have covered my short position after the down trend line was broken on SPY somewhere around the $110.70 level. However, I held on through the highs of $111.14. The reason I held onto the position was that I knew it would be tough for the market to break much higher than the morning's high of $111.05. Probably not a good way to trade given the news and the upward momentum. However, in this case it worked out to be a break even trade. Too bad, was really a great setup. I thought of holding the position over night, as I still expect yesterday's Gap Up to be filled, but I'll see how the Market opens tomorrow and take it from there.
Why I shorted SPY at $110.87
1. We began the day with some negative sentiment as SPY moved down to $10.14 within the first 30 minutes of trading. This initial down trend supported the idea that SPY was on its way to $109.52 to fill yesterday's Gap.
2. After the consumer confidence numbers were released, SPY showed brief strength but came back down soon after. This indicated that there were still plenty of sellers out there.
3. The fact that there were still sellers out there supports the idea that the Consumer Confidence numbers are bogus. Why are they bogus? One thing to note is what consumers are confident about. Instead of people believing conditions will get worse, consumers responded that conditions will remain the same. The confidence index takes conditions holding the same as a positive reading. That is misleading. Watch for a more negative report when the income data for October is reported on Wednesday, Nov. 25.
4. With this weakness or negativity, SPY still managed to climb up to $110.96. This indicated a potential Top as it meets a downtrend that began at yesterday's highs. The 100 Day Moving average offered additional resistance as it intersected the down trend line at $110.88. See chart below:
SPY 5 Minute Chart
When I saw there was some resistance at this down trend line, I shorted at $110.87. The time was 10:56am. I will be looking to cover this position around $109.52.
2. After the consumer confidence numbers were released, SPY showed brief strength but came back down soon after. This indicated that there were still plenty of sellers out there.
3. The fact that there were still sellers out there supports the idea that the Consumer Confidence numbers are bogus. Why are they bogus? One thing to note is what consumers are confident about. Instead of people believing conditions will get worse, consumers responded that conditions will remain the same. The confidence index takes conditions holding the same as a positive reading. That is misleading. Watch for a more negative report when the income data for October is reported on Wednesday, Nov. 25.
4. With this weakness or negativity, SPY still managed to climb up to $110.96. This indicated a potential Top as it meets a downtrend that began at yesterday's highs. The 100 Day Moving average offered additional resistance as it intersected the down trend line at $110.88. See chart below:
When I saw there was some resistance at this down trend line, I shorted at $110.87. The time was 10:56am. I will be looking to cover this position around $109.52.
Short SPY at $110.87 Intraday Trade
I think we are at the highs of the day right now and am Shorting the SPY
Consumer Confidence Inspires Brief Buying Surge
This morning at 10:00am EST, November Consumer Confidence was reported at 49.5 vs the expectation of 47.3. The SPY jumped up from under $110.20 to $110.68 in about a minute. That is the first time in a while that I have seen the markets react so powerfully to a news release. Only 10 minutes later though, SPY is back down below $110.20. Even with SPY inching back upwards right now, the fact that the consumer confidence boost was short lived, should be a telling sign that SPY will move lower today.
But in regard to the report, my question is, what are consumers confident about?
But in regard to the report, my question is, what are consumers confident about?
Monday, November 23, 2009
Market Jumps Up
Just like last Monday, the market gapped up higher. If you listen to CNBC or any of the other financial news programs, they will tell you the 10% increase in existing home sales (for October compared to the prior month) fueled this morning's rally. It definitely didn't hurt, but that number really is not a big surprise as sales were influenced by government tax credit incentives that are coming to an end. The real factor in the Gap Up is the fact that the US Dollar sold off quite a bit in overseas trading on Sunday. If the dollar gained over the weekend, the market would have gapped down, so don't be too enamored by the home sales data.
Those of us who continue to hold their short positions had a minor scare as the SPY briefly made new yearly highs ($111.74) in the first 1/2 hour of trading. As usual there was low volume and not enough momentum to sustain the rally. The fact that the market declined for the remainder of the day, is a reassuring sign for the shorts. Yes, I still hold my Short Position. Patience is key. Normally I would not be patient with losses, but because Market Tops can be volatile and often take time to play out, I continue to be patient and hold my Short position. I can't say it enough, but the weak volume combined with repeated failed breakouts, lead me to maintain my belief that these markets will dip back down. Time is running out though as the market could easily stop me out at this point. Like I said before, if SPY closes above $111.80, I will cover my position. The next step that must happen for this Short play to work out, is that we close below the $108.90 to $109 level. I was hoping this would have happened last week. The fact that we closed above that level makes this morning's rally not as much of a surprise.
In regard to the $108.90 to $109 level, if you look back to Friday, you can see that SPY reached a low of $109.01 at 11:40am. This is .1c away from the Scalp play I called on Thursday. I mentioned it was a potential .70c play. As you can see, the high towards the end of the trading day was $109.76, a .75c play. Although it would have been an even better move to hold the long position through the weekend and into this morning's Gap Up, I generally make it a rule not to hold positions over the weekend, unless I am already playing a swing trade.
Those of us who continue to hold their short positions had a minor scare as the SPY briefly made new yearly highs ($111.74) in the first 1/2 hour of trading. As usual there was low volume and not enough momentum to sustain the rally. The fact that the market declined for the remainder of the day, is a reassuring sign for the shorts. Yes, I still hold my Short Position. Patience is key. Normally I would not be patient with losses, but because Market Tops can be volatile and often take time to play out, I continue to be patient and hold my Short position. I can't say it enough, but the weak volume combined with repeated failed breakouts, lead me to maintain my belief that these markets will dip back down. Time is running out though as the market could easily stop me out at this point. Like I said before, if SPY closes above $111.80, I will cover my position. The next step that must happen for this Short play to work out, is that we close below the $108.90 to $109 level. I was hoping this would have happened last week. The fact that we closed above that level makes this morning's rally not as much of a surprise.
In regard to the $108.90 to $109 level, if you look back to Friday, you can see that SPY reached a low of $109.01 at 11:40am. This is .1c away from the Scalp play I called on Thursday. I mentioned it was a potential .70c play. As you can see, the high towards the end of the trading day was $109.76, a .75c play. Although it would have been an even better move to hold the long position through the weekend and into this morning's Gap Up, I generally make it a rule not to hold positions over the weekend, unless I am already playing a swing trade.
Thursday, November 19, 2009
Potential Buying Opportunity or Scalp Play?
We are watching a nice drop in the market this morning with SPY moving down more than 1.7% in early trading. We are seeing what could be minor support now at $109.35. I look to see SPY break through this support to move a little lower. I will be looking to buy at potential lows for the day between $108.95 and $109 for a nice Scalp play. Depending on your risk to reward, you could put anywhere from a .10c stop to a .35c stop. Look for potential gains of .70c on this play.
Notice the increase in volume today as we have the first significant down day this month. The fact that we have higher volume when stocks are selling off shows strength for the bears.
How Smart is it to be Bearish Given the State of the US Dollar?
The more I research the state of the U.S. Dollar, the more I realize that although market fundamentals do not support the price levels we are currently seeing, as a bear, we must exude caution while waiting for the market to move back down (if you are not aware the markets are moving in an inverse relationship to the dollar, you should be). That doesn't mean I will cover my short position just yet. We could still see a brief spike in the dollar to help fuel a small dip in the market. It is not unrealistic to see the SPY retrace back to the $106 price area, and possibly even $104. But overall, looking forward, the dollar will likely decline further. It is still relatively strong, well above the lows we saw in March of 2008 and that is striking because the state of the economy is not good. Unemployment is over 10% for the first time since 1983, the Fed is printing money at will, US debt is increasing, the banking sector is in shambles, housing starts are down big, real estate is by no means recovering, mortgage foreclosures and delinquencies are at record levels, the Fed has declared it will keep interest rates at the lowest levels possible well into the foreseeable future and US dollar carry trade is blossoming. If you don't know what carry trade is, it is when people (or institutions) from all over the world borrow one currency (US dollars) because it is cheap and reinvest it in higher yielding entities, for example in foreign bonds with a higher interest yield. In this case, the dollar is borrowed and then sold therefore bringing down its value. This will continue and fuel the dollar's decline further. All this spells great trouble ahead.
Tuesday, November 17, 2009
Update on the Status of my Bearish Stance
I continue to maintain my view that we are at a Market Top and I continue to hold my Short Position of SPY. When will the sell-off happen exactly? I do not know. What will it take for us to decline? Well, that is pretty simple, the dollar needs to find a bottom and the world needs to stop selling it off. Hopefully Bernanke's comments that the US is taking action to preserve strength in the dollar have some worth, and hopefully the trading community will buy into that statement. Regardless, the dollar still has more room to decline. Looking at the dollar index, you can still see that there is a ways to go yet before it reaches the low of $70.70 that was seen in 2008. So, the question is, will we see the dollar rebound now, or will it continue down to form a double bottom at $70.70.
I have a tentative target to Cover my Shorts if SPY closes above $111.80 this week on a daily chart. We really are getting closer to having to admit jumping the gun on shorting the market. The fact that we closed above $110.34 yesterday was a very bad sign. Today will make it two straight days above $110.34. But, we have not given in just yet. We'll see what happens as this week plays out.
On the other hand, if we do get some downward momentum in the coming days and SPY moves below $107.16, I will add to my Shorts position as this should confirm a further downward move with a potential target around the $104 level.
I have a tentative target to Cover my Shorts if SPY closes above $111.80 this week on a daily chart. We really are getting closer to having to admit jumping the gun on shorting the market. The fact that we closed above $110.34 yesterday was a very bad sign. Today will make it two straight days above $110.34. But, we have not given in just yet. We'll see what happens as this week plays out.
On the other hand, if we do get some downward momentum in the coming days and SPY moves below $107.16, I will add to my Shorts position as this should confirm a further downward move with a potential target around the $104 level.
Monday, November 16, 2009
Looking Ahead to Monday's Open
All signs point to an upward moving market on Monday morning. We have to watch a key level, which is the down trend that connects the descending highs from Wednesday to Thursday to Friday. With the dollar declining even more today, look for the possibility that we Gap Up either at this trend line or over it (this trend line level being between $109.90 and $110 on the SPY). If we break through that with any sort of momentum, we could move up significantly. Significantly means possibly testing last Wednesday's highs of $110.82. If we don't break through $110, that will be a very good sign for the shorts. However, looking at the charts, this seems unlikely.
SPY 5 Minute Chart ahead of Monday the 16th's Open
Friday, November 13, 2009
SPY at $109.70. Bad News (for Bears) if it Successfully Breaks Above This Level
All the hard work the Bears put in yesterday will be for moot if we form new support back above the 200 Day Moving Average. We are still in good shape assuming we can back off this level.
Pre Market Analysis for Friday Morning
Looks like we will have a little Gap Up this morning which isn't a surprise based on the way we finished the day yesterday. It is illustrated nicely on the 30 minute chart as the last candle of the day makes a nice Doji Morning Star reversal indicator (See Figure 1).
We may even open right around the $109.60 resistance. Hopefully we won't break it. If we do open at or just below $109.60, look for an opportunity to go short here. May only be a scalp play though. Plenty of minor support levels to hit and retest $109.60. Also, if we do Gap up close to $109.60, we will be back above the 50 Day Moving Average which will also offer minor support.
Figure 1. SPY 30 Minute Chart
If bears can manage to move the market down today, specifically we need to break yesterday's lows of $108.75, there is no reason we won't reach $107.95 on SPY before the end of the day. Again, the $109.60 mark is important. If we don't reverse above that, the bears position will be strong.
We may even open right around the $109.60 resistance. Hopefully we won't break it. If we do open at or just below $109.60, look for an opportunity to go short here. May only be a scalp play though. Plenty of minor support levels to hit and retest $109.60. Also, if we do Gap up close to $109.60, we will be back above the 50 Day Moving Average which will also offer minor support.
If bears can manage to move the market down today, specifically we need to break yesterday's lows of $108.75, there is no reason we won't reach $107.95 on SPY before the end of the day. Again, the $109.60 mark is important. If we don't reverse above that, the bears position will be strong.
Bizzy Jenkins
Just want to give props to Bizzy Jenkins who just recently made a prediction that Playboy (PLA) was going to triple within two months. People thought he was crazy. PLA today shot up 42% to $4.06 on rumors of a buyout for $300 million. Based on total shares at Playboy, that would put the stock at a value of $8.96/share. PLA began the day trading at $2.82/share. Is it on it's way to $9? I think it might be. And I don't base it on technical analysis or fundamental data, just a set of coincidences or connections that are much deeper than that. I can't go into it here.
Thursday, November 12, 2009
Failed Intraday Reversals Another Good Sign for Bears
After we broke the $109.60 support, we passed the descending trend line from yesterday and showed signs of a reversal with all the hanging tails (See first circle in Figure 1). It was a good sign when we bounced back down after testing the $109.60 line several times. Then you can see we made another push to bounce back up (See second circle in Figure 1). It passes through the $109.60 mark but failed to even test the 200 day moving average and then descended down and broke through to new lows of the day. This is good for the moment. But we still need to close lower to confirm that the bears are regaining control of this market.
Figure 1. Spy 5 minute chart showing the bears gaining strength
50, 100 and 200 Day Moving Average on SPY
We are now trading lower than all three Moving Averages (on SPY 5 minute chart). If we can close the day below all three, it will be another strong sign for the bears. The last time we closed below all three was October 28th when SPY closed at $104.42. This is also just before this latest rally began.
What Today Means for Those of us Holding onto our Shorts
Yesterday you can see that we broke through Major Resistance at $110.34 on the SPY. However, the move was short lived as we stayed above that key resistance for less than 1 hour. That is not a sign of strength. Today we are looking at some key areas on the chart that should confirm direction one way or another. We are trading in a very important range between $110.34 and $109.59 (See Figure 1). We need to move below the bottom of this range today to support the Bears cause. If we close above the the $110.34 level, that would spell a lot of trouble for my short position as well as any bear mentality. I suppose it is appropriate that we are flirting with this key $110.34 level as I write this. I think we need to flirt and put a little fear into the minds of the bears... test their will and resolve before we can reward them for their savvy technical analysis and understanding of these markets.
Figure 1.
Tuesday, November 10, 2009
Potential Down Move?
Well we did form the top of the right shoulder this morning (.13c above the number I mentioned in my post yesterday) and now we have bounced downward off of it. We need to break through the bottom of this upward channel (see red trend line in Figure 1). If we do, we could see a significant drop today and potentially close around $108.20 to $108.30.
Figure 1. SPY 5 minute and ten minute charts showing the base of the upward channel in red
Monday, November 9, 2009
Potential Head and Shoulders Projection
Well, the market definitely has the illusion of strength right now. It has been trickling up for 5 days straight on low volume and I do believe it will trickle up some more. If we do have a head and shoulders pattern that will play out, we should see a reversal around the $109.80 price point. I would expect that tomorrow may be choppy to flat. Expect to see the top of the right shoulder tomorrow. Market is closed on Wednesday, so that leaves Thursday as the day to possibly test new highs or breakdown. I am still Short. I expect that Thursday will be the day that I either cover my shorts or watch as the market finally does what I have been expecting it to do. Move down.
SPY chart with potential head and shoulders
And Gap Up We Did
Well, looks like it was not a smart idea to hold the Short Position over the weekend. Lets see if I can manage to cover this position gracefully. This was a large Gap up and often times with a big gap up, the buying continues into the open. SPY gapped up to $108.16 in premarket trading. This is a resistance point, but there is still upside potential here with key resistance at $108.70. We'll see how the open goes. If SPY moves down to the $107.65 area... I will cover, but need to be careful here to avoid further losses.
Dollar Down... Look for the Market to Gap Up
Looks like I might have to cover my Short Position. With Dollar trading down over the weekend, markets will most likely Gap up this morning.
Friday, November 6, 2009
Where Will We Close?
Well, it is looking more and more like we won't get the big drop we were looking for today. I was hoping to see some more volume come into play here towards the end of the trading day/week. We have not. If we can just close below the 100 day moving average (on SPY), we can at least be sure that we won't close the day any higher than the current range of $106.80 to $106.90.
Looks Like the Decline Has Begun
We just closed below the 50 Day Moving Average on the SPY 5 minute chart. This is probably the start of the drop. We cannot confirm though, until we close below the 100 Day Moving Average.
One Last Push Up to Retouch the Highs from this Morning?
I will be surprised if we don't make one more push to break the high of $107.40 on the SPY. If not a push to break the highs, at least a push up to wiggle out any of the less confident short positions before we begin the decline that will close out the day. May look to make some scalp plays over the next hour. Before I maximize my Short Position.
Market Threatening to Break New Highs... Its Funny
Yesterday, while betting against the market, I had fear when the market kept threatening to break new highs and when it actually did break new highs. Today is funny because the market is doing similar things, but this time, I have no fear. I almost keep routing for the market to move a little higher so that I can add to my short position. Normally this would be bad practice, adding on to a losing position, however, there are times to break that rule. This is one of those times.
How to know when the market will turn over officially
Looking at the SPY 5 minute chart, the first thing to confirm is the close below the 100 day moving average. This will set the market downward and new lows should be achieved.
Short SPY at $106.83
This is a new Short Position... I didn't have a chance to post, but I covered my position from yesterday at $106.40 at 10:44 EST
Jobs Data Influences Gap Down - Then We Rally After Market Open
If this rally continues to show strength and breaks through the $107.33 resistance, the next point will be around the $107.73 to $107.85 range. That should be the ceiling for the day, if we break that level with any volume, we could see a strong move beyond
Thursday, November 5, 2009
UUP Shows Erratic Movement Earlier Today
I was confused when I noticed the UUP (US Dollar Index Bullish Fund) spike dramatically upwards while the rest of the markets did not react.
It was dangerous because it was a factor in my decision to go short at the time. I later learned (as I posted earlier), that "the Fund temporarily suspended the issuance of additional Creation Baskets" and as you can see on the chart, UUP stopped trading briefly as a result. The spike occurred when trading resumed and because of this, the UUP could not be relied on as an indicator. (See Figure 1.)
Figure 1. SPY in relation to UUP
From now on I will keep an eye on the $DXY (US Dollar Index) as a secondary indicator to the UUP. You can see that the US Dollar Index maintained the inverse relationship with the SPY (See Figure 2. Below).
Figure 2. SPY in relation to US Dollar Index
It was dangerous because it was a factor in my decision to go short at the time. I later learned (as I posted earlier), that "the Fund temporarily suspended the issuance of additional Creation Baskets" and as you can see on the chart, UUP stopped trading briefly as a result. The spike occurred when trading resumed and because of this, the UUP could not be relied on as an indicator. (See Figure 1.)
Figure 1. SPY in relation to UUP
From now on I will keep an eye on the $DXY (US Dollar Index) as a secondary indicator to the UUP. You can see that the US Dollar Index maintained the inverse relationship with the SPY (See Figure 2. Below).
Trader be Weary
We closed above the previous high of the day (and above the previous false breakout). The fact that we didn't reverse to the downside in a significant fashion on the previous two false breakouts doesn't bode well for this short position. However, today's gains smell suspiciously of the variety that are designed to shake people out of their short positions and to hit people's stops. I am still confident to hold my position here.
Unemployment numbers will be released tomorrow morning. If these numbers beat expectations, and the markets react overwhelmingly positive, I will have to cover my Shorts.
Doubled my Short Position of SPY at $106.71
On top of all the indicators that tell me this market should go down... the (phony) rally today is on weak volume
I Don't Buy It
Market is threatening to break out again. This is the third time we are hitting this resistance formed by the highs on 10/29 (the day when we had that unexpected rally). It is a little scary to be Short here, often times you break through resistance on the 3d attempt. But I'm not buying this breakout, and I'm not buying back the SPY shares that I sold Short either. This market is coming back...
I'm Surprised
I can't believe the Market has not dropped yet... That worries me... Still waiting, holding my Short Positions.
And the dollar is still gaining... I almost have to wonder if I am looking at accurate data...
On top of the dollar gaining, we have a nice bear flag forming on the SPY and that is on top of the false breakout that already happened... What else do you need to confirm this market is going down?
And the dollar is still gaining... I almost have to wonder if I am looking at accurate data...
On top of the dollar gaining, we have a nice bear flag forming on the SPY and that is on top of the false breakout that already happened... What else do you need to confirm this market is going down?
Oh UUP was temporarily suspended...
I didn't realize but... "the Fund (UUP) temporarily suspended the issuance of additional Creation Baskets" some time after 1:00pm EST... the UUP resumed trading as we saw the spike...
Never mind my comments from previous post
Never mind my comments from previous post
Dollar Jumps but Market Holding Steady?
Very interesting... huge spike on the UUP, but the general market didn't mimic it in the reverse direction... UUP is back near the highs that it saw on Monday, but SPY for example, is still well above its Monday price point and holding close to its highs of today.
This Morning
If SPY moves up after the Gap open this morning. I will look to Short around $105.98. If Spy continues up, I will possibly double my short position at $106.25. Stop Loss at $106.41. Tentative Target is $105.42.
Wednesday, November 4, 2009
Sell SPY at $104.70
Made it as high as $104.92, which still would have been a nice scalp play for a .25c gain. However, held out for slightly higher gains. When the price headed back down towards my entry point, I decided to exit the position rather than risk taking a loss here.
Buy SPY $104.67
Had a limit to Buy at the GAP Fill to try for a quick scalp play to close out the day
Volatility After FOMC Announcement
Volatility coming into play as expected... 1% fluctuations up and down and up and down is tough to trade psychologically... Looks like the 100 day moving average on the 5 minute chart as well as the bottom trend line from yesterdays up trend channel formed the bottom at the moment.
SPY 15 Minute Chart
SPY 15 Minute Chart
Looking Ahead to Wednesday Morning's Open - November 4, 2009
I still hold my bullish sentiment. We didn't reach the levels I thought we would reach yesterday, but I am still confident we have some upside left to climb.
Tomorrow morning's price activity shouldn't be very exciting ahead of the FOMC rate decision.
The rate decision will be made at 2:15pm EST. Look for some volatility at the time of the announcement. Be careful here. I wouldn't advise making any short term trades at or directly after the announcement as the markets usually react with high volatility at that time.
We can expect that there will not be any rate changes, but the key here is how the foreign exchange markets react to the FOMC guidance. I am expecting that the sentiment on the dollar is negative and as a result we will see the markets climb. This is why I remain bullish for Wednesday Nov. 4th and hope to see some of the gains that we didn't see on Tuesday.
Overall: Expect the market to be flat ahead of the announcement, volatility just before, during and after the FOMC announcement, and eventually turn to the upside as folks buy equities in response to a weakening dollar.
Overall: Expect the market to be flat ahead of the announcement, volatility just before, during and after the FOMC announcement, and eventually turn to the upside as folks buy equities in response to a weakening dollar.
Tuesday, November 3, 2009
Key Levels Reached
Well, being that this is a new blog, this is the first time I have been humbled by my predictions. I suppose it was slightly arrogant of me to say that it was virtually a lock that we would reach yesterday's highs. There were however, some key levels that I did predict, that came into play.
$104.80 proved to be the high of the day on the dot
$104.41 proved to be .4c away from the key support/resistance level of the day ($104.37).
See chart below
And overall, the day was positive (though mostly flat), it just didn't reach as high of gains as I predicted last night.
$104.80 proved to be the high of the day on the dot
$104.41 proved to be .4c away from the key support/resistance level of the day ($104.37).
See chart below
And overall, the day was positive (though mostly flat), it just didn't reach as high of gains as I predicted last night.
Shorted SPY at $103.86
Reversing my position as the downtrend line dating back to 10/26 has proven to hold stronger resistance than I thought.
Strong Dollar Making it Difficult for My Market to Move Up
The dollar bouncing off the 50 Day Moving Average on the UUP and moving back to the upside is not boding well for my long position on the S&P. But, the channel is still holding up (barely), so I am staying in
Upward Channel for SPY
As long as we maintain this upward channel (see figure 1.), I will maintain my bullish stance on the day. If it breaks down, I will rethink things as a result of the new weakness.
Figure 1. SPY Upward Channel
Figure 1. SPY Upward Channel
Bought SPY at $103.65
Points of Resistance to watch for possible pullbacks on SPY
$104.41
$104.80
$105.01
$104.41
$104.80
$105.01
Gapping up? Perhaps Not.
The dollar index is up 0.6% ahead of the market open and has forced more selling than I expected. So there will be no Gap up this morning. However, I still remain bullish on price action after the open... The levels I mentioned in my previous post are still relevant, though the timing will be different and there may be additional resistance on the way up.
Looking Ahead to Tuesday Morning's Open - November 3, 2009
Well, it would appear the bulls have regained some momentum.
If you read my post leading into the Monday morning open, you would see that my second scenario played out almost perfectly. What didn't play out as I would have suspected, is that when we hit new lows going into the afternoon, we failed to dip down to at least $102.09. I have no doubt that we will get there, but it seems that we will go up before we go down. Here's what I see playing out for tomorrow:
Scenario 1) We will probably Gap up a bit... $104.80 to $104.90 (or 0.5%) is a likely price point for the open. The lower the better, because that will give a better opportunity to get in on the profits of an early morning rise in price.
It is virtually a lock that we will reach yesterday's highs of $105.41. I suspect it will happen within the first 30-45 minutes of trading. The high from yesterday as well as a downtrend line dating back to 10/26, provide the resistance here. Some consolidation or a slight reversal is a possibility. If so, look to consolidate down to around $104.84. Whether we bounce off or pass through the $105.40 resistance level, look for the next level of resistance to be around $105.90. That would be a likely high for the day.
Scenario 2) SPY declines off the opening gap up. The lower the opening gap, the more likely we will decline off the open. If this happens, look to fill the gap around $104.37. Even if we decline off the open, we should reverse back to the upside in a similar manner to scenario 1.
Possible scenario for Tuesday, Nov. 3d's Price action; See chart below:
If you read my post leading into the Monday morning open, you would see that my second scenario played out almost perfectly. What didn't play out as I would have suspected, is that when we hit new lows going into the afternoon, we failed to dip down to at least $102.09. I have no doubt that we will get there, but it seems that we will go up before we go down. Here's what I see playing out for tomorrow:
Scenario 1) We will probably Gap up a bit... $104.80 to $104.90 (or 0.5%) is a likely price point for the open. The lower the better, because that will give a better opportunity to get in on the profits of an early morning rise in price.
It is virtually a lock that we will reach yesterday's highs of $105.41. I suspect it will happen within the first 30-45 minutes of trading. The high from yesterday as well as a downtrend line dating back to 10/26, provide the resistance here. Some consolidation or a slight reversal is a possibility. If so, look to consolidate down to around $104.84. Whether we bounce off or pass through the $105.40 resistance level, look for the next level of resistance to be around $105.90. That would be a likely high for the day.
Scenario 2) SPY declines off the opening gap up. The lower the opening gap, the more likely we will decline off the open. If this happens, look to fill the gap around $104.37. Even if we decline off the open, we should reverse back to the upside in a similar manner to scenario 1.
Possible scenario for Tuesday, Nov. 3d's Price action; See chart below:
Monday, November 2, 2009
Covered SPY at $103.72
If we pass $103.90, that pretty much erases any chance we have at coming back down and penetrating the double bottom
Back Down to Yesterday's Lows After Bouncing off Resistance
SPY does move past $104.50 this morning to break the range, then bounces off resistance at 200 day moving average and 50% retracement from Friday's Decline.
(Figure 1.)
We are currently at the Low's of the day. There may be a small scalp play off the double bottom we are presently seeing, however, I expect that we will eventually break through the $103.08 double bottom and reach the $102.70 level on SPY before the day is over.
Shorted SPY w/out having a stop market and I paid for it
Shorted SPY at $104.45... when it rose up above $104.50 on its way to $104.60, it took off, just like I mentioned in my last post. However, because I didn't have a stop market order in place, I was not able to cover my short position until $104.92. That is a terrible trade. That is a rookie trade. A silly mistake that should never happen. Always have a stop market order in place to protect yourself. If you are trying to cover a position that is moving against you rapidly, it makes it difficult to make rational decisions in the process and you will almost always get filled at a price way above or below what you would have liked...
Looking ahead to Monday morning
I'm feeling very tired as I write this, but take note of a couple scenarios for market open this morning.
Overall Sentiment: Bearish.
Look for the market to continue down in early morning trading.
Heavy volume should provide even greater confidence that the market will move down. If it does move down... Look for support at $102.55. That would be down 1.05% from Friday's close. Could reach as low as $102.09 to $101.88.
If the market heads upwards, expect a struggle to gain any momentum up to the $104.50 price point. If we get that high and SPY can break $104.60, we have the chance to have some upward momentum... Watch also for a gap up tomorrow morning... If we Gap up above $104.60, look to buy. If we Gap up, but below that $104.60 point, consider shorting to fill the gap.
Assuming we move up tomorrow morning, beyond the $104.60 price, look for resistance at the 100 or 200 day moving average, which is currently at the $105.19 and $105.34 marks respectively. If we break those levels... look to possibly recover most of Friday's losses.
The upside potential aside, I want to to reiterate my bearish stance at the moment.
Thats all I have for now... I must get some sleep, I hope that I will have time to post again before market open.
Overall Sentiment: Bearish.
Look for the market to continue down in early morning trading.
Heavy volume should provide even greater confidence that the market will move down. If it does move down... Look for support at $102.55. That would be down 1.05% from Friday's close. Could reach as low as $102.09 to $101.88.
If the market heads upwards, expect a struggle to gain any momentum up to the $104.50 price point. If we get that high and SPY can break $104.60, we have the chance to have some upward momentum... Watch also for a gap up tomorrow morning... If we Gap up above $104.60, look to buy. If we Gap up, but below that $104.60 point, consider shorting to fill the gap.
Assuming we move up tomorrow morning, beyond the $104.60 price, look for resistance at the 100 or 200 day moving average, which is currently at the $105.19 and $105.34 marks respectively. If we break those levels... look to possibly recover most of Friday's losses.
The upside potential aside, I want to to reiterate my bearish stance at the moment.
Thats all I have for now... I must get some sleep, I hope that I will have time to post again before market open.
Sunday, November 1, 2009
Weekly Analysis: Oct 26th - Oct 30th.
Lets take a look at what transpired last week in the markets:
The S&P 500 Spyder (SPY) declined 4.2% over the past week, with only one positive day coming on Thursday. (See Figure 1. below).
Figure 1. The S&P 500 Spyder (SPY) 15 minute Chart for the week of 10/26/09 – 10/30/09
The overall outlook for the market took a turn for the worse as SPY crossed below a key support level at $107.15. Even more significant was when SPY penetrated the bottom of two key up-trend channels dating back to to the beginning of the current rally (in March). (See figure 2. below).
Figure 2. The S&P 500 Spyder (SPY) daily chart dating back to march.
SOME INTERESTING NUMBERS regarding the current bull market rally that began back on March 9th:
The current bullish trend has lasted 34 weeks including last week. Of those weeks, 12 have been down weeks. Interestingly though, half of those declining weeks came in the last 10 weeks, meaning 60% of the past 10 weeks have been losers. During the first 24 weeks of the rally, only 25% were losers. This indicates the rally is either slowing or reversing. What makes it different from previous corrections, is that both uptrend channels were broken to the downside.
The 4.2% decline represents the largest weekly decline since this bull rally began the week of 3/9/09. The last decline of at least that size (a decline of 5%), was the week before, 3/2/09 (See figure 3.).
The all-time market high for SPY was $157.52 on October 11th, 2007. The days following can be considered the start of a bear market that is still in effect today. If we look at the week starting after this all-time high, we can see that it was the only week in the history of SPY (other than last week), that had a decline of 4.2%. (See figure 3.).
Figure 3. The S&P 500 Spyder (SPY) weekly chart dating back to market highs in October 2007.
The similarities in the percent declines from this past week (which comes at a potential top of a bull rally) and the week that followed the last "top" of a significant bull rally, are intriguing. They may not confirm that the weeks ahead will repeat the same behavior as the downtrend that started back in Oct 2007, however, it is an interesting coincidence well worth being aware of.
The outlook for the coming week is definitely bearish, but I will go into this in more detail and provide some scenarios to look for in my next post.
The S&P 500 Spyder (SPY) declined 4.2% over the past week, with only one positive day coming on Thursday. (See Figure 1. below).
Figure 1. The S&P 500 Spyder (SPY) 15 minute Chart for the week of 10/26/09 – 10/30/09
The overall outlook for the market took a turn for the worse as SPY crossed below a key support level at $107.15. Even more significant was when SPY penetrated the bottom of two key up-trend channels dating back to to the beginning of the current rally (in March). (See figure 2. below).
Figure 2. The S&P 500 Spyder (SPY) daily chart dating back to march.
SOME INTERESTING NUMBERS regarding the current bull market rally that began back on March 9th:
The current bullish trend has lasted 34 weeks including last week. Of those weeks, 12 have been down weeks. Interestingly though, half of those declining weeks came in the last 10 weeks, meaning 60% of the past 10 weeks have been losers. During the first 24 weeks of the rally, only 25% were losers. This indicates the rally is either slowing or reversing. What makes it different from previous corrections, is that both uptrend channels were broken to the downside.
The 4.2% decline represents the largest weekly decline since this bull rally began the week of 3/9/09. The last decline of at least that size (a decline of 5%), was the week before, 3/2/09 (See figure 3.).
The all-time market high for SPY was $157.52 on October 11th, 2007. The days following can be considered the start of a bear market that is still in effect today. If we look at the week starting after this all-time high, we can see that it was the only week in the history of SPY (other than last week), that had a decline of 4.2%. (See figure 3.).
Figure 3. The S&P 500 Spyder (SPY) weekly chart dating back to market highs in October 2007.
The similarities in the percent declines from this past week (which comes at a potential top of a bull rally) and the week that followed the last "top" of a significant bull rally, are intriguing. They may not confirm that the weeks ahead will repeat the same behavior as the downtrend that started back in Oct 2007, however, it is an interesting coincidence well worth being aware of.
The outlook for the coming week is definitely bearish, but I will go into this in more detail and provide some scenarios to look for in my next post.
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