Tuesday, August 30, 2011

a pullback coming our way?

Today was another productive day, although I saw a little bit of weakness creaping through.  The first half of the day it seemed the market couldn't make up its' mind as to which direction it wanted to go, then the last 2 hours it went up aggresively and hit the high of the day, and of course in the last 15 minutes it gave up most of the gains and closed nearly flat for the day. 

Most of the indexes formed a classic star candlestick pattern on the daily chart, which generally speaking means indecision.  The market is at a point where it can't decide whether it wants to continue moving up OR go back down and possibly test the lows again.

It really isnt surprising that we get a pullback considering how far we have gone up.  In the past 6 trading days we are up (IWM) over 8.5%, which is quite impressive.

My indicators became overbought today, which just reinforces the fact that we might need to see a little downside in order to let off some pressure before continuing upward.  At this point I dont see a lot of negative pressure to have it be anything more than a rally pullback and not a retest of the previous lows, but traders are so skittish these days ... who knows if the market will act rationally as we have a 'regular' pullback. 

I remain cautiously bullish.

Monday, August 29, 2011

green light ahead

Today is the first day in approximately 2 months where I received a green light to officially invest in the market.  I think most institutional traders received the same signals as I did, we finally got out of the danger zone and should move higher from here in the short term. Although I personally have been long for a number of days and holding positions overnight since Thursday, today I finally have the confidence that the trading world will now embrace the upside. 

With this said, volume was extremely weak today which isn't surprising given that hurricane Irene kept most people out of the city today.  Yet, until we see volume on an up day extremely strong, many traders will be skeptical of this push higher and therefore won't flood the market with their money.  I use volume more as confirmation of signals and not to directly trade on, as over the past year volume doesn't always coincide with the movement of the market.  This most likely is due to evolution and prevalence of HFT (high frequency trading) that is moving much of the market these days.  Yet, as I mentioned above, many of old school traders follow volume VERY closely and as a result, we won't have as much fuel for the fire while these old school'ers are waiting for volume confirmation.

I think tomorrow will be an important indicator to show the world whether the bulls are truly back in control or not.  If we have a strong or even flat day ... I expect this week to be good, but if tomorrow is grossly negative ... the bears still have fight left in them and we will see more whip saws ... up and down days for a time.

I would imagine with such a strong push over the past two trading days that any bears that are left will be terrified at this point and not willing to get aggressive, so major downside from here would surprise me.  With that said, I feel confident telling my brother (and you) to get long in the market at this point for the short term.  I expect this week to be a good one.

One reason for my bullishness is that today we passed a number of price points that I felt were critical to ensure the longevity of any upside.  I actually did not expect to pass these numbers for a few days to a week.  Generally these important price points act as resistance (and support) when the market comes up against them ... so I expected us to hit them and drop for a few days.  Since the market just ignored the numbers and kept on going, this is a testament to the strength of the current rally.  As each of these price points get broken, they usually turn from resistance to support ... so what was once a wall that prices bounced off of ... is still a wall but in the opposite direction.  So, the great news is that we now have some strong support to keep prices above.  With that said, the market WILL test these levels again to see how strong the support actually is.  The strongest and nearest level is easily found on the IWM at 71.84.  We sat there for about 30 minutes today before shooting over that price.  So, I expect us to come back to that tomorrow or in the coming days to see how strong it is.  If we can hold above that level when the test occurs (which I expect), then we will be able to easily push higher.

The next major resistance level for IWM is the 50 day moving average which is approximately 6.6% higher than today's close, so I am anticipating a fairly clear sailing until we get to that level ... where we will definitely experience turbulence and possibly a breakdown from there.

I think we all made some nice money today ... enjoy your Monday evening!

Friday, August 26, 2011

QE3 passes in the wind and ... I don't need a beer finally!!

There was definite nervousness going into this morning with the hope that QE3 would be introduced by Ben. Bernanke at the summit.  In fact, this most likely caused the drop in the market yesterday as with any market moving speech, most players exit beforehand and stay out during the uncertain times.  So ... yesterday's down were people exiting to be cautious which caused today's up since everyone got back into the market realizing that this really wasn't a news event at all.  I also think that having nothing new after his speech to report helped the market get bullish ... change is evil, and no change is comforting ... no change today calmed a lot of rattled nerves and helped people to focus.

Not much has changed in my analysis from days ago, every day I see more strength building as the market heals.  We are in a definite trading range right now if you look at the charts and the market is ping ponging up and down between the numbers, but we are getting higher lows as the days progress which shows that we should break out to the long side.

my magic number seems to still be holding (IWM 68.25) as support which as you know, I mentioned was critical.  It still keeps hitting it, but seems to be respecting it as support.  As long as that continues, I see only one place for this market to go and that is up.  Although I don't expect it to happen quickly.  There is no need to rush into this market ... as i previously mentioned ... when a man falls off a building ... he doesn't get right up and walk away, and neither does the market.  We need time to heal the scars before people will become confident again to start speculating.

Still a concern is the low volume on the indexes which needs to change in order for things to start moving aggressively up, but it doesnt surprise me after such a strong downtrend that many players are still waiting on the side lines.

so, each day we see more signs of life, and as long as this pattern continues ... there is no need to change course.  I am now holding positions over night and moved from intraday trading back to regular buy and short term hold (until I see negative changes).  I have buy orders in place for some upside targets, where if the market is able to break certain thresholds ... I will purchase more.  I assume we will see some of those targets hit in the later part of next week, and if it can hold those ... then I will be much more comfortable in telling others to get their money back in the market.

We probably wont have much change until after labor in my opinion ... next week, more up and down within the trading range, but after labor day I expect some nice bullishness to occur.  Of course that is a week away, and in this market ... A LOT can change between now and then.

Funny how this weekend, I am not going into it needing a beer as much as the past two weekends ... I should start a 'beer index' ... where when I need a beer ... you sell and stay out of the market, and when I don't ... you buy and enjoy the ride up :)

Have a great weekend ...

Wednesday, August 24, 2011

Apple is a bellweather ...

The nasdaq is pulling down hard on this as well.

This might stifle the recovery efforts of the entire market since AAPL is such a bellweather.

In a stunning development after the closing bell, Silicon Valley legend Steve Jobs resigned as chief executive of Apple Inc -- the technology powerhouse he co-founded in a garage. Jobs, 55, is a pancreatic cancer survivor who has been on medical leave for an undisclosed condition since January 17. Apple said Jobs has been elected chairman and Tim Cook has been elected CEO, Apple said.
Apple's stock, which had been halted after hours, resumed trading at 6:55 p.m. and slid 7 percent.

a good day today

a decent day today in the market.  As I had hoped for, the market closed well above my target on the IWM.  that target (68.25ish) should become support for future pullbacks.  Today it came down and touched that number 5 times ... four of the five times it bounced off of it within minutes and the other time it stayed below it for about an hour.  The fact that it tested that number and wasnt able to break for any length of time is important, it shows the market players are respecting that level and doing their best to stay above it.

although internals continued to look healthy today and I purchased more on the long side, I am by no means betting the farm on a full recovery at this point.

There are still a lot of people that are short and wanting the market to fall and until the market stabilizes and scares out these people we will be sitting a bit.  A bit hurdle to gain the confidence of the public is coming up soon and that is passing the previous high set last week before the market starting falling again.  On the IWM that number is $71.83.  If we can break that resistance barrier (which will probably take a few attempts to accomplish), this will send a loud message to the investing community that we can now start moving higher.  Once this occurs, I expect the cautious players to pile in and we should see a nice move from there.

There is one troubling item in my analysis that needs to be addressed at some point, and that is that the volume hasnt been terribly stellar during the past two days.  I am generalizing here, but generally speaking Volume shows the level of conviction of buyers / sellers.  So on up days, ideally you want more volume than on down days ... kind of signaling that there is more conviction to buy than sell.  This is gross oversimplification, but I want to keep this simple at this point.  So ... after such a strong downward movement, we ideally want to have a strong volume day (or days) to show the conviction of the masses wanting to get back into the market.  I suspect this might not occur until we surprise the most recent high (see paragraph above), but the market might not wait around long enough for that to occur.  Many, many people look at volume as a key indicator in the strength of a trend and if we don't see a change in the next day or two, I expect the shorts to start salivating ... and we might possibly get another retest of the lows.

Besides the lack of volume, all my indicators point to more upside, but I still feel it is just too early to be fully bullish for the long or intermediate term investors ... hang in there and let's see if this pocket of strength continues for a few days before going long.

Tuesday, August 23, 2011

is the sun finally starting to rise?

Today the market rose over 3%, and I like what I saw.  In fact, today is the first day that the internals (after the close) are telling me to buy.  You might say ... of course dummy!  ... the market is up 3+% ... of course things look rosey!  But ... last week we had two moves where the market went up over 4% where i was skeptical and in the following days the market tanked again.

In fact, For the past week we have been lightly building strength but it wasnt showing in the price, prices were getting weaker.  Then, yesterday we tested the lows to see if the prices would hold ... and fortunately they did.  This was an important milestone.  With that said, I still was not willing to get in the market overnight (yesterday) since although healing was occuring there wasnt much in the way of positive developments in the underlying internals that i study constantly.

Up until today, I was trading intraday and not willing to hold a position overnight.  I almost did last night (wish i did!!), but still wasnt confident on the move.

Am I fully long at this point, absolutely not!  We very well could test the lows again, but I do have more confidence after today that we have seen the bottom of this correction and it is only sideways or up from here.

Today's strength showed up in most of my analysis, not just one or two indicators but most of them which obviously is good.  In fact, the last time we even had close to this level of strong support in my analysis, happened to be the near the top of this decline ... on 7/26/2010.  So even though the market last week rallied over 4% on two occasions, those days did not show nearly the strength i see today.

At the close, we came up to and passed by pennies a few very important targets (moving averages and pivot points) which i expected to act as strong resistance and cause prices to stall and consolidate there.  Yet, literally in the last 40 seconds of trading I was surprised to see that we passed my targets.  And now, in after hours trading, we are pennies above it.  If we can stay above this number overnight and ideally if we can close above them tomorrow, I would be very bullish at that point.  For simplicity, if you want to track, the IWM needs to stay above 68.28.

So, where do we go from here??  Well tomorrow will be a very important day to see if there is follow through or a total slam down.  If tomorrow is strong, then I expect to be very bullish over the next 3-5 days and longer if the strength continues, but if tomorrow is only slightly up, then I will grow cautious and most likely continue to buy, but plan on buying as the market falls down to retest the lows one more time.

Most of the buying today was from people covering their short positions, we need to get a few days of strength to encourage the general public to hop on board.  Once that happens, I expect a very fast move up, but we may see downside before that happens of course.  Bottom line, the market needs to stop the seesaw ride for a few days for people to become comfortable to invest most than a few hours.

Friday, August 19, 2011

another weekend to rejunvenate

wow ... another tough week for the market to say the least.  The rally attempt off the lows failed on Thursday sending the market down to retest the lows today.  My expectation is that we will get another bounce on Monday or Tuesday just because the market is so oversold, but longer term ...

I'm getting very mixed signals with my analysis.  In fact, thinks look pretty bearish.  I found myself looking deeper at my analysis trying to find something bullish to jump on, it is never good when you have to dig hard to find something.  In fact, one of the few items that I did find was that all of the indices ended the day with an inverted hammer.  An inverted hammer is a candlestick pattern that looks like an upside down hammer.  It shows that the day opened at the lows, went way up, then fell back down to close at the low again. 

When an inverted hammer occurs at the bottom of a long decline, it is usually a very bullish indicator, in fact, it is called a "bullish reversal pattern" by most ... showing that a reversal is the usual next step.  Although it is important that the day after an inverted hammer we get 'confirmation' that it is indeed a bullish setup.  So we need Monday to open higher and especially closes higher that the inverted hammer's body, this shows that those who shorted today are losing money.  The longer the market holds above the inverted hammer's body, the more likely these shorts will cover, which could spark a short covering rally that could also lead to bottom pickers going long.  So, with that said, I would be surprised if we don't get a nice bounce as a result. 

But ... I kind of feel I am reaching here, since most other indicators look pretty bad.  Especially if we look at the long term picture, things are pretty broken in the market.  This doesn't mean we have to go down more, but I really don't think we will be jetting back up to where we were a month ago anytime soon unfortunately.

I strongly feel that a good trader needs to adapt to the current situation that is presented him or her.  A trader's technique will not always work in all market situations, and as a result, in order to consistently make money you must adapt.

In today's market, the way to adapt is to either stay out of it, or move your sights to VERY short term.  The market is just to uncertain right now to make any long term projections and the volatility that is taking place, makes the risk just too high. 

3 days from now is just too hard to predict, heck even 3 hours from now, but 30 minutes from now ... there is money to be made.  I spent most of the week day trading fairly heavily, in and out of positions sometimes as quickly as 10 or 20 minutes, switching between long and short as the market signaled which way it wanted to go.  Although fun, this type of trading is exhausting since you have to watch the tape very closely and move fast when a change is being signaled.  Needless to say, I look forward to going back to longer term trading in the future, but in the mean time ... I will live in the moment.

I can't tell you at this point whether we are at the bottom or if we have further down to go.  I think bottom picking is a futile effort that leads to money loss, and today is a clear example of that.  Live to fight another day is the best mantra for the current situation. 

Friday night ... time for a well deserved drink and time away from all electronic screens for a day or two.

Have a great weekend and pray to the Market Gods that they help us next week.

Wednesday, August 17, 2011


today was an interesting day, but ultimately ended up bullish by the close.  I actually closed my long positions that I had over the past few days before the open (just saw too much weakness in my analysis last night).  In the first 30 minutes of trading we saw the market jump up, then proceed to tank shortly after.  I spent most of the day shorting the market (short term day trading) cautiously making pocket change throughout the day and more importantly, watching to see if the market was going to continue its' downward decline. 

For a short time, I thought we were going to see a large drop and a possible setup to head down to the recent bottoms from last week.  But I noticed the decline weakening mid day and closed most (not all) of my short positions. 

In the last two hours we saw the market starting to rise and ultimately close flat for the day.  After running some quick analysis at the close, I see much more strength than I did yesterday at the close, it looks like we are building a base here.  We have more or less been in a fairly large trading range over the past four days.  Although I dont expect us to break out of the range for a bit, I do think we will to the upside.

I purchased some leveraged Russell 2000 small cap ETF's at the close (going long), so overnight I am sitting on both short and long positions which is a bit odd, but so is the market currently.  Until the market decisively makes a decision, I think there is profit to be made on both sides of the market.  But if the morning goes the way I think, I expect to close my shorts first thing and stay long on the market.

There is still an incredible amount of skepticism among the big players and most of them are shorting the market or just sitting in cash waiting for the market to make a decision, so ... that ways on me and the market unfortunately.

Although everyone hates waiting, as I mentioned previously ... it is healthy for the market to pause and calm down after such a big decline.  Once everyone becomes disinterested and goes on with their daily life, we can resume an uptrend, which might take a bit, but my thoughts have not changed much over the past week, still cautiously bullish.

Monday, August 15, 2011

steady as she goes

Today, we climbed another stair, in fact ... we did a bit more than that.  If you look at a 30 minute chart of the day, you will see that the first half of the day was identical to yesterday.  A big open, then another wedge pattern showing sideways consolidation (forming another step).  Then over the last two hours we started climbing quite nicely again.

We hit a wall pennies before the yearly pivot which I expected and then the market meandered underneath that for the last few minutes of the day.  Afterhours, we have dropped slightly.

All in all, it was another very healthy day for the market, another step toward repairing investor confidence.

The only cause for concern today was that we saw volume across the board diminish substantially.  Usually you want to see volume building as a rally progresses, not the opposite.  But, with that said, much of the volume over the past few days was most likely a result of short sellers 'buying' back their shares (at a loss) as the rally took hold.  Today on the other hand, I would assume most short sellers have been scared out of their position and are sitting on the side lines waiting for another sign.  In fact, I assume most of them sold before the weekend, leaving little to stop today's rally attempt. 

My short term prediction, I would not be surprised if tomorrow is a down day, given that we have risen almost 8% in the last 3 days and that we have a very large hurdle (the yearly pivot) to get over.  We need a few days of consolidation to build up energy to get over it.  But, Im not real concerned at this point about having some downward movement.  The market has been acting very well over the past few days just slowly repairing and trying to slowly get back to normal with less volatility.

I bought some more stock today ... still a small amount, but slowly am adding to my position as I see more healing occurring.