Thursday, September 29, 2011

bull trap??

I am getting very skeptical of the movement in the markets.  Today was kind an interesting play.  the market opened up with a large gap (over 2% on the Russell 2000), then spent the day falling eventually to as low as -2%, then in the final hour the market rocketed back from the grave to end up 1.73% (russell 2000). 

Over the past 3 days, 2 out of 3 were positive if you look at the numbers from market close to market close (resulting in a gain of 0.34%), but all were negative from open to close.  If you bought at the open and sold at the close each day, you would have a net loss of 4.62%.  This is not what healthy markets do.  We clearly have a tug of war happening and I fear the bears are going to win this one ... each day we seem to be getting closer and closer to the bottom of the trading range we have been in for the two months.

Tuesday, September 27, 2011

poor action late in the day, time for another leg down??

I moved one notch closer to the bearish side today.

Although the market has had a nice run over the past three days, today spent the first half of the day rising, and the second half falling.  In fact, although the market closed up almost 2%, It was up over 4% intraday and lost those gains.  I think we just put in a lower high and have downside to go from here.

Wednesday, September 21, 2011

good grief ...

wow ... tough day in the market.  the day was gnerally trendless and boring until the FOMC speech and the market just tanked from there ... lost roughly 3% in the last 1.5 hour.

well, yesterday if you read in my blog you noted that one of my most reliable proprietary indicators came back with a huge bearish slap in the face.  sometimes this indicator takes a few days to develop, but in this case it played out the very next day.

I wish I had some bullish information to tell you, but my intraday and closing analysis just found a whole lot of garbage unfortunately.

Tuesday, September 20, 2011

trendless / range bound ...

today was a bit frustrating, we saw a nice upside in the morning, followed by the afternoon giving it all back and then some.  The QQQ's (the leading index during the past month) literally touched the upper channel that it was been in since the market bottom in August and then reversed.

so, although it was great that it touched the upper channel, it is a bummer that it didnt have the strength to break it.  With that said, it is nice to see the market is obeying basic technical analysis rules and seems to be staying within the channels.

the other indexes are still underperforming and IWM is really looking pretty abysmal.

It is clear that neither bulls or bears have much conviction right now and every time we get close to the outer edges of the channel, one of the two groups gets just enough energy up to bring the index back into the middle of the index.

Monday, September 19, 2011

still bullish after today's drop

well, as i predicted on Friday, we had a down day today (see my last blog post).  I used it to buy, mostly sticking with the 2x leveraged QQQ.  The QQQ's are definitely holding up the strongest in this market while SPY and IWM is sticking more in a range bound trading environment.  All the indexes bounced around between their moving averages today which held for support.  IWM is looking rather weak, but with the strength of the QQQ's, We should have some upside in the coming two weeks to enjoy.

This continues to be a news driven market and the financial situation in Europe is and will continue to move the market.  Even intraday we still see wild swings immediately after major announcements related to Greece, etc.

Friday, September 16, 2011

small fall on Monday?

although today was positive and I continued to add to my long positions, I did see a few cracks appearing in my afternoon analysis.  They are nothing serious at this point, but it wouldn't surprise me if we have a down day.  I still remain bullish at this point though.

Thursday, September 15, 2011

indicators continue to slowly turn bullish

42% of the top 1500 traded stocks are above the 50 day moving average.  This is the highest number since he hit bottom in early August.

7% of the top 1500 traded stocks are above their bollinger band, although not an impressive number, this is the highest we have seen since before we started this nasty decline in early July,

The VIX which most traders view as a way to gauge the fear in the market is in the lower 20% of its' Bollinger Band, it has not been this low since the start of the decline.

Volume was low today, which might mean we have a few down days of consolidation to absorb, but I think the low volume is simply because many players are still waiting this move out to see where it goes.

The Nasdaq which has been leading this recover, finally completed (and closed above) a new high today which is a bullish indicator, the SPY and IWM have a ways to travel before getting to a new high, but if this strength continues we should see these tests occur shortly as well.

The Nasdaq touched the 200 day moving average, although could not get over it ... but this is to be expected given the move we have just gone through.  It is going to take some effort to get over the 200 day, but once it does we should see a fast move to the upside.

Volatility is shrinking slowly which is most important to get the market 'back to work'.  This has a ways to go still, but as the price movement slows the day traders that make the market move so wildly will get bored and go back to longer term investing.  As this happens, we will see the markets start trending in one direction or the other as they normally do instead of this up/down/up/down movement that we have seen over the past weeks.  Low volatility calms nerves and gets regular investors back in the market.

All in all, one by one my bullish indicators are getting tripped and signaling health is here again.

I have to expect that we will have a pullback in the coming day or two (probably tomorrow or Monday) since we have gained roughly 5% in the past four days, but at this moment I'm not fearful of this possibility.  I would look at it as a buying opportunity.

Wednesday, September 14, 2011

above the moving averages, and almost a new high

to follow up on my technical analysis post from last night, we made good progress today.

As stated previously all the indexes gapped over the shorter term moving averages and closed above them end of day which is short term bullish.  There was an intense battle going on in the morning as the price was bouncing below and above the averages non stop, but eventually we stayed above and held the position.

Another important short term hurdle was somewhat accomplished by passing the previous 'lower high' made on 9/8/2011 (see chart from last night's post below).  We actually  from made a new high over this lower high by a few pennies on the Nasdaq and Russell 2000, but the sp-500 was not able to accomplish this (fell short by a few pennies) before reversing.  The market reversed in the last hour of trading and ended up not being able to close above this lower high, but this is still a short term bullish move.

We also broke the declining trendline that I mention in last night's post as well ... another bullish tone.

I actually used the highs of the day today to take some profit off the table as I expected we would hit this target and fall for a day or two.

We have removed 3 of the concerns I mentioned last night, but ultimately we need to make a higher high from the previous high made on 8/31/2011 in order for my opinion of the market to become bullish in the intermediate term.

We made a nice step in that direction today, and if we have confirmation with a strong day tomorrow I will feel much stronger again about this market.  It wouldn't surprise me though if tomorrow and a few days after that we see some downside revisited or some churning sideways in order for the market to have a little time to absorb the move today.  Remember after such a massive decline, a slow rise is more healthy in the long run vs. a quick bounce back.   We want long term investors comfortable in this market, and a quick bounce will keep them jittery.

Have a great evening.

gap up

well, as I suggested last night, sure enough ... the market opened with a gap up immediately over all the crucial moving averages.  Just bounced right over them.

So, we have check one small notch off the bearish stance.

now, if we can hold above the moving averages intraday today and more importantly close above them, it sets a very bullish stage for the next few days (short term).

have a great day ...

Tuesday, September 13, 2011

tomorrow should be critical, a technical analysis primer

Today was a productive day in the market, prices moved up and tested most of the smaller declining moving averages (5,10,17,20) and although they closed below all the averages, it was a good start.

I still have a skeptical stance at this point and in fact added to my short positions intraday today, but the latter half of the day was certainly strong enough for me to question my conviction.

Tomorrow will be a critical day for the market since in order to continue to the upside we have a number of hurdles to pass which are incredibly close.

What hurdles you say ...

I have attached a chart below of SPY (the S&P500 etf) showing the high back in late July all the way up through today.  Note, please click on the chart to see a zoomed version (and click back ... to come back to this text after viewing the chart)

1) The first and possibly most important short term hurdle if this uptrend is to continue is for price to get above the short term moving averages with conviction.  Many traders use moving averages in their trading decision and generally speaking, being above the moving averages is bullish, and below is bearish (I am grossly over-simplying here, but the bottom line is that getting the price over the moving averages is critical for an uptrend to stay healthy.  To identify the moving averages in the chart below, you will see a number of squiggly lines just above today's closing price and to the left of the purple text.

My assumption for tomorrow is that IF we are going to continue this upside movement, the market will have to gap up OVER the moving averages and then we just need to hold above them (as support) throughout the day.  If the market does not gap up, I assume we will have a few more days of churning or downside movement before testing these moving averages again.  In the graphs below, I have circled the moving averages and written in pretty purple :) to identify them.  You can see that the closing price is directly below them.

2) Yesterday I became bearish when the lower trendline (blue ink in the chart) was broken that the market has been obeying over the past month.  A broken trendline can be an indication that more downside is coming as traders rely on these trendlines to make trades and set stops outside of them.  Once a trendline is broken, their confidence in that line is also broken and therefore traders will not purchase at that 'magic' number again, they will let prices fall below it.  So what was once support, is most likely no longer support.  If you look at the chart below, you can see that for the entire month of August, prices would touch this lower trendline and then bounce from there up ... until yesterday. With that said, the fact that it went below the line, but was able to close above it and further hold above it today lessens the bearishness of the signal.  A broken daily trendline has intermediate term consquences.

3) lower highs confirms the intermediate trend is bearish - The last upleg attempt was thwarted (on 9/8/2011) before we were able to make a new higher high ... which is critically important for an uptrend to continue.  By definition, an uptrend means that we continue to have higher highs and higher lows, but if you look at the chart below we have not been able to accomplish that.  Look at the red ink, the highest high that we had in the past month was on 8/31 (notated on the chart as "highest high") and we could not get up to that level again noted by the lower high on 9/8 (notated on the chart as "lower high").  We have to make a new higher high in order for the intermediate trend to become bullish, so short term we can be bullish, but currently on the intermediate term we are still bearish as a result of this.

4) Also confirming a bearish short term stance, we also butted against the declining trendline (notice green text in the chart below) today which is good that we are there, but bad in that we were not able to break the trendline.  A gap over this will also be needed in order to put that resistance in the rear view mirror.  This trendline if not broken will most likely mean that we will retest the lows over the coming week and in fact, quite possibly will mean a new lower downleg, so breaking this line is critical.  This is a short term indicator, but one that must occur in order for the uptrend to continue.

You can see from all of this, that when analyzing the market, you really have to consider multiple time frames in order to evaluate the current situation.  I break the price movement down into three time frames when evaluating the market: short term usually is 3-5 days, intermediate 2 weeks and long term 2 months.  Right now, I see short term bearish, medium term neutral and long term bearish, but with the market volatility the way it is, things can change very quickly with all of this.  In fact a gap over the moving averages will change my short term stance to bullish, and a new higher high will make my intermediate term bullish as well ... so we could be close to going long 100%

It is important to note that when all three time frames give you the same signal (all bullish, or all bearish) ... that is the time to get aggressive, when they are sending mixed signals you either want to stay out or go shorter term which means tightening your stops to protect long term capital.

Bottom line, we have a lot of hurdles to surpass in the coming days if this market is going to right itself and although I am becoming skeptical, I am not going to make any assumptions ... i'll let the market guide me.

hope you have a great evening!

Sunday, September 11, 2011

starting to change my bullish stance

Hi everyone.

A quick Sunday evening update ... I spent a few hours looking over charts of leading stocks in the market, and I'm quite honestly having a very hard time finding (long) places to put my money.

What looked like a strong start to a rebound last week has crashed and burned.

It am starting to change my bullish stance on the market.

I started on Friday, playing the short side lightly and most likely will close my longs early this week and start fishing for more short opportunities.  I hate to go there, but I think the market is gearing up for another down leg unfortunately.

Right now it is still in an organized channel to the upside, called a 'flag' formation, but the more I look, the more it won't surprise me if/when the market breaks that channel and starts falling.

I hate to send out bad news, but to be forewarned is to be forearmed.  Hopefully this will be moot in the coming days, but I'm not counting on it.

Hope you are enjoying your Sunday with loved ones ...

Friday, September 9, 2011

early next week will be important

Today was just a negative day all around ... a lot of cracking in pavement as the weight of the market fell on itself.  The action over the last two days reminded me of what I said after our big decline over a month ago ... which is ... remember the man that fell off a building ... he is not going to get right back up on his feet and starting running again.  

The market clearly can't make up its' mind which way it wants to go in the long term, and clearly all market participants (that are trying to play this market) are just enjoying (or suffering through) the short term bounces.  It is a very short term market and holding overnight can be perilous.  I am still holding some long positions from a late last week, but havent added to my positions and in fact, started shorting a small amount today.

I honestly think there is money to be made on both sides of the market if you want to watch your screen all day long ... i think you could buy short and long at the same moment ... and sell both at a 2% profit within 3 days ... just crazy.  As stated earlier, this is not a market for long term investors, just too scary.

Next week will be very important for the market to make a decision.  we either will need to break through a few critical levels on the downside, or the opposite. 

the optimistic road ...
Using IWM as a guide (Russell 2000 ETF), if wecan stay above $66.00 a share and then move up to break the previous most recent high at 71.30, we stand a good chance of moving higher over the coming weeks

the pessimistic path ...
Using IWM as a guide (Russell 2000 ETF), if we break below $66.00 and more importantly $64.80 ... then I would expect the market to do a small bounce up to around $68.00 creating a new lower high from the previous high ... and then fall hard to a new low ... probably as far as $60.00.

so, in the meantime we enjoy the quiet before the storm ... another weekend!  But I expect some important decisions to be made before Wednesday of this coming week.

Have a great few days of peace ...

Wednesday, September 7, 2011

still bullish ...

Haven't updated the blog in a few days, been a bit swamped with family issues (both good and bad), but I wanted to give all a quick update on the market.

We had three down days, then a strong up day today that reversed roughly half of the loss. 

The underlying internals that I am seeing shows strength.  It leads me to believe the market wants to go up from here.

With that said, we have a real battle going on that will continue for a while, the bears are not going to give up easily.

So, I am still cautious, but with each passing day I become more and more confident that we have seen the worst and we have up from here.

I'm sure after such a strong day today we will see the bears push hard tomorrow, but over time things should continue moving in an upward fashion.

Have a good evening ...