Joined Nov 11, 2007
1,458 Blog Posts

Do What Hurts The Most


Usually the right trade is the one you least want to make. Similarly, making trading decisions based on what feels good, or what will make the pain go away the quickest, is usually exactly wrong. That’s why I’m telling you that I’m not buying here.

But before we get into all that, I was going to start this post with about 10 bullets, all of which would highlight my accuracy in calling the turns in this market. Then I realized that it would be a waste of my time to go back through all the posts and pull out those quotes. Besides, those that read me regularly know this anyway. And, I really do not need to rub it in the face of my naysayers (The Fly), as I am not here to make enemies.

So, back to the matter at hand.


You are thinking, “Mr. Woodshedder, I just want to ease my pain! I just want to go long! Give me some stocks to buy! I should have listened to you. Is it too late?”

Well, yes, it is too late, unless you want to buy at the top of a 2 week run, while the indexes are near overbought, and sitting just beneath resistance. Sure, it will make you feel better to have a few longs. I understand. In fact, I succumbed myself to the wanton urges and bought a little [[WB]] today. Tomorrow, I will likely dip into a little [[XHB]]. I may consider some [[FXI]].

However, I’m talking about spending 10-20% of my cash hoard. Nothing major. Like most of you, I too need something to offset a little of my [[SKF]].


The fact of the matter is that there is a good chance that there will be a pullback, or at least stabilization, before the jobs report on Friday. As I stated a while back when I went bullish, bad news will be good news. If the jobs report is just something god-awful, the market may take it for what it is and sell-off. However, if it is just bad, we will probably rally.

Regardless, you’ve already missed a 1000 point run in the Dow Jones. Whats another 100 points or so? If the Dow, Nasdaq, and Spy can rally above resistance, then we will have confirmed double-bottoms, and you will be free to buy with reckless abandon. If the indexes hit resistance, weather the jobs report, and pullback or stabilize on lighter volume, then I will likely be beside you, bidding up equities. Until then, patience is paramount.


One final note. The VIX (chart above) has hit its 200 day moving average. For the last 6 months, as evidenced by the trend, when the VIX hits this level, it has marked a short-term top. A break of this trend should not be ignored.

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The Daily Breakout: 3 Stocks to Watch


[[HCP]] has a 5.50% dividend, and just issued a follow-on offering as it was added to the S&P index.


[[PIR]] caught an upgrade. Say what you want about the company or about retail: This chart is money.


[[SXT]] I have no clue about this company. Nice chart though.

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The Daily Breakdown: XOM


Bulls are in quite a pickle here. On one hand, Energy has been one of the best performers of the year. On the other hand, how can Bulls get uber bullish when the high cost of fuel is stripping all expendable income from the consumer? I think Energy has to come in some here. My favorite way to play energy weakness is to short Exxon Mobil.

Exxon looks like it might have put in a huge triple top here. I’m watching the triangle develop for an opportunity to get short. [[XOM]] is currently nearing oversold, so I may wait for a bounce before taking a position.


Another way to play any weakness in oil is through [[DUG]]. This is the ultra-short oil and gas fund. It has been very very volatile, but it does appear to have an uptrend developing.


And due to moo’s timely comment, I’ve included [[NOV]] as a short candidate. It is sporting an almost technically perfect short setup.

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Still Bullish

Nasdaq Composite

Last week’s volume was the lightest of 2008. All the major indexes declined throughout most of the week, yet the VIX barely budged. As the above chart of the Nasdaq shows, the index managed to close right at its 20 day moving average. The charts for the Dow Jones and S&P look very similar to the Nasdaq in that they are all hovering around the 20 day average, with the MACD in positive territory and the RSI(2) nearing a level of previous turning points.

With the Bearish sentiment (41.1%)  still outnumbering the Bullish (36.7%), and the NYSE short interest ratio just decimals beneath a 5 year high, I feel there is still the likelihood of a substantial rally.

The Dow Jones and S&P have been down 4 days in a row. The RSI(2) is nearing levels which usually result in a bounce. While in the past this has happened near the lows, the indexes are now in a neutral zone. A bounce from these levels will easily take them above the 50 day average, and give them another chance at breaking resistance.

There is always the risk of another bank-ruptcy, and other associated headline risks for the Bulls. I do believe though that every resource available to the Fed will continue to be used to stabilize the markets. Another week or so without any devastating news will likely mean the markets move higher as the average investor has the memory of small ants.

I am still net short, but am getting an itchy trigger finger to harvest those profits.

With the ADP Employment Report on Wednesday and the government’s Employment Situation on Friday, I’m looking for some upside movement early in the week and then stabilization later in the week while everyone waits on the job numbers.

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What To Do About China?

 FXI Weekly

China, as represented by the exchanged-traded fund FXI, remains in a six-month downtrend. The weekly chart above shows a minor reversal. This turn places the FXI back above a 2-year trendline. All indicators on the weekly show it to be oversold, save for the RSI(2) which is approaching overbought.

FXI Daily

The daily [[FXI]] chart shows Friday’s close to be near the top of a declining channel. Both MACD and Stochs are neutral, while RSI(2) is showing the etf to be overbought.

There has to be a trade here…

Trend followers want to get short Monday via the etf or by the inverse long [[FXP]]. If FXI continues within the channel, the next low could be beneath $110.00, which would yield over 30 points of profit.

I’m not sure it will be that easy though. I cannot remember where, but I read about possible Chinese government intervention to stop the decline of its financial markets. The Olympics are also on the horizon.

On the long side, a break above the downtrend line would put my first target at $158.00, or roughly 20 points from Friday’s close. This is an area of resistance from the 200 day average and the 38.2% Fibonacci retracement.

My gut tells me to look long here, but that is nothing but gut. Maybe some of the more advanced volatility arb and options players can suggest a market neutral trade. If not, I suggest keeping a close eye on the trendlines. Use those to know if your trade is right or wrong.

Hat Tip to Notable Calls for posting the FXI weekly. I have been closely watching the daily but had not noticed the weekly had turned at a trendline.

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Charts From the Window Dressing Screen

Bud Fox, in the comments section, posted some tickers from the screen he ran based on the parameters from the Window Dressing post.

It should be noted that some of the tickers listed were inverse etfs. Obviously, we shouldn’t expect stocks in an uptrend to resume the uptrend while inverse etfs simultaneously go up. Anyway, some of the charts were interesting. Here they are, in no particular order.


If the recent RSI(2) pattern holds, weakness tomorrow in [[AMAT]] should be bought. 


 I hate [[RIMM]], but the chart is compelling, save for the low-volume move up.


 [[WMT]] is also set up for a buy on any weakness tomorrow.


[[VLNC]] did not make the screen. I included it just because it is hot. How about a triple in 2 months?

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