Expect Consolidation & Economic Stuff

I can’t say that we’re going to go up in a straight line, as there will be consolidations, but at the moment, we are likely to head higher over the next few days. Looking at a 15-day chart, we are in the 865-880 trading range on the SPX. Did you notice how symmetrical the chart is becoming? It means that we could be consolidating here before another breakout. It’s apparent that strong-handed longs will be holding their positions for a longer short-term period.

I signal some caution because we’ve been up for 4 days straight, and the chance of a down day is extremely high, but that shouldn’t bother you unless the majority of yesterday’s gains are wiped out. Before that happens, though, it’s important to identify a down day as a normal correction (pullback on low volume) or an all out meltdown (accelerated sell-off on high volume). A nice correction is the opportunity to add onto existing positions.

Make note that the 20, 30, and 50-day moving averages will provide support/resistance (on the 40-day chart). Use these MA’s as guides for today’s trading, because they will dictate the pullbacks and bounces.

We also have durable good orders (8:30AM EST), jobless claims (8:30AM EST) and new home sales (10:00AM EST) coming out today. The consensus for the durable goods is -2% with a range of -6% to +1.2%. The previous reading was -1%. The consensus for jobless claims is 575,000 with a range of 540,000 to 650,000, although I believe the whisper number is getting bigger every week. The previous reading was 589,000. Finally, the consensus for new home sales for Dec is 400,000 with a range of 350,000 to 410,000. The previous reading was 407,000.

Don’t forget that we have the GDP report coming out tomorrow. The expectation is -5.4% Q/Q change! The previous reading was -0.5%. The range is -7% to -3%. Terrible.

Comments »

In my post yesterday, I described that I was looking for a breakout or breakdown in the financials and it appears that it may be coming today. During after-hours, the banks spiked +7-10% higher on news that the “bad bank” plan could be introduced as soon as next week. It’s a necessary evil, it seems. I mean, who else is going to buy this worthless crap?

The level of ridiculousness would depend on how the Gov’t plans on pricing these bad assets. I’m actually curious if they’ll create some new type of fancy accounting. Seriously, not even a homeless man would take these toxic assets, so we’ve come to the point where the Gov’t is the only entity that is willing and able to buy the worst assets in the entire world on behalf of taxpayers . No one else can buy up enough shit to make a difference. Also, why do they still call them “assets”? If these “assets” brought down the financial world, then they are liabilities, regardless of what any accounting textbook says.

The big difference here is that the Treasury was buying preferred stock, conveniently deviating from the TARP’s original plan. The Gov’t will now be buying common stock. Taxpayers, keep in mind that this presents an even greater amount of risk to you, but who will keep the Gov’t accountable? The fact that the Gov’t will be buying up common stock in banks will send bank shares much higher. Expect significant short covering in the morning.

This plan obviously overshadows the FOMC meeting later today. No one seems to care too much because there’s nothing really the Fed is expected to do. Are they going to drop rates to 0% or -0.25%? No. Are they going to raise it? They wouldn’t dare + that’s absurd and the market will frown upon it. Therefore, I expect no action. Besides, there mf-ers are too busy trying to resuscitate the economy with these creative programs, paid for by your kind donations to the Treasury.

Today’s day was a perfect set up for the upside move, but I didn’t have the guts to go long. It’s fine, like I give a damn what you think. In fact, I’ve been in 100% cash overnight for almost 3 days, which is a very long time for me. Unless you’re long, having an ample cash reserve gives you the opportunity to personally take advantage of the additional misuse of taxpayer’s funds. The market completed a 5-day ascending triangle, which will break to the upside (as of 1:09AM EST). The financials should be your focus for today, so keep an eye on BAC, C, JPM, WFC, GS, MS, etc.

I have a feeling that the financials will spike higher on consecutive or near-consecutive multiple days, in a very short time. I talked about the flag formation in my post yesterday and it looks like today will present the upside breakout. The after-hours action (as of 8:00PM EST) dictated that most financials will open slightly above their respective flags’ only resistance area. A long spike at the close will also create a ‘Cradle’ pattern, one of the highest reliable and profitable candle combo patterns during a downtrend. They are one of the most dramatic displays of immediate changes in sentiment. This only matters if the banks CLOSE UP and above their flags’ resistance.

Did you hear what I said? There needs to be a strong close. This means that if a “WTF” pattern popped it’s head up at 3:55PM and crashed the market, then this negates everything. For the open, I’d prob add an initial starter position in the banks, then either 1) add on sustained momentum, or if the gap suddenly fills, 2) add on a breakout of the gap’s opening price. Both are determined in the first 15-30 mins of trading. Trade accordingly.

One more detail: Don’t forget that the House will vote on the $816 billion stimulus bill TODAY. There’s never been a time where I’ve seen the words “billion” and “trillion” appear so freakin’ much. Congress throws these words around as if it’s chump change. Am I right? You hear “billions” more than “millions” as if spending the latter went completely out of style.

Cramer is starting to use technicals. God help us.

Examples of anticipated immediate financial breakouts:

Ever since Fly started profiling this guy, I became hooked. The man comes out with a vid almost every day:

[youtube:http://www.youtube.com/watch?v=42IUg2NXwoU]

Comments »

It’s snowing here in MD!

I saw this article on iTulip about how wholesale liquidators, the companies that sell goods for companies that are going bankrupt, are themselves going bankrupt. In addition, just sampling losses in tech jobs, the trend seems pretty clear to me. The bad news keeps pouring in, yet the market holds. Odd, no?

Also, the updated chart on yesterday’s Existing Home Sales data:

Yesterday, we formed a doji, or for some technicians, a small shooting star. Clearly, we are flagging on lower volume. This is ‘healthy’, but is usually signals a continuation in the prevailing trend. I will not put overnight money to work until we clear this 800-855 level on the SPX, otherwise, you’re bound to see more faking. This consolidation area is purely a daytrader’s haven, so if you’re swinging, it’s good to wait for a breakout or breakdown.

I am still focusing on the financials, because they are forming very clear flags and pennants on lower and lower volume. What you want to see is a breakout of breakdown on much greater volume that usually exceeds the past 2-3 days’ volume levels. They will make really great swing trades when, like I said, the time is right.

Finally, countries in a recession or pretty damn close to one:

Comments »

We are currently flagging at 840. 832-836 is the stress area and possible intraday inflection point. We are still in overall range consolidation that started 6 days ago, so I cannot commit the majority of my funds to one side. At this point, the day has formed a shooting star.

Financials are once again dragging this market down.

Comments »

This week was probably the most volatile up-down, down-up type of week in over a month. Volatility isn’t just about downside movement in the market. I’m talking about massive swings in both directions where it would be nearly impossible for both bulls and bears to make a decent profit if they were to hold for longer than a day. If you survived this week, congratulations. That is an accomplishment of it’s own.

Let’s take a look at the SPY for a moment (15-day/60-min chart):

1) Moving Averages
-a) 325-period (blue) = 50-day SMA, resistance
-b) 195-period (red) = 30-day SMA, resistance
-c) 130-period (green) = 20-day SMA, resistance
-d) 65-period (pink) = 10-day SMA, resistance
-e) 32.5-period (purple) = 5-day SMA, support

2) Solid green line is intermediate resistance & upper line segment of a symmetrical triangle.

3) Solid sky blue lines at 80.50 and 84 mark the neutral channel (or 805-840 on the SPX).

4) Ascending lower line segments for the symmetrical triangle. Two meeting points, one at 81 and the other at 82.75. Both have been used as support for the past 3 days.

5) Notice the volume spikes on the way down for both positive and negative days in the “blue zone” (75M or more shares or more).

Finally, the various selected indicators below the SPY show an obvious divergence that is positive for the market when using the neutral channel (3). We’ve gapped down and rebounded for 3 consecutive days on stable volume. I do not know when, but it looks like the market may be setting up for a short-term bounce. I’ve covered the vast majority of my positions and added some long positions, including oil via DXO (I never trade oil), and hold a large cash position.

My rule right now is to not hold much overnight because 1) we are still in earnings season, 2) this market is once again emotionally-charged and news driven, 3) the uncertainty of the financials doesn’t give me much comfort (more immediate bailouts on the way?), 4) overhead resistance, 5) the downtrending sell-off has been halted, 6) the past two days’ candles are forming long shadows, or tails (typically bullish), and 7) “WTF” chart patterns have been appearing in the morning, mid-day, and/or end of day, causing extreme whipsaw and headache to traders everywhere.

As you can see, there are too many mixed signals that will kill both bulls and bears if you are not hedged or have an ample cash reserve. There’s no rush right now, and I’m not going to rush it. The key right now is capital preservation.

That’s all for now. gtg!

Comments »

I just woke up to find the futures in the red like whoa. I’m not sure if the bulls can take this stress. Are you one of the a-hole dip buyers buying in a downtrend? I am ready to do some serious damage today while you go around selling your shit.

Key levels: 812 –> 805 –> 800, 838 (resistance)

Also note triangle in 5, 10 day charts. It will break immediately at the open.

Have a nice day.

Comments »