Joined Nov 29, 2008
329 Blog Posts

Why Are We Hanging Out?

We are at the 38.2 retracement + 20-day MA support (green). The 50-day MA (blue) and the 30-day MA (red) are crossing over. There’s quite a bit of support here as a result. However, there’s a lack of volume for a sustained rally. Then again, there’s a lack of selling pressure too. That’s why we’re hanging out here.

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The Big Test (Plus: Picks Coming Soon)

We have the big one tomorrow, and it won’t be pretty. Last month’s reading was -533K lost, but this time it’s -500K with a range of -750K to -300K. Whoever thinks we lost only 300K jobs is living in a cave. In addition, unemployment (currently at 6.7%) is expected to be at 7% with a range of 6.8% to 7.1%. In each of these cases, the Street expects both numbers to come in at the higher end. I know I do.

Let me remind you folks that realĀ  & total unemployment is at 12.5%, the highest since 1994 (BLS doesn’t allow me to compile data beyond that). Don’t let the 6.7% fool you.

We formed some possible reversal signals in the broad market today. The DJIA and SPX both formed hammers while the COMP formed a bullish piercing pattern. Both the DJIA and SPX bounced off their 50-day MA and the COMP bounced off it’s 20-day MA. In addition, these bounces keep the uptrends in tact. Keep in mind that they all have the 20, 30 & 50-day MA’s right below their 50% retracement level. Be aware of all the support, resistance, and trend lines before you freak out tomorrow.

SPX 5-day

SPX 10-day

SPX 40-day

SPX 4-month

Stable Spikers (multi-day):

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WARNING: System Shutdown…a.k.a…We’re Fucked!!!

Overbought as suspected. The 920 breakdown was my sell point for my long ETFs and that initial gap down really did it this morning. Luckily, I did manage to pick up some FAZ on the 2nd breakdown. Then, 3:00PM and beyond looked like it was forming a double bottom, so I got some FAS to hedge it. In the end, I made enough to buy a damn Chick-fil-A sandwich. Not bad considering the fact that today was stale, lifeless, dull, ho hum…whatever you want to call it.

There are hardly any spiker plays remaining. They usually come all at once in a 1-3 day blitz and then they either consolidate or turn into possible short candidates like FTK, APL, IVN, or NCX. If you noticed, all the stocks that jumped 50-100% were all cheap $1-5 shit stocks. It’s kinda scary that they are the biggest gainers in the market. The strength of a rally is determined by it’s leaders. Stuff like ACAS, FIG, MNI, ARTC, APL, MEA, AER, XTEX, DFT, GLS, KWK, AHD, GFIG, KFN, ARM, IO, and VCI are NOT leaders.

On another note, unbeknowst to me, I was following over 1,600 twitterers that included strippers, pornstars , self-proclaimed psychics, Bernie Madoff himself, “hotliquidsex” (+ a dozen other IDs starting with “sex”), “the_boob_nazi”, and others who obviously didn”t create a healthy trading environment. Therefore, I cleaned out my Twitter account so if I accidentally “unfollowed” you, kindly let me know.

I ran my fibs and noticed that we are now at the 50% retracement from the rally’s peak to trough (so far). We could have a volatile indecision day tomorrow due to the depth of the correction as well as our proximity to short-term oversold levels. 920 has once again become overhead resistance, the same level that took nearly a month for a breakout to occur. This level was penetrated without any trouble right at the open.

Even though a low volume sell-off is not as bearish as one on high volume, we can see instances from October-November where the market rapidly sold off on low volume anyway, regardless of what traders thought. In addition, we are no where near full market participation yet. Not even close. Use volume to confirm price action, not the other way around.

Also, look at the 4-month chart, we are still in a wedge! Just as we thought we left the wedge, we’re actually in an even larger one, so be aware of it. Because of the continuation and duration of the wedge, I have to believe that we are going to breakdown sometime soon. Look at the short-term cup forming since December 15. It is attempting to create a handle. Watch that too.

Sector analysis indicates that the financial sector is, by far, the weakest. The materials come next. So far, everything else is maintaining their uptrends. As for breadth, there were 0 (NYSE) and 7 (NASDAQ) new highs and 7 (NYSE) and 1 (NASDAQ) new lows. This broke the positive streak we’ve had for four days (look at the $NYHL & $NAHL). We were doing really well too.

Tomorrow, we have the usual jobless claims (8:30AM – Consensus: 540K), chain store sales, and the Monster Employment index. Check out all the states with system crashes/delays due to overwhelming claims: NE, NC, NY, MI, VT, FL, HI, OH, TN, KY. There are more, but I don’t want to frighten you. We have some major problems coming our way…

As for earnings we have PSMT, MTRX, FCSX, and RPM pre-market. We have SCHN during market hours and APOL, HWAY, LWSN, and RBN after-hours. There are a few microcaps mixed in, but they’re still nice to know.

Lastly, I have to give credit to Danny and Woody for staying short, despite the relentless uptrend that would have induced any weak short seller to jump in front of a train. Ya’ll got some brass balls. Congrats!

SPX 1-day

SPX 5-day

SPX 10-day

SPX 40-day

SPX 4-month

UPDATE: 2002/2003 vs. 2008/2009 (a close-up of Danny’s comparison)

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On The Money.

I was watching Carmen’s “On The Money” show just now and realized the seriousness of the lack of financial education that the average American possesses. It’s scary. People are relying on advisors and money managers. Chances are, if you have to go to these people, you’re wealthier than them. I don’t understand why wealthy people go to people who are not for “sound” financial advice. It still boggles me. Many (not all) are the same folks that dropped the financial industry to its knees. This is why I stress self-education. No one cares more about your money — than you.

These spikers sure are a great way to start off 2009. I am up +19.2% for the month/year and I have/had stuff like ACAS, ARTC, FIG, GFIG, FTK, and others to thank. Days like yesterday and today do not come often, and usually by the time these stocks are “discovered”, it is time to short. Many names have become so extended that they are now completely outside of their upper bollinger band. I am looking for a bearish gap up/down or a doji to form to execute short trades on the very same names that made me much coin on the long side. Don’t chase during the late stages or you’ll get face fudged.

As for the broad market, we are still consolidating and we are, indeed, short-term overbought. The more consolidation days that we have (while maintaining the 920 level), the better. Why? Because it relieves the overbought situation and brings many of these indicators back to the mean. Volume is still picking up, but we are not at “normal” levels yet. Also, notice the 2nd doji on the 4-month chart. That’s normal. It is possible that we could be testing the 920 level again, so be prepared for that.

On a different note, I think some of you still do not know how to use my charts. You are an idiot, because I’ve explained too many times. Let me give you a lesson that even my 8 year old cousin could understand. The charts are used for 1) identifying support/resistance levels to anticipate the next day’s bounces (so you don’t become the idiot that panics and sells/covers), 2) identifying possible reversal/pivot points via divergences (so you don’t get caught with your pants down), 3) identifying entry/exit points for future trades (so you don’t get killed 5 mins after you place a trade), among others. Don’t be a dumbass, try to look beyond the obvious, captain.

SPX 5-day

SPX 10-day

SPX 40-day

SPX 4-month

Reader’s Requests:

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Your Breadth Smells

We’re in a corrective phase as expected. We formed a doji which is typical and healthy for any normal consolidation. Notice how the market bounced off of major support at 920? So far, the charts say that we go higher. I’m not saying that we’re going to go up in a straight and uninterrupted line, but I think we have enough juice for another breakout or two.

I would watch the VIX. We are extremely close to the very important long-term 200-day MA. The VIX is currently sitting at September support when the VIX actually flagged before the major breakout to 48. This suggests that the VIX will likely stay within a tight range between 35-45 for several days.

As for myself, I am up +10.87% for January so far. This is mainly due to massive double-digit gains from spikers/momentum plays. GMO, ZLC were held from Friday. CWST was sold. In addition, LVS, ARTC, FIG, and others were bought in the morning. These kinds of stocks are 1-3 day holds and then you just dump them or go short at the end of their runs. I already wrote a short primer on my Spiker strategy on my functioning “third-tier blog” on October 10th, 2008. It’s not complete, but I am working on creating a “cheap tricks” manual.

I’ve mentioned many times in the past that breadth must improve to support a market’s rally. New Highs & New Lows for the NYSE ($NYHL) and the NASDAQ ($NAHL) have been net positive for a few days now. In fact, this is the longest streak for the NYSE since May and the longest for the NASDAQ since August. Today, we made 21 new highs and 8 new lows (a huge improvement from the 22 new highs and 4,320 new lows made on October 10th 2008!) . The Advance-Decline lines ($NYAD, $NAAD) also confirm the rally.

This consolidation area is critical. 920 SPX is obviously THE support level. What we don’t want to see are breakdowns from conslidation like we’ve seen many times in the past (Just look at the trading range we’ve been in since December 8th. I would use a 920 SPX and 20-day MA combo as guides for any significant upcoming bounces. As long as the SPX stays above 920, the bulls are in full control.

SPX 5-day

SPX 10-day

SPX 40-day

SPX 5-month

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Wait for the Pullback (Plus: How to Use Technical Indicators)

The rally today was nice. It’s even better if you add in the past two days. There’s a lot of reason to be bullish just by looking at a chart. After spending nearly a month inside a trading range, the SPX finally broke out from 920 resistance and it did so without a problem, even on a low volume day. I would give it a few days for the market to restore “normal” volume levels.

Next week, I would wait for a pullback before getting serious on the longs. Why? Because it’s at the pullback where the market tests it’s strength. It also gets rid of the weak hands. If the market breaks down, then you have nothing to worry about..you weren’t in it. Likewise, if you missed the move the past few days, the market will give a second chance for entry at the pullback.

The targets for the pullback would be at 920, and/or wherever the 20-day MA ends up meeting the market, and finally, at the 50-day MA (if it gets to that point). Did you notice the 20-day/50-day MA crossover? It’s lagging confirmation for a short-term bullish move. In addition, the market’s neutral range narrowed the bollinger bands that is setting up a squeeze. Watch the upper band expand.

Take a look at the steepness of the 3-day uptrend on the 30-day chart. The purple area shows the likely consolidation area. Many people want to see the market go up, up, and away! However, consolidation marked with down days are necessary and a part of the trending process. The rally continues until the trend changes.

Almost everything did very well today, except for the REITs. If they can’t participate on a +3% day in the market, then they have problems (maybe people realize that many REITs will get crushed this year). On an interesting note, retailers did very well today, which is confusing with what I just said about commercial RE. Many retailers must fail before REITs fail because store closures cut into the REITs NOI and the ability for them to fulfill their debt service.

Yesterday, I briefly mentioned 12 indicators, so I’ll describe what they are and how to use them below the usual charts. This is a bear market rally so don’t expect this uptrend to continue forever. Many indicators say that the market is overbought, but remember that the market can stay overbought or oversold for extended periods of time. Trade with the trend and keep an open mind as we cautiously climb this Wall of Worry.

SPX 30-day

SPX 6-month

REITs stood out like a sore thumb


12 Common Technical Indicators

1) Relative Strength Index (RSI) – The RSI is a momentum oscillator that shows overbought/oversold conditions. Typically, if a stock falls below 30, it is oversold. If a stock rises above 70, it is overbought. In addition, a stock rising above 30 is bullish and a fall from 70 is bearish.

2) Moving Average Convergence/Divergence (MACD) – The MACD is a centered oscillator that measures the difference between the 12-day and 26-day exponential MA’s (EMA). A 9-day EMA is used as a “trigger”. The best way to use the MACD is to look for divergences between the indicator and the price. If the market is dropping, but the MACD is rising, there’s a high probability that the market will reverse soon.

3) Commodity Channel Index (CCI) – The CCI was created for commodities, but it used for everything now. It is a cyclical indicator. The primary purpose of the CCI, for myself, is to confirm reversals. A move above +100 indicates overbought and a move below -100 indicates oversold. Just like MACD, a divergence can give additional clues to a pending reversal.

4) TRIX – The TRIX is a momentum oscillator that measures the rate-of-change of closing prices of a stock. For longer time periods, if the TRIX moves above o, it confirms a uptrend and a move below 0 confirms a downtrend. TRIX crossovers also give buy/sell signals. If the TRIX crosses over the signal line (the 9-day MA in red), it is a buy. If the signal line crosses over the TRIX, it a sell.

5) Force Index – The Force Index was created by Alexander Elder, the author of Trading for a Living, and it is used to determine if the trend is getting stronger or weaker. It is a price/volume oscillator. Buy signals are generated when the Force Index crosses above 0 and sell signals are generated when it crosses below 0. A sideways movement shows a possible trend change.

6) Slow Stochastics – The Slow STO is a momentum oscillator that indicates overbought and oversold levels. Typically, anything below 20 is oversold and anything over 80 is overbought. I’m not writing out the calculations for the %K (black line) and the %D (red line), but just know that if the %K crosses over the %D, it is bullish and if the %D crosses over the %K, it is bearish.

7) On Balance Volume (OBV) – I’ve mentioned that volume precedes price action several times. The OBV was created with that in mind. It basically adds volume when the price is up and subtracts volume when the price is down. This creates the line. A OBV line that is heading up means that there is more volume on up days. The opposite is true for down days. With many other indicators, a divergence between price and the OBV may signal a pending reversal.

8 ) Money Flow Index (MFI) – The MFI is a RSI that is more volume-weighted that shows positive or negative money flow. Just like other indicators, it can measure overbought (80)/oversold(20) levels. If the MFI is trending down, but the price is higher, the stock may reverse. The opposite is also true.

9) Rate-of-Change (ROC) – The ROC is a momentum oscillator that simply measures day-to-day (or period-to-period) change, therefore it is one of the more “choppier” ones. If the ROC moves above 0, it is a buy signal, and if it drops below 0, then it’s time to sell. Any divergences between the ROC and price should be paid attention.

10) Williams %R (W%R) – The W%R is similar to the Stochastics and it shows overbought/oversold levels. A reading below -80 is oversold and a reading above -20 is overbought.

11) Accumulation/Distribution (A/D Line) – The A/D line is similar to the MFI and OBV, but the calculations are different (you can look it up yourself).The best use for A/D line is to confirma move or identify a divergence.

12) Average Directional Index (ADX) – The ADX confirms the strength of a trend. The +D1 is the positive directional indicator (green) that measures upside force, the -D1 is the negative directional indicator (red) that measures downside force, and the ADX is the black line. The +D1 and -D1 are self-explanantory and the ADX is most useful when a divergence can be identify over a longer period of time.

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