Full-time stock trader. Follow me here and on 12631
Joined Apr 1, 2010
8,861 Blog Posts

Patience Will Pay…Eventually


After the first several hours of a choppy and low volume trading session, the sellers eventually pushed us lower, yet again, into the closing bell. With the S&P 500 closing down 1.29% to 1073, we are witnessing a market that is frustrating traders across the board.  Not only are we too technically damaged to find decent long setups to ride for several days, weeks or months, but we are also currently too oversold to find good short selling entry points.

The updated and annotated daily chart of the S&P 500 should illustrate these points, seen below.

The good news, for those of you that have been holding high levels of cash, is that the number of traders trying to declare a bottom dwindles each day that we see another heartbreaking selloff into the close.  Thus, the market usually finds a bottom when the dip buyers eventually give up their shtick, out of frustration.  Danny’s latest post cogently summarizes the problem with being an aggressive buyer when the market corrects.

There are a few glimmers of hope for the bulls, as the selling volume today was weak.  Moreover, as I noted in my weekend post, both the historically market leading small caps and trannies have yet to break down below their respective 200 day moving averages. With that said, however, allocating your precious capital based on “glimmers of hope” is categorically not an investing strategy.

Comments »

Midday Market Update

The market is, again, trying to stabilize and form a short term base after several weeks of ferocious selling.  On shorter term time frames, I have been seeing a pattern develop over the course of a few days: a huge gap down, followed by a possible inverted head and shoulders bottom.  Thus far, the success rate has been dismal, which illustrates the notion that the supply of stock is overwhelming demand.  The 10 Minute chart of the S&P 500, seen below, should show you what I am talking about.

I plan on holding my long “swing scalps” for another day or two, but no more than that. The temptation here is to convince yourself that the worst is over, and therefore you can buy stocks freely.  I believe that we are still in an unhealthy market full of broken charts. Do not forget that the burden of proof has now shifted to the bulls, as we are still below the 200 day moving average.  They may very well rally us back into a constructive market again, but they have an awful lot of work ahead of them.

NOTE: Video footage of iBankCoin
confronting third tier toilet blogs accusing iBC of not being transparent because we don’t use Covestor (despite PPT timestamps):

[youtube:http://www.youtube.com/watch?v=iLdCqG6WhOE&feature=related450 300]

Comments »

Weekend Charts to Help You Throw Darts

Despite the title of this post, I am not going to flood you with dozens of charts. Based on the work that I have done this weekend, two charts in particular have been on my mind.  So, I am going to narrow the focus of my analysis, perhaps more so than usual, to emphasize how important I think those two charts are going forward.

WEEKLY WRAP UP 05/17-05/21

After dominating the price action and volume all of last week, the bears were on the verge of delivering a knock out blow to the bulls on Friday morning, with a sharp gap down at the opening bell.  Not only was the market on the cusp of making the dreaded lower low–below the 1043 level on the S&P 500 from February–but one could also not cavalierly dismiss a 1987 crash scenario, due to the ferocious selling combined with the laughable attempts by bulls to provide a bid to stocks. Right on cue, however, the market caught a bid within the first twenty minutes of trading, and proceeded to finish higher with strong volume on an options expiration Friday.

With the $SPX closing the week at 1087, below the 200 day moving average for the second trading session in a row, the bulls now have the burden of proof upon them.  The bears have overhead supply, seasonality, high volatility, fear inducing news headlines, and selling volume all working in their favor.  Moreover, many charts of both the broad indices and individual issues remain broken and need more time to reset before they become actionable for even one or two week swing trades.   The bulls, on the other hand, have oversold conditions and a possible reversal day on Friday in their favor, as well as a few divergences that I will discuss in a moment.

The updated and annotated daily chart of the S&P 500, seen below, should help to illustrate these points.

The charts of the Nasdaq and Dow Jones Industrial Average present almost identical patterns.  However, in looking over other charts this weekend, two caught my eye in particular.

In addition to the broad indices, many sectors and stocks have been breaking down below the 200 day moving average on heavy volume, causing an abundance of traders to conclude that the bull run is over and we are now in a new, cyclical bear market.  History would seem to indicate that both the small caps and transportation sector would be leading us down, given their reputations as leading indicators for market performance and the economy.

However, their respective charts both indicate relative strength. In my view, these are bullish divergences that command your attention, as neither the small caps nor the trannies have closed below the 200 day moving average yet, and only one of them has briefly pierced that reference point. The charts, seen below, should help to illustrate these points.

While the above charts are far from conclusive evidence to turn me into a bull, they are enough to give me pause in terms of aggressively initiating bearish bets at this point. I will be keeping a watchful eye on them this week, and I believe they should be your “tells” as to whether we form some kind of a bottom here, or instead are preparing for another leg down.  Indeed, if the small caps and trannies are holding up well relative to the rest of the market, then perhaps the selling has been overdone in the short term. Above all else, when I see divergences like these, it screams to me to keep an open mind and a heavy cash position. The bears have very clearly seized control of this market, so caution is still warranted until the charts give us more information. However, I think it is worth paying close attention to the two charts above.

As you know, I went long a few “swing scalps” on Friday, not because I am in love with the charts of those stocks, but merely to capitalize on what I believe to be a bounce from oversold conditions. I plan to sell those positions in the first few days of this upcoming week–at the latest–which is why I am not going to chart those individual names.  They are not true swing trades, as I would define them.

Finally, do not forget about gold.  It has been pulling back on declining volume to the primary break out level, and needs to be monitored closely for an excellent entry point.

Comments »

Playing the Swing Scalp


By no means am I turning wildly bullish here.  However, with the incessant talk about “taking risk off of the table,” combined with short term very oversold conditions, and The PPT deep head nod (while smoking a fine tobacco pipe), I am comfortable playing the longs that I mentioned earlier today for a swing scalp.  As I said, I plan to unload my long $GS, $AKAM, $PPO, $DVN and $AKS positions by Wednesday of next week–at the latest.  I still believe that we are quite a ways away from seeing good setups for longer term holding periods, even if it just for a week or two.  With a cash position currently north of 60%, I will be looking for good short selling opportunities, should we continue to have weak rallies.

Also, remember to do your due diligence with respect to fundamental analysis.  For example, here is some riveting, “Market Folly” worthy analysis on the homebuilder sector.

[youtube:http://www.youtube.com/watch?v=wCVRtAJVXaM 450 300]

Comments »


Due to the oversold conditions in the market, combined with The PPT buy signal and constructive market action today, I took 2/3 sized long positions in:

$PPO @ $19.69

$GS @ $141.52

$DVN @ $63.21

$AKAM @ $39.20

$AKS @ $13.98

NOTE: I plan on holding these positions for no more than 2-3 days.  They are merely a reflection of my belief that we are deeply oversold, and have momentarily stabilized.

Four of the five positions listed above are either high quality/best in breed firms, and/or their charts have held up relatively well during the downturn.  $AKS, however, has been beaten to death and in my view is worth risking some capital on a reversion to mean basis in the short term.

UPDATE: I still have a huge cash position, north of 60%.

Comments »

Elevator to Nowhere

“All commend patience, but few can endure to suffer.” -Thomas Fuller


In Japanese Candlestick terminology, today was a picture perfect example of a bearish Marubozu, where the high price of the day on the $SPX was at the open, and the low price was at the close following a steady stream of heavy selling all day.  To state the obvious, the bears were strong and controlled the action from start to finish, as we closed down 3.90% at 1071.  What is most troubling about today’s action is that we saw no indication of any type of capitulation bottom. Rather, we saw continual and feeble attempts at dip buying throughout the day.  Each attempt at a bounce, however, was met with aggressive bouts of selling.  The selling pressure exemplified the shift in sentiment that we have seen over the past several weeks.

During the uptrend since March of 2009, we would go weeks without getting much of a pullback at all, as traders wanted to get long so badly that they were willing to chase performance to the upside.  It is fascinating to contrast that mentality to the one that we are seeing now, where traders view each bounce–however small it may be–as an excellent opportunity to sell longs and reinitiate short positions.

In fact, at one point late in the trading session today, I thought we were setting up for a tradable rally.  I became eager to deploy my 100% cash position to the long side, while (at around 3 p.m.) looking at this 1 Minute Chart of the $SPX:

Needless to say, the final hour obliteration of the inverted head and shoulders bullish setup drives home the point that patience and holding high levels of cash remain the best strategies for swing traders in this environment. Just as the failed head and shoulder bearish top in July of 2009 led to a hugely bullish move, the failure of this bullish setup could lead to further weakness, on a short term time frame (keep in mind this is merely a 1 minute chart).

Moreover, the daily, updated, and annotated chart of the $SPX shows how decisively we took out the crucial 200 day moving average today (see below).

With that said, allow me to couch the bearish nature of this post by clarifying two ideas.  First of all, the fact that we closed for one day below the 200 day moving average does not–in and of itself–mean that you should declare a bear market and short everything in sight. Throughout the 2003-2007 cyclical bull market, there were several times when we closed below the 200 day moving average, and they turned out to be great intermediate term buying opportunities in hindsight.

The second point to understand is that we are testing the 50 weekly moving average for the second time this month. On May 6th, a day of apparent chaos with robots sending billion dollar firms to $0.01 per share, the market found support precisely at 1065. That price happened to coincide with the 50 weekly moving average.  That reference point is still sloping up, and we are currently at that level again (1072), so it will be interesting to see if we have a similar type of reaction in terms of the market finding a bid there.

The weekly chart of the $SPX, seen below, should illustrate the significance of both the 200 weekly moving average in terms of resistance, and the 50 weekly moving average in terms of support.

I know that I have focused this post entirely on the S&P 500.  The reason why I have done so is because we are seeing indiscriminate, macro type of selling here.  The market could care less that $GMCR has an amazing group of products with fabulous long term growth ahead it, as with $CREE, $WPRT, $VLTR and $VECO. The charts of all of those stocks are broken.  When the broad market begins to stabilize, then we can go back to the fun part of swing trading by rewarding those fast growing firms with our capital, and having them reward us with huge gains.

For now, however, in order for us to bank coin at a later date, we need to preserve the coin that we currently have.

Comments »