Market Recap: 12/22

Short post today. We did finally touch the upper trendline target my downside target would be the MA(200) for the trend to have better structure and if that fails I'd be looking at a possible reversal. So in wait and watch mode. Also tomorrow is the last trading day before Xmas so trade light

Market Recap: 12/21

Dislocated equity index moves today with SPX +0.19%, DJ +0.03% and COMPQ -0.99%. Its almost like pairs traders are shorting COMPQ and going long SPX. Algo's or not I remain looking for cycles in a trend. So if yesterday was a break out, today's move isnt as convincing to me as a strong trend up. Overall chart posted yesterday is the same, we haven't yet reached the upper trendline on the daily. Take a look at the 30m SPX chart. The regression line with 1.5 sigma deviations capture the downward channel I posted yesterday sort of statistically. Stochastics are getting overbought and on a 30 minute timeline tend to predict cyclic moves better. So not a lot more higher before we correct a little, although the dip and move up (higher low) is somewhat bullish.

Market Recap: S&P week before Xmas

So we stabilized a little after the SPX downgrade in August (See ROC), in terms of intraday volatility but are not out of the woods yet. We've been trading sideways ever since and might continue to do that as we stay within the bearish channel. We've had four retests of the upper trendline and are due for another as today we moved above the MA(50) and its santa rally time and the stochastics are slightly over sold. Will we break through the trendline? I have my doubts about it. 

Above daily chart, see the rising wedge in a downward channel, thats bearish, and the stochastics have more room to move lower. Next chart is the weekly

Tradings been rough as you can see, from the chart but the Fib target high to low (Pink lines) is much lower.  

The same actors persist, Europe and Mr Ben B and US politics. Any resolution for each not in sight. It seems that the Fed has decided to wait on the European roslution, read breakup, before it gets involved with QE3. No point in inflating when a crisis will undo the impact would be the logic. So short term we may move a little higher but longer term I'm still bearish.

Trading in volatile markets

Take for example YM (DJ mini futures), on the 1 min candlestick the ATR spikes to 6.8 and has been in 4-5 pts range lately. So what does that mean. You enter a trade say 1 contract and odds are you would make say 5 pts or loose 5 the next minute. If its trade good you would be making 2 ATR the next minute or get stopped out at 2*ATR stop loss. Now if you traded 10 contracts that stop loss would cost you $1000. 

Now a tight stop loss in this market would almost always get called, so in a high vol market stop losses are say 4*ATR thats putting 2K at risk every 2 minutes assuming 10 contracts. While we tend to look at the positive side, trading discipline requires that we look at the worst case more often. 

So why this example? In this environment you should lower your trade size and increase your stop limit. 

Next is, try to enter trades where you are more confident about getting it right. Scalping will lead to ruin unless its an automated system.  Thats my 2cents .. trade on!

Market Recap: An analogy - Germany to buy Greek houses that pay no rent

My view on the direction remains the same and we are still working the flag downwards. Tomorrow is an important vote in the German parliament and might give us a more decisive move in either direction. The last weeks have been filled with rumors of a Eurozone fix, I'm not sure what that might be. 

At the moment, as an analogy, it seems to me like German taxpayers are being asked to purchase Greek homes that don't pay any rent (read bad bonds). Thats probably an oversimplification but catches the jist of the situation. The chart below is an updated version of the one posted earlier, be careful in case the vote fails that would result  in aggressive selling, much stronger than we have seen these last few weeks.

 

Market Recap, Look at the bear flag now

Well sometimes technical charts are too accurate, below is an example of how things played out. So am not posting much other than the daily chart.

We know the euro-zone noise is picking up we could easily see the flag post length down move from here.
The stochastics are overbought region and can stay there but its to be watched and the candlestick has a long tail, as we closed much above the lows of the day, which is a sign the bulls might be stepping in here. Lets watch out which move is next.

Market Recap and potential price target

Some S&P levels from its monthly chart.

6/30/2006 - 1219.29 - low point

4/30/2010 - 1219.80 - high point

Anyway, the monthly was only to look at long run support/resistance and it seems that today's S&P peak of 1230.71 and the close below the level 1219.29 at 1218.89 would indicate the near term high is set. 

The inverted flag looks way better than the one on the earlier post, along with the resistance level 1219 (green line) and the fact that the closing was below it seem to suggest a lower move from down here.

For the bulls, look at the low of the 1249.05 3/16/2011 (march) and the SMA(50) seems to be a future confluence region around that level, current SMA is at 1256 and a possible price target. While tomorrow may indeed be a down day but a move higher to bounce or break off is still possible. Also the future level would be withing the flag so the pattern wouldnt be broken.

We shall see how it turns out

Market Recap and S&P target to watch

Its been a tough trading market lately, unless you got it right. Here is what I'm looking at. The first chart is the daily with an inverted flag/pendant marked on it. It looks like a decent setup but the pole goes really far lower. We would have to see what may confirm such a drastic move lower. I'll try and explain all the lines drawn on the chart next.


First see the monthly chart below. In order of the levels. The two green support/resistance lines are from the peaks of April (1219.8) and Feb (1044.5). The red line was intermediate support at 1131 but was broken easily recently, except today where the sell off held on to it. Now look at the larger Fibonacci lines drawn in yellow and pink from the peaks in in 07 and May 11, It seems that there is confluence at the 50% retrace on the larger fib and the 38% on the recent fib levels, this level is near 1010.3 and is also the near term low of Aug,2010. This might be the level the markets might look for. Below that is 950 which is a longer term support and would also be the pattern completion.


Some commentators have set targets for 8%-10% decline from current levels at or before Labor day which is Sep 5. What can take us there is the Eurozone crisis which would require a separate comment at this point. Also, the economic news and downward revision of the GDP that will be out next week. From the high to low, this year we are down 16%, and it could be that Ben Bernanke starts acting on QE3 if we dip below 20% or more. All this does appear to point to a the chart pattern target of 1040 or near. We shall see.

Some not-so-simple rules to follow while trading

I found these interesting rules for trading descipline online

DENNIS GARTMAN’S NOT-SO-SIMPLE RULES OF TRADING

1. Never, Ever, Ever, Under Any Circumstance, Add to a Losing Position… not ever, not never! Adding to losing positions is trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to ruin. Count on it!

2. Trade Like a Wizened Mercenary Soldier: We must fight on the winning side, not on the side we may believe to be correct economically.

3. Mental Capital Trumps Real Capital: Capital comes in two types, mental and real, and the former is far more valuable than the latter. Holding losing positions costs measurable real capital, but it costs immeasurable mental capital.

4. This Is Not a Business of Buying Low and Selling High; it is, however, a business of buying high and selling higher. Strength tends to beget strength, and weakness, weakness.

5. In Bull Markets One Can Only Be Long or Neutral, and in bear markets, one can only be short or neutral. This may seem self-evident; few understand it however, and fewer still embrace it.

6. “Markets Can Remain Illogical Far Longer Than You or I Can Remain Solvent.” These are Keynes’ words, and illogic does often reign, despite what the academics would have us believe.

7. Buy Markets That Show the Greatest Strength; Sell Markets That Show the Greatest Weakness: Metaphorically, when bearish we need to throw rocks into the wettest paper sacks, for they break most easily. When bullish we need to sail the strongest winds, for they carry the farthest.

8. Think Like a Fundamentalist; Trade Like a Simple Technician: The fundamentals may drive a market and we need to understand them, but if the chart is not bullish, why be bullish? Be bullish when the technicals and fundamentals, as you understand them, run in tandem.

9. Trading Runs in Cycles, Some Good, Most Bad: Trade large and aggressively when trading well; trade small and ever smaller when trading poorly. In “good times,” even errors turn to profits; in “bad times,” the most well-researched trade will go awry. This is the nature of trading; accept it and move on.

10. Keep Your Technical Systems Simple: Complicated systems breed confusion; simplicity breeds elegance. The great traders we’ve known have the simplest methods of trading. There is a correlation here!

11. In Trading/Investing, An Understanding of Mass Psychology Is Often More Important Than an Understanding of Economics: Simply put, “When they are cryin’, you should be buyin’! And when they are yellin’, you should be sellin’!”

12. Bear Market Corrections Are More Violent and Far Swifter Than Bull Market Corrections: Why they are is still a mystery to us, but they are; we accept it as fact and we move on.

13. There Is Never Just One Cockroach: The lesson of bad news on most stocks is that more shall follow… usually hard upon and always with detrimental effect upon price, until such time as panic prevails and the weakest hands finally exit their positions.

14. Be Patient with Winning Trades; Be Enormously Impatient with Losing Trades: The older we get, the more small losses we take each year… and our profits grow accordingly.

15. Do More of That Which Is Working and Less of That Which Is Not: This works in life as well as trading. Do the things that have been proven of merit. Add to winning trades; cut back or eliminate losing ones. If there is a “secret” to trading (and of life), this is it.

16. All Rules Are Meant To Be Broken…. but only very, very infrequently. Genius comes in knowing how truly infrequently one can do so and still prosper.

QE2 solidly in place until June

Ben Bernanke spoke to the media recently stating that the Fed sees signs of improvement in the economy and will continue with the QE2 program started last Nov until its completion in June this year. Giving solid reason for the markets to continue with the rally which was beginning to weaken somewhat towards Mid April.

Earnings have come in stronger yet again which on the fundamentals side should get the "investors" into action as the PE multiple of the market is still quite low.

While, geopolitical events have continued to hit the tape the overall stride of the market has been forward brushing off most of the dire events of the first quarter.

As of the moment we have breached the highs of 2008 on SPX, Nasdaq, Dow and RUT, this might be an area of some hesitance but if it moves beyond we might have a decent move upward, with the fib extensions and all that.

Apologies to readers for another gap. I'll be more active going forward.

Jan 10 Market Recap:

SPX has done well in 2010 surviving scares at the 1040 levels and breaking above the SMA 200d as well as the 61.8% Fib retracement level. While it seems unlikely that SPX retraces a full 100% in the near term, it could definitely reach the 76.4% level at 1361 EOY. Near term traders are looking for it to reach 1325 level a good 56pts higher.


Nasdaq has been leading the major indices since the opening of the new year. Probably involves a sector rotation into technology stocks which may continue to benefit from emerging market demands from a fundamental prespective. Weekly chart below shows room for further continuation target at 2861.51, so about 154pts higher.

The 30min chart shows sharp moves, up and down although the recoveries have been strong just as the selloff has been sharp. So would require some careful trading. Although the golden cross on the above chart should bias us upward in the short run.

2011 - Welcome

I've been away but in the new year I intend to be more regular.

Themes to watch out for in 2011:
1. Unemployment in the US
2. Housing overhang
3. Euro-zone debt concerns
4. Fed's monetary expansion and Budget deficit, Rate hike
5. Currency wars, and China instability
6. US politics