As the stock market appears suspended in mid air for much of May and June, I'm looking for any clue as to where it is heading. I hope it is heading somewhere, and not flat-lining forever. (Never say never, it could happen.)
Here's a weekly 3-year chart of put/call ratio. Big picture hasn't changed much since I last looked at it in May, but now I see the spike down in December 2007 as some sort of dislocation, or reset button of some kind.
As you see, in the past 2 months, the put/call ratio is forming a pennant within the big, declining wedge. If the pennant breaks to the direction of prevailing trend (down), that should mean the market is heading for a top.
Below the put/call ratio chart is VIX, which looks like Mount Everest with surrounding lesser mountains. Right now, it is almost back to the base camp. Will it totally descend to much lower altitude, or is it planning to attempt another ascent to the top? It's usually former in stocks and stock indices, but the volatility index may not behave like stock indices.
I think we have to be extra careful right around here. The market may be still poised to go up, but the put/call ratio is closer to the low of December 08 than the high of march 09 (which did signal the market turn - remember put/call ratio is a contra-indicator). From the looks of it, we will know soon enough, maybe within several weeks.
Monday, June 29, 2009
Put/Call Ratio Revisited
Sunday, June 28, 2009
What This Week May Bring
Tickerville Tape Talk
"Everybody is watching the head and shoulders in SPY. Intermediate term is bearish. Head and shoulders everywhere - IWM, XRT, EEM. But obvious is not necessarily actionable. We are at a very critical juncture right now."
Qman seems to like commodities (DBC, DBA, GLD), bearish on financials.
Breakpoints Trades Market Recap (end of Thursday 6/25. I'm supposed to get Sunday version but it hasn't arrived yet...)
Their longer-term market charts are always helpful. They have no illusion about the rally off the March low, and Wave C that will take out the low will happen eventually.
"In a choppy market like this, swing trade doesn't work well. You'd better take profit quickly."
Thursday, June 25, 2009
Bank Shares: It's Safer To Run With The Herd?
However, according to the "Money Flows" table at Wall Street Journal site, professional traders and institutional investors (as indicated by Block Trades) were buying banks throughout the day. Citigroup ended up at the top of the "Buying on Weakness" list for the day. During the day, I saw Bank of America, J.P.Morgan Chase (JPM). Wells Fargo (WFC), which was in green almost all day and listed in the "Selling on Strength" list, was also being bought at the same time.
One Yahoo SKF message board member summed it up succinctly:
"Since the "Stress Test" - fake or real - investors have stampeded to buy bank shares. Arguing that they are right or wrong is not the point. The point is that it is foolish to stand in the way of a mad herd. When you see the herd coming your way, the last thing you want to do is stop to think why. It is much safer to just run like h#ll! "
I tend to agree.
Wednesday, June 24, 2009
Follow-Up: US Dollar vs Foreign Currencies 6/24/09
So I decided to check other currencies, using ETFs for convenience. These are the intraday charts of US Dollar (UUP), Swiss Franc (FXF), Euro (FXE) (top row from the left), British Pound (FXB), Japanese Yen (FXY) and Canadian Dollar (FXC) (bottom row from the left). All foreign currencies dived at the same time US dollar spiked, and after some fluctuations they ended the day near the bottom of that initial spike down.
The forex market is for the professionals and large institutions, I was told. They seem to have known the result of the Fed meeting two hours in advance. The Fed kept the target rate (0 to 0.25%), and kept the commitment to buy Treasuries, agency bonds, and MBS but didn't increase (or decrease) the committed amount. Carry trades got unwinded?
US Dollar Intraday - Someone's Buying Big
Tuesday, June 23, 2009
Is Amazon (AMZN) Breaking Down?
The stock market seems to be going back to the "bad news is bad, less bad news is bad, good news is bad" mode, and that's not a good time to be long.
Online retailer Amazon (AMZN) seems to be breaking down. The stock broke through its 50-DMA yesterday, and it continues to go down today. It may have something to do with the FTC announcement of its intentions to regulate blogs (see my post on the other blog), it may not. (Pure technical analysts will tell you that it doesn't matter at all, as all's in the chart. I don't quite buy that argument yet, but what do I know?)
Here's AMZN's 3-year weekly chart. It looks bearish to me. Negative divergence between RSI and stock price, between stock price and volume. It is about to touch the mid bollinger band, which coincides with the trend line from the November 08 low.
It's possible that it holds at that line, but also note that since 2007 high the stock has been making lower highs. AMZN's beta is 1.4, so when the general market starts to head south it tends to go down more than the market. (Of course the high beta means when the market goes up the stock goes up more than the market.)
The break below 50-DMA on a daily chart is a sell/short signal, but that signal is followed by any and every technical traders. Probably the first break (right now) is too obvious, and this could be just a fake. I'm just watching, trying to learn.
Monday, June 22, 2009
Precarious Market - S&P 500
S&P 500 daily chart shows we're at an interesting juncture. Simple 50-DMA (at 898) and 200-DMA (900) are just about to cross, with 50-DMA coming up from below. Today's big red candlestick sits on both lines. Now what? Daily RSI dived below 50, while money flow still shows, just barely, a positive divergence. Short-term, 875 seems to offer a support. Very short-term, you could say the index is forming a bullish wedge.
S&P 500 weekly chart seems to be at a critical juncture, too. This is a 3-year weekly chart. The candlestick that formed today sits on 13-EMA (slightly below). If the week ends below this line, that will end 13 consecutive weeks of the index staying above 13-EMA, longest since the bear market started in December 2007 when 13-EMA crossed below 34-EMA. If that happens, the November weekly closing low of 800 will loom large.
For now, I am pessimistic that this 13-EMA will hold for the week. The reason is the Treasury auctions for the week. Unlike the Federal Reserve that simply prints money out of thin air, non-governmental bond market participants has to come up with the money to buy the huge amount of Treasuries that will have to be bought by someone. That may suck out any excess capital, liquidity that there is in stock and commodity markets.
Friday, June 19, 2009
Stock Market on A Quadruple Witching Day
The market looks confused as ever today. Something doesn't feel right.
Downs:
- U.S. dollar
- Oil
- Silver
- Agricultural commodities
- Dow Jones Industrial Average
- S&P 500
- Olin (maker of Winchester)
- Gold
- Nasdaq
- Smith and Wesson
- US Treasuries
Dow just took a small tumble (2:15 PM EST), now down -50 to 8,504.
Thursday, June 18, 2009
Another Way To Look At FAZ, FAS, SKF, UYG
Even ignoring the spikes, SKF+UYG's current price level is less than 1/2 of December 08 level. FAZ+FAS's current price level is less than 1/3 of December 08 level. So, if you are not a day trader, the winning long-term trade for these leveraged ETFs since December 08 would have been to short ALL.
If it's any comfort, unleveraged financial ETF combo hasn't fared that well either. The weekly combined price of SEF (unleveraged financial) and XLF (unleveraged financial) for the same duration shows a decline of about 25%, mostly due to the decrease in SEF.
What To Expect Longer Term In The Stock Market
Monday, June 15, 2009
Dow Jones Industrial Average in June 09 - top or ..what? (Part II)
So the 5 consecutive days of 'doji' on Dow Jones Industrial Average finally ended in large selloff today. No particular news to move the market, and it just sold off all day, no discernible panic, just quiet selloff.
However, the huge selloff volume was not there, and the index's May high wasn't breached on the closing basis.
So my quest continues. Is this peculiar formation top or bottom? Or the third way - terminal patient whose EKG monitor is going flat?
Here's the chart of October 2002 Nasdaq bottom. The index went down in a zig zag mode, making lower lows and lower highs, until one day it formed a 'doji' and then formed a 'hammer' the next day. Those were indeed the reversal signals, and the index was on the way to a recovery, no matter how tepid.
This doesn't resemble anything like what we have in Dow right now.
The next chart is Dow again, this time October 2007 market top (probably for the foreseeable future). Again, the movement is anything but stagnant, both on the way up to the top and from the top. The only place I found the index to stay about the same place was on the way up in September 2007, when the index ended 5 days pretty much flat. But they were nothing like 5 'doji's we just had on Dow.
If today's selloff marks the beginning of a new leg down, then this current pattern, I'm forced to conclude, is a new one. With so much intervention in the form of liquidity injection, quantitative easing from the Federal Reserve, so much Treasuries to be sold every week, already unprecedented government debt and tax to increase even more "to stimulate the economy", it just may be that the time-tested chart patterns no longer yield any meaning or prediction for the market.
(My longer-term outlook is bleak to say the least. I hope I'm dead wrong. Here's the post if you're interested.)
Friday, June 12, 2009
Dow Jones Industrial Average in June 09 - top or what? (Part I)
This is my attempt Part I to figure out the current, bizzarre formation on Dow Jones Industrial Average. Today it ended up 28 points thanks to the usual last hour mysterious push out of nowhere, but until then it was set to end very close to the unchanged mark.
As I said in my prior post, I don't think I've ever seen the 6 consecutive trading days of hardly any change from day to day, which resulted in "doji" candlesticks. Is this the sign of a top of the market, or a bottom of the market (I know, we're already off March low)?
First off the bat is the chart of Dow Jones Industrial in September 2008, right before the $700 billion bailout bill passed. Right before the big tumble. Even though September 2008 was not the market top for the year (that was back in May), it was when all started to collapse and that's why I've picked it. Is the current formation a topping action?
As you can see, September 08 chart has no resemblance to the current June 09 chart.
- RSI does fluctuate.
- Index movement is zig zag, not flat-lining.
- Index moves up and down huge.
- Volume varies, and money flow varies.
- Stochastics moves quite a bit, not flat-lining.
So my tentative conclusion is that the current formation does not indicate a top. I'll look at Dow Jones Industrial's October 2007 market top next. Stay tuned.
Thursday, June 11, 2009
Silver Correlates Better With Yield Rise Than Gold
Wednesday, June 10, 2009
Looking for "Exception": Dow Jones 5 Day
(Why bother even opening the market and trading every day? I guess for the sake of appearance...)
10-year Treasury Note Yield Jumps
This is an intraday chart of TNX, 10-year Treasury note yield. Almost picture-perfect pennant formation after the auction result was announced (at 1:00pm EST), and a break to the upside.
For more on the auction, please visit my other blog.
Tuesday, June 9, 2009
DXO Revisited - Now Where?
Monday, June 8, 2009
Will Next Energy Trade Be Natural Gas?
A natural gas commodity ETF, UNG, is currently vastly underperforming gas companies like CHK and XTO. However, crude oil ETFs were underperforming oil companies for some time even after the commodity price hit the bottom.
Unreal Charts: 6/8 Intraday Dow, Treasury Yield Ratio
Sunday, June 7, 2009
Looking for "Exception": AAPL, GOOG
I wrote about how I missed GOOG entry and exit several posts ago. I also wrote about the possible AAPL entry 2 weeks ago. (I wish I followed my own advice.) Despite the misses, I've kept watching these two, (former) Nasdaq beta stocks. I say "former", because they don't seem to behave like one any more.
I decided to take a chance on AAPL via a tiny position in AAPL October call options. If I'm wrong, all I lose is the money I put down to buy the options. The only reason I picked up AAPL over GOOG is that I liked the AAPL's P&F chart: the triangular pennant strongly broken out to the upside. But again, it all depends on how the general market behaves. After all, they are beta stocks which will move with the market in an exaggerated manner.
Friday, June 5, 2009
Major Indices In Between The Lines
(Except... they are slamming the gold and silver stocks AGAIN!!)
Nasdaq has been outperforming the other two in this whole run from the low, and that shows in the chart, too. Instead of in between the same Fib lines as the other two indices, Nasdaq is in between the 50% retracement line and 61.8% retracement line.
For Nasdaq, the next potential Fibonacci line resistance could be the 50% retracement line from the Oct-Nov 07 top to March 09 bottom, around 2,000.
Thursday, June 4, 2009
Possible Future for FAZ
Ran the same numbers for FAZ, triple-short financial ETF, a la "Possible Future for SKF" (previous post). Comparison of FAZ, IYF, and BKX, with stock prices and index value as of May 22.
I just did the Case 5, where BKX would run all the way to Sept-Oct 08 level, and reverse all the way back to March low. FAZ would be a 10-bagger if you caught it at top of BKX, and if BKX did indeed drop back down to March low. Otherwise, there will be easier money to be made elsewhere (until P3 hits... for more, go to ex-SKFer Daneric's blog).
The best case for FAZ would still be the one in which BKX corrects right now to March low without going up much. Then FAZ would be about $20.
Possible Future for SKF
I made this spreadsheet back when there was still a lot of talk of imminent market correction and retesting of March low. BKX is the Philadelphia Bank Index. SKF is Ultrashort Financials ETF (double short), and IYF is unleveraged long financials ETF. For BKX to go from May 22 level to March low of about $17, that's 50% correction. As a double short ETF, SKF should at least go up 100%.
I said "should", because, in real market, the index does not drop 50% in one day. So I created 4 case studies:
- BKX will drop 10% every trading day until it hits March low;
- BKX will drop to March low but go down in a zig zag;
- BKX will drop to March low but not before it goes back up to May high and touches 200-DMA;
- BKX will drop to March low but not before it almost retakes December high.
After observing the market action and BKX since then, I just added one more case, not a very good one for the market bears and SKF bulls:
- BKX will hold at this level, and go up in zig zag, taking out prior levels, all the way up to September-October 08 level.
Case study 2: BKX will drop to March low but go down in a zig zag:
Case study 3: BKX will drop to March low but not before it goes back up to May high and touches 200-DMA:
Case study 4: BKX will drop to March low but not before it almost retakes December high:
Case study 5: BKX will hold at this level, and go up in zig zag, taking out prior levels, all the way up to September-October 08 level:
Last September, SKF was trading above $100.
Today, SKF is trading slightly below $40, with one hour of trading left. IYF is around $44. BKX is at 37.76.
I am totally out of leveraged short ETFs for now. I have a feeling that BKX could run back to December high (around $46). It is tempting to short SKF, or buy puts, with the target price of $25.
Wednesday, June 3, 2009
Head and Shoulders on Dow in Reverse?
I am watching if Dow breaks below these levels: 8,592 (May 20 intraday high), 8,575 (May closing high), 8,502 (June 1 open), 8,214 (May 4 open, and support throughout May). So far, they are all holding, and probably will hold today if GS and JPM decide to dump at the close.
So, while I endure the commodity pain, let's examine if there's a case for those "green shooters" who believe "the worst is over" and that we are on our way back to the level seen in last September, before Lehman Brothers went bankrupt.
This is a chart that shows a potential "head and shoulders" pattern. The left shoulder and the head have already been formed, the right shoulder is yet to form. This pattern is considered bearish, and usually breaks down at the neckline, if not on the very first attempt.
So what's "green shooting" about this? Because this is a 1-year Dow daily chart flipped upside down and horizontally. In the original version, therefore, it is a reverse head and shoulders pattern, which many chartists consider bullish. To complete the neckline on the reverse-head, Dow needs to pop above 9,000. Then the correction, March low re-test could come, but then the index will go back to the neckline area, and eventually break the line to the UPSIDE.
That must be the thinking...