Monday, June 29, 2009

Put/Call Ratio Revisited

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.

Sunday, June 28, 2009

What This Week May Bring

Chart analysis from Tickerville and Breakpoints Trades:

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?

The stock market had a cheerful day today, finishing at almost the day's high. Major bank stocks didn't join the fun until afternoon; Bank of America (BAC) and Citigroup (C) ended up red.

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

There's something funny going on. US dollar spiked out of nowhere right after 12:00 PM EST, which I posted in the previous post. It spiked again higher after the Fed's FOMC statement was released, but ended the day at about the level of the first spike up.

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

This is a 1-minute intraday chart of DXY, US dollar spot index (6/24/09). Sudden spike as you can see, and commodity stocks have turned sharply south. Who's buying US dollar? You can bet it is not retail investors (that wouldn't cause a huge spike like this).

Tuesday, June 23, 2009

Is Amazon (AMZN) Breaking Down?

Technically, needless to say. I like what they offer and I buy from them often, but that has nothing to do with what I'm seeing in the chart.

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

Those analysts and traders who were clamouring for a "decent" pullback, they got one. They'd better hope that the pullback will stop right now right here.

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

Today is a quadruple witching day, a day on which contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire. It happens every quarter, in March, June, September, and December.

The market looks confused as ever today. Something doesn't feel right.

  • 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
News like this doesn't help, either. U.S. Military Set to Intercept North Korean Ship Suspected of Proliferating Missiles, Nukes (6/19/09 FOX news)

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

in other words, leveraged financials ETFs. These two charts are the area charts, plotting the weekly combined price of SKF (double short financial) and UYG (double long financial) for the top chart, and of FAZ (triple short financial) and FAS (triple long financial).

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

Here's the link to Breakpoint Trades' chart analysis that came in to my mailbox on Tuesday (I subscribe to their free newsletter). These guys have been spot-on. Their longer trend charts in particular are very much worth looking at. These bigger pictures may put your mind to ease, no matter whether you're bearish or bullish; you would know what to expect, better. The link below will take you to the page full of charts, and the accompanying audio file starts automatically (if not, click on the audio link at the left top of the page).

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

But copper and iron are outpacing the yield rise. For now.

The stock market is responding favorably to today's auction of 30-year Treasury bond, although it has come off the high of the day. (It is possible it will end up flat, yet again, like the past 4 trading days.)

But yields have been rising on long dated Treasuries, most notably 10-year note and 30-year bond. Treasury/Fed/Government spin is that the economy is recovering. Maybe. Maybe not. I also hear a lot of inflation talk, even hyperinflation talk. Jim Rogers has said that Dow could go to 100,000 (or some outrageous number like that), and a quart of milk could cost $10.

Even the staid broker like Fidelity (I use them) puts out an article about how to profit from falling US dollar and rising inflation. Their recommendation: gold, silver, commodities. (They also recommend REITs and TIPS, but never mind them for now.)

So I plotted gold (via gold ETF GLD), silver (SLV), 10-year note yield (TNX) and 30-year bond yield (TYX) on a 6 month daily chart. (I threw in Apple (AAPL) just for fun, and surprisingly it correlates to silver pretty well.) First to note is silver's outperformance over gold in the past 6 months. Second, notice how well silver correlates with the Treasury yields. SLV is a thin blue line buried among TNX, TYX, and AAPL.

So the better inflation trade is silver?

Maybe. Maybe not. This second chart adds a few more names - companies that deal in other metals: Freeport McMoran (FCX, copper), Rio Tinto (RTP, aluminum, copper, gold), Mechel (MTL, iron ore, coal, steel), and AK Steel (AKS, steel). They are all outpacing the Treasury yields.

Wednesday, June 10, 2009

Looking for "Exception": Dow Jones 5 Day

Dow Jones Industrial Average ended today in total indecision again, though with slight negative bias. It makes 4 consecutive trading days of "doji" (or very close to one) candlestick for the index. I don't remember seeing anything like this before, and I don't know whether it is statistically probable. (I know it's possible, because it clearly happened, but how probable is it?)

In the past 5 trading days, actually, the index stayed within extremely narrow range, with daily fluctuation of between 0.1% and 0.27%. For that matter, the index has been basically flat since June 1. Today's close was 0.21% above June 1's close.

If you look at the chart, you may notice that other technical indicators are flat-lining. Volume remain constant and relatively low, RSI is literally flat-lining, money flow is hugging the zero-line.

Now... what...?? Any fresh ideas?

Instead of up or down, how about simply flat-lining the market indefinitely? That should be possible with those super-fast, super-numerous computer tradings by the usual suspects.

(Why bother even opening the market and trading every day? I guess for the sake of appearance...)

10-year Treasury Note Yield Jumps

following the auction today.

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?

In 2 weeks since I studied the chart of DXO, double long oil ETN, DXO has broken out of the upward-sloping channel to the upside. It ended today at $4.63 during regular hours, and went to $4.70 AH, probably due to the news of a Chevron's facility in Nigeria being bombed.

I have DXO which I accumulated over time, with the average cost of about $2.45 per share. I do have my targets, and one of them has been achieved when it broke that channel upward.

Here's an updated DXO 8-month chart. This ETN is new, so the chart does not go back beyond June 2008. (This ETN was introduced at the height of commodity bubble.) From the short history of this stock, it looks like the next possibility is slightly above $6, a 30% increase from today's price. Since this is a leveraged (double) ETN, the underlying index would need to increase by 15%. Roughly speaking, that would mean the crude oil, currently at around $70, would have to go up to $80.

15% increase in crude oil would also translate to USO, unleveraged oil ETF, to go to $43, where it would meet 200-DMA.

So, $6 target for DXO, or crude oil going to $80 or USO going to $43, seems like a good target for now. The chart shows DXO is in the middle of nowhere right now, having just broken out of the channel. Backtesting is a possibility, and that backtesting could overshoot to the downside. But overall, just like natural gas, I can't picture oil to go back down below $40 again.

Monday, June 8, 2009

Will Next Energy Trade Be Natural Gas?

A small but increasing number of Yahoo's SKF board members are taking long positions in natural gas. I do not know whether they are investing in a natural gas ETF (UNG) or futures contract or natural gas exploration companies like Chesapeake Energy (CHK) or XTO Energy (XTO, my favorite for some reason), or integrated oil majors with significant gas portion in their business like Conoco Phillips (COP).

I have a Canadian natural gas trust fund in my non-trading account, which at one point was down over 85% from the peak. Now it is only 60% off the peak (ha!).

So, with skepticism, I took a look at the chart of natural gas (continuous futures, NYMEX). Well, well. If I were to pick up natural gas here, it would probably be very close to buying at the bottom. It has broken out of the severe downward channel to the upside. It may still backtest the upper trendline, making a new low. But it is hard not to imagine it is very close to the bottom.

The tricky thing about natural gas is that nearly 50% of usage is for industrial and commercial, whereas 70% of petrolium usage is for transportation and only 25% for industrial (see my post in the other blog). We are in the deepest recession since the Great One, we are told, and businesses are cutting back on all fronts. No wonder natural gas just kept going down.

But if and when the recession is over and a recovery, however tepid, comes, we will likely have natural gas shortage. It will be a longer-term play, but if natural gas catches up with oil (just like silver is catching up with gold), the gain can be much bigger and faster. While we wait for the recovery, price inflation resulting from monetary inflation that the government is intent on continuing will probably help the natural gas price. It will at least put the bottom, I think.

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.

I hope the economic recovery, no matter how late in coming, won't be an L-shape recovery. (That will be no recovery, won't it?)

Unreal Charts: 6/8 Intraday Dow, Treasury Yield Ratio

Certain things should not exist in nature. I think I witnessed two of those today. One can be seen in an intraday chart of Dow Jones Industrial Average. After spending amost entire day in red, the index made a dash for the upside at 3:20 PM EST.

Another example is the Treasury yield ratio. The chart below the dow intraday chart plots the ratio of 10-year note yield over 2-year note yield. It was 3.91 on June 3, mere 3 trading days ago. Now the ratio is dropped (I say "is dropped", because I don't think it can happen naturally) to the March low level. Look at RSI and MACD dropped at 90-degree angle.

(I was alerted to this ratio drop by Thanks.)
It's gotta be the full moon that did these...

Sunday, June 7, 2009

Looking for "Exception": AAPL, GOOG

I try to look for "exceptions"- stock, sector, index that doesn't move with the flow (whether it's down or up), because I've noticed that those often gives clues to easy trades that may come soon.

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.

As I said in both posts, I didn't like them because of low volume. Then I started to notice something peculiar in the past 2 weeks. The market goes down, these two stocks remain green. The market goes up, these two stocks go up, but not by much. I mostly watch them on my main stock screen panel, and every trading day regardless of the market direction, these two stocks remained positive. In the past 10 days, Nasdaq went down on 4 days, and up 6 days.

So I called up the charts for both of them after Friday's close. They are 7-month daily charts. Well, well. There is some singular activity going on. First, they almost look identical. Second, both AAPL and GOOG finished 9 consecutive trading days of going up. The amount of increase each day was not very significant for these stocks. It is as if the buyers didn't want to alert the trading public by moving the stocks too much too fast. Although the volume for both stocks is lower than what was once a norm, it has decidedly picked up. Quiet accumulation..?

For AAPL, the last time the stock went up for 9 consecutive days was early May 2007, the beginning of the stock's huge run from $100 to $200 in 7 months. For GOOG, I couldn't find any other instance, except September 2007 when the stock went up 4 consecutive days, paused one day, and then continued to go up for another 6 days. Again, that was the beginning of the stock's climax top. GOOG went from $520 to $740 in two months.

Both stocks are now pushing the upper bollinger band and look stretched and due for correction. If my reading is right (chance may be miniscule, but not zero), however, these stocks are set to go even higher. Significantly higher, as their weekly chart formation (cup and handle) tends to yield gains equal to the depth of the cup. That would bring GOOG to $540, AAPL to $250, PROVIDED THE GENERAL MARKET REMAINS BULLISH.

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

The stock market is holding OK, pretty good actually, considering the unemployment rate in May came in at 9.4%, highest since 1983. (For more, you can read my other blog post.)

(Except... they are slamming the gold and silver stocks AGAIN!!)

So, between the "green shooters" and realists (you could say "doom and gloomers"), where does the market stand right now?

The answer: IN BETWEEN.

Here are the weekly charts of Dow Jones Industrial Average, S&P 500, and Nasdaq, with only Fibonacci Retracement lines drawn between the week of September 22, 2008 and the March 09 low. Dow and S&P this week are right in between the 38.% retracement line and 50% retracement line.

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.

Analysts and traders are saying now is the "make or break" time for the market. But then, haven't they been saying that for at least 2 months?

Thursday, June 4, 2009

Possible Future for FAZ

by popular request...

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

Today it's not a graphical chart, but a spreadsheet I did a while back ago (May 22, actually) and modified some today. I have discussed how leveraged ETFs, long or short, do not perform as you may think (unless you read the fine print), in these posts.

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 1: BKX will drop 10% every trading day until it hits March low:

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?

So. Yesterday's mini cup-and-handle broke to the downside after all, and we are having a rather dismal market. Dow Jones Industrial Average is down 131 points (1.5%) to 8,610. It is supposedly because of the uncertain economy (which was the case during Monday's rally), but more likely a profit-taking and some consolidation effort. As long as it doesn't collapse significantly from here, it is OK with me, even though they are whacking ALL my commodity stock holdings badly.

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...

Tuesday, June 2, 2009

Dow Intraday: Watch the Grass Grow

or paint dry. After the huge ramp-up yesterday, Dow Jones Industrial Average is in a narrow range (as of 11:54 am PST, upper range).

Here's Dow's 5-day 15-minute chart. We seem to be waiting to see what happens to today's intra-day tiny cup. As you see, the bigger 3-day irregular cup broke to the upside on a highly suspiciously large volume at the end of the day.

Dow is hitting the 200-DMA (8,751.30) by the way... Nasdaq has broken free of that line 5 trading days ago, and S&P 500 popped above it just yesterday.

Monday, June 1, 2009

Lesson on Not Buying at the Right Time: GOOG

I sold Google (GOOG) $37 ago and I feel stung. So I decided to learn my lesson here in the hope of not repeating it. Well, it looks like my same old pattern, lesson unlearned. (Darn!)

Here's GOOG's 3-year weekly chart to get a better perspective.

My mistake was easy to spot. NOT BUYING AT THE RIGHT TIME. Now I see on the chart that the first (less risky) buying point was when the stock broke above the downward trend line from December 07 (yes, 07). That would have been $345 during the last week of March. The second buying opportunity was mid April, when the stock broke $381. You could call it a tiny cup break or breakout from irregular double-bottom.

Instead, I bought at middle-of-nowhere price of $360, and sold it at $389, right after the breakout from $381. Duh.

This seems to be my repeated pattern. Now more than ever I'm determined to correct it (if my ADD allows me to).

By the way, note the textbook climax top in October-November 07. Huge run-up every week on increasing volume, then the highest price on a very low volume. Sure enough, the next week saw a huge decline on a massive volume. That was a Nasdaq top. I didn't know then what I know now, so I remember those days as frightening, not sure what was happening.

So why am I not in the Nasdaq beta stocks like GOOG and AAPL? Why did I sell GOOG? It's VOLUME. It's not there AT ALL for either stock. No one (figuratively) is buying the breakouts. That's a precarious situation to go long.

Break Is To The Upside!! (For Now)

I don't get to say it often so I might as well say it while it lasts: I told you so, here. I also indicated the possibility here and here.

The market is rallying on the "less bad" news on ISM manufacturing index and GM bankruptcy ("the worst is behind us").

My target on Dow remains the same as I stated in this chart from May 17. The first target, the green-colored 50% Fibonacci retracement line around 8,800 is almost there (Dow is currently 8,732). My second target is the green 61.8% line which happens to be almost identical to the blue 38.2% line, around 9,400. At today's pace, 3 more days and we would get there, too.

Dow, by the way, is underperforming other major indices, up only 2.7%. Nasdaq is up 3%, S&P500 up 2.8%. S&P500's Point and Figure WEEKLY chart now indicates the price target at 1,130. The chart shows a pennant breakout, and taking out the prior resistance levels (red circles in the chart).

Despite the general market's significant advance, financials are vastly underperforming. Long-end Treasuries yields gapped up, and remain high. So all is not well. We'll see how this spurt holds for the day, and for the week.