Uncanny Resemblance: Dow Intraday vs One-Year Daily

It's possible I'm imagining things. Probable, even. But I just wanted to quickly share. The top chart is Dow Jones Industrial Average intraday for today (August 28, 2009). The bottom is also Dow, 11-month daily.

Fractal nature of patterns, or my hallucination, LOL.

GLD: No Particular Place To Go

but it had better move one way or the other pretty soon, as it is running out space to go.

I have DGP (gold double-long ETN), which I have since last year (I accumulated over several months). I can say two good things about my holding gold via this ETN: 1) it is up 15%; 2) it never dipped below my average price. Beyond that, it's been very frustrating, particularly when other commodity stocks that I own have gained at least 70% this year.

Let's look at the chart of GLD (chart pattern is the same as DGP, different scale). This is a 1-year daily chart. It looks like it is still forming a more or less symmetrical pennant, fast running out of space to run. Other technical indicators - RSI, stochastic - are also running out of space. MACD is flat-lining, and volume has decreased significantly.

A pennant formation is usually a continuation pattern, and tends to break in the direction before the pennant is formed. In the case of GLD, that direction is up. The target price of the pennant, I learned, is the length of the "flag pole" added to the place of the breakout; if it breaks out upward from $95, add the flag pole length of about $30, and you get $125. Should it break down from, say $92, then it could go below the November 08 low of $68.


Gold bugs decry manipulation by central banks and gold dealers (many of whom happen to be Treasury Primary Dealers also). I do understand their chagrin. On many days, spot gold price is high before the U.S. stock market opens, and as soon as the market opens the gold price is slammed down (like it happened today 8/26/09). Oh well. This is my "disaster insurance" holding which happens to take up 1/5 of my portfolio. I just have to make more money elsewhere...

Rally That Nobody Believes In Continues

Weekend Tape Talk from Tickerville. Quint is a technical trader, and of course he says what he says: [fundamentals don't matter, because] "We continue to play the charts."

Tickerville August 23: The Big Break

"People refuse to embrace this tape. And until they do the market is going to discourage them. When they capitulate, that is when we'll have to start to become concerned."

(Well, I've heard Q-man going short several times during the run from the March low and gotten squeezed out. Nobody is perfect.)

I took his stock trading camp (webinar) back in February 2008. The stock market was still iffy after (then-)miserable January. The webinar was mainly for the "future", when we could trade again from long positions. That future did come, after the Bear Stearns cataclysm in March, and my portfolio did recover almost back to 2007 high by June.

Then, after the stock market spending 3 months slowly descending, the real cataclysm hit in September. I do not think TA could have saved many investors/traders. You would have needed a macro perspective, not just economic but also political.

For now, TA for the long side is still working, and as long as it is working and the stocks that I've been holding (some of them since mid March) act well, I will keep the stocks and remain long. I'm keeping an eye on the emergency exit door, though.

Crazy Little Thing Called AIG

AIG jumped 21% today after new CEO Robert Benmosche halted the auction of the firm's investment advisory unit and made some very aggressive statements in an interview on Bloomberg TV.

What did he say, you ask? According to Yahoo Tech Ticker,

"We believe we will be able to pay back the government and we hope we will be able to do something for our shareholders as well," Benmosche told Bloomberg TV in an interview from Croatia, where he owns a vacation home."

How the hell are they going to pay back $180 billion? But no matter. Here's AIG's daily 6-month chart. It strongly reminds me of the chart of Shanghai Stock Exchange Composite index, that I posted a few days ago.

AIG, as far as I know, is virtually broke (just like Fannie and Freddie, with Ginnie joining fast). Its price/volume action is probably 3 or more standard deviation away from the norm, i.e. it no longer reflect the underlying reality. I do see a negative divergence, twice. The last one led to a spectacular 2-month crash.

The trade here, if I were brave, would be to short the stock with the target below $14 and stop at today's high of $35, counting on the negative divergence to do the same work as before. But I am not brave, and this stock is pure casino.

By the way, the high of the day at exactly $35 makes me suspicious that it was a market maker's ramp-up job.

OT: Hitler Misses the Bull Market

It's hilarious. I don't think the original German is saying what the English subtitle is saying, but just hilarious.

We need humor to get through this stifling market going nowhere...

Free Fallin' in Shanghai

The Fast Money crew may be wishing they hadn't ridiculed Peter Schiff after Monday's beating in the U.S. stock market. Dow tumbled 186 points or 2%, to 9135, S&P 500 down 24 points or 2.43% to 979 ,and Nasdaq lost 54 points or 2.75% to 1930. The supposed reason was the worry about U.S. consumers not spending enough to lift the economy (as if that's anything new).

But I think the reason is overseas, in China. Take a look at this chart. It is a daily 10-months chart of Shanghai Stock Exchange Composite (SSEC) Index. After climbing over 80% from November 08 low, it looks to have topped on August 5. For two weeks, the index has been selling hard.

I don't usually follow Shanghai. I tend to use Hang Seng as China proxy. So I was rather shocked when I pulled up the chart for SSEC. It sure doesn't look like a chart of an orderly stock exchange. What's normally a support line on RSI was easily broken with no resistance. 50-DMA offered hardly any support. Right now it's in the middle of nowhere. If the next trendline offer a support, it will be somewhere between 2600 and 2650. Long-term slow stochastics (set at 60,3) shows it's quickly approaching 50.
The chart shows several trendlines from the bottom. Notice the angles of the trendlines got steeper and steeper as the index ran to the August top. I think it was a typical climax top, with very exaggerated movement at the top and abrupt turnaround to the downside on August 6.

Maybe this is the normal behavior of this index. I don't know, frankly. All I know is that the current crash started when the Chinese central bank indicated it would "fine-tune" the monetary policy. The market clearly took it as tightening of credit, and quickly headed south.

Today, after falling 1.5% in the morning session there (Tuesday August 18), it is reversing and trying to go into a positive territory. It may finally indicate a trend reversal, by forming a doji candlestick. But with a wild market like that, it may just take a dump at the close. Who knows?

The U.S. market participants seem to think the key to the continued "recovery" (at least in the stock market) is China. (I personally think the key to the recovery here is here, the U.S.; if the U.S. doesn't buy, what could China do?)

Fast Money Crew Laugh at Peter Schiff

for being negative on the U.S. stock market and the government/Federal Reserve policy.

Huh?

Peter Schiff appeared in a segment in CNBC's Fast Money on August 12. I used to watch this show, but finally stopped doing so in disgust when they simply kept peddling stocks as the stock market crashed around them. I heard the host Dylan Ratigan departed since then, and Jeff Macke is no longer there. But I didn't know the extent of deterioration of the show until I saw this segment, which was posted by a member in the Yahoo SKF message board.


Let's see... The last trade I remember Joe Terranova (who was yelling at Schiff in the interview) said he did was to sell a straddle on oil around $100. He thought the price of oil is not going anywhere anytime soon, so selling the straddle and letting both sides (call and put) decay was a good strategy, he said. WRONG. The price of oil crashed from $110 to $35 in 3 months. The last trade I remember Karen Finerman (to whom the show's host turned right after she dismissed Peter Schiff and whispered "What do you think of Peter Schiffs 'ahhrrgument'?" with a strange look) said she did was to buy Washington Mutual, "a good brand name, with lots of upside potential", right before the company was seized by FDIC. The stock trades at about 10 cents these days, in pink sheet.

Other two are no better. I remember Guy Adami pushing SLB (Schlumberger) all the way down, Pete Najarian pushing on Nat City as a takeover target (the bank was taken "under" - i.e. at far less price).

What can you expect from a station owned by General Electric, who has been rescued by the U.S. government TARP money?

And they have the audacity to ridicule Peter Schiff. That's hilarious. The stock market may indeed be topping, because the last time money and stock market programs in cable television stations openly laughed at Peter Schiff was right before the start of the recession/depression we are currently in.

Peter Schiff may be wrong in short term trends in the U.S. dollar or stock market, but he's been right on on intermediate and long term picture. It literally pays to listen to him, not the Fast Money crew (unless your goal is to lose money for tax purposes).

Just my humble opinion, from my own limited experience.

Baltic Dry Index Worst Since October Meltdown

So says the headline of the article in Telegraph U.K.

Baltic Dry Index has worst week since October meltdown as Chinese demand slows (8/8/09 Telegraph U.K.) [emphasis is mine]

"The Baltic Dry Index, which tracks shipping costs and is viewed as leading indicator for commodity prices, has had its worst week since the peak of the financial crisis last October, as Chinese demand slowed.

"The index fell from 3,350 to 2,772 this week – a fall of 17.2pc - as imports of iron ore and coal slowed down. The index is now 35pc lower than its 2009 high, hit on June 3.

"Earlier this week Ian Ashby, head of iron ore at miner BHP Billiton, said at the Diggers & Dealers conference in Australia that Chinese restocking of iron ore was at an end.

"Mr Ashby said that supplies at the country's ports were enough to sustain a month of consumption.

"However, some believe that imports have slowed down as Chinese steel mills are still locked in talks over the pricing of iron ore imports over the next 12 months."

Hmmm.. I still have MTL, a Russian iron ore company, which seems to be stalling at $12. It passed that point in June, only to head back down, and back up again and headed back again in early August. I still don't see anything technical wrong with the stock, but with the macro information like Baltic Dry Index and Chinese hoarding to end, I'd better be careful, and not be too greedy.

Freddie Mac's Craziest 5 Days

Those of you who held on to FRE (and FNM to an extent) despite a dump on Friday, congratulations again.

FRE (Freddie Mac) had the most violent 5 trading-days since it was virtually nationalized in September last year. Monday's jump was due to the earning report AH on Friday last week (FRE made profit, for a change), but the stock kept going up AH Monday and ended at $1.81, 200% up (or triple) from Tuesday last week.


Freddie and sister Fannie are practically bankrupt. And yes, there's an encouraging (I suppose) talk of setting up an entity to absorb Freddie and Fannie's bad assets. But this is just a talk at this point. I have no idea where FRE or FNM will go from here. Their longer-term charts don't mean much, because, as I have just said, they are practically bankrupt and technical analysis means nothing.

Retail investors who are holding FRE and/or FNM are irrationally and extremely bullish, saying their stocks will go to $5. That sounds wild, but FRE was indeed $5 one year ago.

Wham! Bam!

Major indices ended the day in red, although S&P 500 momentarily popped into green. But that didn't deter financials, and particularly those financials whose share prices have been reduced to bit sizes in the past year. If you owned any of these stocks, congratulations! (I hope you bought them in the past 4 months, though.)

Dow July-October 2007, Augmented, Fractal

Dow charts again today, as I noticed a curious thing. I was looking at the Dow Jones Industrial Average 3-year daily chart that covered the period during which the index ran to the top in October 2007. It suddenly occurred to me that what we've been experiencing since October 2008 is basically the repeat of July - October 2007, except it's taking much longer this time and on a much bigger scale.

To show you what I mean, take a look at these charts. The top chart is Dow daily chart from July 17 to October 15, 2007. The bottom chart is Dow weekly chart from the week of September 22, 2008 up to now. The top chart, daily. The bottom chart, weekly. Don't they look very similar?


The blog post's title, "Augmented", refers to a musical term. In music and music theory, "augmentation" is lengthening and/or widening of rhythms, melodies, and intervals. The same construction of the passage but the time is extended and the content (rhythm, melodies, etc) exaggerated. "Fractal" refers to a mathematical term. A fractal is generally "a rough or fragmented geometric shape that can be split into parts, each of which is (at least approximately) a reduced-size copy of the whole (wikipedia.org).

If what I'm seeing is an augmented market and the original was that of July-October 2007, then the top of the current run will be somewhere very close to the beginning of the swoon, which will bring Dow to about 11,240 - and that's where 61.8% Fibonacci retracement from the October 07 top to March 09 bottom sits, like I showed in yesterday's post. From the looks of them, we may have another 3 to 4 months till the market "tops" again, if I count the top chart's days as weeks in the bottom chart.

Mind you, I'm not saying that's what's going to happen. That's really a long way up. But I'm just fascinated that despite the market manipulations and all that high-frequency computer trading that wouldn't give @#$% to the mother nature, the index chart still manages to show what makes up the world - nature repeats the pattern in different sizes and time frequencies.

I Told You So in May, and Sucker's Rally Continues!

Sorry about bragging. I don't get to do it often. Back in May I wrote this post:

Case for Sucker's Rally to Continue (5/17/09)

In it, I wrote:

"To be really a "sucker's rally", the rally has to threaten to fill the huge gap down created in October 08. Right now, it is nowhere near it. The good place on the chart to achieve that goal seems to be 38.2% retracement from the bottom on Blue Fib, which pretty much coincides with 61.8% retracement from the bottom on Green Fib. That's about 9300-9400. At least Dow should go above 9000 to really sucker in the retail investors."

Well, surprise! It's happening. The huge gap from October 08 have started to get filled. So I decided to revisit the Dow Jones Industrial Average weekly chart.

I continue to like what I see, except the volume. RSI indeed threatened to backtest the downward trendline since 2007, but only a remote threat. MACD is finally over 0, and long-term extra slow stochastics (set at 60, 3) is going toward 50. I still believe this is a technical, bear market rally, but the stochs may overshoot and stay above 50. What I particularly like is the crossover happening between 13-EMA and 34-EMA. It hasn't happened since the downward crossover happened in December 2007. As 13-EMA is about to go above 34-EMA, both EMAs are turning UPWARD, which I think is very bullish.

My first target, 50% Fibonacci retracement from Oct 08 high to March 09 low (around 8800) is now met. My second target is the same I stated in May - between 9000 and 9500. Particularly around 9400, where 61.8% Fibonacci retracement from Oct 08 high to March 09 low almost coincides with 38.2% retracement from Oct 07 market top to March 09 low.

If it should ever clear that level, Dow could go on to actually fill the Oct 08 gap, which would be about 61.8% Fib retracement from the market top to bottom. That would bring Dow to 11240, 20% increase from here. Nasdaq is already climbing the gap wall half-way. Time-wise, I'm thinking October as a potential top.

(This run actually feels like the similar run back from March 2007, which topped in October.)

I'm still holding what I held in May, except FAZ which I sold what remained of it @4.90 (pre-reverse split) and bought NRO up to the equal $ amount. NRO is up 15% since, while FAZ is down 35%. Green shoot indeed, when a stock that invests in commercial real estate jumps in price like this. Overall, my portfolio is about the same level as May, as my portfolio is commodity/resource heavy and those stocks just got back to the May high level. Oh well. That shows I'm a lousy trader, but at least I didn't sell at the recent bottom.