Is the Rally from March Finally Over?

For the first time since I went long back in March, I am shopping for short ETFs.

The major indices dumped big time today, after a tepid attempt to reverse the trend yesterday. Since last Friday, Dow has lost 347 points, or 3.4%, S&P 500 lost 54 points or 4.9%, and Nasdaq lost 131 points or 6%.

September had a similar mini-crash that brought the indices to their 50-DMA. June was worse, to be sure, and the indices dipped below 50-DMA and 200-DMA (crossover was happening then, so it didn't take much to go below 200-DMA).

What I don't like about it this time is the behavior at the top, from October 19 to 23. The daily movement was loose and wide. 100 point reversals, big down day followed by big up day. What does that remind me of? The market top in October-November 2007, and September 2008 right before the crash.

This is a 7-month daily chart of Dow. Negative divergence between RSI, price, and money flow are more prominent and consistent. It decidedly broke the trend line from March low today, and can go down to the trend line from August. That trend line forms a rising, expanding wedge, which is bearish and indicating the topping action. Using the slow stochastics with (5,3) for short-term trend, the index is short-term oversold, which is about the only good thing about the chart for market bulls.


Goldman Sachs lowered their estimate on the 3rd quarter GDP today, one day before the announcement. Market reaction to economic/financial news (ever since the new moon, come to think about it) has been negative: good news is perceived as not good enough, and bad news is perceived as worse. If this trend continues, the reaction to GDP number may be negative, no matter what the actual number will be. If that happens, it may finally be the "batten down the hatches" time, and time to make money on the short side.

Still, stochastics is short-term oversold, and the put/call ratio (a contra-indicator) has spiked up to 1.11. A bounce may happen soon. Another contra-indicator is that too many traders and pundits are now very bearish, calling the top for the year (even Jim Cramer).

Well, the proverbial broken clock is right twice a day...

Now It's AMZN's Turn!

Nasdaq beta stocks are back with vengeance. First was Google (GOOG), then Apple (AAPL), and today was Amazon (AMZN). It announced a steller quarter result after hours and the stock jumped to $106. In this deep recession, the company's profit jumped 62%. If the AH price holds at Friday's closing, it will be ALL TIME HIGH for the stock.

This is the monthly chart of AMZN since its IPO. I don't care to do the TA analysis on a wild-looking thing like this. I'm just impressed. Usually when a stock falls from the crest (like Nasdaq dot-com bubble high), it doesn't recover. But this one did, and is about to take out the previous high.

I've been the customer ever since AMZN opened its virtual door. Its CEO, much like AAPL's CEO, has just kept at it, instead of selling out, retiring, or going into philanthropy.



About the only thing I can say about the chart is that the trendline held at the bottom, and it was a buy when it bounced off that line in November last year, at $34. It is quite possible that a few years from now I may be asking myself, "So AMZN was only $100. What was I thinking?"
Maybe I should think the unthinkable and buy the breakout.

Nasdaq (and Dow and S&P) at 2009 High

To the chagrin and frustration for the bears, the stock market keeps going up. Today, all three major indices marked the 2009 high with healthy gains but subdued volume (Op-Ex fatigue, maybe).

Barring disaster overnight (and premarket tomorrow), tomorrow's market looks brighter as Apple (AAPL) announced a blow-out earning after hours (the company sold more Macs and iPhones in any quarter in company's history), and the stock is currently trading over $200.

I haven't looked at Nasdaq chart since June (as I don't have tech stocks like I used to), so maybe this is a good time to do that to figure out whether every bear is saying is true ("the market is topping").

The first thing I notice about Nasdaq is the volume. Unlike other two indices (Dow and S&P500), Nasdaq's volume has remained robust. So far, I don't see negative divergence between RSI, price action, volume, CCI, slow stochastics. This is a very strong chart. About the only thing that makes me nervous is the extremely steep ascent from March low (steepest of the three major indices).

Around March 09 bottom, that was clearly a double bottom formation with handle, and the handle break in late May held. I should have paid more attention to Nasdaq around that time, for obviously easier money was in Nasdaq.

The index is right now between 50% and 61.8% Fib retracements, and 61.8% retracement is a logical target (2251). If 61.8% retracement is taken out (75 points away), it could go back up to 2007 high, I suppose. Some of the index components are already in that territory, about to take out all-time high (AAPL, BIDU, AMZN). Semiconductor sector is not acting well, despite the steller result from Intel (INTC). We'll see.

I don't quite see the topping formation on Nasdaq. The ascent has been steep, yes, but so far none of the indicators show overbought condition or trendline break. I personally prefer it would go sideways for a while, but what I think counts nothing toward making the market.

It's been a scary ride holding long positions (some positions as early as March) but I'm still holding most of them. Scary but lucky ride so far.

USO Jumps

one day after I sold out my call options (at $0.90) at a 10% loss. If I had waited till today, I would have gotten out with 60% to 100% profit.

Lesson: If I intended to be a replacement for DXO, I should have bought longer-dated options, not October (duh). I could have gotten UCO, double-long oil ETF.

As October options expire this week, I was under pressure to get out yesterday when USO perked up. I probably should have done some quick TA to see if there was more upside. But with US dollar tanking like it did yesterday I thought the rebound would come today and the option was expiring fast. US dollar rebound came, albeit weak, but oil keeps going up.

Oh well. It could have been much worse. At one point in October, that particular call option was $0.20.

(Still it irritates me... Missed by the day!!)

TLR!!!

So far so good. The price held on Monday, and on Tuesday the stock jumped nearly 30% on a high volume, probably on this news:

Timberline Resources: Pump Up the Volume
(10/13/09 Market Watch)

"COEUR D'ALENE, Idaho (TheStreet) -- Timberline Resources (TLR Quote) shares rallied sharply higher Tuesday on heavy volume after the company increased its gold mineralization estimate on a joint venture project. "

"Timberline Resources said it has completed an updated calculation of the estimated gold mineralization at its Butte Highlands Gold Project joint venture, increasing its total anticipated mineralization to over 750,000 ounces of gold at an overall grade of 0.26 ounces per ton. "

Gold hitting a new high of $1069 per ounce helped.

TLR

With part of the proceeds from ABK sale, I bought another bit stock. Not for investment, just like ABK wasn't, but for trade. More like gambling. If I lose, I lose. If I gain, I may gain big. (I did put in the stop so that I wouldn't completely lose.)

The stock is TLR, Timberline Resources Corp. It is a gold, silver and zinc prospector based in Coeur D' Alene, Idaho. I was watching the stock while it was spending the entire September around 70 cents, while the other gold miners advanced. Then it took off all of a sudden on Tuesday (10/6), and jumped to over $1.30 on Wednesday (10/7) on a gigantic volume for the company. Then it sold off for two days, and stopped at $1.05 on Friday before it rebounded back to $1.12.

The chart is a 3-year weekly chart to get some perspective, as the short-term daily is just too wild to figure anything out.



$1.30-1.40 looks to be a long-term support/resistance line, and sure enough the stock retreated when it hit $1.39. RSI and MACD showed positive divergence vis-a-vis stock price late last year and earlier this year. Slow stochastics at 60,3 (long-term trend indicator) has popped up above 20 for the first time since June 2008.

From the chart setup, the stock could go to $2.50-2.90 area. Point and figure chart of TLR says it may go above $4.

I bought it at $1.10 and put in the stop loss order at 87 cents, which is the September high. I think penny stocks are penny for a reason, and it is quite possible that my stop gets hit on Monday. If that happens, oh well. I will have still retained the profit (though reduced) from ABK sale.

Rio Tinto (RTP): Ready to Shine Again?

Australia seems to be the place to be, as far as the economy goes. Never in recession, Aussie $ 14-month high, stock market 14-month high, the central bank raises rates and the market rallies. Real estate value has gone UP this year down there. Businesses are increasingly confident, both domestic and export, and consumers are spending.

So, today's feature is Rio Tinto (RTP), an Australian miner that mines what the growing economies of the world (like China) wants.

This is a 3-year weekly chart. Talk about extreme. After hitting the 2008 summer commodity bubble high of $540, it lost almost 90% and hit the bottom in December 08 at $57. Since then, it has tripled in price but still nowhere near even the 38.2% retracement.

If the Australian economy is actually what they think it is down there (=robust growth) and the global financial markets don't crash again, however, Rio Tinto may have plenty of upside from here from technical point of view.

RSI is holding the trendline, and it's shaping into a symmetrical triangle or pennant ready to break either way. Same thing is happening in the stock price. A symmetrical triangle is usually a continuation pattern, and tends to break in the direction prior to the triangle. In this case, it's UP.

During the triangle formation, the weekly volume has been declining. That's usually a good sign. Slow stochastics set at 60,3 has backtested the 20 line and rebounded. Another good sign. CCI is still negative, but it is also holding the trendline from December.

If this pattern breaks out to the upside, the target price is somewhere near $300, 75% up from where it's at right now. If it should break to the downside, it will be back to $50s.

The rally that no one believed in back in March, April, May, June, July, August, and September still goes on. I'm sitting on my longs as none of my holdings has signaled a sell. I sold ABK as a housekeeping (of trimming the underperformers), but hasn't added new stocks for holding long. I just have options here and there, because from every corner I hear the calls for the market topping right here right now.

But I kind of like what I see in RTP as a long. I will see if it breaks out from the triangle/pennant, and if it backtests the trendline. Or I could buy right now, and put the stop at the upper trendline.

Despite the calls for the market top, a lot of stocks are setting up or are breaking out to the upside. They are almost too many to keep track of.

This is just my personal opinion and you should always do your own due dilligence, but it sure seems there are lots of opportunities to make money before the next collapse, unless it comes in very short order. (I could always use extra money to survive the catastrophe when it comes..)

Be Careful Out There....Dow 5-Day Chart

looks absolutely wild. For two days in a row, Dow Jones Industrial Average, along with S&P500 and Nasdaq, went down in an above-average volume. Back to back distribution days.


This doesn't feel like a healthy consolidation, which you call when the index goes down modestly on a subdued volume. This is a high-volume dump. The 5-day 15-minute chart of Dow below does look like a whip-saw action you would see near a market top.

People who follow Elliott Wave Theory are gleefully calling the start of P3, a big down-leg which will undercut the low of the initial P1 down-leg.

On a one-year weekly chart, Dow almost touched (but never did) the 89-MA and turned back. It could be the start of a temporary but sizeable pull back, like the one we had from mid June to mid July, or it could indeed be the start of P3.

The stock market crash of 2008 started in earnest on October 1st, 2008. Dow kept dropping for 8 trading days straight. Just the friendly reminder.