Wednesday, February 24, 2010

Where Is This Listless Market Going?

I can't make head or tail out of it. The best position still seems to be in cash, until we see more definite trend. I am being caught holding long positions (gold, silver, miners, oil) but I am sitting on them because my costs are low (except for oil).

I looked at the 3-year weekly chart of Dow that captures the market top in October 2007. As one of the indicators I put "volume by price" as background, and noticed a very interesting thing.

Take a look at the volume by price when the market started to tank in late September 2008. A tiny volume for such a big drop. The volume didn't reach a panic size until Dow hit between 8,000 and 8,500. Many investors didn't unload their holdings until Dow hit that interim bottom. Not only that. It looks there was more buying than selling as Dow rapidly descended. It's nearly 30% drop in the index, but many individual stocks fared far worse.

For those who didn't sell at the bottom of that drop, a sudden, accelerated decline in February 2009 must have been just too much. They dumped this time, probably, as soon as the index started to go down in earnest.

So, where are we at now? We are back to that very thin volume by price zone, between 10,350 (about 50% Fibonacci retracement) and 11,000. It may be easy for the index to go through this thin area, as there shouldn't be much resistance. Volume by price bar near 61.8% retracement, around 11,260, shows more selling volume than buying volume, so there may not be many sellers left if and when the index hits the area again.

My feeling is that Dow (and the US stock market) may still have an upside at least to 61.8% Fibonacci retracement area. But there are too many uncertainties in the market and the world outside the market that could easily torpedo TA and render it worthless. Greece, for example. S&P is saying Greece may be downgraded yet again, and the stock futures drop. Last I checked, Dow futures were down 58, S&P 500 futures down 7, Nasdaq futures down 12

But then again, miraculous clutch save may appear in the premarket tomorrow, and turn the indices around in a flash.

As I said, I can't make head or tail out of it, and I am annoyed that my gold holdings are being hammered down...

Thursday, February 18, 2010

S&P 500 in 2003-2004

March 2003 was when the U.S. stock market finally bottomed after the dot-com bust and started to make a year-long, sharp recovery.

Sounds familiar?

Guys at Break Point Trades had this log chart in their free newsletter: daily S&P 500 from February 2003 to December 2004. The similarities are almost spooky. Should the history repeats, then what we may have for most of the year looks like a choppy market that makes lower highs and lower lows within the falling wedge/flag.

That would actually be a bullish formation, as you can see in this chart; S&P finally broke to the upside in November.

Just watch out for non-financial events that could obliterate any TA. Greece, EMU, US domestic politics, Middle East... take your pick.

Monday, February 15, 2010

Junior Gold Miners Anyone?

Bloomberg News reports that "the value of mining mergers and acquisitions may more than double this year" to 2006 level of over $170 billion.

I've been looking at several junior gold miners as potential acquisition targets. Here's a comparison chart of these miners since November 2008. Barrick Gold (ABX), a major miner, was thrown in for comparison.

As you can see, Iamgold Corp (IAG) and Allied Nevada Gold (ANV) have already taken off. I'm particularly cross about missing ANV when it broke out of the 3-month base in September 2009. If I am to put money at this point, I would go for the bottom 3: Hecla Mining (HL), Nova Gold (NG), and Great Basin Gold (GBG).

I like NG here. It didn't correct as steeply as the others, and it may be clearing the heavy overhead area, as seen by "volume by price" overlay in the 18-month daily chart below. Also, it didn't break below the trend line support from early 2009. Technical indicators (RSI, MACD, stochastics) all show negative divergence. It has been in a channel, and right now it is right in the middle of that channel. I have no idea whether it goes back down to the lower channel support (around $5.20) or goes up to the upper channel resistance (around $7.20).

With the fate of Euro uncertain vis-a-vis US dollar, I'm not betting heavily on gold stocks. For that matter, the most prudent position right now seems to be "cash".

Friday, February 5, 2010

Scary Days Are Back Again? Or Not?

I can't decide. But ever since the Presidential temper tantrum in mid January, the market increasingly feels like it is a replay of February-March 2009, if not September-October 2008. It was downright scary sometimes, like the day Dow went down more than 200 points.

But I just want to point out one repeating pattern in the weekly charts of Dow and S&P 500. We will find out soon enough, whether the scary days are back again or not.

This is a Dow weekly chart from December 2009. The final plunge (for now) in February-March 2009 took 4 consecutive down-weeks. Then a sharp reversal took place. In June-July, 4 consecutive down-weeks happened again, again followed by a reversal that took the index higher without much of a correction (on a weekly basis) until January this year.

It is a log chart, so you can compare the magnitude of each correction. The correction this time is about the same percentage as the correction in June-July 2009.

I noticed this pattern in July last year, after the reversal happened. "Hmmm, it's fractal... the pattern repeated on a different scale..." Maybe I mentioned it in a post here, maybe not.

This week was the 4th down-week. Will the pattern repeat itself?

Today Dow went as low as 9835, only to reverse all of a sudden out of nowhere to end above 10,012. I was planning on buying gold and gold miners EOD, thinking this was a solid, no-recovery down-day.

According to Jim Cramer of CNBC's Mad Money, it was the job of one hedge fund, who wanted some action in a thin market. The fund used 100 to 1 leverage (I think that means either options or futures), according to Cramer.

That reversal was reminiscent of March 09 reversal, when out of nowhere buy orders flooded the market. Rumor at that time was J.P. Morgan, buying a large quantity of S&P futures that cascaded throughout the financial markets that were open at that time. Who could that hedge fund be this time?

If this is their game plan - 4 consecutive down-days in a volatile fashion so that retails are scared away (again), and pros (hedge funds, market makers, banks) will jack up the market higher on a thin volume. It would be easy to jack it up, precisely because the volume is thin.

In the chart, I put in a target number just in case this pattern repeats itself and the market miraculously reverses from next week on. The target is 12,664. I know it's ridiculous, but I'm just calculating, based on a simplistic assumption that the pattern may repeat.

Now let's laugh at it and be merry. Doesn't feel like it's going to happen, and analysts and pundits are predicting 20% correction from here. But then it felt like the market would never go up again back in March 2009.

Monday, February 1, 2010

Low Risk Trade Ideas

Stocks I've been watching/trading that have been in a channel. Until it breaks, it works. Right now, they are at or near their low end of the channel.

Needless to say, it depends on the direction of the general market, which is increasingly dictated by the political development.

UCO (double-long crude oil ETF)

GBG (gold exploration)

AGU (fertilizer)

JASO (solar)

Do your own due dilligence.

Can Toyota Bounce Back?

Not just as the leading auto maker known for quality but also as a stock?

The sticking pedal recalls and production suspension (which was ordered by the Obama administration, by the way) clobbered Toyota (TM), from the 52-week high of $91.97 on January 19 to $76.51 on January 29, a 17% haircut.

But if you look at the chart, despite the sudden, violent drop, the move was still within the channel that the stock has been in since July last year.

The drop was arrested at the trend line from May last year, and today's bounce stopped at 200-DMA. You would think a news-driven drop like this would defy any TA.

So, ignoring the political chatter (Toyota is being hauled in front of the House Energy and Commerce Committee), can TM recover?

If I draw Fibonacci retracement lines from the recent top to the bottom of last Friday, there is a congested area between 38.2% retracement and 61.8% retracement. It may be able to go back to that area at least, and that would be between $84 and $86.

Since the damage was severe on an extremely high volume for the stock, it may bounce around between $76 and $80 for a while before it makes the next move. Today (Monday)'s move was still a DCB (dead cat bounce) after a huge plunge. Let's see how the stock behaves from here.

(By the way, there are people who say Toyota was politically targeted by Obama for the benefit of Government Motors.)