Running on Empty? Who Cares? (Updated with KO Chart)

My call last November before Ben Bernank announced QE2 that Dow would reach 16,000 someday may not be far-fetched, and my target for S&P500 of 1,340 is just around the corner. My left-for-dead AMZN March call is coming back to life (AMZN is jumping over $6 today). All thanks to Ben Bernank, who only has our welfare in mind.

My latest purchase today is KO. Has a very peculiar chart formation, but I'm just looking at the buy signal in Slow Stochastic set at 60. MACD histogram shows positive divergence. Oh uh, tomorrow is their earnings report. Will it matter? Maybe. Maybe not. Here's the chart of KO, 9-month daily.



I also set up a call backspread on MTL, using April calls. It may be ready for a bounce here, after steadily losing all the gain from Feb 1, but it is at the support around $32.50. If I'm wrong, then I will lose out-of-pocket cost, which is about 30 cents (x100).

Do your own DD, but for me, I've sort of given up. If S&P500 can remain above 1,320, it could go up to 1,380 or so, then 1,440 (May 2008 top).

And of course I may be the perfect contrarian. If I am, I still have VXX....

Dow at Fibonacci Resistance

Technically, a logical place to stop and turn back.

As the chart below shows, Dow Jones Industrial Average tried to bust through the 61.8% retracement from the March 2009 bottom back to the October 2007 market top, and failed.

Not all is lost. On the daily chart, it is sitting right on the 50-day simple moving average, which may act as a support. Personally, I don't like the way it's been trading for the past week - one big down day followed by one big up day, and then another big down day. That doesn't look like a bottom being formed; rather, it looks like a topping pattern.

It looks and feels the same - that the index is about to break down - as at the end of August. Back then, a big up day was followed by a big down day, and just about everyone was looking at the neckline of the big head and shoulders pattern. And it didn't happen. September was a big up month as the US dollar cratered.

Ben's printing (QE2) hasn't resulted in an up-market in November, contrary to what Ben said when he boldly embarked on the purchase. The only thing keeping the market from crashing (there are a plenty of reasons why Dow should be tanking 1,000 points every single day) may be the hope that Ben and the Inkjets at the Federal Reserve will deliver on their word, that QE2 will cause the stock market to go up, making everyone feel rich.

I'm watching the US dollar, which has broken out of the pattern which could be called a bullish falling wedge. The breakout coincided with the worsening of Ireland's debt problem, which is supposed to be resolved now by the $113 billion bailout.

US dollar down, stock market up. That pattern persists.

Louise Yamada Cautions Further Weakness

A week ago I posted that Dow was on the blink. A week later, it is still on the blink, actually almost at the same level; the index had a huge rebound 2 days after I posted (to be expected, LOL), then went nowhere for two trading days, and a big down day with good volume.

Louise Yamada, one of the best technical analysts out there, thinks the next logical support will be the August high, around 10,700 for Dow (like I said....), and that would be still considered consolidation.

However, she sounds caution that it may not hold there. The reason? Because the market failed to break out of the April high. She considers that to be more important than the lack of daily volume which many analysts (including Art Cashin) have pointed out as a bearish sign.

For more, go to Kingworld News.

(h/t erikbacardi)

Dow on the Blink

I am very well aware that the last post's title was "Dow to 16,000". That was right after Ben and the Inkjets announced $600 billion QE2. Things haven't changed much in the US, I don't think, but ever since it has been the "sell whatever the news is" market. The debt crisis in Ireland hasn't helped either.

Here's a 1-year daily chart of Dow. It's a simple chart with just the Bollinger band, and intermediate/long-term indicators. It stopped today at the lower Bollinger band. If this doesn't give support, the next suppot level looks like 10,700 area. The intermediate/long indicators - CCI set at 133, slow stochastics set at 89 - are signaling a potential turning point. CCI is right now 100.11. If it breaks below 100, the bull run since September may be over. The same thing with slow stochastics. It is just about to cross below 80.


I am not putting any new trade, long or short. It does not feel safe here. Instead of TA, I have been paying more attention to what's happening politically in the US and Europe.

(How can a stock market of a country where you have to allow a total stranger put his/her hands inside your pants so that you can get on an airplane go up? That's what I have been wondering since the beginning of November, and the answer so far is no it cannot.)

Dow 5-Day 15 Minute Chart

Not much space left to go anywhere. It's got to resolve one way or the other. The last triangle pattern broke badly to the downside just yesterday.

Will Market Topping Pattern Repeat?

I'm afraid it may.

In the last post, I mentioned the expanding wedge on the Dow daily chart and technical indicators at the critical levels on the weekly chart. That was May 19. The next day Dow took a dive over 370 points blasting through 200-DMA. Friday's bounce caused by short covering algo bots failed to go anywhere near the 200-DMA.

Yes, the candle formation on Friday is a 'hammer', and may actually bounce as algo bots are getting smarter and smarter in giving us an illusion that the 'market', an exchange of price information about the health and potential of companies and business sectors, still exists.

But so what? Friday action didn't convince me a bit that the bearish trend is over. On the contrary.

Take a look at this Dow weekly chart from 2007-2008, which captures the market top.


And take a look at the current Dow weekly chart. My comments are on the charts.


In 2007-2008 market top, the whole pattern - head and shoulders pattern with a failure to capture the trendline from head to right shoulder, and a failure to capture the neckline as well as 40-MA - took roughly 12 months. The head and shoulders pattern itself took 8 months, and the failure to capture the key area took another 6.

This time, we already have a left shoulder and a head on the weekly. Right shoulder looks yet to form. From the beginning of the left shoulder, it has been 7 months.

Also note that in the 2007-2008 market topping pattern, the weekly candles had long body and long wicks, indicating increasing volatility. We are already seeing them almost every day on the current daily chart, and they've started to show up in the weekly chart.

It is possible that the index suddenly musters strength and negate this nascent head and shoulders pattern. Personally, I wouldn't put my bet on that possibility.

It is also possible that the index will keep on collapsing from here. Ease with which the 200-DMA was breached on the daily should be disconcerting for the market bulls (particularly those on a certain financial show on a certain network, giddy with euphoria that the market 'turned' on Friday).

No need to panic like a chicken with the head cut off (like European politicians) as we have seen the pattern in our recent past, but no need to be a stock trading hero either. For once in a very, very long time, I agree with Q-man (Quint Tatro) at Tickerville.com. His chart analysis cites the 1987 market crash (around Black Monday that wiped out 20%).

Is Long Bull Run Finally Ending in the US Stock Market?

Well, Shanghai does seem to be leading the way to the downside.

In the US, ever since the 'flash crash' of May 6 which was probably caused by High-Frequency bots but the SEC refuses to admit, things are not the same. Germany's panicky move yesterday to ban the naked shorting of select financial shares and euro bonds via CDS hasn't helped (what were they thinking?) calm the jitters in financial markets, to say the least.

I don't like what I see in Dow Jones Industrial, both in daily chart and weekly chart, and I suspect the long rally from March 09 may be finally over, for now.

First the 9-month daily chart.


The 'flash crash' went right through the supporting trendline from August 09, and the index has been unable to reach that trendline. It hit the line on May 12 and again on May 13, and it headed right back down.

You could argue it is the same setup as February correction, when the index went below the same trendline and failed in its first attempt to retake the line. But two things I don't like this time: 1. Down-volume is so much bigger; 2. Because of this February dip, we now seem to have an expanding wedge (dotted lines in the chart). I learned that an expanding wedge may mark a market top.

Next, the 3-year weekly chart. I like it even less.


The gigantic reverse head and shoulders pattern that marked the March 09 bottom and rapid recovery has pretty much played out, i.e. it seems to have hit the logical target, which is the head height added to the shoulder line. The index also has hit my target, which is 61.8% Fibonacci retracement line. It went slightly above it, and turned back hard on the 'flash crash'.

If the 'flash crash' was simply a technical glitch, the market should have roared back. It did, briefly, after the announcement of $1 trillion euro bailout plan, on a soft volume. Sure enough, it dipped right back. The index is now sitting on 50% retracement.

There are things called fundamentals and macroeconomics, financial policies and sovereign governments, and they have come back into the stock market big time. Even the algo bots seem skiddish.

That aside, look at the technical indicators on this weekly chart. RSI is breaking below 50 for the first time since July 2009. MACD is crossing down. Slow stochastics set at 60 for longer trend is about to break below 80 for the first time since March 2009, an indication that the current bull run may be finally over. Last time it broke below 80 was October 2008, a few weeks after the market top.

On the weekly chart, I don't see a solid support until 8,800 area. 9,400 area may offer some support (38.2% Fib retracement), as there was some consolidation around that area back in August-October 2009.

I'm particularly watching the Slow stochastics (60) on weekly chart.

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...

Will Three Black Crows End the Rally?

What often kills a market rally is not financial in nature. It's political.

There lies the limit of TA (technical analysis), I think. Many TA enthusiasts say "It is all in the charts", but how could a chart predict, for example, the president's (seemingly) sudden declaration of war against "evil bankers", targeting proprietary trading and investment strategy? The news was leaked on Wednesday, with his press conference on Thursday, and was followed up by his townhall meeting speech (does he think he is still a candidate running for presidency?). For all these three days, the stock market in the U.S. tanked, taking the global markets along with it.

Obama's newly-found populist stance has cost the investors around the world billions of dollars in a very short time.

What comes to my mind, though, is a chatter on financial TV programs on Friday last week that Tuesday (Jan 19) would be a bloodbath. It seems, in retrospect, some traders had had some information beforehand. To the extend that these traders may have acted accordingly and thus altered the patterns of squiggles or candlesticks on the stock charts, then you could say "it's all in the chart". But that's nothing but traders trading on insider information.

Three heavy down days created an extremely bearish candlestick pattern called "Three Black Crows", which is best formed on Dow Jones Industrial Average daily. The daily chart also shows negative divergence that has been developing on RSI and CCI (at 133 for longer term trend). CCI dipped sharply below 100, almost for the first time since July 2009.

If the fourth day, Monday, is another down day, the likelihood of the market going even lower is high.

To me, the market has started to feel like a repeat of October 2008. Back then, the heavy sell-off was triggered by the passage of bank bailout bill (a political event). It was ironic, because up to that point the sales pitch for the bill to the masses had been "If we don't pass it, the market will tank, the credit will be frozen, it will be a disaster!" That disaster happened after the bill was passed.

The market was sold off for 7 trading days, shedding over 20%.

Back then, the first three trading days resulted in over 8% loss. This week, from Wednesday to Friday, the market lost 4.6%. The loss is milder this time, but September 2008 was not an uneventful month - Lehman Brothers' bankruptcy, Fannie and Freddie and AIG practically nationalized, run on the money market funds.

This is a Dow weekly chart with Fibonacci retracement lines between several tops and bottoms. Where it is at, Dow doesn't have much support until it comes down to 9,700 area. 10,000 is a support in a psychological sense, and if that breaks, it could go down very rapidly. More solid support is around 9,100, and that's July 2009 level. To be sure, negative divergence has been developing on technical indicators, as clearly seen in MACD Histogram.

For now, Dow futures are up 44 points.

Where We Stand in the Stock Market

Well, a near-impossible has happened in the past 10 months. Dow Jones Industrial Average went from March 09 low of 6,469 to today's close at 10,680, a 65% gain.

If you didn't believe in the rally in March and stayed out, you still had a chance in July to get in, as you can see in the 3-year weekly chart of Dow. That was really a last chance, as far as the index shows. But instead, many retail investors stayed out in fear, that July correction could be "it" and we were going down to test the March low. If you had dumped everything in DIA (ETF on Dow) in March, you would have gained 65%. If you had dumped everything in LVS (Las Vegas Sand), your gain would have been well over 1000%. What a game.

(If I had dumped what's left of the money in my account into MTL in March, the gain would have been 470%. Oh well.)

On the weekly chart RSI, there is no negative divergence yet. (On the daily Dow chart, RSI shows a negative divergence.) CCI set at 133 to see the macro movement is still below 100, a bull market territory. Slow stochastic set at 60 shows it has broken into a bull market territory in November 09.

Dow now poked above the 50% Fibonacci retracement line from the market top in October 07, and may be starting to climb further up the thin zone up to 61.8% retracement. There will be a resistance there.

Many retail traders/investors are actually angry that the market has ramped up (or has been made to ramp up) like this. All the bad economic news, mismanagement and deficit spending by the government, job loss, coldest winter in years, and the stock market keeps going up. I do not believe that the stock market is "forward-looking", as pumpers at CNBC would say. I think it is reactive, and it is not enough to simply look at the chart to figure out what is more likely to happen. (And that's why I have the other blog on macro issues.)

For now, the chart seems to say there is still room for upside, at least to the 61.8% line around 11,245. The Point & Figure chart shows the target at 12,050.

I am not going to call the top. The more-or-less normal stock market ceased to exist in September 2009, and that much is very clear if you look at the chart. Since that shock was so great and violent, all we have had may be nothing more than a big DCB (dead cat bounce).

Batten Down the Hatches, Probably...

Thank you Dubai for the Thanksgiving surprise!

This is one of those events that defy technical analysis. You can't predict the event like this by looking at the chart. Asian markets are having a second day of severe down draught, with Hang Seng and Seol Composit leading the way. European bourses are sure to follow, which will be followed by the U.S. market. Dow futures are down 250 points as of 00:16 AM EST. I don't remember seeing the Dow futures this much in deep negative territory even in September/October of 2008.

The chart below is a 2-year Dow weekly chart, just to show the Fibonacci retracement from the March bottom to November top to see how low the index could fall. 61.8% line seems to offer a solid support, which is around 8,960. Back to the level in July. In between, 10,000 and 9,500 have some support, as they were resistance on the way up.



One of many things I regret for not having paid attention is Dubai's world-tallest skyscraper. When that building (still under construction) became the tallest in the world, it was September 1st, 2008. Right before everything went to hell in the stock markets worldwide. I had read about the "skyscraper index" back in January 2008, but I didn't connect.

It would be ironic if another Dubai incident (this time a threat of sovereign default) marks the beginning of a significant leg down in the market, which Elliott Wave people call P3, last leg of a bear market which will undercut the first leg low.

Dow Jones Intraday and Linear Regression

This is today's Dow Jones Industrial intraday. I was just watching the market today, mostly, and this is what I was watching: linear regression line.

I plotted the top line connecting the peaks, more or less, and the bottom line connecting the bottoms, more or less. I decided to ignore the spike down after 10:00 AM PST as reactionary low. I drew the center line right about the middle. And after 3:00 PM EST I thought, well I think they are going to park Dow right about 10,434. Sure enough, Dow ended the day at 10,433.

I've noticed that the Fibonacci retracement numbers and linear regression work better these days. Just my feeling. It could be because of those algo computers are programmed with numbers. I would be impressed if they are programmed to recognize patterns like "cup and handle"...

Nikkei and Dow, Since 1984

Japan's Nikkei must be the saddest stock index in the world. At least so it seems to me.

Nikkei is again (third time) lower than the level in 1984, and that's 25 years ago. "A lost decade"? Here we may be potentially talking about "lost three decades", and possibly hoping that it will stop at "three decades".

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...

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).

http://breakpointtrades.com/controls/preview.php?la_id=705

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.

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...)

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?

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...

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.