Dow 5-day Chart: Ascending Triangle?

It looks to me like "ascending triangle" formation over the two days. Usually the break is to the upside, but since today is a quad-witching day I don't think it will happen. But who knows? It's Mercury Retrograde, after all...



(If a breakout ever occurs out of this pattern (if this is an ascending triangle pattern, that is, LOL), the target for Dow is about 100 points up from here, bringing the index very close to 10,000. DISCLAIMER: I am not not qualified to advise, recommend on the stock market, and this is only for your and my entertainment.)

EOD (end of day), the crooks otherwise known as market makers and specialists, managed to end Dow Jones Industrial Average right on the dot on the lower ascending trendline. The ascending triangle formation is still intact, which may or may not be significant, as this was a quad-witching Op-Ex (option expiration) day.

Dow Jones Industrial September 16, 2009

It's about time I revisit the chart of Dow Jones Industrial Average. Why today? Because it's been over a month, and the index was up on a larger volume, and because my once-dessimated portfolio recovered to what it was right before the September-October crash of 2008.

In my August 3 post, I bragged "I Told You So in May, and Sucker's Rally Continues!". I'm not bragging again, but just wanted to mention what I got right almost for the first time since I started actively trading, almost exactly two years ago (right before the market top...). That's about psychology.

"To be really a "sucker's rally", the rally has to threaten to fill the huge gap down created in October 08", I wrote back in May. Whatever the underlying reason or un reason, the market has climbed just like I thought it might, handily beat my first target of 9,300 - 9,400. Right now, Dow is between the 32.8% retracement and 50% retracement from the October 07 market top.

In this Dow 3-year weekly chart, 50% retracement would take the index to about 10,300. That's the middle of the sheer cliff from October 08 crash; very thin resistance (remember those days when Dow dropped 200, 300, 500, 700 points in one day?). I wouldn't be surprised it runs up to 61.2% retracement, which would be around 11,200.

RSI is in uptrending channel, MACD is solidly positive, and slow stochastic is above 50 for the first time since the 2007 market top. It could collapse back so quickly if a next financial disaster hit, but for now they are all good signs, no negative divergence. Only negative divergence I see in the chart is the volume. It's been decreasing ever since the March 09 bottom while the index marches upward ("Rally that no one believes in"). However, the trend may change, as proverbial "performance anxiety" among professional traders, fund managers, and retail investors may intensify.

Cramer Believes in the Rally and Much More

CNBC's Mad Money host Jim Cramer just can't understand why people are so negative. He says the housing market is doing great, and will do well even without the government subsidy ($8000 first-time buyer credit), cash for clunkers was such a success. Retail is thriving, banks are solid.

So here it is, Jim Cramer on Mad Money Monday September 14, 2009, one year anniversary of Lehman Brothers bankruptcy which triggered... we know what, don't we?



I am still very much long the market, although I've started to trim my positions by selling partially. I don't believe in the rally when the government is spending like there's no tomorrow (there will be no tomorrow very soon at this rate), sucking up private capital from productive citizens and corporations. The stock market is not the economy, and I'm simply watching the technical parameters so that I can exit before @#$% hits the fan again. Ever since I went gradually long in mid March, the technical levels I'm watching are still not breached.

Rally Nobody Believes In Marches On

Just about every trader whose comment I read and hear wants to short the market or is already short. Then the market does what it does these days, which is to go up.

Quant/algo trading notwithstanding, today's intraday charts of all the major indices - Dow, S&P500, Nasdaq - registered a vertical spike all at the same time, at 2:27 PM EST. S&P Futures spiked at the same time. So far, there is no news that could have triggered it.

Certain patterns does not exist in nature, and this sure looks unnatural. You could possibly argue that the 30 minutes or so before the spike, the indices were sitting flat, getting ready for a pop.

Industrials and utilities supposed to pull the indices higher today. One of my watch list stocks, NOV, had a large volume up-day, ending the day above the overhead resistance of $40-41. I put in a partial order, which didn't fill. Might as well see if it can hold above today's close before I commit.

Gold Is Finally Breaking Out!!??

Today (9/8/09), Barrick Gold Corp. (ABX), the world biggest gold producer, announced that it plans to eliminate all of its gold hedges and raise $3 billion in a share offering to help pay for the move, as gold breached $1,000 mark. (AP News link is here.)

Barrick Gold will join Newmont Mining in having their gold positions totally unhedged. They clearly see a plenty of upside and little downside in gold, going forward.

Gold went up to $1007 today, only to reverse back to where it started the day at $995, making the daily candlestick "gravestone doji", a reversal signal. However, I'm not too worried about short-term reversal, because I continue to like what I see longer term. Gold has to correct over 25% from here to get to my cost basis (I have DGP, double-long gold ETN), and like Barrick Gold's CEO I just don't see it happening.

This is Gold continuous contract, 3-year weekly chart. I tend to see the huge reverse head and shoulders formation that has taken 18 months to form. On shorter time horizon (since March this year), I see "ascending triangle pattern". Both patterns share the same neckline. Short-term, a break from the "ascending triangle" would be around $1160 (widest distance in the pattern plus neckline). Longer-term, a break from the "head and shoulders" would be $1320 (head height plus neckline).

However, gold doesn't necessarily move based on technicals. China is calling back its physical gold holdings from London to store them in a newly constructed vault in Hong Kong. It recently allowed its citizens to own and trade physical gold, and is planning gold ETF based on their gold holdings. I suspect gold's huge jump last week was at least partly in response to the news from China. Gold has a potential to break even further up, beyond technicals.

Deep-Water Oil Rig Companies to Replace My DXO?

Deutsche Bank is closing out DXO, double-long oil ETN, thanks to the government's regulatory crackdown that is more likely to come sooner than later (margin requirement change, particularly on commodities trading). I had no intention of selling my DXO, and was planning to hold long-term as I see a long inflationary period (even if the economy is in doldrums) ahead.

But as of September 9 (some say it's September 12), I will have no choice but sell my shares back to Deutsche Bank (I think this bank is way extended in commodities markets - soft (ag), oil, and precious metals). Other leveraged long oil ETFs may have a similar risk of being shut down. The very fact that DXO is being shut down but not DTO (double-short oil ETN, also from Deutsche Bank) indicates to me (I could be very wrong, but) that the oil price is going to go up very soon. In order for DBank to create a synthetic double-long position (DXO) someone has to take the other side, and that someone is less and less willing to take that position, either because the oil price will go up soon and he will get royally squeezed, or the new margin requirement is just too much, or both.

So, I am forced to look for alternative plays without using leveraged ETF/ETNs if I think oil is still going up. For that matter, without using any ETF to be extremely safe. (Look what happened to UNG.)

I've started looking for oil-related stocks that are still forming a base. The first batch of such companies are oil rig companies:

• Transocean (RIG)
• National Oilwell Varco (NOV)
• Pride International (PDE)
• Oceaneering International (OII)
• McDermott International (MDR)

RIG and PDE provides off-shore contract drilling and OII and MDR are engineering companies who coordinate off-shore oil rig operations. NOV manufactures actual hardware.

BP's newly discovered under-water oil field in Gulf of Mexico, the well was vertically dug 10,000 meters under 1,400 meters of water. It was a job by Transocean, and it is probably the deepest well ever dug in the world.

Anyway, here are the charts. I like RIG, NOV, and PDE, then OII and MDR.

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.