S&P 500 - December 31, 2008

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Market finished the year on a positive note.

Volume was the highest of these past few days, but still below average. Breadth was positive. In fact, McClellan Oscillator continued its turnaround from the proximity of neutral level and went back into overbought territory.

Volatility continued to shrink, and, for a change, more issues made new highs on NYSE than new lows, albeit the numbers are very small. Advance/Decline line is now nicely pointing up along a good trend from November lows.

Number of issues above their 50 DMA continued to rise. And number of issues above 200 DMA has started to perk up

This is the type of action that bulls need – only if it could happen on decent volume. Well, maybe next year.

Index picked right where it had left it yesterday and powered on – only to get to the neighbourhood of 912 pivot near the end of the market day.

Index is very overbought short term, and it is showing some negative divergences on 15-minute time frame. If the strength of today carries into Jan 2009, I would expect a shallow (38 – 50%) pullback soon, and another assault on 912.
Regardless of what I expect, charts (i.e. price action) speak the final word.

If the index does not pullback and powers through 912 – 920 area, it will leave me with two questions to answer:

1. Should I buy the breakout or wait for the pullback?
2. Should I sell part or all of the long positions established from lower levels

This 60-minute chart is still tracking nicely. In view of today’s strength, I have updated it with an alternate count that accounts for the start of a C wave up.

If the index pulls back deeply but stays above 850, and if market internals are not overwhelmingly negative, to me, it will be the same range bound action we have so far had

Both counts on the above chart are bullish in nature. I have decided not to clutter the charts with bearish scenarios as long as index holds above 850. Just be mindful that the 850 area is of technical importance. Also, be mindful of the fact that, as I have mentioned on a couple of occasions, I am leaning towards the bullish case as long as the technicals do not deteriorate and index stays above 850.

This is the last post of 2008. It's been a productive year, especially since I started blogging. I would like to thank each and every one of you for gracing this blog with your readership. And I hope I have not disappointed too much.

It's about time we forgot about the market and started thinking of the bubbly juice, or whatever it is that makes you giddy at new year.

Happy New Year!

Party Time!

S&P 500 - Dec 30, 2008

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Market continued on its low volume holiday activity. Breadth was nice and positive. Up volume handily beat down volume and advancers mightily outpaced decliners.

Index has move to a second down sloping resistance line. Stochastics seem like attempting to turn midway, which, if happened, would be a very positive sign.

Index desperately needs to push above its short term moving averages. 850 -912 is still the range, or should I say the cage?

Short term, this sideways count is still tracking

VIX has been dropping, which is always welcome.

As you can see from this 5-minute chart of SP

Index gapped up, filled the gap and powered on, presenting a cruise control trade on the long side.

The move from December 29 low looks quite impulsive. Index is getting overbought on shorter time frames, so a pullback may be in the cards soon. So far it all seems like an exercise in patience and prudence.

PS. Corey Rosenbloom of http://blog.afraidtotrade.com/ has an excellent post about the same long trade taken the DOW, it's really nice, check it out.

Energy Trusts - Dec 29, 2008

There are so many ways of getting exposure to a possible rebound in the energy area, if a rebound happens.

One way is to play the energy companies that are income trusts and pay a monthly distribution typically above 50% of cash flow. We have quite a few of them in Canada.

These trust can be very volatile, so stops are of utmost importance. Also, most of these trust are loaded with debt and are suffering from the crash of commodity prices and the tightness of the credit markets. On the other hand, they have been out of favor for months and any recovery or rebound in the price of commodity may attract fresh money.

My interests are purely technical and seasonal.

If I decide to allocate a portion of my funds to the income trust area of the Canadian energy market, I may buy a basket of them.

I have done some technical and performance filtering, looked at quite a few charts, looked at some numbers, and come up with a list.

Here's my list, all on Toronto Stock Exchange, TSE


ARC (AET.UN.TO)
Bonavista (BNP.UN.TO)
Crescent Pt (CPG.UN.TO)
Daylight (DAY.UN.TO)
National (NAE.UN.TO)
Peyto (PEY.UN.TO)
Zargon (ZAR.UN.TO)

I may buy all or none. If I buy more than one, I may do so at the same time or at diffrent times depending on how the charts look.

S&P 500 - Dec 29, 2008

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Market is still in holiday mode operating on low volume off technical levels.

Breadth was slightly negative as more stocks made new lows, and decliners outpaced advancers, but nothing to get excited about.

Index traded in a tight range, dropped to the neighbourhood of 850 area and dutifully bounced back. On this 15-minute chart, notice how the index bounced from the same level as I had highlighted on Dec 22, providing a low risk trade on the long side

This is just too clean and technical. Maybe too many technicians are in charge for now.

No resolution to the ongoing wave count. Market is trading sideways and this lateral count is still valid

I am not predicting market will do the above. I have no way of knowing how the waves would evolve. I just like sideway moves because they allow the market to work off its overbought conditions. More importantly, I like sideway moves because they make fools out of both bears and bulls and force many of them into losing trades.

Watch the 850 area. If it gets tested too many times, it may finally give way.

TSX - Dec 29, 2008

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It’s quite some time since we last discussed TSX. In a post of November 30, I had highlighted a breakout level as well as a breakdown level. At the time the technical profile of the index looked promising. But the index chose to slide down. The technical profile still looks promising

Index has been trying to make something out of the positive divergences and rising long term MACD histogram. But so far, all it has been able to do is making a tight triangular formation. It should not stay this tight and balance for long and the index should soon make up its mind for at least a short term resolution.

Index is still in a downtrend mid term.

Activity of the past few days has been on decreasing volume. Breadth has been positive.

The Run in Gold and gold miners has been very helpful to TSX, a sustained uptick in energy related issues and base metals will be a huge driver for the index. The other dogs of TSX are financials that have been weighing heavily on the index. On the other hand if energy, metals, materials and financial do not cooperate and gold miners correct, then the index will suffer.

Things are too tightly symmetrical to last long, and I think one way or the other I may get a play out of this.

USO - Dec 29, 2008

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Has oil finally bottomed, or is it just another oversold reaction, this time aided by the unrest in the Middle East?

I have always believed that for a good uptrend in a commodity, commodity companies should outperform the underlying commodities. I have talked about this in the context of gold and gold stocks, and we see that both are in an uptrend at this moment with gold stocks so far leading the yellow metal.

But what about the oilers?


The above performance chart shows us that some oil companies have been outperforming Oil.

The energy ETF XLE has also been outperforming Oil. But XLE hosts Natural Gas companies and drillers as well as oil companies. Regardless, the energy area has been outperforming the price of the energy commodity (the same is true of Natural Gas as well)

Looking closely at some main oil companies, we see that the individual charts look somewhat corrective

Some future juicy short potentials in there. But, for now, they have been uptrending. Quite unlike this horror show of the oil-realted USO

A lot of divergences are being built, and are routinely ignored by market participants. But the oil stocks have been firming up and some are in uptrends.

So either oil stocks start to crash and join oil on their merry way down, or oil bounces off its divergences at some point to follow the oilers.

As things stand now, the future curve of oil contracts show quite a bit of contango. That indicates that, at this point, the future market expects higher prices in the future. Of course, the future market can be wrong, but I am willing to bet on the side of the future market and against those who are ignoring the positive divergences and the lead of oil stocks.

This is a 30 minute chart of USO, which I have been using to draw trade setups.

In three prior instances, the trade would stop with minimal loss or small profit, basically flat. One can make speculative bets and still get out with one’s skin intact. The key is position sizing, and trade discipline, so much more so when, like in this case, the bet is against the trend.

AEM - December 28, 2008

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It is hard to find anything negative about the performance of AEM so far. It’s been a leader of the pack. Just look at this performance chart of AEM against the gold digger ETF (GDX) and some other heavy weight goldies.

It is also hard to find a blemish on Market Time’s handling of AEM. We have been shepherding this stock really well so far. In a post on December 15, I said:

AEM is finally registering some overbought readings on the daily chart, and daily MACD has climbed above zero. So, technically it’s been laying the grounds to go higher.

Since then, AEM has cleared the 45 resistance area which has now been acting as support. Stock has gone 6+% higher.

Things are really congested in the 45-50 area. And stock is overbought. And it’s been trending nicely. I can imagine a lot of short positions against the confluence of resistance in the 45-50 area. Nothing helps the long side of a trade better than scared shorts who have piled on top of each other late in the game for a quick buck.

AEM really has a chance of pushing through the resistance and set the current levels as a strong support for later pullbacks. This is not a recommendation to buy at this point, only me letting my imagination lose.

Volume has been low these past few sessions.

Sometimes a leader gets near its perceived potential, active money manager take some money off the leader and reallocate that to the laggards of the group, and the sector usually peak soon after.

I am not saying that this happening, but the action on Friday was rather peculiar. Late in the day, Gold and gold stocks suddenly woke from their Friday afternoon siesta and started running very hard.

This is what happened on Friday

NEM +4.2%
GG +5.9%
KGC +5.3%
GDX + 5.4%
ABX +4.5%

And this is what AEM did

AEM +1.7%

All on below average volume.

Again, I am not saying that things have peaked, just something to be aware of. Maybe the laggards are catching up and all of them together will go to the moon in unison, who knows?

Looking closer,

The advance since December 18 looks a bit cagey.

I leave it as an exercise to you to compare this with the same period chart of the other gold diggers discussed above.

AEM is at a point where it soon needs to prove itself deserving of being an investment as opposed to being just another delightful trade.

GLD - Dec 27, 2008

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I started my post Christmas blogging with real food, now let’s talk real money

This is a daily chart of GLD ETF

So far, so good, eh?

In a previous post, I discussed how the impulsive nature of the current rise has caused me a technical dilemma. I also pointed to 82 area as a strong support level.

GLD bounced off the 82 area and did a quick run on Friday. Volume, however, was not great. This kind of low volume days are always a cause for suspicion. But, we do not have much to complain about. We have been doing well with this. The exogenous environment has been very good as well, Gold has been outperforming the market indexes, gold miner have been outperforming gold, US Dollar has been dismal. There also has been some attention being paid to gold for its monetary value in a world where every central banker seems to be on a mission to devalue the currency his/her bank prints.

Now, price is hitting against some strong resistance. It has worked off some of its overbought readings. Friday’s low volume jump turned the indicators around. Being overbought is OK. It should happen when price gathers steam and tries to push through resistance.

One of our astute readers, JK, posted this as a comment to the post of December 20.

This seems to be an impulsive wave, which puts into question if this is actually a part of a primary B from the OCT 27 low. The uptrend seems strong now, so it really makes me open to other scenarios now, since a double three could be negated. I see a double three on the gold miners and a possible ascending triangle. I am still going to keep primary B of Cycle 2 open. IMHO, this uptrend seems particularly strong that any pullback will be brief. The weekly indicators are recovering, suggesting that strength. I just cannot envision right now how that would play into the wave counts, especially if it is a brief period of consolidation. If so, that would mean a pretty strong B wave. I will have to start considering bullish scenarios

Very good observation. In fact, we should always consider both the bull and the bear case, and we have been discussing that it might be a 1-2-i-ii type of wave.

One thing that has bothered me a bit is a slight overlap that exists between the peak of November 14 and the low of December 5, as we can also see from this 60 minute chart

I have also checked February 09 and December 08 future chart, they have the same pattern as continuous contract chart. Here’s the daily chart of $GOLD

Notice that MACD Histogram has been making lower peaks. There are some divergences built on 60-minute chart as well.

In short, I am not very comfortable with calling the rise from the last lows as a wave 1, and am still leaning towards an a-b-c. But no one has ever accused me of not being flexible when it comes to market activities, and I will be more than willing to change my tune and become a born-again gold bull.

Meanwhile, I think we have it rather easy, especially if we are in this from lower levels. On the 60-minute chart of GLD, I had two theoretical targets, 86, and 90. 86 has been achieved, 90 may be a stretch, but all it takes is a hot spike through some short positions.

Price is in a tight area of support and resistance, it has already retraced 50% of the entire decline, I think we all can handle it technically off these levels.

On a different note, Gold, IMHO, has held so well against so many things because it is money, and its status as money is recognized worldwide. There was a piece of news that Credit Suisse Group had decided to pay its bankers’ bonuses with some structured paper or loan obligation or some similar sort of crap. Good for the Swiss bank. There were cries of foul from disgruntled bankers. Why? Isn’t the official position such that all these papers are good but market is mis-pricing them, so they should be happy about the prospects of making a killing when irrational markets of structured loan obligation papers become rational. Do you think those bankers of paper would have been as miffed had their bonuses been paid in gold coins?

Yet, take a cyber trip across financial blogs, it is apparently fait accompli that we will have hyperinflation soon, very obvious that bonds should correct, very obvious that the Greenback is dead. Things are just too obvious to too many. That does not make me feel comfortable holding a trading position. So I will watch my chart levels and let them tell me what to do.

DBA - Dec 27, 2008

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Now that some of us have had some truly grain-fed turkeys, let's talk turkey food.

Last time I talked about DBA, I thought the ETF was ready to do a pullback. Instead, The ETF just went up and cleared its first resistance hurdle around 24.5. The advance has been on low volume, which has been emblematic of market action these past few days. This is a cause for concern and we will see how the ETF behaves when the volume comes back.

Looking closer

We see a higher high made. We also see strong momentum that is getting extended. The difference between momentum getting extended in an uptrend versus a downtrend is in an uptrend momentum stays extended for some time and give backs are usually shallow. DBA’s price is positive but I do not have a confirmed uptrend yet, that may come as soon as next week.

So, if I were already in, I would start thinking about raising my stops to capture some profit (partial or whole), and I would watch price behaviour on a day with real volume.

If I were not in, I would aside and just observe the price action, especially around the gap that exists above the 26 and extends into the 27.5 pivot area.

If I wanted to trade, I might consider an entry on a test of 24.5 area with a tight stop

DBA is showing early signs of having made a bottom. I need a confirmed uptrend to try to relax a bit. Wave structure so far is not very clean and I am leaning towards an a-b-c structure, which may make it harder to decipher.

S&P 500 - Dec 23, 2008

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No volume!

Main players seem to have checked out for their holidays. Technical trading, however, was alive and well. Look at this 15 minute chart of S&P. Same 880 level that I highlighted yesterday offered a low risk short again.

Index is perilously close to the 850 level and a breach may attract more sellers. Daily chart shows early signs of downward acceleration.

This count is still alive, but it is on rather shaky ground.

Breadth was tilted negative. Volume or no volume, it is not prudent to fight the charts, especially on the down side in a bear market. Index is not oversold, and is not showing any kind of divergences that usually lead to price reversal. That may come tomorrow. Just watch price action around key levels.

PS. This holiday season, we will have family at our place. In case I cannot do a post for the remainder of the week,

Merry Christmas, and Happy Holidays!

S&P 500 - Dec 22, 2008

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And Grinch stole the volume!

All three US markets that I monitor (S&P, the DOW, and Nasdaq 100) had sub-par volume today. It felt like Christmas had started for real traders of Wall Street, leaving us with technicians and junior traders on a short leash.

S&P dropped all day only to stop around the technical level of 850 (Market Time has an 852 pivot) and then ran a bit up into the close.

This is a 15-minute chart.

Let’s not get caught in the debate of what wave count we are having. The correction from the November low can be counted in quite a few different ways. Instead let’s focus on the bigger picture that the November low was very likely either a Primary A or an Intermediate 3. Now what we are having is either a portion of a wave B (or a wave 4), or the whole of it. Which one? At this time, I cannot say with any degree of certainty. And I do not believe anybody who says he/she knows for sure.

Yes, one can argue one’s case an offer any amount of circumstantial evidence based on monetary conditions, historical patterns, market sentiments, what have you, but the fact of the matter is that the index is stuck in a range, a rather wide range, and as long as that range is not decisively broken (up or down), market is without direction.

But why would that be a bad thing? A range-bound market is a gift to traders – as long as it lasts

We have been discussing three potential patterns

1. A Wedge

So, the wedge broke, and it is not a very good thing. One of the things that we as technicians learn (through observations, and losing a lot of money) is that chart patterns can morph into other patterns. A wedge can always morph into a parallel channel like this

It is also quite possible that it was not a wedge (or a channel to begin with).

2. An Inv Head & Shoulder

I can draw it in a different way as well. The point is that it is still alive, but barely.

3. A downtrending channel

I don’t think I need to write much about the negative implications of the pattern above.

There can be other patterns, how about this right-angled triangle that now looks ominously broken

Added to that, as Ellioticians, we know that the internal waves of the ongoing correction can be counted in a number of different ways.

So, it becomes paramount that we pay attention to the bigger picture, and study other market dynamics like volume, momentum, and breadth.

Monday’s volume was pathetic. The price action and the breadth were negatively tilted.

Notice the Stochastics that I have been highlighting as a windsock for ongoing short-term price weakness.

We are still in a range. Short term momentum is getting oversold and may cause a pop. Near term price and breadth momentums are still up there and can exert down pressure.

If I really had to trade this market now, I would pay special attention to my favourite indicators and calculated pivots. In a listless market that may become volume-less as well, intraday technicals, and some important price levels may offer invaluable guidance.

S&P 500 - Dec 21, 2008 - Playing with Waves

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I was thinking if I could come up with a scenario that would maintain the markets sideways motion and help reduce the overbought levels of the breadth and near term oscillators. A wave B triangle may do that. A tight abc-x pattern can also do that. This is just having fun with waves.

S&P 500 - Dec 21, 2008

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Very boring action for an option expiration day.

We keep looking for Santa, and find Scrooge instead.

Nothing has changed. The action just looks tired and listless. It cannot stay like that forever, and sooner or later we should see some volume and fireworks.

The two patterns that we have discussed, Inv. H&S and the rising wedge, are still in play.

Daily Stochastics crossed below again.

Despite the overbought and rising nature of the breadth oscillators, index is not doing much. Some may say that this is a sign of quiet, tactful accumulation, I just have a hard time seeing that without market getting into overbought regions after 5 weeks or so since November bottom. But, the rally is still there, and there is always the Santa to seek

I do not mean to say that the rally is doomed. Just that more and more it looks susceptible to at least a pullback.

There are many opinions out there as to how this will resolve. To me, the index is stuck in a range (I am even boring myself repeating this point), and unless one’s a fast-finger trader, one may fare better on the side line waiting.

If I felt compelled to take a side, I would start slow, and would definitely look at options, especially since volaitility has been shrinking nicely.

DBA - Dec 21 - 2008

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I have written about the agricultural ETF (DBA). It has not yet given me a signal to enter. I am still interested, and I think the situation is still interesting.

This is the daily chart

As we can see, some divergences are being built. DBA looks like it is about to pull back from the 24 level. The possibility of the pullback is echoed by rolling RSI and Stochastics.

Here is a close look on a 60-minute chart

We have two interesting levels that might setup the ETF nicely for a launch as I have annotated on the chart.

There is no point to rush, I need to see how the ETF holds on the pullback. If it makes a new low, I may lose my interest.

RIMM - Dec 20, 2008

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We have been following Research In Motion (RIMM) for some time. Last I wrote about it was in a post on December 13.

It finally broke out of the descending wedge formation on December 17, did a slight pullback and advanced nicely on positive news.

Technicals on a daily frame are positive as stock has been setting a huge amount of divergence against the drop in price.

I thought taking some profit might not have been a bad idea, and then maybe one could pick a stop level and let it play. If it gaps down below the stop, hey, that’s the price of playing the long side of a stock that is still in a downtrend in a bear market.

Here's a closer look with possible stops depending on one's tolerance for risk

GLD - Dec 20, 2008

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Last time we discussed Gold (Dec 11, 2008), I posted a 60-minute chart of GLD. On that chart I had a simple EW target of 86 based on wave A equal wave C

Well, that so far has been a darn good target. Look where GLD turned for a pullback. I have added another target based on C = 1.62 * A

Now we have a very interesting situation. Both Gold and GLD are, finally, in a confirmed uptrend. The rise from Dec 7 looks impulsive. I cannot say whether it is a wave C, a wave A, or a Wave 1 of some degree. It already has pulled back 38% and sitting at a somewhat important support/resistance level around 82.

Let’s step back and look at the daily chart

Some indicators are turning over. That does not mean that GLD cannot go higher. But maybe the pullback is not over yet. There is a very well defined support/resistance area, and I, personally, would take profit, or lighten a position if that area would not hold. Why so cautious? Well, look at the green trend line that is connecting all the lower highs, Gold need to make a higher high at some point, and then I may be able to relax a little.

Things have been improving really. Stepping back and looking at the weekly chart, we see this

I had posted this before, and had worried about 89 week MA flattening with price beneath it, and had said price had to rise to improve that ominous view, and price has just done that. The weekly picture looks a lot better than a few weeks ago. I just want to be a cautious with shorter time frames. The reason for all this cautiousness is that I am not yet convinced that the Gold Bull is back.

On the same post of Dec 11, 2008, I pointed to what looked like an Island Reversal pattern. Now we know that pattern was valid as GLD has advanced nicely. Technical Analysis works sometimes!

Some big boys of Wall Street and Bay Street, and I am sure some other streets, deride technical analysis through their writings or TV interviews. My question is, if their methods work so well, how come people are redeeming whatever meagre amount that is left from their mutual fund holdings?

I have discussed how all analysis is susceptible to failure. I humbly recommend that newer readers read that post of Sept 26, 2008.

With technical analysis I see the failure soon enough to run for safety. With other brands of analysis, I shall wait for some corporate exec to put the numbers together, and then I have to trust that the books are not cooked (I am sure they never cook them), and then I have to pray the numbers have not been leaked to some better connected than me (I am sure they never leak numbers) and then, after the close of the market, I either get killed or rewarded – one heck of way to go about trading a bear market.

And that is just ordinary companies. Analyzing something like gold needs an understanding of so many different financial and monetary parameters.

I am a simple man. I’d rather take a chance on my island reversal.

S&P 500 - Dec 18, 2008

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Another day, another act of indecision by the index. S&P seems adrift and without direction. Or it might be consolidating. Different participants have different way of interpreting this. Why not just wait to see how the range resolves and then do something with it?

Looking at the above charts, a bear may say, look how the internals are overbought and what does the market have to show for that? A bull may say, look how the internals are overbought, we have risen from the depths misery and future is bright.

Maybe that’s why the market is just chugging along and frustrating bull and bear alike. Pretty soon, the big money may go on vacation and the market may become rudderless for the rest of the year.

There is a possibility that we have a complete correction and we are going down.

There is the possibility that we are not complete with the correction yet.

Great, I am basically saying that we either go up or down. Let’s add sideways, which is definitely possible, and I will have all the bases covered.

In a post on December 7, I discussed a few things that I would have liked to see to make me feel better about the future of financial markets.

Let’s see how we are doing

LIBOR has been dropping like a stone

TED’s been easing

Corporate bonds have been on fire

Inflation bonds have been on fire

And, in an option expiration week, volatility shrank, yes, I know it is high by historical measures

I think these are all positive developments. However all of these charts are at technical extremes and a correction may happen within days. Also, S&P has had a miserable time at the 912 pivot area. Index has given back what it gained after the FED show.

Also, there is a possibility of a rising wedge, as we can see on this chart

There are just too many possible formations, too many possible wave counts at this point. Things are tightly congested.

The juice is there to pump it up. But it seems like the market needs an event to ignite its fuse, and push it past the technical barrier.

I have started thinking about steps to be taken to build an exposure towards the long side of the market. Because we are still in a bear market by all technical measures known to me, if I go long, I may use some option strategies to better define the extent of my exposure to a sudden wrath of the bear.