S&P 500 - March 30, 2009

charts courtesy of stockcharts.com

Friday’s pullback continued with broad selling.

Index gapped in early trading hours of the future markets and kept selling during the regular hours. Breadth was very poor. Volume, however, was not huge.

I think we can safely say that one leg of a rally is now complete

Index could not overcome the elements of weakness that we had been talking about, and made a short term lower low. It however was a very strong run. Now, the question is whether the 160-70-point run was a one-time wonder or a harbinger of better times ahead for the index.

Short-term momentum is oversold, and a bounce may happen very soon. But what we need to pay attention to is if the index can make an emphatic new high, and if not, how far it drops, and if that drop is associated with poor breadth and high volume.

The best thing for the bulls is a sideways action by the index. That way overbought conditions get resolved, bears get whipsawed, and market builds internal strength to advance.

Short term trend appears to have turned down. Mid-term trend is down. And long term trend is down.

I am not going to be aggressively short. I have decided to give the bulls the benefit of my doubt, I may change my mind tomorrow, but, as of now, that’s my stance for the mid-term.

That does not mean that I will not trade the short side of the market if I see an opportunity.

I saw an opportunity early morning

Give me a setup like the above, and I will start planning a short for a trade.

At the close, index rallied to the neighbourhood of 789 pivot. Resistance is at 789, support at 768 and 750.

S&P 500 - March 28, 2009

charts courtesy of stockcharts.com

Choppy Friday action and internal weakness ahead of the G-20 circus.

Friday’s price was choppy and saw some selling albeit on a the lowest daily volume since the rally started



Breadth was negative as market pulled back from overbought levels.



No disaster, but index looks toppy and has been registering a series of negative divergences



As we can clearly see, index could not get above the center channel line, and dropped to the lower channel boundary. There are multiple levels of support starting with the 800 area.

Looking a bit closer



I can count a wave complete with an ending diagonal.

But, I would be cautious and set tight stops if I wanted to short. Especially since the world seems to be gasping with anticipation of what might be on display by the G-20 circus. I don’t really understand why. It’s print up baby, print up. Some are talking of Dollar losing its reserve currency status. It may get volatile.

If I could script it, I would write a series of sharp spikes up to put some more screws to remaining bears, and then a pullback to reveal to us what the rally is really made of.

Not much else to say, really. It’s wait-and-see.

Food for Thought: there is an old investment strategy called The Dogs of the Dow. It’s basically about buying the underperforming large caps of the Dow for the year, thinking that they have had their demise for the year, and since most, if not all of them, are viable businesses, then a rebound in most, if not all, will result in good returns.

So, if we wanted to extend that theory to economists, we would pick the ones in the dog house and ignore the hot ones currently on TV. For example, Roubini was a widely ignored figure that was absolutely right about everything he said would happen. Around the time of March lows, he had become the Paris Hilton of finance, garnering attention of financial paparazzi, granting interviews everywhere, even on the same bubble-paganda machine that hosts the bubble-mouth-in-chief-creamer.

So, should we ignore him for the year, and seek the ones in the doghouse right now? I mean, until he is thrown out of spotlight, and back into the oblivion of masses?

Just a thought

AEM, Gold Stocks - March 28, 2009

charts courtesy of stockcharts.com

The last time we talked gold stocks was on March 1st, 2009. At the time I wrote:

they are getting oversold on daily measures ... after a good run, the first oversold reading of a correction usually produces good bounces

and

I would not want to be caught with a lot shorts on my hands in a bounce like that. If this was just a shallow correction, I should not be short, if this is a resumption of longer bear market, I will have enough opportunity to short.

Prior to that, on February 26, I had posted an intraday post saying:

I reduced the amount of short exposure I had for precious metal stocks. This has been a very good and pleasant drop and I was heavily short.

I put some hedges in place, and the rest will go on stops.


On March 18, Bernanke signalled intentions of targeting longer end of the debt market with paper, and gold and gold stocks spiked sharply higher.

Twice so far, I have pinpointed a top in gold stocks. Both times, I have been rewarded handsomely. None of them was the top, and I still managed to clear hefty profits before the turn. Reasserting what I said in my last post on DBA, I am not a guru, I just try to be disciplined and apply simple trading principles.

Let’s look at the current daily picture of AEM, one of my favourite gold stocks.

Notice that the selling from February high happened on rapidly decreasing volume. In fact, the two-day period prior to the announcement of the paper master of Fed, volume was anaemic. On the day of the Fed show, intraday volume prior to Fed announcement was very low as stock was drifting down in oversold territories on daily, 60-min, and 15-min time frames. In my portfolio at Kaching, I still had some shorts left. In fact, I had other gold-related shorts as well, GG, GDX, and the metal itself. The low-volume drift down and oversold status prompted me to cover most of the remaining short shares. I only kept 3000 short shares of AEM (down from 10s of thousands at the top I picked). That proved to be a prudent action to take. I have reduced further during the pullback we saw on Friday. A very profitable trade overall, with a bit of disciplined luck ;-)

Notice, on the chart above, that both tops that I picked resulted in selling that stopped at the 45 support level that I had identified much earlier on December 25, 2008. Again: no fortune tellers here, just charts and market studies.

Going forward, the situation has become very interesting. AEM is in a mid-term uptrend, so are all gold stocks I follow. After the Bernanke spike, volume shrank rapidly as the stock advanced in a very tight manner. It is bumping against resistance around 60, and it is overbought.

Let’s take a closer look

This is a range-bound picture. Stock is at the top of the range pulling back from overbought territories.

Let zoom in some more

Stock is sandwiched in a tight situation. Something has to give soon. A monetary announcement like what might come out of G-20 circus may resolve the situation as early as next week.

On the 60-minute chart above, notice that the wave count is still presenting 2 equally probable scenarios. Also notice that every advance has had a 5-wave structure. I was reminded of the impulsive nature of advances by Tony Caldaro, the creator of Objective Elliot Wave (OEW). Thanks Tony!

The current duality of the wave counts exists with many gold stocks that I follow. It also exists with the HUI index and the GDX gold miners ETF.

The black sheep is Goldcorp (GG)

Although every adavance is of a 5-wave nature, I cannot comfortably count an overall impulse on GG’s chart. In the post on March 1, 2009, I said this about Goldcorp:

if we look for a company to, from a fundamental point of view, reflect gold’s price behaviour, Goldcorp will be as good as any. It’s a low cost producer, it has some well developed assets in politically secure places in the world, it has a long track record of good management, it has little or no debt, has 200+ mil in cash, and it is not hampered by a heavy hedge book.

Of course, not every company goes through its growth phases at the same time. True that these are commodity-related companies, and their unhedged earnings are tied to the price of gold, but there are other factors at play as well like production cost, percentage of gold content in the ore body that they mine, and so on.


As far as company announcements go, the fundamental situation of Goldcorp has not changed.

So, what is behind the different wave structure? I don’t know. But that difference of technical behaviour by a widely followed, senior gold producers make me cautious declaring a brand new bull market for gold stocks. And I will keep both counts open until market forces me to drop one.

That does not mean that we cannot profitably trade in one direction or the other. The existing range may offer short term trades. A resolution of the range may offer a swing trade.

Meanwhile, mid-term trend is up, and a pullback may offer a low risk trade on the long side to target the top of the range.

GDX is again outperforming GLD, and that usually bodes well for both gold stocks and the yellow metal. But notice that the ratio is also very overbought and may pullback soon.

Finally, a look at some HUI breadth measures that I calculate, we see that breadth has not really kept up with price in confirming new peaks.

Notice that the index is bumping against the underside of a trend line that it broke on February 25th, while closely supported by a shelf around 320.

This and the overbought daily chart make me suspicious of the longevity of any short-term advance in price, so, disciplined trading remains my note to myself until the situation resolves.

DBA - March 28, 2009

charts courtesy of stockcharts.com

The last time I wrote about the agriculture ETF (DBA) was January 5th 2009.

This is how the chart looked at that time

At the time, I said:

It is at multiple resistance points as you can clearly see from these charts.

I though a prudent way was to take some profit and set a tight stop somewhere below the rising trend line and see how it behaves at resistance.

As it turns out, my timing was almost perfect. This is the current chart


Notice how it stopped right at the 27 are which I had identified as resistance due to the fact that it was the bottom edge of a gap that opened down early October 2008.

I solemnly swear that I am not a guru and do not know what future brings. I am just a student of the markets. I follow my charts and apply what I think is a disciplined approach to trading. Sometimes, I get lucky, but, most times, I stay out of trouble.

This is the daily chart



I still think that there is good chance that we saw a good bottom early December. We do not have a confirmed mid-term uptrend yet, but I think we will.

Of course, it really is of no significance what I think. The March low is not far below. The rise from the March low was impulsive, and if I am correct thinking that the rise was a wave 1 of some degree, then the March low should not be violated.

So, my game plan is to accumulate on weakness with my initial stop below the March low.

S&P 500 - March 26, 2009

charts courtesy of stockcharts.com

The rally continues.

This must be really painful for the remaining bears. The index just does not let up. And, then, there has been that late afternoon rush to buy.

Today, in some uber-bear blogs, I saw some openly talked about throwing in the towel, some had drawn areas on charts showing where they might quit, some had super bullish chart projections and called them possibilities. Gone seems to be the sense of entitlement to riches from perpetual market crash.

The sooner they fold, the closer we may get to a pullback. I say may, because the other possibility is that the loafer type, underperforming, always-late money managers may feel the heat and get scared of losing the bid and really looking like a fool. If that happens, then the mad dash may become a stampede to just buy.

Every market participant with a bit of technical knowledge can see that the index is above its 50-day moving average, and that the short term moving averages are either rising or flattening.


Technical posture like that may give a lot of people the confidence of holding on to a position, and confidence is a key factor in this game.

Today’s action presented further signs of diminishing short term momentum.


Also notice that the action today was held back by the center channel line. This is like an athlete running the extra time on adrenalin only. But there is no saying how far he can carry before his muscles say Enough! Still, the series of higher lows and higher highs is intact and, as such, the short term trend is still up.

Those who get themselves tied up with fancy indicators and subscription-only trend oscillators should not forget the power of a good trend line drawn by a simple ruler.

The new high set today opened the door to a multitude of wave count possibilities, no such thing as just a simple, impulsive market.

I am going to continue with the one I have been counting so far

But it can be counted in different ways, like this for example


Notice that we also have serious negative divergences on the 60-minute frame as well.

Here’s another


Let’s not spend too much energy on the short-term count. Iinstead, let's focus on the fact that we are looking for an end to this up leg, and that the short term price action has been advancing on decreasing momentum.

It is against my technical principles to start a long a position here. If I were long, I would take a look at what I had and start thinking about profit-taking scenarios. It is a matter of individual style how to take profits or what portion of positions to let run.

For the day volume contracted. In fact volume has been contracting as this rally has progressed. Breadth was positive.



Short term trend is up. Mid-term trend and long term trends are down. The strength of the rally suggests a high probability of mid-term trend turning up in coming days - just a suggestion. Current rally has improved a lot of technical measures, but there are signs of short-term weakness.

Trade a safe Friday!

TSX - March 25, 2009

charts courtesy of stockcharts.com

Whatever it was that caused the mad late afternoon dash on the US market did not cross the border into Canada

Since the last time we reviewed TSX, index has done quite alright.

But notice that the massive outperformance of TSX against S&P 500 has plateaued. It may resume, but for now, it has falttened. Also notice that the past few days, we have had some above average red volume bars.

Breadth has improved a lot since March lows.

There really isn’t much to complain about, only that we may have seen the best and most, if not all, of this leg of the rally.

This 60-minute chart of the index shows some signs of fatigue

Still, the short-term series of higher lows and higher highs is intact, but as long as the signs of short term weakness persist, I would be reluctant to establish a new long position.

The index has done really well. It also behaved very well into the March lows. The first rally has so far been clean and impulsive.

I need to see how it pulls back. As long as it does not collapse, and as long as index internals do not deteriorate badly, I will treat a pullback as an opportunity to establish new long positions.

My cut off point will be below the March lows.

S&P 500 - March 25, 2009

charts courtesy of stockcharts.com

Who let the crazies out?!?!

What a day it was for market participants: rally to lure the bull, drop to give hope to bears, and then straight up to finish.

What was behind that mad run into the close? Was that because of bargain hunters having so patiently waited to finally get a fill? Was it the daily shorts not wanting to take any chances with overnight positions? Who knows?

Some say it was manipulation, to which I say: it is what it is, grow up and take it!

Today had some bouts of weakness; we saw the largest selling since the rally began, and the drop stopped 2 points above our pivot of 789.

We can also see that index briefly dipped below the lower channel line. We can notice that the index could not get well above the center line of the channel in its last advance. Add all of this to diminishing short term momentum, and the pullback after the gap fill, and one might make a case for some signs of fatigue.


Does that mean that this rally is over? Not necessarily. But until all these signs of fatigue are cleared and fresh price and momentum peaks are registered, I would be wary of a new long position to take home.


I should, however, not forget that the short term series of higher lows and higher highs is still intact.


So, the short term picture is very much wait-and-see. The top of the gap, or the highest point of the rally offers a trading pivot for disciplined traders. If I fancied a trading short, I would set my stop somewhere above there. If I fancied a trading long, I would wait for a break above that level with a stop somewhere below the trading pivot.


Volume came in above average and more than yesterday. Breadth was positive.


Notice, in the above chart, that the index has the best daily technical posture since May 2008. So, the next time some bear fanatic or doomer-gloomer goes on his soap box, remember that the market has its own way of doing things, and that Mr. Fanatic doomer gloomer may be right, but at the moment, the technical evidence does not support his argument.

I do what I do to make money off the market. Mr. doomer-gloomer may be in it to sell books and speaking sessions, or to secure his tenure at some economics faculty somewhere. To be able to carry my mission, I need to observe the market which may align itself again with doomers at some point, but, at this moment, the weight of technical evidence is on the bullish side.


Now, if you look at my portfolio at Kaching, you may come and ask how come I have all those shorts in there. First off, most of those positions are remnants of much larger short positions that I gradually liquidated into the drop. Secondly, I am mostly in cash. Thirdly, I am trying to pick the top of the rally, which sometimes involves a lot of tight trading to maintain a position. Fourthly, I am fully aware that I am leaning against the current tilt of the market and I may be forced to take a loss and cover.


To wrap it up, some signs of short-term weakness have appeared. But the short term uptrend is still intact. If today’s action was any indication, this market has not forgotten how to retire as much capital, bull or bear, as possible. The first thrust off the 666 low has so far been a clean impulsive move, and the market has a positive technical profile. Mid-term trend is down, but barring some dramatic reversal of fortunes, and in view of the technical action so far, there is a high probability of a confirmed mid-term uptrend in coming days.


The bigger picture shows a lot of improvement as well


Have a nice evening.

S&P 500 - March 24, 2009

charts courtesy of stockcharts.com

Index gapped down, tried to stage a comeback and retraced all of the daily decline, but did not have enough umph to carry higher. As I have brought up before, if there are no more shorts willing to throw the towel, chances of a pullback greatly increase, and it becomes the sole responsibility of the bulls to maintain the rally.

Have we capped the rally yet? It seems like we have 5 complete waves


Also, on shorter time frames, index has been registering less momentum. The pullback may have started, but since the short-term series of higher highs and lower lows is still intact, caution is warranted on the short side.

I will use the levels identified on this 15-minute chart to follow the progression of the pullback whenever it happens

The first line of support, of course, is the 800 level.

Volume was below average and breadth was negative.

Index has cleared its short term EMAs and now has the support of 55 and 34 EMAs.

I know I have said that many times already, but it is what it is: the weight of technical evidence implies strength, and I need to see how the index pulls back.

Short term trend is still up, mid-term and long term trends are down. The strength of the rally suggests a high probability of mid-term trend turning up in coming days - just a suggestion.

Remember market knows what market does better than all self-appointed experts and gurus. When you hear argument by this character or that, bullish, bearish, or neutral, check the charts and see if the market action supports the argument.

NFLX - March 23, 2009

charts courtesy of stockcharts.com

on February 16, I wrote about a video Adam Hewison of Market Club had released on Netflix, and then presented my own analysis

This is the link to Adam Hewison's video on NFLX

As it turned out Adam's call on NFLX was superb, and my own analysis of NFLX was right on the money. NFLX pulled back to what I had identified as a support shelf, and then bounced off of it to push past resistance at 40


This is a closer look ath NFLX price action


I cannot say how far it may go. I would start my exit plans if I were long. I, personally, would not go long with new positions here.

Adam's call was great in pointing me towards a potential trade. My own analysis helped time the trade to perfection

That is how we should take advantage of the experience and insight of others. They show us the setup, we do our own analysis to trade the way we like.

Thank You, Adam.

S&P 500 - March 23, 2009

charts courtesy of stockcharts.com

The man with the plan finally gave the world a plan. It’s basically about taxpayers taking a lot of risk, and private entities taking some risk, forming some kind of partnership, and jointly bid for junk. Couldn’t he do this first time the world expected him to present a plan, I mean, instead of going into hiding?

That might have prevented the drop to 666. But that would probably not have lured everybody and their cousins into shorting everything, culminating with bubble-crook-in-chief calling DOW 5000 or something like that.

Without so many to squeeze, we might not have had such a gigantic run in such short a time.

It’s all would have, could have, might have, so who knows?

Whatever the plan, fat cats seem to like it.

So first we had the spike from Ben promising to print and buy junk, and now we have a spike from Tim promising to find bidders for junk.

If banks do not like this, what else would they want? And with flood gates open, it became a second massacre of the late bears.

Every major market in Asia was up during their early trading hours. Us future markets were up from Sunday evening

Maybe that was the plan: the massacre of late bears.

During the normal trading day, there was a huge spike on some breadth measure

Notice how up volume is in stratosphere, and advancers ran all over decliners. Also notice that the 50-point run happened on the lowest volume of the past 6-7 days.

So many bears have kept asking for a final capitulation. Can it be that yesterday the bears capitulated?

A lot of rocket fuel (bear meat and bone) has been spent for this thrust. It is now up to genuine buyers to prove that this thing is for real.

So far, we have not only had a very strong first step but also a clean 5-wave impulsive move. Technically, the mid-term trend is down. Also, the impulsive moves can always have more waves to become an abc-x corrective pattern. But looking at the technical evidence in front of me, I have to err on the side of probabilities and say that in all likelihood we will have a confirmed uptrend for the mid-term, and we will have more impulsive moves up.

So, that's my story till the market forces a change.

But first things first, barring any other news-driven breaking of bear bones, this move should be either at its zenith or very close to it. 5th waves can be very tricky and extend beyond expectations, but, as we just mentioned, there may not be enough shorts to squeeze a lot of points out of this rally

If I were long this move, I would start thinking what I would do when a pullback finally arrives

If I wanted to join the bull party, I would start picking levels, and laying plans to ease into the move

regardless, I would also think about a cutoff point to run for covers of the sideline in case the market suddenly turns upside down.

I am actually short from the close. Just a few puts that I look at as gambling bets at this point.

The best scenario for the bulls is a shallow pullback and consolidation to set the launching pad for the next advance.

The short term series of higher lows and higher highs is still intact.

There is a nice channel engulfing the current rally.

It would be text book perfect if it could top at the channel’s upper boundary, or even throw over with a last dash of bull rage, but I, personally, would not start a fresh long position here for that.

Also notice that the open gap above 800 is finally filled, and price is very close to the top of the gap

Let’s take a look at the big picture before wrapping this up

So far so good, really!

Notice that I have a super bullish alternate label. Can this be technically the end the of the bear market? Sure, it is technically possible.

Don’t attack me yet :-)) I am not calling anything, just saying that it is technically possible. If that were to happen, 666 low would hold, and we would only see impulsive 5-wave structures on the way up, as simple as that.

Something to keep in mind

There are no guarantees in the markets. The bulls had a good run on the back of late bears, now they’ve got to run on their own.

There were many bears calling for capitulation, pointing out to benign VIX behavior, reminding us of low put/call ratios. Ignoring them has served us well. It was not our bones that were crushed under the weight of this run. The most important indicator is price, and after that, breadth and momentum, the rest are complimentary in my work. The least insignificant element in the market, to me, is the opinion of others.

It is not over till fat cats say it’s over. If fat cats have received all that they wanted, there will be no need to inflict much more pain by removing capital from the market. It’s as simple as that in my books.

It is very crucial to get a meaningful pullback. And the behaviour of the market on that pullback will tell us what to expect in coming weeks.

I don’t know how to say this without sounding repetitive: it is once again up to the bulls to run with the ball. That is so because bears are either massacred or are on the run.

Resistance at 850, and 912 area, support 800, 789 and 768.

S&P 500 - March 20, 2009 - Intraday Trade Setup

charts courtesy of stockcharts.com

On Thursday, I said that I would be moving into an observer/trader role. Friday offered an opportunity to both observe and trade

S&P 500 - March 20, 2009

charts courtesy of stockcharts.com

It seems like it works every time, doesn’t it? The lead up, the pump, the news, the spike, the dump.

Bernanke spike lasted 2 hours. The guy said he would print as much paper as it would require to hold the humpty-dumpty from sinking further into the deflation swamp, bubble-crook-in-chief clapped and cheered like a clown, and the market sold and took the profits.

What is it that he is really trying to do? Reviving the economy or propping up asset prices? The two may not be the same, you know? As just one example, high property prices are not good for economy as they eventually drain mass disposable income from production and consumption and sink it into pockets (bank accounts) of property owners. Property owners will in turn pay into inflated salaries and expense accounts of city beaureaucrats.

High asset prices is really good for the owner of assets. That usually does not include the majority of the public. Inflation is a bliss to the wealthy. Deflation, contrary to what is sold by bubble media, is good for the longer term economic well-being of the masses. It helps them save and own. Widespread saving and ownership means less reliance on money lenders. It will lead to investment and, eventually, a sustainable economic activity.

But that would not help a banker, would it? The banker wants us to owe and not to own.

Will there be enough paper to fill the depths of bad debt and then spill over? Isn’t part, if not all, of what Bernanke is doing a shift of junk from bank balance sheet to Fed balance sheet? What will happen to the bad debt? Inflation can erode the intrinsic value of a debt. It’s been tried before – with disastrous consequences. Will it be different this time?

Aaaaah, enough talking above my pay grade, let’s talk S&P.

Before doing that, let’s look at a cute picture

No, I am not predicting this, just thought it was a cool pic to show

-------------------------------------

S&P pulled back further on above average but decreasing volume.

Breadth was negative and decliners outpaced advancers

So far, market has done everything right: It has set positive internal divergences compared to November lows. It has seized upon the opportunity to make humble souls of as many arrogant bears as possible. It has risen with force and urgency. It has rallied widely and improved its breadth nicely.

But was it just a short covering rally from deeply oversold levels? It’s now a question of how this pullback evolves – the deeper the pullback and the worse the breadth, the more chances of revisiting the lows, and vice versa.

Index stopped rising right at a crucial level which is the bottom of an open gap, and also the low of a wave 1 of sorts. Therefore it has left both the bearish and bullish counts open.

The series of short term higher highs and higher lows is still intact. The weight of technical evidence in on the bullish side, but since the market has left its options open, I need to stay open as well.

I will keep an eye on this chart with the levels marked

So, let’s be open-minded and diligent about this. Let’s give the charts and the market action a chance to guide us through this. And please let us ignore all bubble-heads bullish or bearish. At worst, a bubble head is an idiot, at best, he/she is biased and that is not the way to make money in the market. I don't know about you, I am in this to make money and not to prove points.

-------------------------------------

One Technician I read rather regularly is Carl Swenlin, in his latest writing published at his site as well as at financialsense.com, he said this

Quite a few years ago I used to write a daily newsletter, but I decided to give it up because it got tiresome trying to invent new ways to say the same thing over and over. More important, having to form an opinion on the market every single day, especially during volatile times as we have been experiencing, can build a (lot) of stress. Also, since I am primarily focused on the intermediate-term and long-term time frames, it can be counter productive to put too much effort into short-term analysis

Interesting take from an old hand. I can truly relate to the point that sometimes we get to repeat the same thing over and over for days, like saying short term trend is down, or we will need to see how the market pulls back. But I cannot relate to the stressful part. I do not feel like I have to have something new to say every day, nor do I feel like I have to entertain, that is the job of bubble-crook-in-chief-cramer who needs to fill the airwaves with crap and sell advertising slots so that he can insert himself into an expensive tie (he practically said as much on Jon Stewart Show). My mission, as I see it, is to observe and analyse – just write it as I see it, and if the analysis of today is no different than yesterday’s, so be it. I don’t know, maybe at some point it becomes stressful, and that would be my cue to wrap it up and move on, but, for now, it’s a lot of fun.