Friday, July 31, 2009

GDP - Gross Domestic Product

Well I was a little surprised off the reaction we got after the GDP numbers this morning, the numbers were a little better than expected but still the first reaction was a sharp sell reaction. Whereas yesterday we had a jobless claims number that was worse than expected but the market shot up. So I decided to look into this a little further, above you will see the quarterly chart of GDP readings, counting this quarter we have 4 quarters of negative growth. According to economists 2 quarters is a recession, but 4 quarters is a depression. However, there are those that argue that that is not the case. I am not an economist, but I do not think you need to be one to read the above chart and see that drop off we have had and tell that it is not good. In fact we have to go back to 1982 to get any kind of numbers as close as the ones we have right now. And I think that is what the initial reaction of the market was for.

On the positive side the retraction seems to be in decline, the last down bar we had we significantly less than the previous. There is definently a lot of obstacles in our path, there's no doubt about it. Again I stress though as traders, follow the trend until it is broken. If I as I analyze my volume data, see heavy accumulation from institutional buyers, I could care less how bad the news is I am taking my first buy signal!

Wednesday, July 29, 2009

US Dollar update possible Triangle Formation

Here is a daily chart of the US dollar over the last six months or so, as you can see the dollar is taking a beating on inflation fears among other things. Remember the market is working inverse to the dollar right now so we need to pay extra close attention to how this pattern will play out because it may tell us the next move the stock market will go in.

Just in case you missed it previous post of intermarket relationships:

One of the main driving factors of this whole rally off the March lows has been the devaluation
of the US dollar. Key areas to watch: Horizontal Support coming in @ approximately 78.50 and the upper edge resistance line which it is closing in on. If we get a break to the upside a possible move to 85 would not be out of the question and the stock market would probably correct as well. If we go back down and break support, well oh boy more downside would be inevitable. Which however would more than likely cause the market to continue to rally.

I do want to say this rally still has plenty of more room to the upside, I hear people say so many up days in a row market so overextended. Well in a way their right but do not forget we dropped over 50% over the fall/winter alone so this is an unusual time and that a rally over the 1000's on the SPX would not be out of the question. Each and every chart I look at still shows more upside that is possible. Again though keep an eye on the dollar (DXY) intraday for clues on which way this may turn.

Tuesday, July 28, 2009

Oil trade update

Here's a quick update on Oil today with the markets being in a whipsaw tug of war battle, I decided to stay out of this fight unless a decisive victor comes out today. I wanted to point this out also because I wanted to say that TA is good in its place, but because it follows price primairly it sometimes doesn't get the whole picture. I hope everyone saw the post about a month ago where we broke down the oil trade and what TA was telling us about the direction Oil prices where going to go in the future, now this is TA at its best, in case you missed it here's is the post.

We said the pattern at that time was a reversal pattern and that Oil should come back down to test the lower trendline and ma support, and that are target after the breakdown was around $58. Well what did we get $58.72 to be exact and we bounced back up for a close yesterday of $68 and change! I hope someone out there took that trade:)

So even though TA patterns fail, like our head and shoulders on the SPX, overall it is a tool every trader should be well schooled in. We should be studying price movements and where they potentially should reverse. But TA alone is not sufficient, it would of had you shorting this entire rally, and without proper risk management some damage would have been done. No I am saying look for the potential movements and study volume and supply and demand patterns and order flow to see if they confirm the TA analysis, if volume analysis is telling you that a stock is getting accumulated heavily by large institutional players I don't care what TA tells you, do not go short or you will be sorry. Let's think outside the box and not look for those things that everyone else is looking at and create our own plan of attack!

EDIT: TA = Technical Analysis:)

Monday, July 27, 2009

ES midpoint support update

Here's a two day chart of the ES, midpoint support is drawn as horizontal support line, shaded box represents today's trading sesson. Look how the ES hits and bounces off of support coming in @ 969. I was lucky enough to get in right at 969. Market struggling to keep prices at these levels however NYSE Tick remains positive so I am holding my position. As soon as I see a lower low on a five minute bar I may sell at market.
Now, even with this info if you saw the market sell off to that horizontal line would you go long? Well if you were listening to the news or perma bears out there probably not. Market is overextended yes so the risk reward may not be worth it to most. However as traders I believe we shouldn't be trading while thinking what may or may not happen 3 to six months from now, that's not a traders mentality that's an investors mentality. Again just my opinion.

Sunday, July 26, 2009

Sector Performance Update

Here is a quick sector performance update for the last 10 trading days, as you can see every sector performed well in this uptrend which doesn't surprise me at all. Things to note for this week XLF - the financials underperformed the overall market as well as defensive sectors like Health care and Consumer staples also underperformed the overall market. Generally the financials lead the overall market so it should be noted in case of a short term pullback.

Of course in my opinion the overall trend on all timeframes is up and every pullback reaction should be bought until signaled otherwise. Since we have broken long term trendlines to the upside I believe a lot of institutions will continue to throw money in this market so they will not be left behind. Again I will say let the trend be your friend, does it make sense for us to be at these price levels, NO. But if you follow the volume transactions of the large players (institutions) you can stay on the right side of the trade moreso than not. After all isn't our goal as traders to make money, shouldn't matter to us if it is by shorting or on the long side.

One thing I want to say, lately I have been realizing that Technical Analysis although good in its place, by itself is insufficent to consistantly make money in this market. Since the Decimilazation began in 2001 I believe, with the introduction of small spreads, large traders can in fact mainpulate the price of a stock in order to Accumulate/Distribute there positions before the move. I will not get into details but I will tell anyone listening is to study Supply / Demand and effective Volume intensly. That should be the core, the charts should be second because they are lagging indicators, they follow price and price only there is not enough on volume analysis in Technical Analysis to see what is going on behind the scenes.

I am working on a couple of projects that break each trading minute down, dissect it by volume and price movement (open, high, low, close) as well as supply and demand signals. So far the results are outstanding, but I still have more work involved to complete the system. I will keep everyone posted of the progress along the way.

Thursday, July 23, 2009

New Bull Market? Just Maybe!

We broke a long term trendline today, I had a feeling a sharp pop was coming but honestly I had no idea and am very impressed in the strength of this market. Although I do feel this is too soon to call the bear market over, I will say if we can hold the 965 level the bear market is OVER.

All three time frames are CONFIRMED in an uptrend now, even after 8 days of closing positive we are still having an uptrend day today. Now that is strength people, whether manipulated or not, we have to respect the internals.

A selling reaction would only be normal at these levels, but that should only be a springboard for higher prices. One reason I do not pay much attention at all to news anymore, the writing was on the way at 685 to go long but I was too scared and missed a huge amount of this rally looking for short positions.

Tuesday, July 21, 2009

The Importance of Pivot Points

Here is a 5 minute chart of the ES, I got stopped out at 944.50 even though I said from the beginning today this market wants to hit 965 at least. However I jumped the gun a bit on the long call as the reaction of the sellers had not yet been complete.

If you look at this whole rally up from 865 last week the biggest reaction to the downside was about 10 points or so. Well when I got in we had gotten a 10 point reaction from the mornings high, so I felt that odds where in my favor to pinpoint a precise target. Well I was off a couple of points, and this bothered me so I looked more into the data and found something simple yet very effective. Pivot Points:

Pivot points are calculated by taking the high + low + the close of the day and dividing by 3. A close above is bullish, below is bearish. With futures it is a little more complictaed because they trade 24 hours round the clock it is hard to get a close. I use the midnight close as my number but another way to come up with a round number is to find the midpoint of the high and low of the previous day and that can be used as a pivot point. I have all this data in an excel spreadsheet so I am always prepared.

So take a look at the chart again, my pivot point from yesterday calculates approximately 939 (horizontal line) the low of the day was 939.50 excellent entry opportunity in hindsight. Another valuable lesson learned and another tool to add in our trader's toolbelt.

I expect if this market breaks the highs of the head in our pattern to see some serious short covering which in turn will shoot this market up rather quickly possibly by weeks end, until then I will daytrade and take what the market gives, I do have working order to short ES @ 965 though, and I will elaborate why in a later post.

NYSE Tick, great trading tool!

Hey guys, here's a great trading example that I hope will help everyone reading!

Here is a 5 minute chart of the trading session yesterday, on top is the S+P 500, on the bottom is an indicator called the NYSE Tick, this reading for those who are unfamiliar with tells how many stocks are trading at ask, to those that are trading at bid. Here as you can see the sellers came out in the mornings and got a negative tick reading, but look what happens after we get higher lows and higher highs, meaning selling pressure decreased, and gave the bulls more confidence to take this market up higher.

I had gotten in on my long trade at the 2ND low, unfortunately because I wasn't going to be at my computer for a little bit, I moved my stop to break even, the market sold off and took my out before shooting higher:(

Monday, July 20, 2009

Intermarket Relationships, US dollar and equity markets

Here is an interesting chart showing how different markets react to one another. This chart is a daily on the US dollar, the top is the line chart daily on the S + P 500. The first thing you should notice is how these markets are almost inverted to one another, as one goes up the other goes down and vice versa.

Check out the top in the USD around the March 9th equity markets bottoming, and the following steep decline in the Dollar over inflation fears among other things. This has been one of the major reasons we have seen such a steep incline in the market and why it is becoming increasingly more complex to chart and trade this market. But one thing I will tell you is to keep the ticker up for the USD dollar and keep close tabs on it intraday as it could save you from making some serious mistakes. The ticker I use intraday is the DXY - US dollar index spot price.

Right now signals are too mixed to take any positions, we had a decent rejection of prices at the ES 945 area, but no follow up as of yet. Tick and A/D Line favor the bulls but not by much. Remember to respect stops right now until the market finally tips its hand.

Sunday, July 19, 2009

SPXA50 Chart, Stochastics current condition

Hey guys, looks like it will be another late night tonight to see if I can get any good positions for tomorrow. Here's some quick charts to think about.
First is a chart on SPX, daily, look at the stochastics area. Last week I made a reference to it being oversold state, with a bullish cross and look at what happened last week! Now with the rally if you look at the indicator currently you will see it is in an overbought state and looking for at least a pullback. Now we need to see a cross for it to be bearish but it is something to keep in the back of your mind.
Last chart is a reading of how many stocks in the S+P 500 that are trading above their 50 day moving average. Another reading that a pullback could be on the way, but keeping an open mind regardless!

Friday, July 17, 2009

Has anything really changed here?

Take a look at the charts, has anything really changed to you? No, if anything this pattern appears to be more convincing with the symmetrical double shoulders on each side. As I said yesterday I believe the fuel to the fire of this last 4 day rally has come from short covering. I hear even on CNBC people talking about the head and shoulders pattern and the critical neckline price level around SPX 875. The problem is they never said anything about the double shoulders so the potential to rally was there to form the second right shoulder, I believe a lot of shorts entered the market Friday and/or Monday and they all have paid the price for it.

For those of you looking for a good time to go short now is a good time, let me tell you why. See there is no sure thing in the markets you need to look for the highest risk/reward ratio utilize proper risk management and go for it. Whatever your trading vehicle of choice whether it be SPY, SDS, ES, SRS and so on. Put a stop just above the head price level at approx 956 SPX.

The probabilities of this pattern working itself out shortly are high, not 100% but high. Your price target if we calculate the breaking of the neckline using TA would be about 800 SPX and we also have a 61.8 Fib retracement at around 780 SPX. So if you short with a stop at 956 -960 SPX, worse come to worse you get stopped out, your risk would be 20 points or so, your reward however could be 100 - 150 points if this pattern plays itself out!

Remember though trade your portfolio only, do not trade with money that you can not afford to lose, I can not stress that enough!!! If you can't take that type of drawback, do not trade futures wait for more confirmation signals or try a less risky vehicle like SPY puts. Also if you want to try to pinpoint a possible more precise entry point watch for the bearish cross on the 60 min MACD on SPX. That may give you a better shot at an entry point without having to average down and take the dreaded drawback heat!

Again good luck to all!

Thursday, July 16, 2009

Updated VIX chart

Well I went back late last night looking through all of my charts, I have to say the more I look at the charts the more I agree with my analysis all along which is it is a lot safer to be a bear right now than a bull.
Look at these VIX charts the weekly chart bounced off long term trend line, the daily VIX chart as you can see is at the bottom of the channell and respecting that trendline as well. The volume on this whole rally this week has been moderate at best. My conclusion is this has been a short covering rally for the most part. Just last week the outlook on the news was very bearish, couple that with us being at the lower end of that head and shoulders neckline we have been discussing, I think a lot of people went short at that point and have been covering for losses all the way up bringing the market up with it. Remember the market does the expected but in unexpected ways. Unless I see a high volume break out to new highs and the VIX drop well below these trendlines I believe all of this will just give us a better opportunity to go short.
Another reason I believe short covering is the basis of this rally is this, if you look at the charts this week you will see NO real pullback at all. Which is a sign of short covering killing all of the bears in the process and giving them no pullback to even average down to at least break even.
Respect your stops everyone, this market has no conscience and will not feel bad wiping out your account if you let it. Be careful right now, watch the MACD like I said yesterday, a cross on the 60 min chart may be a great short sell signal, but again be careful.

Tuesday, July 14, 2009

Oil Update, Technical Analysis at its best!

We talked about the short term direction of oil and gold a couple of weeks ago in a previous post, let's take a look at what is going on.

As you can see from our chart we had the breakdown of the head and shoulders pattern, at that point our price target calculation came out at $58 and some change, right at trendline support and 200 sma support. Well our low came in Friday at $58.71!

For anyone that got in at that level, congrats to you. We said that was a great opportunity to go long for a short term to intermediate term trade, put your stop slightly above the $59 mark and let it ride! This energy sector may be the catalyst with the financials overinflated earnings to form our second right shoulder.

I am still very bearish, look at the vix charts I posted awhile ago. I will repost the updated charts sometime this week. it is hitting support on many timeframes and I believe a spike in the Vix should be coming in the very near future. Till then trade very carefully, I still have my NQ short but am only trying to break even and wait for a setup at higher prices to short and make up for yesterday and then some!

Monday, July 13, 2009

Possible triangle back test on SPX

Here is a chart of the SPX, 60 MIN. looks like we had a triangle pattern develop and broke down out on July 6th, I think what is happening right now is we are in back test mode and will hit the bottom of the triangle. This is what I am counting on at least, there is a lot of resistance overhead, MACD did cross the 0 mark which is bullish but the stochastics is oversold and looks like a bearish cross is coming.

We have resistance at 904, 20 sma, 907, 61.8 fib retracement from the last high. So we have those in our favor. I am looking for a pullback to resume over the next few days.

Sunday, July 12, 2009

KISS: Keep it Simple Stupid!

The title of my post and one of my favorite sayings will explain a simple yet effective strategy that you can add to any trading system. Here it is run a 5 day Exponential Moving Average (EMA) and a 20 day simple moving average on your chart. Now this method can ideally work on anything whether it is a stock, etf, index. Here is the daily chart on SPX, now ready for this because it is very complicated, ok, go long when the 5ema crosses over the 20 sma, go short when the 20 sma crosses over the 5 day ema. Yes it can be that simple, that's see how we would have done over the last 6 months. We had our bullish cross around March 16th at 740 and proceeded to climb to as high as 956. A possible 200 point move we could have captured. Then we had the bearish cross in Mid June prices fell moved back up to test the 20 sma then plunged 920 to 880 for a 40 point move so far.

Now this strategy works well in trending markets, not as well in rangebound markets and of course there are other factors to figure in. For example I use support / resistance and trend lines along with extreme readings in the NYSE TICK indictaor to time and exit my positions. Of course there are many other factors to consider but the core of my system is what I just explained. It takes time like anything to get better at trading, but my whole point in this post is to show those that are over doing it with indicators and percentage movements and all that, that sometimes more is less and less is more. However to each is own, I hope this info is helpful and I would love if anyone else wants to share some simple startegies for all to see as well so we can all learn together. Let's make this our motto when we trade!

SPX Head and Shoulders, Kiss of Death, Trader's Paradise?

Hey Guys, still having some issues posts will be limited for a week or two until I get set back up again. Anyway I have a lot of info to show you in so little time. Overall not much has changed we got our last top at 930 right were we expected, head and shoulders pattern is still very much in play, we are right on the edge of breaking that neck line but nothing desicive yet. Remember we need a CLOSE below this 878 level to confirm this pattern. If we get a decisive break then look out below.

Here's the deal, see how we had 2 left shoulders form before we made the ultimate top(head) around 956. Now as of right now it is unclear if we may get one more bounce off the neckline to form a symmetrical head and shoulders with 2 left and right shoulders before the possible break down.

As you can see my annotation the "kiss of death", when the 20 day moving average crosses below the 50 day moving average. This is very bearish for the market and might be a telling sign, however check out my annotation at the bottom as the full stochastics has gotten a bullish cross signaling a possible short term bounce however should be short lived.

To trade this, any long position is very risky I don't see to much upside so the risk reward ratio would be poor. If you want to try to play the bounce should be only a day trade ONLY. Otherwise wait for higher prices to establish some nice short position. Down trend has been confirmed on all three time frames (short, intermediate, and long) so let's let the trend be our friend.

I have so much info I want to show you, hopefully I will be able to post some of it over the week. I have some simple strategy suggestions that can keep you on the right side of the market. Also some market internal charts that show some inside information.

Till then good luck trading!

Monday, July 6, 2009

ES Intraday Update

Here is the deal, ES has found support right at the 882 level (blue horizontal line) I am long @ 885, as of right now I do not have a target I will keep moving my stop up and try to just milk this one for all it is worth.

Next important support which I believe will be tested this week is around the 875 line (pink horizontal line) A break below that and much lower prices will occur. For now watch these levels and see what happens.

Sunday, July 5, 2009

S + P 500: The bigger picture

Well first off I hope everyone had a great holiday! Here is a daily chart of the S + P 500 (SPX) for the last 8 months. I think this is good for us to see as we discussed the short term picture with our head and shoulders topping pattern, well now lets take a look at what we can expect over an intermediate time level as we look at a bigger picture. Now I post this as a warning for those already invested, because with the VIX hitting long term support and a possible breakdown of a topping price pattern. We could very well see some volatility and selling pressure over the coming month(s). We can already see the tone change in the news with the jobs number that came out and talk of another stimulus (please don't get me started!)

Now as we look at this chart we see what is called an inverted head and shoulders pattern, the circled area is the smaller move we have been focusing on but the bigger picture is what you see here. I do however apologize the chart is a little messy I didn't have much time to put it together, but you should be able to get the picture. I believe we should sell off and come back down to form that right shoulder over the coming months at first glance I would say the 740 area could be the target. Now if we can hold there and push back higher this sell off which we are now experiencing is not a bad thing for it will give us enough momentum to break the neckline (horizontal line) around the 950 area and push much higher.

However if we cannot hold that 740 area we could be retesting the March lows, and if that doesn't hold then who knows where we will end up? However at this moment I don't think this will happen, unless God forbid something catastrophic happens I believe the low of this Bear market is in place. That is just my personal opinion though as many way more skilled analysts do believe that we will see lower prices. At this point though it is purely speculation and as you know I do not like to get into speculating. Hope this gives a little clearer picture of what the market may have in store for the near future.

Saturday, July 4, 2009

Looks can be decieving!

Here is a very interesting and also serious post, for those of you that have been on the sidelines for this "rally" and are looking to get back in I say now is not the time. Let's look more into this "rally" off of our March lows with charts from each of the 3 major indices.

Even with this non stop rally off those lows, look at where we have gotten. The SPX and the Dow has ONLY hit their 38.2% retracement level. In other words we have retraced only 38% off the last major high. The Nasdaq was able to hit its 50% retracement before getting rejected.

On an intraday short term basis, until the break is above the 61.8% the move is suspect. The 50% is respected but 61.8% is key. I say that to say, on 2 out of the 3 major indexes we have yet to break the 38% level. Don't be fooled this bear market is still alive and well, I would be careful getting in at these levels and advise against it. There is still a lot of uncertainty out there, look at the jobs report Thursday, stagflation is very much in the cards for the next couple of years.

Again if you read one of my first posts you know my stance, is this the apocalypse or the end of the world, of course not. But with all these looming issues and massive debt, expect to see other countries show growth before us and for us to be stagnant for awhile.

Thus the title of my post, looks can be decieving, do not fall for the hype!

VIX (Volatility Index) Update

Here is a 3 year weekly chart of the VIX, aka the Volatility Index. In simple terms this Index measures the level of fear and volatitlity in the market. It also has to do with option buying and selling, but that is a whole different more complex post. What I want to show is the lower rising trendline that has been support over the last 3+ years once again get tested and bounce back up off of. Showing that the market is still indeed respecting this trendline. We also have the 200 day simple moving average (green line) as rising suport as well. Lastly look at the MACD, you can see the black line curling back up and the histogram starting to slow as well.

What does this mean? Well the relationship this index has with the SPX is for the most part as the VIX goes down the market goes up, and when the VIX increases the market sells off. Take a look at the absolute peak of the VIX at 89.53 back in Nov '08. That was during one of the biggest market sell offs of our time, so I say that as an example of how this index works. You can say the VIX is like an inverted vehicle to the overall market itself.

Buying VIX calls may be a good option if we see the VIX continue to rise and respect this trendline which I believe we will. Remember also option prices increase as the VIX climbs higher so, SPY puts may be a good option as well if the market continues to sell off because you have the sell off and the VIX spike you have two factors that increase your positions at the same time.

A lot of interesting things internally going on in this market, I showed the head and shoulders toppping pattern that is still playing itself out in the short term. I hope to show a more intermediate term chart(s) to show the bigger picture in how this is just one move in series over bigger market movements.

Wednesday, July 1, 2009

July 1st Moring Update

Here we go first trading day of July, no post yesterday I left "work" early. I made too much money for one day and my rule is when I get green, I get gone. Anyway looks like we may get a gap up this morning that is very interesting.

Here is simple chart of the S + P daily as you can see yesterday the bears defended that 930 area with a sharp sell off. But those crazy bulls defended that 910 area pretty well with a low of the day at 912. Here's the deal if we gap up and break the 930 area I may try to take a long position with a target of approx 966 - 970. However there is so many bearish divergenses playing out right now it would be a risky long. I will look at the tape and the market internals if they are strong enough and we decisively break above 930 I'll try it otherwise I might play the short side at 930 again since that played out so beautifully for me yesterday.

Side note, the VIX has broken some long term trendlines and it is looking very bullish at the moment. I will try to post a chart sometime this weekend. As this could have serious implications on the market. For now if you are trading this market I can not stress enough to keep your position sizes SMALL, until we get a confirmed trend up or down this whipsaw action will kill a trader's account! So be careful and good luck, will be in the trading room again, posts will be limited. Will try to post my trades ASAP though.