Tech Again

What a week, the day before GS reported, the financials got the market going. After INTC reported a blowout earnings performance in after hours, the tech is off and running once again and the market took off. GOOG didn't blow anything away and the market dumped it. IBM came to the rescue with a positive earnings report and revised its projection upward, and that kept the rally going. AAPL continue its climb, setting up for earnings report next week. The strength continues to be TECH!

Looking at the DJIA and the SP500 charts, the charts show these two indices rallied off the recent low quite nicely and quickly. But Friday's performance shows they could be a bit exhausted and getting ready to pullback for a test. Of course this can be all changed depending on MSFT and AAPL earnings and outlook due out next week. So prepare for another tech week. The earnings report season will be in full steam next week, lot of the companies will report they met their bottom line number, but no growth or shrinking top line. These reports will reinforce the BS on the 'green shoots' claim. If the companies' top line is not growing, economy will not be growing, and employment will continue to decrease.







The three notable techs to report earnings next week, AAPL, MSFT and YHOO:

Heads Up

After INTC reported blowout earnings and its stock price moved up more than 7% in yesterday after hours trading, I was not surprised to see the market pop today. What I was surprised by was the result of the move. Some of the market bearish technical have been cleared and the market direction could be changing once again from today's price actions by the DJIA, SP500, and Nasdaq 100.

Take a look at the following chart pattern.



Does it look familiar? It should if you have been watching the SP500 closely rather than just focus on the highly publicized head & shoulder pattern. This is a flipped chart of the SP500 showing a head & shoulder pattern being formed.

Here is the right-side-up SP500 chart, notice the potential inverted head & shoulder pattern being formed:



Here are the charts for the DJIA and the Nasdaq 100:





The market is full of trickery, so be alert and trade with the market, not against it.

Non-Eventful

GS reported blowout earnings today, and the market went into a non-event mode since the financials have made their move yesterday ahead of GS’ report.



The Nasdaq didn’t move too much ahead of INTC’s earnings in today’s session. But in after hours, INTC reported $0.18 vs. $0.08, and the stock moved up more than 7%. This positive surprise from INTC and the AH pop on INTC’s stock should give the market a push tomorrow since it didn’t anticipate INTC’s results.

Even though these indices are being pushed higher by the positive earnings reports, the trend is still down. Until the resistance levels have been taken out, and a series of higher highs and lower lows is made, the risk of being trapped by chasing the longs is too great.

Here are the latest charts for the DJIA, SP500, and Nasdaq 100:







The charts for the three big tech stocks I am following for this earnings week: IBM, GOOG, and INTC

Shakeout

After a few down weeks and breaking the highly publicized SP500 head & shoulder pattern, the market did a bit of shakeout today by gaining more than 2%. Today's shakeout took out some of the bears that went short on the break of the H&S pattern. For those seasoned market technicians, they are all aware a retracement will occur whenever a pattern is broken and they will wait for the retracement to enter. More importantly, the probability of a failed pattern when one of those highly recognizable patterns is broken is high (especially when all the talking heads are balking about it.) Does it mean after today's performance, the market is on an uptrend? No, not until it has taken out the lower highs and lower lows by forming higher highs and higher lows.







For me, earnings report will officially start tomorrow when GS put out the numbers before the market tomorrow. Here are the charts for the three tech stocks that will be reporting their earnings this week: IBM, INTC, and GOOG.

The Tech

All three indices, DJI, SPX and NDX finished the week on a down note.







Next week some notable tech companies will report quarterly earnings, i.e. IBM, GOOG, INTC. Looking at the chart for these stocks, INTC appears to be the only one might react positively on favorable earnings report and positive forward projections. The price action for IBM and GOOG look more like “sell the news.” If IBM breaks below 100, 96.50 could be its next support. Unless GOOG breakout of the downward price channel, it could be heading down toward the 380-390 level. These tech earnings reports could trigger the tech sector selloff and that will lead the market down. I will be watching these stocks for the next market movement.

Chronicle Of A Trend Change - The Flip Side

I just flipped the chart in the previous post to show how the chronology for a trend change from up to down would look.

Chronicle Of A Trend Change

Here is a chart pointing out some of the key things to watch in order to identify a change in the trend.

Late Day Recovery

The market was down most of the day until it rally near the last hour of trading. The DJIA recovered all of its losses and ended the session in the black. Similarly, for the Nasdaq 100, it also recovered and closed with a small gain. The SP500 was trying to end the session with a gain but it just did not have enough strength to push it above yesterday’s close and ended down a little bit over a point. What today’s late rally did is to provide a potential pivot point for the price charts to establish a new down trend price channel. In addition, due to the late day rally, a hammer like candle was form and this can lead to an oversold rally in the coming days. Unless these indices reclaim the previous high, the current trend is to be considered down. I will be very suspicious on ensuing rallies and I will be looking for opportunities to trade the downside.

Lower High, Lower Low

The three major market indices, DJI, SP500, and Nasdaq 100 finally have broken their support and made lower high and lower low. Although today's trading volume was on the light side, but don't be misled. When the market makes big drop with low volume, it is due to lack of buyers, not due to lack of sellers. Take a look at the charts below, you will see similar price pattern of lower high & lower low on many stock charts. This implies the trend change is broad base. Today's break spells the end of this bear market rally. I will be unwinding my longs and start preparing for the down trend.

In Doubt

Those politicians, government officials and talking heads that avoided saying the 'R' word even though the economy is already in a recession are now the same talking heads that are telling us that 'less bad' is 'green shoots'. When are things getting worse not as fast is considered as things are getting better? After the unemployment report came out last Thursday showing it is at a 26 years high, all of the sudden these talking heads are in doubt on the second half 2009 recovery and are telling us things will get worse before it gets better... what happen to the green shoots!

Since the stock market is one of the leading economic indicators and typically lead the economy by six to nine months, then those that believe the March 2009 low is the bear market bottom shouldn't have any doubts the economy will start recovering no later than the end of 2009. For those that believe we are still in a bear market, then the earliest for the economy to start recovering is Q1, 2010 provided the market makes a bear market bottom this month. Looking at the way the market has been trading, it is near an inflection point that the market can move down to test the March low. And if we are lucky, the market makes a new non-confirmed low to end this bear market and we can start counting the days for the economy to start its recovery. Here are the charts, click on them to get a larger image and to read the embedded commentary.







Just for the record, I am one of those that believe we are still in a bear market and this rally is a bear market rally. I along with many of you am also looking forward to an early economic recovery. To a trader, it doesn't matter if it is a bear market or a bull market, opportunities to make money exist in both market environments. But a bull market and a strong economy definitely is good for Main Street.

There They Go Again

The phrase from the late President Ronald Reagan, “There they go again,” seems to be appropriate for describing the latest cry from the market talking heads. A few weeks ago before the market started to pull back, these talking heads are pretending to be market technician and start describing to viewers about how the SP500 is forming an inverted head & shoulder pattern. Now that the market is showing some signs of pulling back or consolidation, these same talking heads are telling people that the SP500 has stalled and it is forming a head & shoulder pattern.

I’m not saying the SP500 could not be forming a head & shoulder pattern. From the SP500 daily chart, I have illustrated the SP500 can just as easily be forming a ‘W’, double bottom pattern from the current price actions.



The point is who is to know what price pattern the SP500 will form until it has made that pattern. All one can do is be on the lookout for possible price pattern and have trading plan ready if a particular price pattern developed. Another key point to remember is the market rarely do what everyone is expect it to do. Therefore, if majority of the market participants are expecting a H&S pattern, then the likelihood for it to form the H&S will be low.

What difference does it makes for what pattern it will form, you might ask. The difference is SP500 rises to 1000 or the SP500 falls to 800. Therefore, if you are listening to the talking heads and playing the market as it is going to form a head & shoulder, then you will be ripped if those talking heads’ prediction is incorrect.

Who is to say these talking heads can’t be right. If these talking heads continue guessing, one of these days, they will guess right. After all, the market is all about probabilities. To win, we just need to learn how to play the edge and manage risk. Guessing is not an effective way to gain an edge or manage risk. While the market is being indecisive, I will trade cautiously with reduced position size and tighter stop.

Rough Start

After a rough start at the beginning of the week, the market finished the week with somewhat of a mixed picture. The DJIA gave back little bit more than 1%, approximately 101 points for the week by closing around 9438. The SP500 is essentially flat, losing 0.25% or approximately 2 points and closed near the 919, and the Nasdaq 100 gained about 9 points or 0.6% by closing out the week at 1480. On the surface, these point losses do not appear to be significant, but the manner in which the market has behaved throughout the week is worth a second look.

Prior to Monday, the three major indices, DJIA, SP500 and Nasdaq 100 were riding on their upward trend line. When the week starts, the DJIA encountered three consecutive down days that took it down to near the 8250 level to find support. On Thursday, all three indices went up for the first time (the only time) this week and bought the DJIA back to the 200 SMA to test for resistance. The SP500 did not do too much better than the DJIA. It has broken below the 50 and 200 SMA before it bounces back above these two moving averages. Now, the SP500 is approaching the 925-930 resistance level where this level was previously its support. Not all is negative for the SP500. During the course of this correction, the SP500 50 SMA did crossed over the 200 SMA, but with a very weak (almost flat) up slope. The only index that seems to show some strength is the Nasdaq 100. After it has come down and tested the 50 SMA for support, it has recovered all its earlier losses and ended up with a small net gain for the week.







Next week will probably be another nail biter. Any signs of the DJIA fails to reassert and hold above the 200 SMA, and the SP500 unable to reclaim the 930 level, the bears will jump in and pound on them to retest those critical support levels I have indicated from my previous post. The only danger for the Nasdaq 100 is that it might be dragged down by the down draft from the DJIA & SP500. Presently, the tech sector appears to be the one with the strength and it probably will be the leader to take the market up if this bear market rally is to be continued.

For now, I will avoid the energy and the financials sector. I am also keeping clear away from the consumer discretionary and the consumer staples. The only sector I will focus on is the tech until the DJIA & SP500 have demonstrated they have regained some of the technical strength they have recently loss.

The Three Sectors

The three primary sectors that have led this bear market rally are: financial, energy, and technology. In order for this bear market rally to continue, these three sectors must resume its leadership. To get a perspective on how these sectors are performing, I will analyze their respective ETF, XLF for the financial, XLE for the energy, and XLK for the technology.

First up is the XLF, it has performed strongly since the March 2009 market low and the stress test was initiate on 19 major financial institutions. Recently, the strength from this sector have diminished and starting to roll away from the major moving averages and broken below the price channel support. Unless it can hold the April high and the May low support, and the 50 SMA along with the 20 EMA can reverse direction, this bear market rally for the financial will come to an end.



The energy was another sector that has shown tremendous strength during this bear market rally. As crude oil moved above the $70 a barrel, the energy sector begins to top out. Recently, the price action on the XLE has broken down and it looks very likely to be heading lower. Very doubtful this sector will provide the strength to keep this bear market rally going.



Finally, the tech sector appears to be catching its last breath. It is still hanging in the price channel and holding minor support. This sector along with some defensive sectors could provide strength to continue this bear market rally for a bit longer. It is this wild card that the market has not shown us the direction it will take.



Without the participation from any of these three sectors, this bear market rally cannot be sustained. As the 'green shoots' started to brown, and lack of evidence a recovery is around the corner, other sectors will also roll over and headed down.