Wednesday, December 24, 2008

Merry Christmas

Today is Christmas Eve and the market closed early. Here is my recap on what I'm monitoring. The DJI, SP500, NASDAQ 100 have all broken it recent uptrend on the downside and starting to retrace toward the November low. Oil continue to fall even after OPEC's latest announced cut. Gold ETF, GLD, is pulling back from upper trendline resistance with contracted volume. AAPL is sliding downward after it broke the bear flag. Here are the charts. Click on them for a larger image and to read my comments on them.

Light trading will persist next week. Have a merry Christmas everyone.

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Thursday, December 18, 2008

Ho Ho Ho! Christmas Rally Came And Gone?

The holidays is upon us, tomorrow is options expiration day. After tomorrow, most of the traders will be off and trading will be light for the rest of the year. In the last couple of days, the market has been very erratic, up one day and down another, trying to breakout and showing it might be reversing. By inspecting the latest price actions on the chart for the DJIA, SP500 and NASDAQ 100, the market is definitely at a crossroad trying to decide whether it will breakout or it will terminate the recent relief rally and revert back into it primary trend...DOWN.

On December 12, 2008, I posted what I see as potential upside and downside for the DJIA, SP500 and NASDAQ 100. Below is the updated charts showing my latest take on where the market might potentially encounter. From the DJIA chart, the DJIA was trading above the 50 SMA for couple of days, then today it fell back below it and the developing bear flag is taking a turn with prices reverting back toward the lower trendline. If the price break below the lower trendline, then the bear flag will enter the down leg measured move section of the pattern, and the measured move is projecting the DJIA to go below the 7000 level. But, if the price hold above the lower trendline and resume its upward trend, then we could see the market rally up to the 9200 level.

Similarly for the SP500, it pokes through the 50 SMA for a brief period then fell back below it and now it is bumping against the lower trendline. If it breaks below this trendline, the SP500 will be entered into the down leg portion of the bear flag. The measured move for this bear flag will bring the SP500 to somewhere between 600-700 level.

The chart for the NASDAQ 100 looks identical to the SP500. If it break the lower trendline support, the bear flag measured move will put the NASDAQ 100 below 1000.

Are these charts telling us there won't be a Christmas rally, or the rallies we have seen recently are the Christmas rally. Unless something dramatically happen tomorrow on options expiration day, chances are there won't be any more rally. With traders taking off for the holidays, trading will be quiet next week leading up to Christmas. If the indices break below their respective trendline support, then it does appear the Christmas rally has came and gone.

Apple, AAPL have already broken down from the bear flag. The chart below shows how it gapped down to break the trendline support. The measured move for AAPL will bring it down to the 70 level. When it retrace to fill the gap, I will set up a January PUT spread to capture the potential downward move toward the 70 level.

On the oil front, OPEC once again announced an additional 2 million barrels cut. This bring the total announced reduction to 4.2 million barrels a day. Note the keyword is 'announced.' What is actually produce can be very much different than what is announced. If you read my assessment on the first announced cut in October, you will see why the price of oil continue to fall even with the announced production cut. Right now, my estimate of $35 a barrel made in October might be a bit conservative. Check out the chart on USO below. There are no signs of price reversal from the down trend. And if you take a look at XOM and CVX stock chart, you will sense these stocks are finally come to the realization that oil prices are not going back up to the $70 a barrel in the near future. These two stocks have been acting like crude oil is still over $100 a barrel.

There you have it, my perspective on the market. Have a happy holidays everyone...Ho Ho Ho!

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Tuesday, December 16, 2008

A Fool And His Money

The Fed cut the discount rate to 0.25% today in hope to stimulate the economy by getting the banks to start lending and the consumers to start borrowing. With rate this low, the dollars will fall and gold will rise. Looking at the gold ETF, GLD, one can see prices have been moving upward and looks like it will continue to rise. Here is a chart for GLD:

This EFT has been on a down trend since the beginning of the year. In the latter part of October and mid November, GLD made a bullish double bottom. Then it proceeded to go above the 50 SMA and came back below it after a brief period trading above the 50 SMA level. Within the last 10 days, GLD gapped above the 50 SMA and moving toward the 200 SMA. After GLD move above the trendline around $86 level, look for it to move up to the low 90s. As the dollars get weaker, gold will continue to go higher. I'm not one of those fools with his money sitting still. I will put some of my money to work by buying the gold ETF, GLD.

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Friday, December 12, 2008

Will There Be A Christmas Rally

This is turning out to be quite an exordinary year. One should not be surprised about anything that can or will happen in the market anymore. We have TARP to bail out financial companies, negative yield on U.S. Treasury, and the pending auto industry bail out, and a constant stream of politically motivate maneuvers that just prolong the inevitable for the market to fall to its appropriate level, and for the miss managed companies to run their appropriate course.

Prior to today's market opening, the Asian and European markets have dropped a few percentage points, and the future on the U.S. market is indicating a big drop for the U.S. market as well due to the failure of the Senate to go along with the auto bailout bill the House has passed. Soon after the U.S. market opened and after it has dropped more than 200 points, the White House has made an 180 degree above face to go from against to in favor of using the funds in TARP to bail out the auto industry. For weeks the White House has objected the proposal from the Democrats to use the TARP to bail out the big 3, and now having the Senate Republicans rejected the bill the House has passed, and with the market appearing to have one of those big drop day, the White House issued a press release to announce it has changed its mind and now will use the TARP funds to help the auto industry. Soon after the White House announcement, the market started to firm up and recover its losses and ended the day with a modest gain.

Well, history has shown no matter how the market is being held up artificially, it will run its course in due time. Take a look at the charts below. The DJI, SP500 and Nasdaq 100 are all forming a bear flag from the recent rallies. When these flags are broken, the market will be at the level that it is meant to low.

To see a larger image of the charts and to read the commentary about them, point the mouse to the chart and click.

Will we be getting a Christmas rally? That will be depended on if the market decided to break the bull flag that is inside the bear flag first, or if the market decided to simply terminate this upward move and break the bear flag. Soon the politicans will be gone for their holiday break, and the market will be able to move based on market forces and not based on politics to let us know which direction it has decided to take. Keep monitoring the market and be careful on not getting trapped by the bear market rallies. I'm still waiting for the market to tell me it has bottomed, not those talking heads on TV proclaiming they believe the market has bottomed.

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Wednesday, December 3, 2008

Let's Get Technical

The market continue to be volatile, making it very difficult to get a sense of where the market will go based on fundamental analysis. Not saying fundamentals are not important to the long term direction of any given stock, but at the current environment, one needs to get technical to even have a chance to survive trading in this market environment. With that said, let's get technical and see if one can get a clue on where the market might be headed.

Here are the charts for the DJIA, SP500 & Nasdaq 100 (click on the chart to get a large image):

All these charts showing the indices are near resistance level and showing key support level. If the indices break above their resistance level, the market will most likely rally back up to the November high level. But if the indices break their respective support level, get ready to look for new low. If the market does rally, don't get caught over staying with your longs. After all, the market primary trend is still down.

Here are a look at the inverse ultra ETF for the above indices:

Conversely to their respective index, these short ETF are near their support level. If their respective index break support, watch for these inverse ETF to hit new high.

The important take away point from these chart is the market can go either direction, and no matter which direction it decide to go, one needs to be very careful and don't get caught on the wrong side of the trade. If in doubt, move to the sideline. It is alway better to miss a rally or a selloff then get caught on the wrong side of a trade.

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Monday, December 1, 2008

Black Friday Leads To Black Monday

The market kicked off the Christmas shopping season with a Black Monday selloff. With the initial sales report showing Black Friday's sales result up 3% compared to 2007, the market sold off by dumping all the stocks, financial, technology and energy. Very few are spared from the selloff. Also, a committee of economists at the National Bureau of Economic Research finally declared today the U.S. recession was officially started in December 2007.

The market reminded us that it is still in a bear market by losing 679 points on the DJIA, 80 points on the SP500, and 137 points on the NASDAQ. The silver lining from today's selloff is the up/down volume ratio is less than 10-to-1, and the new lows were only 84 for the NYSE, and 145 for the NASDAQ. The significant of these statistics is when the market make a new low and if the number of stocks making new 52 weeks low does not expand, then it could be the first sign of an internal bottom for the market and the start of the bottoming process. Until then, keep a close watch on the new high/new low and the up/down volume the next time the DJIA make a new low, it could be the turning point. In the meantime, stay short in stocks and long the inverse ETF, DXD, SDS, QID, TWM until the market tell us it has bottomed.

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