Friday, January 30, 2009

What A Game

Sometime I am just amazed at the game the market play. Within minute (I mean literally, a minute) before the market close, the DJIA is a few points below 8000 and you can see the manipulative forces at play to ensure the market does not closed under the 8000 psychological level. For whatever reason, the market and stocks have some sort of attachment to numbers divisible by 10, 100, and 1000. Next time when you see a stock dropped to some round number divisible by 10 or 100, watch how it trades to stay above that number, or watch how a stock trades when its price rises to one of these nice round number. It is the same with market indices, 8000, 9000, 10000, etc. These numbers have no significance other than psychological. When the market reaches one of these levels, it is like a spectator sport. The bulls will try to counter punch the bears when they try to bring it below the contested level, and the bears will come right back with their counter punch when the bulls try to pull it above the contested level. This tug of war can be as short as a few minutes, or it can last as long as a few weeks. The current battle for control of the 8000 level between the bulls and bears has been going on for more than two weeks.

On 1/15/09, the bears drove the Dow down to 7995.13 on intraday and the bulls took it back and closed on that day at 8212.49. The bulls remain to be in control on 1/16/09, then the bears took the control away from the bulls on 1/20/09 by driving the Dow down to 7939.93 and kept the bulls abated by closing under 8000 at 7949.09 for the first time since the Dow closed at 7506.97 on 11/20/08 (this is the next significant support level to monitor.) On the following day, 1/21/09, the battle continue with the bears drove it down to 7936.19, and the bulls took control back and close it at 8229.10. This continue for couple more days before the bears retreated and gave the bulls the control to bring the Dow up to a closing level of 8375.45 on 1/28/09. Then the bears start another attack on 1/29/09 by taking the Dow down more than 200 points, and stripped away most of the gains that took the bulls three days to accumulate. And that lead us to today's action where the bears continue to exert its forces to gain control by driving the market below 8000, until...a minute before the closing bell ring, and you know the rest of the story. The market closed at 8000.86, what a game!

What's in store for next week? Based on the technicals, the Dow is poised to go down to test the 11/20/08 low. But even if it does not come down to this level next week, I will be very defensive on any long positions I might take. Maintain reduced position size and set tight stops. It is not a matter if the market will go test that November 2008 low, it is a matter of when it will test the November 2008 low. As I have repeatedly stated, the primary trend of the market is still down, and the bottom has not been made. To be a bull now is to get slaughter. So be cautious. This is a market for traders, not for investors unless you have the time and the capitals to withstand major drawdown.

Here are the updated charts. As usual, click on the charts to get a larger image to view the comments. I will give my update on gold in a separate post.

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Saturday, January 24, 2009

Here Comes The Gold

Gold has been quietly making its way back to the $900 an ounce level and the ETF, GLD is breaking out.

The GLD gapped up and broken out of the triangle pattern on Friday with heavy volume. It also broke above the December 2008 triple top decisively. Next level of resistance will most likely be in the 91-92 zone. We'll see if gold will hit the $1000 mark next week. If it does, that will move lot of the sideline money and the money sitting in treasury into gold.

A related gold mining stock is of interest as well, ABX.

The price action on this stock is very similar to the GLD ETF. It broke above the December 2008 resistance and testing the next level resistance between 39 and 40. When it breaks above 40 and when gold move above the $1000 and toward the $1200 per ounce level, this stock could be looking at making a new all time high above 52.

Keep an eye on gold and gold mining stocks for the next bull move.

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Tug Of War

This week was quite an interesting week for the DJIA. In the last six trading sessions, the DJIA dipped below 8000 five times with it closing below 8000 once. It looks like clockwork, whenever the Dow dipped into the 7900 level, the bulls come out and turn the market around. And when the the Dow is back into the 8200 range, the bears push it down again. This tug of war not only indicative on how volatile this market is, but it is also telling us there are still strong forces to move the market down. Since the market's primary trend is down, the more times the Dow is being tested at the 8000 level, the higher the chance it will break below it and move further down. Therefore, next week will be interesting to watch on how this battle between the bulls and bears will play out. Since it is earning report season, any unpleasant surprises on the earning side will tip this battle toward the bears' favor. Here are the updated charts for the Dow, SP500 and the Nasdaq 100 (click on the image to get a larger view of the chart). Hold on to your seat for next week's battle of the bulls and the bears.

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Monday, January 19, 2009

The Herd Instinct

As in my last post, I've stated the market needs to hold the resistance it has broken in order for it to have a chance to rally to the next higher level. But as it appears to show some positive sentiments that a rally might be in store, the market once again reminded us that it is still in a bear market and its primary trend is down. After the first couple trading sessions of the new year, the market resumed its downward direction. All of the sudden, those talking heads that been barking on TV about a bottom has been made back in November 2008 are now all silent.

Here's where things are, the market retreated from the beginning of the year and the Dow went below 8000 on last Thursday's session. When it dipped under 8000, the market turned around purely due to all those that believe the market has once again passed a test of support and that it has once again confirmed a bottom has been made. Well, if you are part of that herd, you will end up holding the bag once again. One only need to ask the question, "what changed?" The answer is "Absolutely nothing". If anything at all, things have gotten worst. Citigroup is in trouble again after $50B bailout, BofA stock has fallen more than 40% in a week, unemployment continue to climb, and the housing crisis is nowhere near the end. For those of you that think the market should go up because things are so bad that it can't get any worst are overlooking the fact that the worst is yet to come.

With the herd instinct and a new President being sworn in, there could be a short rah-rah rally to move some money from the sideline back into the market. But once again, these bear market rally will be brief and will terminate suddenly. When the market resume its primary trend, the drop will be abrupt. So be careful if you decide to catch a swing. Here are the updated charts, click on the image to read the comments.

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Monday, January 5, 2009

Happy New Year

Although today is the second trading day of the new year, but to me it is more like the first real full trading day with everyone back into action. The couple weeks between Christmas and the New Year holidays, trading was light as anticipated. But during those two weeks, the technicals were changed from on the verge of breaking down to breaking out. Looking at the market's performance today, the Dow loss around 81 points, SP500 gave up little bit over 4 points, and the Nasdaq 100 loss a point. While the market closed with minor losses, the advance/decline and the up/down volume are positive. Even new high/new low is positive. These market breaths show a slight underlying bullish sentiment. Now does this mean we are entering a bull market? Far from it, we are still in a bear market until signaled by the market otherwise. These positive sentiments only reinforce the recent breakout could possibility rally the market up to the next resistance level (see charts below.)

One must not lose sight of the primary trend. As a trader, one must follow the market's trend. In a bear market rally, exercise cautions on going long and make certain to have tight stop to prevent big losses when the rally terminate. Have a great 2009.

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