Waiting For The Bell

The pullback that everyone was waiting for finally came today. The characteristic of this pullback reminded me of a bunch of elementary school kids standing near the class room door waiting for the recess bell to ring. Within minute after the bell ring, the class room is almost empty of school kids. This is what happen today, within the first 1 1/2 hours of trading, most of the day's losses were putted in. If you were lucky and your stocks did not have a big gap down on the opening, then you might still be able to salvage most of your profits. There was no midday rally at all. It was a day of fading to the low. The quick and dramatic pullback should raise caution. Need to watch how the market test for supports in the coming days to determine if this bear market rally is over or this is just a pullback within the bear market rally.

Here is the intraday 15 minutes chart for the DJI, SP500 & Nasdaq 100:

Everyone Is Watching

The market finished with another up week. This make it six weeks in a row. The SP500 is hitting the inflection point of 875, a resistance level that everyone is watching. The DJI has broken above 8000 and into the 8100. Nasdaq 100 getting close to its resistance level near 1380-1400. It will be interesting to see how the market will react when these indices get near their key resistance level. Will a pullback finally take place as many people have been waiting for, or will those skeptics finally give in and push the market to a blowout to end this bear market rally. The market is definitely getting a bit risky and I am tighten up my stops on my longs. Still not shorting yet.

Below are the updated charts for the indices. I have also put up the charts on the index ETF, DIA, SPX & QQQQ to show what levels I am watching on these ETFs. Click on the image to get a larger view of the chart.

DJI, DIA





SP500, SPY





Nasdaq 100, QQQQ

Another Look At Gold & Oil

The market did another pullback today but nothing warrant me to change my previous assessment about the market. Therefore, I thought I use this opportunity to take another look at gold and oil.

The Gold

Gold did a turn around going from targeting the 1000 mark to reversing back down toward the low 800 level. Since it reached near the 970 in mid March, it has reversed and dipped below the 50 SMA. Just a few days ago, it came close to testing the 200 SMA for support. The recent price actions have established a lower high and lower low, thus forming a down trend. From the gold continuous contract daily chart, a downward price channel can be drawn that point to a support near the 800 level. Unless the recent bounce off the 200 SMA re-establish a new higher high that can turn into a new rising trend, I will continue to watch it for lower prices.



A similar downward price channel is also being formed on the ETF GLD daily candlestick chart. This price channel points to support near the 80 level.



For those that are interested in playing the downside on gold using ETF without shorting the GLD, you might want to conside trading the GLL. This is the ultra short ETF on gold. This is a leveraged ETF, like all other leveraged ETFs, they are for short term trading only. Do not hold these ETFs too long. The volume on the GLL is relatively low comparing to the GLD, so watch the spread.



The Oil

The oil continuous contract was forming a rounded bottom until the last week or so. The rounded bottom has transformed into a cup & handle pattern with a measured move that could put the price in the 70s.



For the ETF, USO, an inverted head & shoulder pattern is being formed. The measured move from this H&S pattern could put the price in the 45 range.



The projected price levels from these charts are pending on the completion of their respective price pattern and breaking out from it. I have not identify what might trigger the crude prices to move to these levels. For now, I'm just monitoring it to see if this scenario will play itself out. Until then, I'm not initiating any trade on USO under this scenario, but that doesn't mean I won't be trading USO under other technical guidance. In the near term, I still believe oil will be trading in the 45-55 range.

Movers, Shakers, Pretenders

The pre-announcement of WFC's earnings on Thursday gave the market the lift to shift it into high gear. The DJI gained almost 250 points and moved above the 8000 level once again. The SP500 moved up to the resistance level near 850 level. The Nasdaq 100 is moving away from the support level of 1290 and marching upward to the Nov 2008 high in the range of 1380. With option expiration coming up next week and earning reports from some closely watched companies such as GS, INTC, GOOG, JPM, C and GE, the market will reveal to us who are the movers, the shakers, and the pretenders in this bear market rally.







Lets take a look at some of the notables for next week.



First up on earnings report before the open on Tuesday is the survivor of Wall St., GS. It has broken out of the upward price channel and barring any negatives, the earnings report could move it into 130-140 zone.



Then come INTC after the close on Tuesday. Semiconductors have been strong recently, and any indication from INTC that the semiconductor market is stabilizing could be interpreted as a positive to continue the tech rally.



On Thursday, the mother of web search, GOOG will be reporting. This is a wildcard and it could easily swing 50 points in either direction. I tend to stay away from earnings play especially on GOOG that report a day before options expire.



On last Friday while the market was closed in observance of Good Friday, the buzz about MSFT is in talk with YHOO again could stir things up on the tech sector next week. This could add more fuel to the Nasdaq 100 to move it into the 1380-1400 level.

As the earnings report season continue next week with option expiration and the latest buzz on MSFT and YHOO, the market could very likely give us some wild moves to shake the longs and squeeze the shorts as it continue to move higher. My trading strategy still remain in managing my stops on my longs and wait until the market has run its course in the bear market rally before considering going shorts.


Cautionary Note:

One cautionary note I like to make to all the blog readers out there, not only there are stocks that pretend to be the mover, but there are lot of pretenders in the blog land. Be careful not to focus on reading only those blogs that share your view of the market. In order to be successful in trading as well as in life, one must maintain an open mind to accept viewpoints from others and learn from them, not necessary one needs to agree with them but one needs to be open minded and respect other people's viewpoints. For those blogs that you find or discover they will not accept your comments because it differ from the blogger's view, my suggestion to you is don't waste your time reading those blogs. Those bloggers tend to think they know what the market will do. As any experienced traders can tell you, no one know what the market will do, all one can do is put together some scenarios on what the market might do and monitor it, and depend on which scenario becomes reality, then one trade accordingly. Be careful and good trading to all.

Where Are We?

After the market made more than 20% gain in the last four weeks, a pullback is not unusual. But with constant reminder from the talking heads that this rally is a bear market rally, fears get triggered whenever a pullback comes along. But if some key levels are being monitored, then one doesn't have to fear the pullback. Instead, one can be prepare to take advantage of the pullback when it occurs. So where are we?

The market is still in the rally mode until it has violated key support levels. Click on the following charts for a larger image to view those key support levels.







As I have mentioned before, I will tighten up my stops on my longs here and won't be aggressive on setting up new longs until after the key supports have been tested and held. I will wait until supports are broken and confirmed with negative momentum before I go short.

Where is gold now?

Since my last post on gold, it has made a turn to the downside. The chart for gold's continuous contract displays lower high and lower low, and this is a signature of a down trend. It is trying to find support from the 200 SMA. For the ETF, GLD, it is bouncing off the 200 SMA with a long shadow inverted hammer candle. If you are considering on trading gold on the short side via ETF, then you might take a look at the GLL. It is an ultra short on gold. Be careful on these leveraged ETF, they are for trading purposes only and not for long term holding.








What about oil?

Although oil has retreated back below $50 a barrel after it has moved above $55 for a brief moment, the trend still pointing toward the $50 and above level. It could be establishing a trading range between 45-55 for the near term. The ETF, USO is trending within a rising price channel with a near term top range of 33-34. I would go long on the USO whenever it bounces off the price channel's lower trendline for a swing trade.

Is The Rally Over?

The market has been moving higher for the last four weeks and gained more than 20% since the March 9, 2009 closing low, so is this rally over? From the market's behaviors, it does not appear this rally is over. Instead, it appears the market is playing out this rally according to its script. It is converting more non-believers to buy into this rally. More talking heads are calling this rally more than a bear market rally, even some of them are calling this a new bull market rally. Furthermore, there are lot of talks that the market has bottomed on March 9, 2009. Sound like a bull trap? I'm not going to fight the tape. I will be long until the trap is set and be very watchful for signs to close all my longs before this bull trap is snapped.

Lets take a looking at the charts and those levels to watch for signs that the trap is about to be snapped.



From the DJI chart above, all the support and resistance levels drawn in blue are fairly close to the Fib retracement levels. The DJI first attempt on breaking the 8000 level resulted in a pullback to test the 7500 for support and to lessen the slope of the price channel. The success in the second attempt on breaking above the 8000 level included a test of support at the 8000 level (resistance turn into support). The trendline crossing into the price channel at 8250 should not be much of a resistance since ahead of this level are the stronger resistance at 8400 and the Fib 61.8% level. One of these two resistance levels could potentially be the reversal point.



The SP500 chart also show the resistance levels (drawn in red) are closely aligned with the Fib retracement levels. The trendline crossing the price channel should not pose too much of a resistance. The major resistance appears to be near the 880 level, where the resistance trendline and the Fib 61.8% are. This level should be closely monitor for possible reversal.



The Nasdaq 100 shows a slightly different characteristic than the DJI and SP500. It has broken through the trading range and probably will not encounter resistance until it reached the upper trendline of the price channel or the resistance level at 1380. The 1380 level need to be monitored for possible reversal point since the upper price channel trendline also crosses this point.

In the near term, the market appears to still have more upside. But the resistance levels mentioned here should be closely monitored for possible reversal. When these resistance levels are approached, I will tighten up my stops on the longs to avoid getting trapped with those late comers.

It Was A Fire Drill

In my last post, I used an analogy of someone yelling "Fire" in a packed theater to question the pullback from last Friday and Monday to be the beginning of a new down trend or just a consolidation to the recently rally, as to the "Fire" alert to an actual fire or simply a fire drill. Looking at the recent price actions and how some of the indices and stocks breaking above key levels, the recent pullback is more like a fire drill than an actual fire.

Does it mean all coast are clear for the bulls to run? Absolutely not. We are still in a bear market. Right now, the market is sending out couple messages. The first one is it is going higher, and the second one is it is getting ready to reverse. What I am seeing from my inspection of the stock charts is majority of them are either hitting trendline resistance or getting near 200 SMA resistance. These resistance can be the infection point for reversal. Until these resistance are broken and tested, I will be very cautious on being too bullish on this phase of the bear market rally.

Instead of putting up the usual charts, I decide to post a picture of one of my trading screen to highlight some of the stocks that are hitting/nearing resistance. In this screen, there are 30 minutes, 15 minutes, and daily candlestick charts.



In my next post, I will revisit those levels I have mentioned in previous post to get an assessment on what the market will do next. Until then, trade attentively as reversal can come with very little notice.

Who Screamed Fire

The DJI gave up some 400 points or 5% in the last two trading sessions after it has gained more than 1377 points, or 21% from the March 9 close of 6547.05. The SP500 gave up 45 points, or 5.4% from last Thursday's close. Similar to the DJI, the SP500 gained more than 156 points or 23% from the March 9 closing level. For the Nasdaq 100, it also has gained more than 237 points, or nearly 23% from the March 9 close. The Nasdaq also gave up 60 points, or 5% in the last two trading sessions.

This bear market rally was one of the most anticipated rally in the recent past and before last Thursday, there was a high level of anticipation for the inevitable pullback after this tremendous rally since March 9 new closing low. When the pullback finally arrive on Friday and continued onto today's trading, the pullback was quick and sizeable. Take a look at last Friday's market action, 133 of the 143 points loss for the trading session were incurred at the opening minutes. Likewise in today's trading, more than 222 points of the nearly 250 points loss were incurred in the first few minutes of trading. These kind of pullbacks remind me of an analogy of someone in a packed theater yelled "Fire". When the dreaded scream of "Fire!" was heard, everyone in the theater quickly got up from their seat and exited at their nearest exit. Just like the market, someone screamed "Fire!" and everyone exited. Now the question is "Who screamed fire?" Someone that actually saw a fire burning or the local fire marshal decided to conduct a fire drill.

Is this pullback signal the end of the bear market rally or is it simply a consolidation before the rally resume? Lets take a look at the SP500. In the first chart, I have drawn the price channel this rally has been climbing in. As one can see, the angle of ascend for this price channel is too steep to sustain. If this is the channel that define this rally, then today's price break is a breakdown of the price channel and a new down trend will be established.



The next chart is a less steep price channel using 780 as the support level for this pullback.



And finally,



using the November low at 740-750 as support level, this price channel is the widest of the three. How this pullback will play out is depended on which price channel define this bear market rally. If the most narrow and steepest price channel define this rally, then when the SP500 fail the support level at 750, it will signal that the DJI is heading down to a new market low. But if either one of the other two price channel define this rally, then look for further upside from this bear market rally before it ends.

Similar scenarios for the DJI and the Nasdaq 100.





So who screamed fire? Is there a fire or is this a fire drill. The market will tell us as it retrace to various support levels whether this pullback is a consolidation or a new down trend. Pay attention to the support levels for direction.

When Will This End

This relief bear market rally has been very frustrating to the bears and agonizing to those sitting on the sideline. When this rally started, most market participants were looking for the DJI to rally back to 7100 and at most back to the Nov 2008 low in the 7500 range. Instead, the DJI has surpassed the 7500 level and it is now approaching 8000. Every time the bears call for a pullback, the market continue to move higher to squeeze the shorts and antagonize the non-believers. As this rally continue, more and more talking heads are starting to think this rally might be more than a bear market rally and questioning when this rally will end. It is precisely this change in sentiments will bring this rally to an end.

Here are the latest charts with updated commentary:







I believe this rally won't come to an end until the DJI breaks the 8000 level and move toward the trendline resistance level around 8300-8400, and the SP500 tested the 870 level with the Nasdaq 100 moving up to the 1400 level. Some of the movers that will help propel the market to these levels will be the tech heavy weights such as HPQ, AAPL, INTC, CSCO and AMAT.











I'll be watching closely for the end of this rally and start locking in on some of the profits from the longs. when this rally has ended, the next downward move for the DJI could be the bottom everyone was looking for.

Is The Gold Trade Over?

After a big reversal last Wednesday, gold has been consolidating. Some would say it has been selling off. But in regardless how one characterize it, the reality is the price of gold has been pulling back from the 970 to the 920 level. From the charts, one can see a setup is developing for a trade in gold. For those that have no particular directional opinion on which way gold will move, then a possible trade would be a straddle or a strangle option on the gold ETF, GLD to capture the next up or down move. For the bears, when the price move below the supporting trendline, go short on GLD with a very tight stop on the other side of the supporting trendline. Finally, for the bulls, the reverse position of the bears can be taken by going long on GLD with a tight stop below the supporting trendline.

I believe gold is at a nice spot to start a trade with minimal risk if you respect your stop. Take a look at the charts. The reason gold is at a good spot to start a trade is you will find out whether you are on the right side or the wrong side of the trade very quickly. And if you are on the wrong side and got stopped out, reverse your position and still end up playing the next move. No matter how you trade it, respect your stops to stay in the game. Is the trade on gold over? To me, it just got started.

Here We Go

Today's toxic assets plan announced from the US Treasury got the market flying. NYSE up/down volume ratio was 40 to 1, and the advance/decline was 10 to 1. In the Nasdaq the up/down volume was almost 16 to 1 with the advance/decline 5 to 1. The DJI closed at 7775.86 with a gain of 497.48, while the Nasdaq 100 closed at 1259.81, a gain of 72.63 and the SP500 closed at 822.92, up 54.38 points. This rally will lure more of the sidelined money into the market, and this will provide the fuel for further upside. So far, the market appears to be playing out one of the scenario I have put forth in my last Friday post.

Here are the updated charts:







Although the market have more room to climb higher, but be mindful it is still in a bear market. I'm selectively long and will switch out quickly if this rally comes to an end. One should never be over extended with longs in a bear market rally, as it can terminate and reverse abruptly. So be selective.

Another Golden Look

Here is a chart on GLD showing the inverted H&S pattern, the gapped up breakout of the inverted H&S, and the uptrend price channel. Notice the rising 50 & 200 SMA, and the 50 SMA is above the 200 SMA along with the price being above both SMA. All these factors are bullish for gold/GLD in the near term.