Gobble Gobble...Happy Thanksgiving

With all the things that have happened in the financial market this year and all the uncertainties in the economy, we still have many things to be thankful in this Thanksgiving. With that said, I hope everyone is having a very happy Thanksgiving.

From my last post on November 23, 2008, the market sentiments were indicating some sort of relief rallies are coming. Based on the last three trading sessions, it appears the market has not disappointed us. Now we need to reassess and determine if these rallies will continue or the market will revert back into it primary downtrend. Simply inspecting the trendlines on the major indices, they all appear to be hitting resistance. Depending on how these indices perform at their resistance level, these relief rallies could be coming to an end. Black Friday shopping results are expected to be dismal this holidays, again depending on how bad the sales results are will determine how quickly the market will drop back into its primary trend.

After Thanksgiving, look for the market to revert back into its primary trend.

Relief Rally

On Friday, the market traded within a 200 points range, plus 100 points and minus 100 points until the last hour of trading. In the last hour of trading, the market rallied more than 500 points and end the session with a gain of 494 points. The advance/decline and the up/down volume all reverted from negative to positive at the close. The strength of this last hour rally seems to indicate some short term relief rallies are forthcoming. But one must be very careful on trading these rallies. I will continue to watch these rallies as they develop and look for opportunities to re-establish short positions using the inverse ETF, QID, DXD, SDS, TWM.

I'm Going Lower

If you didn't hear what the market was telling you yesterday, then you must heard it today. It is saying "I'm going down!" Either you come along or stand aside. With the high volatility, it is very difficult to countertrend trade this market. It is much safer to just trade with the trend. That's why I will only buy the inverse ETFs on rallies.

Today, the market went through the October 10, 2008 intrady low like it wasn't there, and made another confirmed new low. The next nearest support level is 7,397.31, the intraday low made on March 12, 2003. If it break this support level, next support will be the October 10, 2002 intraday low of 7,181.47. With the market at 7,552.29, it won't take much to get to either one of these support levels. How the market will hold these support levels will give us some clues on how low it might go. If it doesn't hold these supports, odds are the market will go below 7,000.

Just keep watching and listening to what the market has to say (or continue to visit this blog.) The market will not sneak up on you or hide its intention from you if you pay attention. Right now, its intention is clear "I'm going lower."

You Still Believe The Market Has Bottomed?

If you were one of those that thought the market has bottomed and you have participated in those recent fake 600 & 900 points rallies when the DJIA went near the 8000 mark, then today's new low might have been a surprise to you. But, if you have been listening to the market or have been following this blog and read my 11/12/2008 post or the 10/25/2008 post, then you would have been expecting today's new low.

Well, no need to dwell on the past. The new low is here. The question to ask now is "did the market bottomed today?" My answer is a resounding no. Today's low is a fully confirmed low. All the indices made new low along with the DJIA. To my surprise, even the DJ Transport made a new low to join the party. This made it a confirmed Dow Theory low and this mean lower low is yet to come.

Don't be fooled by today's event to be a market bottom. Stay short and avoid long. We are still in a bear market and the primary trend is still down. Just remember, a market bottom is a process and is not an event. The market doesn't bottom in a single day. The process the market goes through to form a bottom is as the Dow make successive new low, there will be fewer indices making new low. When the Dow is the last index to make a new low, that's when it will put in a bottom. In the meantime, I will be looking for support near 7700 and 7300 levels, and continue to buy the inverse ETFs on any rally, i.e. DXD, SDS, QID, TWM.

Don't Be Snookered

Another wild day today. In the morning, the market is on its way to make a new low. Then when 1:00pm rolls around, the market started to turn and the DJIA rallied from down more than 300 points to close with a gain of more than 550 points. At the end of the day, the DJIA, SP500 and NASDAQ all closed with a gain of 552, 59 and 97 points respectively.

What drove the market to such a sudden and dramatic reversal? Definitely it wasn't any news about the improvement in the economy. Instead, there were more bad news about the economy and the recession. So what was it? From my perspective, I see two factors that caused the market to turn. One factor is what I called 'everyone is a technician' looking for the magic market bottom signal. When all the major indices excluding the DJIA went below the October low and bounced, all these claim to be technician saw a double bottom formation and proclaim the market has successfully tested the October low, therefore it is time to go long. The second factor is the short sellers that have been shorted the market in the last few days and got caught into this short squeeze when those longs started buying. These two group of market participants created this volatile upward move.

But was today really signaled a market bottom. No, not by any technical means. When we look back at today's move, it will be recorded as a 'dead cat bounce', a bear market rally. In order for the market to make a bottom, it need to make a new low. And today, it did not make a new low. Furthermore, this new low has to be a non-confirmed low. Just I have stated in previous post, when the market makes a bottom, there will not be much of fanfare, i.e. low volume. I will continue to monitor for the bottom signal, and in the meantime, I will look for opportunity to go short on any rally and won't let these bear market rally snooker me into a bull trap.

Don't Trade Against Yourself

Whenever you have doubts on taking a position, don't trade and move to the sideline. If your analysis telling you to go short, and the price actions generate doubts for you to take the trade, step aside, don't go long. The last thing you want to do is take a trade on the opposite side and trading against yourself. Most of the time when you take a opposite trade against yourself, you end up hoping it will work out, and the market never work with 'hope'.

Are We There Yet?

Well, I guess a breeze came by and blew the market over the cliff. Recall on October 24, 2008 when the Dow Theory signaled us that the DJIA will see a lower low. Will tomorrow be the day that a new low will appear? The NASDAQ already made a new low today, and GOOG broke below $300 along with a lot of tech stocks making new 52 weeks low. Oh yea, financial did their things too, GS is around $65, AXP is asking the Treasury for a bailout, SKF skyrocketed more than 22 points today and closed near October 9, 2008 closing high. The energy stock such as XOM and CVX are breaking down once again.

When the DJIA hit a new low this time, will this be the bottom? From what I see in the technical perspective, NO! Not only it will not be the bottom, but a misleading signal can be present itself to throw off the unaware market watchers. This misleading signal is the Dow Theory non-confirmed DJIA low. This non-confirmation could cause some to conclude that the market has hit bottom. The reason this non-confirmation should be ignored is due to the recent falling crude prices. Most of the transportation stocks, especially the airliners were bid up. This run up of the transportation stocks has nothing to do with an improving economy. Its purely base of the possible improvement in gross margin due to lower fuel cost. The Dow Theory is based on the days when rails and trucks are moving goods due to the improvement in the underlying economy. And it is this first sign of an improving economy that foretell the end of the bear market by shaking out the last holder of the blue chip stocks. And based on the state of the current economy, we are not there yet to say it is the end of the bear market when a non-confirmed DJIA low appeared. The recession is just beginning. So keep monitoring what the market has to say. When that bottom is here, the message will be subtle and most of the people will miss it. Right now, too many people is looking for the bottom, and the market rarely do what everyone expect it to do.

Hello Down There!

The market appears like it is standing on the edge of a cliff, with a slight gust of wind and it will be headed down. You can feel the volatility is coming back. Lot of stocks are setting itself up to test their October low, with the financial stocks leading the way and the energy and tech follow. So, say hello down there and get ready to dive. Inverse ETF is the way to go if you don't want to short the stocks, DXD, QID, SDS, TWM, SKF, DUG and DTO (ETN).

Just a few words on DUG. If you believe crude prices will continue to drop, then play the DTO. If you believe the oil and oil service companies will go down, then play DUG.

It Not That Uncommon After All

Although it is rare that November is the month for major market bottom, but it is not that uncommon to see November with a lower low than October. Checking back to see how many times between 1970 to 2007 that the month of November experienced a closing low lower than the lowest closing low made in October, and the result indicates it is not that uncommon. The November of 1971, 1973, 1976, 1977, 1978, 1979, 1983, 1988, 1991, 1994, and 2007 have a closing low that were lower than their respective month of October. That's nearly 30% of the time in the last 37 years. Another interesting observation is since November of 1994, there was a 12 years gap before another month of November has a closing low lower than October. I believe it is this 12 years gap that gave most people, myself included the perception that November is a bullish month. Certainly with how the market retreated in the last couple of days, odd is very likely this November could be one of those November that will have a closing low lower than the low we just experienced in one of the worst month of October in history. The lowest closing low made last month is on October 27, 2008. Keep an eye on that day's low. Finally, there were only 3 November between 1970 to 2007 that made market bottom, 1971, 1978 and 1994, that is only 8% of the time.

For my trading strategy, I will continue to nibble on shorts until the market breakdown and make new low, then I will consider taking a more normal position sizing in swing trade & trending positions. Oil, gold, and the inverse ETF will be my primary focus. The possible long position on biotech pharma is off the table for now. Market's primary trend is still down.

What A Difference A Day Make

Wow! What a difference a day make, and I don't mean the election. Yesterday, looking at the price action on the indices and some of the stocks in my list, they all seem to be in a short term slight bullish trend. Then today, BAM! Reversal all over the place. Dow dropping nearly 500 points and up/down volume 10 to 1 favor the down volume. nearly half if not more of the stocks in my list and in some of the indices shown bearish pivot reversal pattern today. The day before, it was less than a hand full.

The market again reminded us not get bullish yet and that its primary trend is still down. Luckily, I'm very much in cash and any long positions I hold are small and short term. I will continue to be cautious and trade with small position sizing. Nibble on the short and dabble on the long when opportunities arise, but keep it small and brief.

Oh yes, GLD. From yesterday price action, it appears the countertrend move might be developing into a reversal move. It appears to have formed a double bottom and could be reversing its downtrend. But today's price action might abort that move. Need to keep an eye on it to see if it can hold above the 11/3/08 or the 11/23/08 close. If it does, then the trend reversal still possible. Otherwise, downtrend will continue.

It's Over, What Next?

Well, the election is finally over. Now its wait and see what next. The market was 'boring' on election eve, then it rallied on election day. The market has been slowly building a bullish bias toward the October 14, 2008 intraday high. If the market break through this resistance level, I will be watching to see if it will move toward the 10200-11000 level. Seasonally, November is typically a good month for the market and is not a month in which the market selloff to make market bottom or a new market low. I believe with the removal of the election uncertainties, the market will move higher in the short term. When December comes, and the market start to refocus on the recession and the Christmas retail sales, it will set itself up for the pull back and resume to the primary downtrend. If the market still exhibiting bearish bias when entering the month of January, the likelihood for the market to make a bottom or a new low will be great.

Some of the sectors that are looking bullish for the short term are the biotech pharma and airlines. In a recessionary period, people will still need to buy the drugs they need to treat their illness. Therefore, those biotech pharma companies with specialized drug will be less affected by the recession. In addition, with the price of oil coming down, the airlines are getting a windfall profit from all those fuel surcharges they imposed on travelers when oil were $147 per barrel, and all those baggage charges. As the airlines' fuel cost comes down due to the falling oil prices, those surcharges are becoming a new profit generators for the airliners.

Those are two primary sectors that are seem to be showing strengh in this rally. Other sectors that are also interesting for the short term are the home builders and regional banks.

Again, I emphasize 'short term' because I believe this rally will be short lived. So I would be very selective and scale into a position. I will provide an update on GLD on my next post. Today I went long on DHI with a small position and waiting for entry around 62 on CELG. Will update on the trade in the comment section.

Still Monitoring

It will be interesting to see how the market will react to the outcome of the Tuesday election. I am still monitoring the Dow to see if it will reach the October 14, 2008 high for possible clue on which direction the market will be headed for the short term.

Same Old, Same Old

Another crazy closing 15 minutes in the market today. This time it is on the upside instead of a selloff, moving 200 plus points within 15 minutes. Not much more to be said today except the Dow is trying to test the 9260 resistance level again, just have to keep watching on how far the recent rally will carry. If the rally continue to take the market higher, I anticipate the October 13, 2008 high will be a major resistance.

New Development On The Dow

I almost overlooked the Dow hitting a resistance level near 9260 today. The Dow sold off nearly 400 points after hitting this level 10 minutes before the close. It will be interesting to see what the market will do tomorrow. Will it test it again and break through it or will it head toward the October 10, 2008 low.

A related development is also found on the inverted ETF, DXD. The DXD is the ultra short on the DOW. It formed a candle with a small body and a long tail today, almost an ideal hammer. This type of candle formed after a brief downtrend is indicative of a developing trend reversal with bullish implication. Another bullish implication is the DXD intraday low bounced off the 50 SMA (the blue line on the chart.) All of these bullish technical developments are indicating a potential upward move for the DXD and a bearish trend for the DOW.



I will be watching for a potential long position on the DXD (short on the DOW via the ETF.)

It Is Just Crazy!

Even though there was no surprise from the Fed on the 1/2 percent rate cut announced today, the market still acted like it didn't know what to make of it. It gyrated between positive and negative territory back and forward until the clock strike 2:30pm, then it started to rally from a loss of over 120 points to a gain of nearly 300 points until with 10 minutes left for trading. Yes, you guessed it, the market sold off the 300 points gain plus more and the Dow ended down 74 points. Don't know how anyone can trade this market with these kind of last minute move. It is just crazy.

If you just look at the closing numbers, you would think nothing have happened in the market today. You would have concluded it was just a ho-hum day that loss a mere 74 points. The advance issues outnumbered the decline issues, and the up/down volume for the NYSE is positive while the down volume edged out the up volume for the NASDAQ. It is these deceiving stats that will trap the uninformed and lure them into believing a bottom has been made. A market that have bottomed would not be trading with a daily range of 500 points or more, and have hundreds of points selloff in less than ten minutes. I don't know about you, this market is too crazy for me. I'm still waiting for the market to signal it has bottom. In the meantime, I just go play with my gold.

What Now O'Dow!

Woohoo, another 900 points rally in the Dow.

I hope you were on the right side of the trade today. If you were one of those that were shorting the market and didn't have a stop in place, I feel your pain. If you are one of those that sold your long positions prior to this rally and feeling you have missed an opportunity to make some big profits or to have avoided on taken some losses, I know exactly how you feel. I have experienced these feelings many times in the past, and they are not very pleasant. But, through the years as a student of the market, I have learned the hard way on how to minimize having these feelings by having a trading plan and having an anticipation on what to expect from the market (notice I didn't say 'avoid' because I still get caught up in the moment and violate or ignore the good trading practices and get trapped into these market events on the wrong side of the trade from time to time.)

If you have followed my blog, you probably already know my trading plan and my market anticipations. I have said in this post that I am keeping an eye for a countertrend long trade on GLD, and in this post I have stated what are my anticipations on the market. If you haven't been following my blog, then I highly recommend you to read those 2 posts before continue reading this post.

Now that you know which scenario the market has decided to play out, here are my anticipations on where the market might encounter resistance and potentially offer the opportunity to set a trade.

As you can see from the chart for the Dow (INDU), it has broken above the trendline today. To get some idea where the Dow might encounter resistance and potentially revert back into the primary down trend, I applied the Fibonacci retracement between the high made on 9/19/08 and the 10/10/08 low. From the Fib retracement, it gives possible resistance levels around 9621, 9721, 10,182, and 10,837. Using traditional classic technical analysis, one can also extract these resistance levels from previous resistance and support levels, and they are near 9260, 9794, 10,365 and 11,100. As you can see, both technique yielded similar levels.

The following charts show the Fib retracement for the SP500, NASDAQ Composite, NASDAQ 100, and the Russell 2000. I will be watching how the market react when it reaches any one of these levels for signal to go short on the market. Of course, all these resistance levels will become irrelevant if the market decided to simply turn around and head down to break below the support level established by the 10/10/08 low. Then the other scenario will be followed for shorting the market. So until the market give a signal that it is on its way to make a new low, the question remain, "what now O'Dow."

Did You See What I Saw?

The Dow spend most of the day working itself back up from a deficit of more than 150 points. Around 1:40pm, it finally worked itself to a gain of over 200 points then the selling starts. The Dow loses over 250 points in the next 2 hours, and in the last 10 minutes of trading, it gave up over 200 points and the Dow ended the session with a loss of 203 points, the SP500 closed down by nearly 28 points, and the NASDAQ ended with a loss of 46 points. What's more revealing is what happened to these indices.

The NASDAQ finally close below the October 10, 2008 low. I believe the breakdown in tech stocks is not about the credit crisis. Instead, it is all about consumer spending and the recession. The NASDAQ seems to be indicating this Christmas season's consumer electronics sales will be weak, and businesses will be cutting their 2009 technology spending budget more than expected.

The Dow and the SP500 both closed at another new 52 weeks low, and they are still above the October 10, 2008 low. Once again, the DJ Transport confirmed today's Dow Industrial new low. Therefore, Dow Theory tell us to be on the lookout for lower low.

I don't know if you saw what I saw, but certainly today's market development was anticipated, it just happened a bit earlier than I had expected.

A Golden Bounce

The last couple weeks have been a big disappointment for all the gold bugs, myself included. Traditional wisdom would have bet gold would have been going up as investors are seeking safe haven to shelter from the equities market meltdown, and to shield themselves from the future inflation caused by the massive liquidity injection from central banks. Instead, gold has retreated from above $900 to below $700 per ounce during the last couple weeks. Some of the possible reasons for gold's retreat could have been due to 1) hedge funds liquidation to raise cash, 2) central banks selling to raise dollars.


Looking at the recent chart for the gold ETF, GLD, it appears to be getting ready for a bounce off the recent low level. Although the 50 day and 200 day moving average showing a bearish trend, but with the recent panick selling of equities, the anticipated interest rate cut from the upcoming FOMC meeting, investors could be shifting their money back to gold to hedge against the possible weakening of the dollars. In the past, when the dollars weaken, investors would shift their money to commodities such as oil. Due to the slowdown of the global economy and declining demand for oil, oil is no longer the preferred hedge against the weak dollars. That leave gold as the commodity investors will use to hedge against the weaken dollars.

In the next few days, I will be keeping an eye on GLD for a possible countertrend trade. I will post my trade in the comments section if a trade is made.

The Market Whispered (10/24/08)

The overnight Dow future & SP500 future went limit down in reaction to the selloff in the Asia markets, and lot of people are anticipating a very negative opening on Wall Street, i.e. down 700 - 1000 points. Well, it didn't turn out to be as bad as many expected. The market did went down over 500 points shortly after the open, but it recovered over 200 points within the first half hour of trading. The market was only down less than 200 points with one hour left before the market close. Then the market sold off nearly 200 points in the last 15 minutes of trading and closed with a loss of 312 points for the Dow, SP500 down slightly over 31 points, and the NASDAQ loss nearly 52 points. In any other day when the Dow closed down 312 points, it would be interpreted as a bad day. But with today pre-market events of limit down on the Dow & SP500 future and global market selloff, a 312 points loss day for the Dow is looked upon as not such a bad day, since the expectation was for a lot worst.

So what did the market actually do on Friday, October 24, 2008 other than finished with another down day and disappointed those that were looking for capitulation. First of all, the major indices other that the NASDAQ still have not tested the intraday low of October 10,2008. The NASDAQ has tested twice, yesterday and today. In both test, the NASDAQ ended with a close above the intraday low. The other thing that the market has done was all the major indices closed with a new low, lower than the October 10, 2008 closing low. This is significant for those that subscribed to the Dow Theory. For those readers that are not familiar with the Dow Theory, here is a very simplistic interpretation. Whenever the DJIA makes a new high with the DJT also make a new high, then the Dow Theory state the new high is a confirmed high and a higher high for the DJIA is still yet to come, and vice versa for a confirmed new low. Therefore, with the Dow closing at a new low on Friday, and confirmed with new low by the DJT, the market has whispered to inform us a lower low is yet to come. Having the SP500, NASDAQ and other indices also making a new low reinforce what the Dow Theory is indicating. For those that are seeking confirmation of the market bottom might have interpreted the Dow and the SP500 holding above the October 10, 2008 intraday low as a sign that the market has made a bottom will missed what the market has just whispered.

Since the Dow is still trading inside this bearish wedge formed with the October 10, 2008 intraday low as the support and the trendline made by connecting the intraday high of 10/3/08 and 10/14/08 as resistance (see chart),



and with the expectation a new low yet to come, my trading strategy will be as follow:

- Wait for the market to break and close below the 10/10/08 low. If this new low is another confirm low by the Dow Theory, then go short by buying the inverted ETF for the Dow, SP500, NASDAQ (DXD, SDS, QID)

or

- If the market rally without breaking below the 10/10/08 intraday low, wait for the rally to hit resistance, then go short by buying the inverted ETF for the Dow, SP500, and the NASDAQ (DXD, SDS, QID.)

I will not go long on the market during the bear market rally if that is to occur. The primary trend is still down and the risk of a trap is too great at this juncture to go long. Of course, if there are good opportunities to do some day trades on some badly beaten down stocks, I will nibble on some of those trading opportunities with much reduced position size.

I'm Not Fooled.

This market is really testing one's patience. For certain it is testing my patience. Throughout the day, the market is showing signs it will go test the October 10, 2008 intraday low and will soon signal its intended direction for the near future. But shortly after 2:00pm EST, the energy stocks started to turn around, and the Dow rally from down nearly 250 points to ended the trading session with a gain of more than 170 points. The SP500 also rally back from a negative 38 points to end the session with a modest gain of 11 points, while the NASDAQ closed with a loss of nearly 12 points. Although this rebound in the last hour of trading might have some believe the market have bottomed, but I'm not fooled. When the Dow gaining over 170 points with declining issues lead the advancing issues by a ratio of 2 to 1, it is not a sign of a broad base rally or a market ready to turn around. So another day for the market to test our patience and test our ability not to rush to judgment on the direction of the market. The reason for the energy stocks to rally is most likely due to the OPEC meeting tomorrow to establish a cut on oil output. As I have stated in my previous post, I believe no matter what the announced cut will be, it will ended up purely being symbolic and will not prevent crude prices from dropping. There will be cheating from some of the OPEC members to exceed their quota, and that will continue to put pressure on crude prices.