Continue To Frustrate

Frustrations continue to build as the market continues to tease those that are waiting on the sideline to get in, and for those bears that are short on the market. Today, the market opened on a weak note, then early afternoon the market turned around, and starts to recover the early losses and moved into positive territory. From the daily price chart, one can see how frustrating it must be for those bulls and bears that are waiting for a pullback. The market continues to print bullish doji and hammer like candles with long shadow while maintaining its upward bias by holding above support level.







Unless the bears are able to push the market below its support level and move it down for more than a few hours and more than a single day, the sideline money will just continue to buy on the dips, and continue to move this market higher.

Lot of talking heads is still talking about how extended the market is and how the market is overdue for a pullback. The more these talking heads talk about the pullback, the more fuels are being added to help move the market higher. Soon after these talking heads give up the thought on the impending pullback, then from the rushing in of the sideline money and the beaten up bears running for cover, the market will enter the climatic topping phase and blow itself back into its primary down trend.

Consolidation

So far this week, the market has been doing some consolidations. Although it has printed couple of shooting star or inverted hammer candles, these candles do not pose any threat to a possible reversal. Today the doji candle just further frustrates the bears and reinforces the perception that it is safe for the bulls to enter without great risk on the downside. The scenario I have stated previously is this market will not pullback to a degree that will scare the sideline money away, nor to the degree that will give satisfaction to the bears to take control on bringing the market down. Instead, the market will provide a safe entry for the anxious sideline money to come into the market on any dips, then as these anxious money starts to pile in, we will start seeing consecutive 300-500 points gain days. When that happens, the bears will be crushed and they will convert and join the bulls to push the market higher to a blowout stage. At this point, the market should start printing inverted hammer or shooting star with a big upside opening gap or a long candle shadow where the market give up more than 200 points intraday gains to close with a small fraction of the gain or even a slight loss for the day. It is at this point that the market will reverse back to its primary down trend and try to establish a bear market bottom.







Yes, I still believe this is a bear market rally. I do not believe all these government fabricated/manipulated statistics on how the economy has bottomed and a recovery is near. I don’t care if it is a V, U, or W recovery, all I know is I have not sensed any change in the economy that have made me say “things have gotten better.” I will remain long until the market tells me otherwise. I rather stay on the sideline than to short this market right now.

Unchanged

The market has not changed its tune. I have posted the charts from my July 27, 2009 post below to show the potential upside levels have not changed.







At the present, the bias is for the market to continue to move toward those levels. Here are latest charts (these are daily closing price charts.)







I will continue to trade the uptrend until the market tells me otherwise.

Continue To Defy

The market continues to defy conventional wisdoms. Every time the market appears to retreat, buyers step in and lift it higher. Since July, there are two forces pulling the market. On one end are the nervous sellers that have got in early on this rally and are in disbelieve this rally has got this far without a substantial pullback. The other is the anxious sideline money that has felt they have missed out on this rally and waiting anxiously to get in.

Right now, the DJIA, SP500, and the Nasdaq 100 are testing resistance at the Fib retracement level. The bears are anticipating a pullback, and the anxious sideline bulls are waiting for opportunity to get in, and the market will do what it will always do; the unexpected. The market will most likely consolidate at the current level around the Fib retracement to frustrate the bears and lure the anxious sideline bulls to move in. As these sideline money lift the market higher, those frustrated bears will convert and participate along with those sideline money to lift the market to a blowout stage. When everyone is all in, the market will then reverse.

For now, here is the weekly chart for the DJIA, SP500, and the Nasdaq 100. Note how the indices are hitting the Fib retracement level and where the likely support level will be if a pullback does materialize.







While the market is sorting things out, gold is sneaking up with little notice. It has positioned itself to the possibility on making another attempt on breaking the $1000 level. If it breaks above the level indicated in the chart, the move toward the $1000 level is highly probable. The gold mining stocks are also poised for a possible breakout. In the coming week, gold and gold mining stocks could be interesting to keep an eye on.

Funny Math

Maybe it's me, I just don't get it. When you subtract 240,000 jobs from the work force, doesn't that mean more people is being unemployed. If yes, then how can the unemployment rate go down from 9.5% to 9.4% if there are more people without job. Did I miss the new job creation number of more than 240,000 somewhere? It must be the new funny math.

The market looks like it was getting ready for a pullback, then this funny math job number came out on Friday and the market sucked it up and moved higher. This tells me there is panic money on the sideline waiting for any excuse to get in. Looking at the weekly chart for the DJIA, SP500, and the Nasdaq 100, they all seem to be bumping against resistance from Fib retracement level. If these indices can't move above these retracement levels, they will at least pullback to their recent breakout level (see the chart for details.) In addition to these indices, the two sectors that have been the catalyst for this rally, the financial and technology are also bumping up against resistance. As I see the market, I wouldn't be surprised to see some pullback in the week ahead.

Watching For A Sign

The market hasn’t changed much since my last post. Therefore, I won’t put up the daily charts. Instead, I will put up the 20 days hourly intraday chart for the DJIA, SP500, and the NASDAQ 100 to highlight the key levels I am monitoring for a sign of a pullback.

One of the common characteristic from these intraday charts is the slowing rise of the 5 day MA. In addition, prices are coming down to test for the 5 day MA for support. If the price rollover and goes below the 5 day MA, then the next sign for conforming a pullback is in progress is when the 5 day MA starts to rollover.

For the indices, here are the support levels I am watching, 9125 for the DJIA, 982 for the SP500, 1605 for the NASDAQ 100. If these levels are violated on the downside, be on the lookout for a pullback.







For the index ETF, DIA, SPY, and the QQQQ, here are the support level to watch, 91.27 for the DIA, 98.38 for the SPY, and 39.50 for the QQQQ.

Changing Behavior

The first three trading sessions of this week, the market open and traded lower in the morning, and then it slowly climbed back up and closed with a surge of buying to regain all the loss grounds given up in the morning trading. Today, the market opened up strongly, and then it retreated and confined itself in a trading range until near the end of the session. During the final hour of trading, the market tries to rally in an attempt to move itself at least back up to the intraday high. The rally failed to move the market back to its intraday high and ended the trading session with a spur of selling.

What happened in the market today is nothing new, but what is new is the market has changed its behavior, from a buy-the-dip to sell-the-rally. This change in character tells me to be cautious of a possible pullback. With the underlying technical that already signaling the market is over extended, I will be a bit quicker to pulling the trigger to take whatever profit the market gives me. I worry about the runaway moves later if I happen to miss them. For now, I am more in the capitals preservation mode than being aggressive long or aggressive short.

The daily charts below give a broad picture on what is going on, but the real picture is hidden in the intraday charts. Who knows, maybe after tomorrow’s GDP report, the market will rally big time. All I know for now is there was a change in the market's behavior today.

Daily charts:







Intraday Charts:

Defiant

The market not only resilient, but it is also defiant. After the disappointed earnings report from MSFT, AMZN and AXP on last Thursday, one would have thought the market would be down last Friday. Think again, the market will humble us every time when we believe we got it all figured out. Instead of a down day on Friday, the DJIA and SP500 continue to move up, and the only thing that the disappointed earnings did was to halt the recent Nasdaq's winning streak to 12.

Today with the market trading down, it gave the appearance that the awaited pullback finally has arrived. Once again, the market defies us by regaining all its losses and closed with a modest gain for all three major indexes, DJIA, SP500, and the Nasdaq 100.

By any technical standard, the market is over extended and it is due for a pullback. But we all know whenever the herd is expecting the market to do something, the market will remind us who is in charge by doing the contrary.

Here are the updated charts, click on them to see what are some potential resistance levels.







Instead of fighting the tape and trying to outwit the market, I will keep trading with the trend until the market tells me to do otherwise. If I feel a bit hesitant, I will reduce my position size and tighten my stop. If I'm in doubt, I will stop trading until it is clear. This is a much better strategy than shorting this market and have the stops blown away by those buy-the-dip rallies. Yes, I still believe this is a bear market rally, but that doesn't mean I will stop trading the uptrend if that is the prevailing trend.

I will stick with my scenario until the market tells me to change course. I do not make money by correctly calling the market direction, I make money by being on the right side of the trade. Therefore, when in doubt, stop trading.

Lucky 13?

Today was a powerful up day for the market. After a brief testing of the inverted H&S neckline in the previous session, the DJIA forged ahead and gained more than 180 points. The SP500 joined the party and broke thru its inverted H&S pattern and made a seven month high. And the Nasdaq continues to amaze with its 12 consecutive up day. So will tomorrow be Nasdaq’s lucky 13?

After the market close today, MSFT, AMZN and AXP reported disappointing earnings and all three of them got hammered in the after hour trading. This will definitely put some downward pressure on the market tomorrow. And this could bring the current consecutive up day streak for the Nasdaq to end at 12.

Here are the charts. To read the commentary, click on the chart to get a larger view. Tomorrow could be the start of the long awaited pullback for this rally. After the pullback has started, I will start labeling the possible support levels to watch. Until then, trade well.

Resilient

The market has been very resilient lately. Whenever it appears the bears might gain an upper hand, the bulls charge right back and retake control. The Nasdaq has been up for 11 consecutive sessions and the positive earnings reports and outlooks from the tech sector continue to provide the fuel for moving the Nasdaq higher.

Today, the Nasdaq 100 reached the double bottom measured move level, and it might not encounter resistance until it reaches the 1600 level.



The DJIA broke out of the inverted H&S pattern yesterday and today it pulled back toward its neckline to test for possible support.



The SP500 encountered resistance at its inverted H&S neckline and pullback away from it.



Definitely, the market is at a juncture it can move strongly in either direction. Therefore, to initiate new positions before the market has decided which direction it will take can be very risky here. If you are long, the best move is manage your long positions with tight stop, and if you have survived the pains for holding on to your shorts, then maintain your stop, your reward could be just around the corner.

In the short term, the market is more likely to pullback from its current over extended level. With only seven trading days left in the month of July, it is very unlikely the market will drop to the March 2009 level before the end of the month. As August and September approach, the seasonal summer rally could give the market another surge before it resumes its primary downward trend. If you believe this is a bear market rally, then without having the market bottomed in July, the expected economic recovery in the second half of 2009 is off the table. The earliest we can look forward to a possible recovery is in the year 2010. If the market bottom in October 2009, then a possible recovery could begin near the end of first half of 2010. For now, the good news is the market has been up, and the bad news is the economic recovery is still not in sight.

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: