Monday, June 30, 2008

For all those bear haters out there...

The ICE is Breaking

ICE Made a new 1.5 year closing low today. The volume was not strong enough to confirm what looks like a major breakdown, but this stock is in trouble. The scale of the pattern gives a long term target in the middle of the 2006 price range. In the very short term, next support is around $110 which is where I'd expect a bounce back up to the breakdown price ($114). But then it drops to $61? Things are starting to get really ugly.

Sunday, June 29, 2008

How far and how fast?

Ok so its pretty clear that stocks are headed lower but what about the details? The charts, the charts! Lets start with the bonafide leading index, the Russel 2000 seen above. As you surely recall, the small caps (R2K) were the first to start the five year bull market and the first to enter a bear market of the big four indexes (dow, nasdaq, s&p, r2k). The small caps actually look much better than the dow by remaining well above the 2008 lows. On the other hand, things are looking pretty bearish after IWM had a failed breakout above it's declining 200 dma. This formed a mini head and shoulders pattern and ended the last significant bear market rally. The only question in my mind is whether the index will throw back up to resistance in the $72-$74 area before crashing down to the 2008 lows ($64) or drop straight there next week.

Looking at the dow weekly (below), you can see what I mean about the small caps looking better. Last week the dow broke down to new lows for the year and closed significantly below its lower bollinger band on the weekly time frame. This situation looks an awful lot like the capitulation bottom in January which would mean a big drop then a huge bounce sometime in the next few weeks. The market is getting oversold so a big bounce is assured, but the question is how far will we drop first? I think the odds are good for a bounce near the 2006 lows which also match up nicely with a trendline connecting the last two bear market bottoms. Rather than describe it for you, just look at the chart and know that I expect 10,700 soon (like next week or the week after):

And by the way, that massive head and shoulders pattern on the dow completed by any measure. This is not a good time to be owning US stocks...

Disclosure: No positions

Krugman on Energy Policy

Saturday, June 28, 2008

Saturday Rock Blog: Bust a Move

Now here's a stock that really busted a move. Energy conversion devices (ticker ENER) is involved in a number of different industries but it's recent runaway gap came from solar powered earnings. I've been following this stock for many years and it did nothing, I even had the privilege to sit down and chat about science and solar technology with the founder last year. Regretfully I did not purchase the stock, but after a pulback this thing will look very attractive to me. You know that I am extremely bullish on solar and thin film solar has the most promise (note FSLR). ENER makes thin film photovolataics like FSLR but out of Silicon instead of the extremely problematic CdTe. This is one of those stocks that could rally for ten years away from that gap, some say it could become the Microsoft of semiconductor technology. Expect more on ENER from me in the future.

Monday, June 23, 2008

Massive Head & Shoulders (Top) on Dow Weekly

This is a pattern that has been in the making for a very long time. The Dow Jones has formed a lovely looking head and shoulders top on the weekly time frame with a gigantic price scale. Using the measure rule (usual method), you get a target of 9,200 once it closes a week out below roughly 11,700. Depending on how you like to draw your neck line, you might already think the pattern has completed because last week the Dow made a new 52 week closing low which was below all weekly closes in the H&S. In my view the Dow looks extremely bearish in the long term and any rallies should continue to be sold.

Not all charts look as miserable as the broad market. Below I've got a drilling stock NE that my friend Stewart (aka ChicagoStock) suggested. There was a nice symmetric triangle breakout at the end of March and the target from that was reached last month. After a period of consolidation this one may be ready to blast higher for a few more months. There seems to be some support near the rising 50 dma, so I would be watching the $61 area for an entry.

And by the way, that massive head and shoulders pattern on the dow completed by any measure... This is not a good time to be owning US stocks.

Disclosure: I have no positions in NE or DJIA

Saturday, June 21, 2008

Wednesday, June 18, 2008

Still Bullish on Agriculture (DBA)

I'm back from vacation! While I was out relaxing on the ocean blue I couldn't escape from headlines about soaring commodity prices. This should come as no surprise given the federal reserve's extremely inflationary policies, and nowadays it's status quo for crude to be making new all time highs. I certainly wasn't stunned by the news that corn and soybean prices were making new all time highs after all the wet weather we've had here in the Midwest this growing season. As you may recall, I posted on the DBA chart (DBA is an etf of corn, soybeans, sugar and wheat futures) about a month ago suggesting a buy under $36 as the consolidation seemed to be wrapping up. Here's what happened:

As expected, DBA broke out of its descending triangle like clockwork just before the apex, and since then it has been going straight up. The 50-day moving average is now sloping upwards with the 200 day, and aside from being overbought in the short term (stochastics and RSI), things look really good. Before, I had been targeting the previous highs at $43.50 and I still think that will be an area of strong resistance (and a good place to take profits). However, if DBA can break through those previous all time highs, then this thing could really fly. Here's a weekly chart:

First of all, DBA expanded 80% on the last push upwards so it has a lot of momentum. Volume has been very healthy and the consolidation pattern looks just about as nice as any bullish chart could. Using the roughly $8.50 size of the recently formed base/cup, I get a target of $52 once $43.50 breaks. There's nothing to dislike about this chart if you can overcome the fact that making money off DBA means people are starving because they can't put food on their plate. Hate the game, not the players, right?

Due to the overbought nature of the daily chart, I'd try and buy/add on a pullback to around $39, but now that it's broken out, you might not get a pullback. I remain extremely bullish on DBA and it just might be my favorite long for a while. I'll be sure to let you know if things change. Of course, I still feel strongly about all four summer trades as well (long IBKR, JASO, short JWN, HD). Hope everyone is having a great summer. -py

Disclosure: I have no position in DBA

Saturday, June 14, 2008

Saturday, June 07, 2008

Saturday Rock Blogging: Don't Worry Baby

I'll be back in a few weeks, now hit the beach! . -py