Saturday, January 30, 2010

Thursday, January 28, 2010

Evidence of a trend change (IWM, QQQQ, CME, AAPL, and CME charts)

Isn't it funny how all these big patterns completed simultaneously like this as volume surged. While a throwback wouldn't be unusual at all, the uptrend that has existed since March 2009 appears to have ended. A big squeesy pop wouldn't surprise me all all so tread with caution, as always.

Disclosure: I own QQQQ options (puts and calls).

Saturday, January 23, 2010

Thursday, January 21, 2010

50% Retracement of the Bear Market

After thinking about it for a bit, it dawned on me what the Bloomberg journalist was trying to say in his poorly worded article earlier. He was pointing out that today the S&P 500 reversed back below its 50% retracement level of the 2007-2009 bear market (precisely 1121.44). Actually, this is a good point, a bearish development and I'm glad it was brought to my attention, albeit after a little work on my part. He was *not* talking about the 50% retrace of the rally from the March 2009 lows as was implied.

If you look at the chart above you can see precisely where the level of interest (50% bear retrace) is for the S&P 500. On the one hand its just a technical level that has value merely because traders think it does and you can easily see that this level has represented resistance recently (note daily chart below). On the other hand, you can image that this is a psychologically important level because it is roughly where 50% of bear market investors break even. Those investors might be happy to get out with all of their money back. One perspective some technicians might take is that the 50% retracement is an appropriate correction to the initial bear market move. Note that Elliot wave folks are going nuts over this and have turned extremely bearish as of late and they aren't the only ones. Often you'll see that after a stock makes some big move, it will "retrace" 50% of that move to effectively digest the price action. The idea being that after the correction is over the longer term trend resumes. Its far too early to say if this is the case here, but I will be keeping a close eye on this developing pattern, I'm skeptical that the S&P 500 will give up its rapidly rising 50 dma so easily.

Interestingly, this level (1121.44) also represents the closing price of 2009 and the opening price of 2010, roughly. The Bloomberg author could have also noted the S&P 500 went negative for the year by closing below this level.

GS Head & Shoulders Set Up

Things are definitely starting to look better for the bears, but I'm not convinced this is it just yet. On days like today I wonder if anything else matters besides the king of kings, Goldman Sachs. Intraday the stock broke its' 200 dma and completed a pretty big H&S on massive volume (see above) after reporting record earnings and basically getting yelled at by Obama. In the end, GS closed just above the key level so nothing is conformed yet.

Its not a good sign for the market that its leadership like GS, CME, FCX and GOOG are breaking down. Lets see how we do tomorrow, currently GOOG is down big in the AH after earnings beat expectations. As we are beginning to break important levels on indexes the odds of a sharp decline increase.

Bloomberg journalists...

A headline article I saw on bloomberg this afternoon is pretty bad, check this out:

"The two-day plunge in equities pushed the S&P 500 back below its 50 percent recovery from the bear-market bottom last year. The benchmark index for U.S. stocks on Dec. 24 recovered half its losses from the 17-month decline that ended in March 2009, a so-called Fibonacci retracement that technical analysts said signaled more gains to come. "

Huh? Umm, false and false.

Note to Nikolaj Gammeltoft, the S&P is absolutely no where near the 50% retracement level, its simple math for anyone who bothers to check. The low was 666, the recent high a few days ago was 1150. Subtract, 1150 - 666 = 484. Now here comes the 50% part... 0.50 * 484 = 242. Now add, 666 + 242 = 908 and vwualah! The level referenced in this article is actually about 20% lower, lol. Second of all, a 50% retracement is not a Fibonacci retracement... its a 50% retracement. A Fibonacci retracement is either 61.8% or 38.2%. We do not have a fancy name for the 50%, but hey, at least you spelled his name correctly.

Edit: Dumb post, see follow up.

Wednesday, January 20, 2010

Still consolidating... (NASDAQ)

Clearly volume has picked up as we have traded in the recent narrow range following the rising wedge breakout. I suspect the big boys can suck in a lot of buyers (short covering and buy stops) on a breakout of this range, so why wouldn't they? Lets see, but I still think this situation will resolve its self with a failed breakout (capitulation) before we begin any kind of real correction.

Disclosure: I have option positions on QQQQ.

Sunday, January 17, 2010

Saturday, January 16, 2010

Saturday Rock Blog: I Fall to Pieces, nostalgic post

Note that these are all old charts I posted here and are not current.

Friday, January 15, 2010

Where's the capitulation?

Lately I've been thinking a lot about how obvious it is that the market will decline substantially in the near future, it seems too easy to short the market here and that worries me. The coming decline has become so obvious that I suspect many shorts who have held out this long continue to do so, despite large losses. Bearish sentiment is so low right now that there is very little possibility that this isn't a major top. So will the market behave like its supposed to and just roll over and die? Not a chance, at least, my experience tells me that the market needs to wipe out any hold out shorts and top pickers before it will crash. Thus I am going back to my old mantra of expecting this rally, this bull market, to end in capitulation, as all major market moves do. Some call it a blow off top, it certainly will involve a failed breakout and the volume will surge. Thus, although I am short I have decided to remain hedged until such a capitulation move occurs. In the chart below I have added a few daily candles depicting how this might play out in the next week or two. If i am right look for a very large move up on record volume followed sharp reversal.

Disclosure: I own QQQQ puts and calls.

Wednesday, January 13, 2010

S&P lowers CA debt ratings, market moves to highs

Disclosure: I own QQQQ puts

Stock market is at 2007 levels, rail traffic is not.

Owning the right option at the right time can be lucrative (BIDU Jan calls exploded today)

No, I didn't/don't own these calls, in fact I just bought a few BIDU puts. Front month option trading is not advisable and usually leads to pain and suffering, trust me. But how else can one make over 14,000% gains in a single day? Wow, just .. wow. BIDU has always been a favorite of mine for "hail mary" front month option plays because of it's high price and ability to move, betweenthebars likes it for the same reasons I think. If we are lucky he might comment. What a home run it would have been to buy 10 of these options yesterday for $50 and sell them today for $7,000. Oh well, maybe next time.

Monday, January 11, 2010

011110 QQQQ charts

Welcome to 2010, the year of the even binary dates. For those of you who aren't a math geek or an electrical engineer like me, today's date (011110) is the second of nine binary numbered dates in 2010. I find today's date particularly cool because of the symmetry in it, the decimal equivalent is 30 by the way. No, no, I won't be posting 30 charts. And no, I don't think that the perfect symmetry in today's date means that we hit a major top today in the stock market, although that would be pretty cool. Nope, its just a day like any other, a day that nerds like me take note of.

Since 2010 began last week I have been wanting to post kind of a summary of where I think the markets are as we start the new year. I also wanted to make a few comments about how the past three years started since we all know that "it will be different this time" are famous last words. So without further adiu...
Obviously, the market we all care about most is the stock market. In particular, we care about the segment of the market that is currently leading and for the past year or so that's the nasdaq 100, also known as the Q's (QQQQ). The Q's are at 2007 levels after having nearly doubled since last March. Above I've got a monthly chart of QQQQ over the past decade plus the last year of the 90's for context. Late '99 and early '00 marked the end of the 90's bull market, in hindsight it was a bubble because we're still down by over 50% in the past decade.

If we zoom in a bit to a three year weekly chart (below) then you can see more detail of the top, subsequent decline, and recovery. There seems to be reason to expect some resistance at the apex of these symmetric triangle patterns, and despite having rolled over a few times, the market miraculously moves higher almost every week. Dead bears have been left in the wake of the $9 trillion tsunami.
With unemployment at 20 year highs, earnings generally declining and credit still super tight, we all know that this rally is not even remotely related to any fundamental improvement in publicly traded companies. No, its a bubble of a risk taking frenzy fueled by shamefully low interest rates (read free money from the fed at the US dollar's (and anyone who has savings') expense). In fact, the chart above is misleading because if you price QQQQ in terms of something with real value, like oil below (QQQQ/USO), the "rally" from last March barely even appears.
I've compared it to a game of musical chairs since the goal is to not be the odd man out, or to not be the last to buy. Without many pullbacks to form support I would expect the eventual break to be more of a crash. Its really turned into a question of when not if, in my view, after having watched this bull market go parabolic. One day the big money behind this rally will throw their hands up in the air and revalue all of this a lot lower but for now no one can deny that the trend is up.
To support the notion that this day may be soon approaching, the first quarter has been bearish for each of the past three years. Despite the prevailing trend (up or down), stocks have been sold leading up to March in recent years. I'm not saying this will guarantee that Q1 of 2010 will be the same way, but its something to consider. Do you see a pattern here?So we'll see, I can't imagine anyone would want to be long right now but clearly there's lots of capital heading in that direction in a big hurry. I also can understand why investors wouldn't want to short in the face of such a high octane uptrend. Lets see what happens when the music stops.

Disclosure: I own QQQQ puts (hurting)

Its a gusher! (in the Gulf of Mexico for McMoRan)

What a nice move today for MMR after they reportedly struck oil in the Gulf. According to the release, they discovered oil just off the coast of Louisiana in "approximately 20 feet of water." The interesting part is that the actual oil deposit was ultra deep, they "drilled to a measured depth of 28,263 feet." That's over five miles deep! Turns out this is one of the largest discoveries in the Gulf in decades which is probably due to how deep the oil is. Perhaps we have a lot more domestic crude than previously thought, just super deep. I wouldn't chase MMR here but its a nice looking chart and far below its all time highs. Oil people please chime in on this.

Saturday, January 09, 2010

Saturday Rock Blogging: Stuck With You

Don't fret, I'll be posting a bunch of charts soon. Been busy in 2010.

Tuesday, January 05, 2010

Saturday, January 02, 2010