Saturday, May 29, 2010

Saturday Rock Blog: I'm Gonna Be

Hat tip to the Benny and June fans out there, hope you are all enjoying this lovely summer weekend. Cheers!

Friday, May 28, 2010

QQQQ Head & Shoulders Top Forming

In watching the intraday action it feels as though there has been a major shift in sentiment following the 10% market crash we had a few weeks ago. In many of the daily charts you can see a pretty severe breakdown on that day followed by a series of bounces within continiued selling. The technical damage was severe on that day; for example, the Q's broke their 2010 low from back in February before reversing and many former leaders have since broken even lower. It feels as though the 2008-2010 bull market is ending and a new bear is about to reassert itself. In my view a new bear market has not been confirmed technically. On the Q's above I see a head and shoulders top forming with a neckline at $42 that targets around $33.35. The right shoulder is a bit messy and starts on "glitch day" the way I have it drawn but perhaps we still haven't finished the head yet. I am looking for a close below $42 on a weekly basis for a confirmation of a new bear market in tech stocks and completion of this H&S pattern. As far as the recent bounce/rally of the past few days, I think QQQQ could see at most $47 but it appears to be running out of steam right here ~$46. From here that $42 will be a magnet and a good test to see how badly the bulls want to own stocks.

Disclosure: I don't have a position in QQQQ at this time.

Monday, May 24, 2010

Sunday, May 23, 2010

Revisiting the Euro / Aussie Dollar cross

Hey, I hope you've all had relaxing weekends and are rested up because I think this week promises to have some juicy action in the markets. Its not so bold of a thing to suggest really, given that we had a 10% crash a few weeks ago in a span of minutes or the various global crises happening at the moment. There's the BP catastrophe in the Gulf, N. Korea is sinking submarines , Bangkok is in flames, the EU might dissolve; its starting to look like another credit crisis is brewing. This has created all sorts of action for traders as this volatility rapidly transfers wealth around the planet. Oil tanked while gold soared, global stock markets trended lower. So its really no surprise that there has been significant "fluctuation" in the foreign exchange as well.

Our good friend the Australian dollar (AUD, FXA) plunged as investors sought less risky US dollars because commodity producers declared they are pulling out in protest of new mining taxes. Here's an AUD weekly chart, I think it looks pretty similar to how it did about two years ago:

I mean, it doesn't really get much more bearish then this. You have AUD slice through its 50 and 200 dmas ina week. The CCI and stochastics scream "sell." And finally AUD plunges below that keep support from early last February around $0.86. The measure rule for this move targets $0.77 to $0.78 but I think it could easily go much lower in time. On this last push that just topped out AUD couldn't take out its former high from the bull market that ended in 2008. To me this establishes a long term secular bear market for the AUD, I got short AUD at the end of last week.

The euro (EUR, FXE) basically did the same thing AUD is doing right now about six months ago and we all know how that turned out. EUR has steadily declined on the EU crisis, even sending the "one currency" sliding through its 2008 low. You can clearly see the lower highs on this weekly EUR chart but I think there are signs of hope in the shorter term. Notice that while EUR clearly broke its 2008 low, it managed to rally back and finish last week well above this key level. The weekly EUR chart now has the "false break" we have all come to know and love, potentially this could get shorts to take profits while panicking dippies to get in before the pop:

On this weekly time frame there's not a whole lot to hang your hat on but I really like last week's inverted hammer candlestick, a sign of potential reversal. If you check out the FXE volume you'll see that last week's was the highest ever, far eclipsing the volume during weeks of the 2008 credit crisis. A surge in volume signals capitulation to me and so I've been slowly adding EUR. I might point out that I did correctly call the top in both AUD and EUR in this last cycle but it seems I was early on the AUD decline.

Each of these trades individually would result in significant US dollar exposure but if paired with equal size then the dollar risk is hedged out. In the Forex world this is a trivial concept, you'd just buy the EUR/AUD cross. After a quick glance, the chart for this cross effectively takes the best components of both above charts and brings them together. EUR/AUD had been in a narrow and declining channel for about two years. The RSI was steadily declining then all of a sudden last week, bam! EUR/AUD broke out closing the week at nearly the high with a 7% weekly gain, that's a huge move for a currency. The CCI and stochastics have not confirmed buy signals but seem on the verge of doing so. I could easily see this cross getting back to the 1.7 area which seems to be a sort of three year "equilibrium."

If you're not into the forex or don't have an account you can still take advantage of this trade albeit with much much less leverage. To do this trade with ETFs you can go long FXE whilst shorting FXA which is technically what the chart above is. To get leverage you could buy options (FXE calls, FXA puts) but frankly the forex market is much more liquid and enable much higher leverage. I do have to point out that I was wrong on this cross in February when I thought it was forming a bottom at it's 2007 low. That being said, if this cross really melts up I could see it going to my old target around 2.0.

Anyways, good luck out there this week. I'll try and get some new stock charts up soon. I'm generally getting pretty bearish on the market but I don't have and puts or short positions right now in stocks. The potential for a big capitulation bounce scares me but almost every index chart I look at is a sell.

Disclosure: I am long EUR/USD and short AUD/USD.

Friday, May 21, 2010

Saturday Rock Blog: Llama

What an incredible past few weeks; wow, just, wow. Sorry for the lack of posts, I promise I'll make it up soon with an epic post. For the meantime enjoy this epic youtube video along with this QQQQ chart!

Wednesday, May 19, 2010

05/19/10 SP500 & Crude Oil Market Update

The SP500’s failed move past 1175 created a new head and shoulders formation with a range of 53.25 handles (1174.75-1121.50). The market closed below its neckline (1121.50) on Tuesday weakening the market into the Globex session to make a low of 1106.00, filling the gap from the May 7th (1107.00). Now that this gap has been filled, the market can attempt to fill back higher and try to reclaim its losses. Resistance will be met at the neckline of 1121.50, then the intraday pivot of 1122.63-1131.38. The top of the 3day pivot for tomorrow is at 1136.13, close to the previous h/s target of 1136.75. Failing to hold this gap area gives this current head and shoulders formation a potential target of 1068.25.

Oil’s failed breakout after making a new high on May 3rd of 87.15 has now seen an almost $20 move to the downside in less then 3 weeks. The saying that false breakouts lead to fast moves was proven as the market quickly came down to test the bottom of its weekly channel. This channel was taken out last week with a close of 71.61. This week, the June contract is going into settlement on the 20th, and a low of 67.90 has been made reaching toward a 38.2% Fibonacci retracement from the January 09 lows of 33.20 to the recent highs of 87.15. Crude is down 6 days in a row; this trend will be tested tomorrow as the EIA inventory numbers will be released and bulls look for oversold conditions. Resistance: Intraday pivot range 72.96-73.71, 3 day pivot range 73.55-75.48.


Saturday, May 15, 2010

Saturday Rock Blog: The Horror (Euro)

Disclosure: I am long the euro, this is a panic.

Saturday, May 08, 2010

Friday, May 07, 2010

Thursday, May 06, 2010

Glitch Day 2010 or How The Dow Tanks 1,000

Welcome to glitch day 2010, did anyone see a black cygnet swim by? No one seems to be able to nail down one single reason for today's historic market calamity but was it really all that surprising and unprecedented? Back in 2008 the market would drop 10% in a day once every few months. After this ridiculous rally we've had who out there really expects us to just keep going up even as global economic news is awful. I heard one trader say that today he was watching the Greece riots live and as soon as the police advanced on the crowd the market tanked. Others are watching the euro collapse to multi year lows. Yet others are following the financial reform debates in Washington or anticipating the next class action lawsuit against market master Goldman Sachs. Myself?, as you know, I try to remain focused on the charts so here they are. Mostly, things seem unusual on short term time scales but not so much as you zoom out. First, here's my updated six month QQQQ chart from Wednesday morning:

Many strange things seemed to happen simultaneously today just before 3pm, one of them was the plunge in the shares of blue chip and dow component Procter & Gamble, PG:

Undoubtedly fortunes were made and lost in the action...

Apparently some stocks dropped to zero today before rebounding, literally. In fact, so many stocks did this that the Nasdaq had to release a long list of stocks which have canceled trades. PG does not appear to be on this list, here are a few stocks that had severe drops today from this source:

To keep some perspective, many stock charts seem to be reasonably unaffected. BIDU's long and shorter terms are still up, if any thing this gap fill for BIDU was healthy:

To be fair, the "glitch moment" in the day only lasted about 30 min. As you can see by this 5 min XLF chart, the market was already tanking pretty bad before we broadly crashed. XLF took a bigger dip just before 3pm but it seems pretty orderly and healthy:

We'll just have to wait and see what happens tomorrow with the unemployment report and any hangover from today. I am moderately bullish at the moment in the short term, becoming increasingly bearish on the long term.

Disclosure: I currently have only bullish positions, including but not limited to QQQQ, ISSI and CRUS.

Wednesday, May 05, 2010

Its just a chart!! (IWM to $42 & a Broken QQQQ)

Disclosure: I own IWM and QQQQ puts. Click chart for higher resolution.

Saturday, May 01, 2010