Sunday, September 26, 2010
Disclosure: Last week I bought (and still own) a few BIDU October $85 puts but it was a really dumb idea. BIDU decided to make a sprint for par ($100) last week and hasn't looked back since. The breakout and rally in BIDU strongly supports the thesis that we are still in a huge bull market. So its pretty silly to try and short it despite how much BIDU is up in the past two years.
Saturday, September 25, 2010
I haven't been long many stocks during the recent rally, instead I chose to short the dollar by going long EUR and AUD which has worked out quite well so far and I see no reason to exit these positions. The EUR seems to be doing something like a simple ABC correction to its longer term downtrend. Each phase thus far has been about 700 pips wide (1.19-1.26-1.33) so I am thinking it can hit 1.40:
The Aussie has just been fantastic for me, making new all time highs against the dollar this week. It broke out of a nearly perfect cup n handle formation and seems to be targeting at least parity with the dollar, perhaps higher:
I'll try to get some more charts up tomorrow, cheers!
Friday, September 10, 2010
The SP500 is stuck between a rock and a hard place after the highs for the year were made in April up to the 1220 level. For the past three months, the market has been trading within a range of 1000-1130, as forces continue to push and pull this market back and forth. The SP index is up 7.1% for the quarter, up 10.8% from the lows in July, down 9.5% from the highs in April, and still finds itself to be at -.01% for the year! There has been a lot of fundamental activity that has attributed to the indecision in investors and the market to find direction, however this market has also rallied 83% from the lows in March of 09 before the brakes were hit in April as the SP retraced nearly 61.8% of its fall from 2007-2009. This year has been a year of consolidation to put it at best.
The high created a small head and shoulders in April which ultimately led to the flash crash. The past 4 months has been a right shoulder of a much larger h/s formation as seen in the weekly and monthly charts below. The daily chart above has brought 2 "golden crosses". A golden cross is when a short term moving average breaks through a longer term moving average. The first cross was created in early July as the SP500 sold down to then 1010 level, the 50 day crossed through the 200day moving average. This breakdown failed and the market marched back up to 1130 and created another head and shoulders formation between 1060-1130. The second golden cross was created in late August as the market broke the neckline of 1060 and the 100 day moving average crossed through the 200day to sell down to the 1040 level. This breakdown once again failed and the market held to create a right shoulder in an inverted h/s pattern from May to August. This test late August saw 3 lows (1039.83, 1039.70, 1040.88) another inverted h/s pattern. This area subsequently was also the time that the Fed chairmen Ben Bernanke reiterated he did not expect to see another double dip in the economy. Another squeeze occurred and the market traded back to the 1100 level. As of this Thursday the SP500 has broken through the trend line from the April highs to the August highs. This is a major area of resistance, as the market is now testing the "head" of the h/s pattern up to the 1130 area. The reason there are so many h/s patterns in my opinion is due to the market consolidating and fighting between forces back and forth.
The bulls at these levels need to try and hold to regroup and attempt to squeeze higher once again. They can say the ball is in their court because the market is in an uptrend for the past 2 years, and the longer they hold these levels the better shot they have at pushing higher. Working with an inverted h/s formation between 1130 and 1060, which could potentially target them to the 1256 area. To do this, they will have to break through 1130, hold to test 1150, 1175, and ultimately the larger head and highs in April. Sellers will be met at all of these levels with first line of defense at 1130. Below the weekly chart will attempt to show a different view and possible scenarios.
Above, the monthly chart shows the head and shoulders formation that is embedded between the neckline of 1000 and the highs in April of 1219.80. So for the past 4 months, we have been digesting market activity within this right shoulder. Head being near the 61.8% retracement, and neckline being at the 38.2% retracement. If you are a bear, this would be the right level to sell into and risk the highs, bulls have the "plunge protection team", quantitative easing, and nothing but buy stops above. Continue to monitor these technical levels, with the break of support we want to be sellers, and with the break of resistance we want to be buyers. Play the range until the market finds conviction to move one direction or the other.
Quick video on price action from April highs to today:
RISK DISCLOSURE: PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING FUTURES AND OPTIONS IS SUBSTANTIAL AND SUCH INVESTING IS NOT SUITABLE FOR ALL INVESTORS. AN INVESTOR COULD LOSE MORE THAN THE INITIAL INVESTMENT. OPINIONS EXPRESSED. INFORMATION COMPILED FROM SOURCES BELIEVED TO BE RELIABLE, ACCURACY CANNOT BE GUARANTEED.
Thank you and best of luck trading!
Saturday, September 04, 2010
I'm becoming increasingly bullish on the market, I no longer have any index puts and I have opened long positions in AUD and EUR. This chart doesn't look super bullish but clearly 1040 (neckline) is holding and there is even a false breakdown to boot. Other indicators (MAs, stochs, CCI) are also starting to turn up as the increasingly low volume of summer wanes. It seems like the market likes the economic news that came out last week so that could be the catalyst for the next leg higher. The head and shoulders pattern that we had all been watching just didn't pan out. Anyways, one thing is for sure, the S&P has been stuck in a very annoying range for a while now: