Double bottom, simple ABC correction or something far worse?

A simple ABC correction targets $106 on SPY or ~1057.5 on the index. If this is the beginning of a new long term trend, as the cross overs in the chart above suggest, then the bottom could be potentially much lower. However, I wouldn't be surprised to see Bernanke play some card up his sleeve and send us spiraling higher out of a double bottom. I am posturing bullish at the moment even though I don't think we've seen capitulation yet (on either side). I tend to think that the bull market isn't over yet and that we have one last big leg up, but honestly, these charts suggest otherwise. I'm leaning more towards a fundamental, longer term, argument that inflation should start creeping back up with rates at zero percent for two more years. So I'm not trying to trade these swings but nibbling when there's blood on the street.

Disclosure: Long IWM, LNKD, FSLR (broken charts, I know)

Saturday Rock Blog: Green to Black (So High)

Wow, what a week! The S&P broke out of its four month range, pulled back to support, then followed through. This is exactly the kind of action that the bulls want to see and in September of all months! (September is historically the worst by far) Those who have been betting on a weak market around the November elections are now in a tight spot with a couple of months to go. The measured rule for this breakout is around 1260 which would place the S&P at new 52 week highs and confirm that the two year old bull market is still alive. Actually, the pattern of the past 5 months or so look like a very healthy and solid base out of which the next leg up can begin:


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!

MDC Holdings (MDC)

Nice long term chart huh? It seems to make sense to use a simple ABC target for this stock, like I did with DSL (very nice), because the last two waves were almost identical on a percentage basis. If MDC completes the C leg down it will touch $26.77. If we use the size of the recent triangle we get a target of roughly $17.50. Any way you slice it, a break of $38.50 on volume suggests a $10+ move to the downside.

How can a chart look so bearish? From yahoo:

"M.D.C. Holdings, Inc., through its subsidiaries, engages in building and financing homes in the United States. The company has two segments, Homebuilding, and Financial Services and Other. The Homebuilding segment builds and sells homes under the name Richmond American Homes in certain markets of the United States, including Arizona, California, Colorado, Delaware Valley, Florida, Illinois, Maryland, Nevada, Texas, Utah, and Virginia."

Yikes, these guys have been disappointing wall street analysts for years and their next report is on Wednesday Oct. 24th.

If you have been reading this blog then you know about how bad it is out there right now in the housing sector and it turns out these guys do business in the worst possible locations (in bold). We haven't seen a major homebuilder go bankrupt yet, but it can't be too far off. And when homebuilders start going under stocks like MDC will get cut in half over night. Or if they are the one going bankrupt I guess it would be more than half that gets cut.

Disclosure: I own MDC puts

DSL Long Term Chart

A few months ago DSL broke down out of a two year symmetric triangle. It dropped 42% on increasing volume to find a low at 43.55 on record volume. Since then, a mild euphoria has swept over share holders of the savings and loan company as it climbed 45% to touch the bottom side of the triangle at 63.17. If this 45% rule continues and the stock completes something of an ABC correction, then it could see 36.64.

Of course that might be alot to expect out of any ordinary stock, but then again...

Acording to yahoo, DSL "originates and invests in loans, such as residential real estate mortgage loans, investment securities, and mortgage-backed securities; and originates and sells loans to investors in the secondary markets." Oh, you know, that sector of our economy which has completely fallen apart this year as the housing market tumbled. And while wall street likes to huddle around and sing kumbuya to their god, Ben Bernanke, the fed's desperate rate cut to save the markets isn't going to reverse the popping housing bubble. Just wait until earnings start coming out for these mortgage companies. Did no one listen to what Citibank said earlier this week? Good grief!

Dunno, it looks like a golden short to me so I bought some 60 puts.

Rolling Over

A number of leading stocks appear to be rolling over right here and the not-so-leading stocks look even worse. One leader from the first half of this year is AFSI, the chart was a beautiful long until it hit a high of 22.08 in early July. It has formed a perfect 50% retrace (22->12->17) and now looks ready to resume the correction lower:


I haven't looked into earnings date or fundamentals on this one so be sure to investigate for yourself before taking any action. Just looks like a nice short set up is all.

Simple ABC Correction?

Well that was one hell of a day, what an awesome move for options expiration! So does that complete a simple ABC correction? All major indexes have pulled back >10% and there was a huge bullish reversal today on record high volume, note the hammer candlestick. I have included Fibonacci values for the moves in SPY and DIA as possible areas of resistance/support. My personal feeling is that this is the bulls last stand but we'll have to see what they can muster up. I'll be very surprised if they can turn this thing around and will be looking to re-enter shorts at the top of the B move or lower if necessary. Perhaps the 38.2% pullback on this move. For now however, I am long JASO and ICE. And if that was a simple ABC correction, then we are now supposed to resume the bull market and make new highs. I think this is more likely the 1,2 & 3 of a 5 impulse Elliot wave (since I think we just started a bear market based on fundamentals). Any thoughts?