Saturday Rock Blog: Wheel in the Sky (DIA)

Juicy Solar City (SCTY) Reversal

Disclosure: I own SCTY puts.

Sunday Rock Blog: One More Chance (IWM breakout hasn't failed yet)

Disclosure: I own IWM puts and TZA stock.

Wednesday Rock Blog: Breakouts fail (bull trap sprung!), but Life Goes On (Tupac)

"From failed moves come fast moves" -smart trader

Saturday Rock Blog: Frank Zappa's Hot Rats and Ugly IWM Breakouts

Disclosure: I am mostly short, including a significant long position in TZA

The S&P breaks 1600!!!

The Russell 2000 (small caps) broke hard today

In today's lovely daily candlestick, IWM broke through two seemingly important price points and more importantly  its flattening 50 dma.  The small cap ETF did all of this on 100M shares traded, second only to the first trading day of the year (~3x avg vol).  This now brings into focus previous a previous area of support around ~$89, then nothing but air for another -$4.

Disclosure:  I own TWM (inverse IWM)

Sunday Rock Blog: Inspector Norse

 

Disclosure: I own CMCSA puts, first target is $37.80, stop at $40.35

My internet went down again this weekend, fuck comcast.

Monday Rock Blog: Lovin' Touchin' Squeezin' Breakin' (DOWN)

Is it just me or dows the market look like it is about to completely melt down? Watch IWM collapse if it can't hold $77.50. Disclosure: I own IWM calls, but will exit them tomorrow

Sunday Rock Blog: Midnight in a Perfect World

There's no denying that this gold chart looks pretty bullish. After a six month correction, GLD has broken out and targets the low $200's (new all time high). This isn't terribly surprising because ANYTHING priced in US dollars has rallied lately and gold was well positioned for a technical move up. This action comes as GLD nearly confirmed a new primary downtrend with the 50 dma coming close to crossing the 200 dma (might still happen). So long as GLD holds above ~$162 the trend is bullish. However, if GLD trades below that level in the next week or two, I'd expect things to unravel extremely fast. Deflation or more inflation?

AMZN is breaking out from support

I've been really lagging on the posts lately. If there's anyone who actually checks this blog on a regular basis, I'm sorry about that. One of my New Year's resolutions was to post more consistently. The market has really turned into a stock picker's paradise over the past year and I have plenty of ideas about things to post about. The S&P closed flat last year but there were stocks in the index up 100% while others were down nearly as much. One stock that moved a lot last year but didn't make much net progress in either direction was AMZN (Amazon.com). At it's high for the year (and all time), AMZN was up 30% yet it closed down 5% having "corrected" sharply since mid October. I don't want to get carried away with analysis on this one because the situation seems straightforward to me on a technical basis. I'll keep my opinions about AMZN's fundamentals to myself beyond saying that I only know a few people who didn't do more than half of their Christmas shopping on Amazon.com. So here's the chart:

Everything looks great up until late October when the stock gapped down $25 to below it's rising 50 dma. Even then, the stock was pretty well behaved. It bounced first at it's rising 200 dma and made two failed attempts to retake its 50 dma before rolling over below its 200 dma. As AMZN corrected with the rest of the market it traced out a very nice falling wedge consolodation pattern/flag on the daily time frame (blue). It has tested support at $177 from August multiple times and despite having broke for brief periods, AMZN bounced back each time. The most impressive false break of $177 occured on December 14th when AMZN formed a $10 hammer reversal candle for the day. Today, AMZN again broke back above $177 support and broke out of the falling wedge. While this pattern is stretching the limits of a healthy base/continuation formation, with the 50 dma/200 dma crossover that just occured, I really like the look of this chart.

AMZN still has a long ways to go before we can say the uptrend has been re-established. I'd like to see volume increase as it pushes higher. It needs to retake its 50 dma and after a few attempts I'd like to see AMZN decisively retake its 200 dma near $200 (a good first target). The CCI divergence is positive but it needs to get back above zero. I think AMZN has a great year ahead of it and I will be keeping a close eye on it.

Disclosure: I own AMZN calls but am short AAPL.

Market retraces to its (declining) 200 dma

Back at the end of July, when the small caps first broke their (then rising) 200 day moving average (dma), I'm sure many hoped that the market would bounce back and rally to new highs. After all, a rising 200 dma should be a solid bastion of support/resistance in a secular trend. Since losing the 200 dma, the market leading small caps (IWM above) have been mostly range bound but ~25% lower than July prices. IWM did pierce the bottom end of the Fall range at the beginning of the epic October rally we just saw. In the final days of October, with the resolution (apparently) of the Greek problem with the default/bailout deal, the small caps broke up above of the Fall range. Will the breakout hold? Can the market retake and hold its ~200 dma? One thing is certain, the IWM 200 dma (and other index ETFs!) is now declining in value and as we approach it, expect resistance. Selling off from here would be characteristic of a bear market. In fact, many indications are the we began a new bear market in July/August. We shall see...

I have been too busy to monitor the market much lately (hence the infrequent posts), but one thing that has really caught my attention is the action in AAPL. Maybe its that the stock keeps pushing an eye popping $420 ($390B market cap) or just morbid curiosity following the unfortunate death of Steve Jobs. How much influence did Mr Jobs have on AAPL's stellar success of the past 7 years (4000% gain in the stock) and will his successors be able to keep up the growth? At any rate, a number of technical indications are looking bearish on the shorter term time scale while the long term uptrend clearly remains in tact. Note the rising 200 dma, which has acted like support. I wouldn't give shorts in AAPL much slack, $410-420 seems like a good line in the sand. Watch AAPL's behavior near its rising 50 day and 200 day moving averages.

Disclosure: I plan to initiate a put position against AAPL and perhaps IWM in the next few days.

Failed Breakouts Galore

Netflix (NTFX) six month daily:

Russell 2000 (IWM) six month daily:

US Oil ETF (USO) six month daily:

Euro ETF (FXE) six month daily:

I think there's more downside to come and failed breakouts often lead to sharp corrections. A week ago everyone on the planet was wild eyed bullish, investors may be re-thinking fed induced purchases.

Disclosure: I do not have any positions in the above equities but I am short some stocks and am long the US dollar against the Aussie dollar.

Crude Oil's Bear Flag

Crude has created a picture perfect bear flag as seen in the weekly chart. Crude’s failed breakout and reversal during the week of May 7^th saw futures make a new high for the year of $87.15 before reversing to close down to $75.11. A 13.8% correction ($12) drop in one week. Following this reversal, oil continued its slide making a low of $64.24 retracing more than 38.2% of its move from $33.20 to $87.15. Crude has pushed off the lows set May 20^th and has tried to rally for the past 3 weeks, testing resistance and the top of the bear flag $76-$78.51. On the daily chart, crude is trying to break outside of a bearish pennant, this is seen as a false break out as long as prices fail to close above $76.00. An opportunity for bears to sell at these levels, risking a close above the highs, and looking to target the 50% retracement level of $60.00. Bulls should look for a close above $76.00 then $78.51 before attempting to position on the long side.

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.

www.twitter.com/chicagostock

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.

Here Comes Capitulation (Maybe)

The bulls finally seem to have their act together for the big squeeze. The small caps (IWM 6 month daily above) should easily make it back to the high at $65 from January and a break of that level should initiate some serious panic buying. I have been skeptical of the recent bearishness because my gut tells me that no major move, i.e. the bull market of the past year, ends without capitulation. While there are plenty of good reasons for the recent bearishness in the markets, the fact is, the charts don't show any obvious top pattern. As I've mentioned before, I'd like to see a few short crushing up days, maybe +5% or more on the indexes, with massive volume, say IWM trades more than 100M shares, at the top. Following such a move I'd look for a sharp reversal, this is the ideal time to short and this is what I'll be waiting for. That being said, this is a bullish looking chart to me on a daily time frame.

In the mean time I will remain long and short (hedged). Shorter in the long term, longer in the short term. =)

Going long the Euro whilst short the Aussi dollar

This is a cross that I have been watching for a few weeks now with interest because it hasn't moved much off the recent low. I decided to pull the trigger on it tonight after the Aussie central bank unexpectedly changed their rate posture and this cross broke out. The recent bearishness in the Aussie dollar now makes a lot of sense in the context of an easier central bank policy. As it turns out, I am not the only one who likes this trade. I saw a report today that none other than Goldman Sachs recommended clients make this $EURAUD trade a few weeks ago, although they just recommended closing it for a small gain. So in other words, I am buying Euros and selling Aussie dollars for a long term trade here.

Disclosure: I own Euros and am short Aussie dollars (using FX).

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).

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.

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.