Saturday Rock Blog: I Fall to Pieces, nostalgic post

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

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.

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.

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 Rock Blogging: Stuck With You

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

Happy New Year, Charlie Brown!

Saturday Rock Blog: IWM Undone

Auld Lang Syne (Happy 2010!!)

Renewed US dollar bullishness

Today I rotated out of euros and gold and back into my Aussie dollar short. The euro bounce I was looking for played out and now I think its time to get back on the US dollar bandwagon. As mentioned in a previous post, I think that the recent decline in the US dollar which began in early 2009 is over. I am looking for a significant rally in the US dollar overt he next 6-12 months. I am still bullish on gold but its been weaker than I anticipated after bouncing off of key $105 support. So I took profits on GLD with the hope of getting back in lower sometime soon.
Disclosure: I am heavily short AUD/USD again.

Saturday Rock Blog: Night by Night

Fairytale of New York

I think this is my favorite Christmas song, hope you like it too. Merry Christmas geometricians! Rest in peace Kirsty MacColl.

Buying Gold and Euros by Selling Dollars

I think these charts are pretty self explanatory. With the euro (above) I see an opportunity to profit from a 200 dma bounce after taking profits on my Australian dollar short. I'm targeting the 50 dma and the 200 dma will be my stop.

Gold (below) is something that I have wanted to own for some time now but didn't want to chase a parabola. Mr. market obliged and gave me a huge pullback to support at the last breakout price. I don't think the gold bubble is over yet and am expecting new highs for gold in 2010 (based entirely on the chart). If gold drops further I'll add.

Disclosure: I covered AUD/USD (at a very nice profit) but expect to reshort it in a week or so. I am now long EUR/USD for a bounce. I started buying GLD yesterday. Good luck!

Wrong! (QQQQ is going to be 10% off)

When I'm wrong I'll be the first to admit it and boy was I wrong about the broad market the past few months. I was seeing IWM diverge and the Q's roll over at the top of a broadening wedge (see above). Given the general expectation that Q1 will involve a hefty correction in stocks I thought that maybe this move would start in December or sooner. Wrong! My "out there" prediction is going to turn out incorrect by miles (Q's hit $40.50 by xmas). Fortunately I've done well on other positions like the Australian dollar short and JASO so my Christmas spirit will remain in tact! lol. For whatever its worth, I do still believe a severe and sharp correction in stocks is coming and I am not discouraged really at all by the recent breakout in the Q's.

Disclosure: I am slowly adding to a put position in QQQQ.

Saturday Rock Blog: You've Lost That Lovin Feeling or How Oates' stache rules the world

RIMM strikes back

Disclosure: I bought some RIMM at $71.15 in the after hours today.

Commercial Real Estate (CRE) Christmas Carol

JASO's got it!

Investors who took heed last month when I recommended buying JASO before it broke out of its solid five month base did well today. After breaking out last week, JASO soared 10% the past two days in a row. As is often the case, the breakout preceded the extremely bullish news released last night by the company. JASO remains my favorite public stock in the solar energy sector and has been so for about two years now, I don't expect this to change anytime soon. While I am impressed by the recent action I expect that the stock will pullback as we approach options expiration Friday. It has closed above it's upper BB two days in a row which is not sustainable and the open intetrest on December $5 strike calls is huge. A great place to enter/add JASO would be the lower $5's later this week.

Disclosure: I own JASO stock but sold Dec $5 calls against it today.

Saturday Rock Blog: You Got It

XLF head and shoulders, $14 neckline

Jim Rogers goes bullish on the US dollar?!

Meredith Whitney: "I'd love to be wrong on this"

Elizabeth Warren on the collapse of the middle class in June, 2007 (long but worth it)

Aussi dollar wedge part deux or Has the US dollar bottomed (for a while)?

I make a lot of calls on this blog and I think that I get feedback equally about the bad calls (UNG, DECK, etc) and the good calls (FNM, FSLR, etc), but more often than not, I get no feedback even when it was a spectacular chart read. My last (and only) post on the Aussie dollar back in August of 2008 was perhaps the best call I ever made and I'm pretty sure not a single person noticed it. I basically saw the rising wedge #1 in the chart below and targeted the bottom of the wedge. Well, FXA got to the measured rule target (77) and it kept going, ultimately declining 39% from peak to trough. That is an incredible move for the currency of a developed nation. An even more incredible move is the 59% gain it has made in the past year as FXA retraced 100% of its decline out of the wedge. Damn!This has set up an amazing short opportunity right here as FXA rolls over and breaks out of wedge #2. I find it hard to believe, but the target for this move is $59. Lets start with the rising 200 dma in the lower $80's first and go from there.

To further strengthen the notion that the US dollar has formed a longer term bottom lets look at the Euro ETF FXE (below). After consistently finding support at its rising 50 dma for eight months, the euro closed below it for the second day in a row today. The CCI is flashing a sell and given the recent false breakout I'd be inclined to judge this topped until proven otherwise.

*Note: When the US dollar bottoms all assets will get the axe.

Disclosure: I have no positions in either of these, but I plan to open a long term position against the Aussi dollar soon.

Dow Jones Three Month Chart

I'm fairly confident that markets will sell off next week but what will the dow do at its rising 50 dma? A break to the downside of this narrow range should give us a 50 dma test but if we bounce from there the bulls may get the confidence to push us to close at new year highs for op ex the following week. In that scenario my "out there prediction" would clearly end up false. On the other hand, markets are ripe for a sharp and severe correction as the US dollar corrects to the upside. I know its not exactly with the Christmas spirit but I would love to see a bloodbath this week that follows through into op ex as the VIX approaches its falling 200 dma. I like how most bloggers I am reading are looking for a big push before the market severely corrects, few seem to be expecting Christmas carnage. Maybe I am early, that's often the case. I certainly wouldn't be surprised if the Dow clearly broke out of the current range to the upside for a few days before getting whacked. But the market tends to move in such a way that makes most traders wrong so we shall see.

Disclosure: I have no position in the dow but I am net short.

The great recession elves are here to get us into the Christmas spirit

The Unemployment Game Show

Saturday Rock Blogging: Take the A Train

The punchline...

Disclosure: Own SPY puts.

Another day, another gap, another joke.

Disclosure: Same positions as last night, going to add after the reversal. Expecting a red close. US dollar rally will murder this silly gap up.

VIX Filled the Gap

I thought it was interesting that the VIX went back and perfectly filled the gap it made on the Dubai panic last week. I'm not sure if the concept of a "gap fill" even makes sense for the volatility index (VIX) but heck, how much "sense" does it make with stocks either. Fact is, a huge gap showed up in the chart and precisely after it was filled the VIX made a huge move higher. Maybe we shouldn't be suprised that the VIX dropped so much following that gap up, after all, the S&P 500 and the Dow Jones both made new 52 week highs today. On the other hand, thats a pretty huge and seemingly significant divergence that the S&P 500 made a new cycle high while the VIX made a low which was 3% higher than its cycle low. Thats not necessarily a sell signal for the S&P but its a big red flag.

Point is, if the VIX were a stock I'd buy it with a stop at today's low and a target at the 200 dma (currently about 30). It will be interesting to see if this turns out to be a long term bottom for the VIX following two tests of the 20 level. A sharply rising VIX would be bearish for stocks and extremely bullish for put options. However, a volatile VIX is a headache.

Disclosure: I own SPY puts

Ron Paul still loves the Federal Reserve

My "out there" prediction: Q's hit $40.5 by Xmas

Yeah I know, the dow jones hit a new high for the year today and bearish predictions are not so popular when the dow is making news highs. But what about the market leading small caps? Despite all the falling dollar market euphoria, the Russell 2000 (small caps) again failed to retake it's 50 dma. Even the S&P was unable to reach a new high and still lies well below the recent gravestone doji. Looking at the Nasdaq 100 (above), I see a series of lower highs in place now leading up to today's new gravestone doji. Take a look at what happened to AAPL today(below). After being up most of the session it got slammed in the final hours of the day to close down $3 out of the blue. I think everyone knows this market has gotten far, far ahead of itself and has turned into a momentum game of musical chairs. Jittery investors are hitting the sell button at any hint of weakness, like with AAPL today.
While these charts are not overwhelmingly bearish, by any means, this market just feels like it wants to sell off to me. I haven't taken a significantly bearish position in a while, but I'm going to stick my neck out here and bet on a big drop in December. I'm looking for the Nasdaq 100 to break its 50 dma and hit $40.50 this month.

Disclosure: I am short BIDU and own SPY puts, for now.

All quiet on the nasdaq front (QQQQ)

Disclosure: I have no position in QQQQ but I am short some tech stocks like AONE, SPWRA and BIDU. I also own SPY puts to hedge long positions.

Saturday Rock Blog: San Tropez

Initial gold target was reached but its parabolic

*Note, I'm still looking for $130 but wouldn't buy until after a pullback.

Gravestone dojis (reversal pattern)

The stock market looks to pullback here as we enter the holidays, I tightened up my stops today, wrote some covered calls and even picked up a few shorts. Yeah, markets generally made a new high for the year and closed with gains today but I see many reversal candles out there (gravestone dojis for example), stocks seem tired. IWM tried again to retake it's 50 dma but failed. You could even say that today there was a collective failed breakout as stocks made new highs but did not close at them. From failed moves come fast moves, tomorrow will be telling.

Even the shining star of customer service (Best Buy) was not immune to the bearishness of the day. Errr, don't ask. Lets just say I won't be going back to Best Buy after a bad experience this weekend.

Disclosure: Short TNA, SPWRA

SNL on US/China Relations

A nice sound rounding base for solar?

I want to be bullish on solar. It seems obvious to me that in the not so distant future the cost of solar cell technology will drop enough as efficiency rises to make it the cheapest, and not to mention cleanest, source of energy. In the last energy bubble solar came close to competing without government subsidy (cost parity was effectively reached with natural gas at the peak by FSLR). I personally believe that the next leap forward for civilization (following the internet boom) will come cheap distributed energy provided by photovoltaics. Thus, I keep a close eye on the sector in the expectation that when the day comes for solar, the winning companies will see their stocks increase by orders of magnitude. Ok, enough of the anticipatory irrational exuberance, what do they look like today?

Well, not so great to be frank. Solar has underperformed the market in 2009 and as a whole is basically flat on the year. The sector is very mixed but I find that the ETF TAN is a good way to follow the industry trend. In the seven month chart above you can see that similar to JASO, the industry has been forming a wide rounding base. While TAN seems to be having difficulty getting any traction upwards, there is a series of higher lows and higher highs in place. Clearly, in order for this trend to continue TAN needs to take out $10.77 relatively soon. A break of $11.67 would be *big time* and target $18.69. I like how TAN has found support at its 200 dma for the past six months or so consistently (plus or minus a few days).

SPWRA is a stock that I bought last week in the sector but I'm not feeling so hot about right now. I picked it up after what I perceived to be an over reaction to accounting issues announced last week. The stock was down about 25% in two sessions and it seemed like a good value to me given their leadership in the single crystal silicon PV market. That being said, take a look at this beautiful bear of a long term chart:

Yikes! I think theres a good chance SPWRA is just washing out long term holders here given the volume last week and the severity of the break. But... this stock was at $165 in 2007 and aside from the global recession and a decline in energy prices nothing fundamental has gone wrong with this company (well and some recent, minor, accounting issues). I mean, many would argue that this company is the blue chip of the solar space. For the cheapest lower efficiency thin film PV its FSLR, but for the high efficiency single crystal PV its SPWRA. However, given the chart, I will have a very short patience with it. In the absence of a sharp rebound in the next week I'll be out and might even try a short. The chart is suggesting a price target in the $10 range.

Disclosure: I own JASO and SPRWA shares.

Divergences in the uptrend (WLL)

This week I'm going to try and post at least one chart per market day, maybe more. Lets start with this WLL chart. The obvious thing here is that there is a solid uptrend here on multiple time frames. The blue line currently at $50 connects the March low with the first correction low in July and represents the "long" term uptrend. In the intermediate term, WLL has found support at its rising 50 dma, which is clearly above it's 200 dma. So long as WLL can hold that 50 dma (currently at $59.5), which was tested Friday, I'll expect this thing to make a new high soon above $65. The measured rule target for a break of $65 is $70.

On the other hand, and this applies to many other stocks I'm seeing, especially small caps, there is a series of lower highs in place and are divergences are showing up. As seen in the chart above, CCI and RSI have been making lower highs for a few months now and to make matters worse, CCI just crossed zero as the stochastics gave a sell signal. So while the trend is up there is reason for extreme caution here. I also find it interesting that the first leg up from March lasted about five months and since the July low it has been about five months. This doesn't mean that WLL is going to correct here, but I wouldn't be surprised if it headed down to $50. Watch for a close below $59.50.

Disclosure: I have no position, but I will take one if it breaks.

Side note: This is an energy company so keep an eye on crude if you trade it.

Saturday Rock Blog: Long Overdue Zappa

Gold is an outperforming asset right now

Saturday Rock Blog: Private Eyes

JA Solar (JASO) looks promising once again

Disclosure: I own JASO shares

The beauty of a broken parabola (rent-a-car stocks)

Others in this sector look equally bearish, like HTZ and DTG. I've seen this happen a number of times, once the crazy hyped up parabola ends they quietly die.

In contrast, the market leading small cap index...

The most bullish of the indexes: DJIA

Saturday Rock Blogging: Loving Cup

Ooohhh, what a beautiful buzz, what a beautiful buuuuzzzz! =)

GooooooooooooooooooLD!