Sunday Rock Blog: Fallin' Up

Disclosure: I own ICE calls.

Saturday Rock Blog: Happy Birthday ICE

ICE went public on Nov. 16th, 2005 at a split-adjusted price of $5.2. With ICE currently in the $66 range, it's rallied almost 1200% in the past twelve years!

WOW! The company has really delivered on growth.

It still looks bullish to me. Disclosure: I own ICE calls.

Saturday Rock Blog: I Feel It Coming

Disclosure: I own ICE calls

Sunday Rock Blog: Promises

 

Disclosure: I am short ICE with a $142 target

Saturday Rock Blog: ICE Smugglin'

ICE Reversal?

ICE has been grabbing more headlines than usual lately after joining with NDAQ to bid for NYX. As you can see in the six month daily below, ICE had been behaving bullish until the bid was announced. Since the end of March ICE's 50 dma has acted like resistance and key indicators have turned bullish. Monday's reaction to the news that NYX has rejected the NDAQ/ICE bid will make or break this chart:

Disclosure: I have no position in ICE.

Exchange Stocks ICE & CME, Bullish?

ICE Weekly

http://twitpic.com/2v235r/full

ICE is on the break out this week as it made a new 13 week high of $111.84 before settling at $111.30 on Tuesday. On Monday, ICE reported record futures volume for the month of September (http://bit.ly/duKHbG). This breakout has ICE above the $110 neckline of an inverted h/s formation that has been forming since July. The market will need to close above $110 for the week for a confirmation on the weekly chart above. The h/s has a range of $17.82 (neckline 110.00 - head 92.18). Holding above the neckline of $110 gives bulls a target level of $127.82 (110+17.82). This level also tests the highs in June of $129.53. In the chart above, resistance is seen between $114.93 Dec 2009 highs, and $121.93 June 2009 highs. This also puts the 200day moving average in play at $115 level.

CME Daily

http://twitpic.com/2v22wg/full

CME is also showing a potential inverted h/s formation in development. The stock rallied $35 from the August lows of $234.50 before meeting resistance at $275. The market appears to be trying to build a right shoulder as we have seen it consolidate between $255 and $275. This flagging formation is taking place above the resistance trend line from May highs to June highs. The most recent low in this right shoulder is $256.53 made Oct 1st. The market held and reversed to make a high of $269.72 today. This high as you see in the above chart is testing another resistance trend line from the August highs to the September highs. Market bulls will need to hold above $272 to break out of this range and try to leg higher. First resistance to be met at the 100day moving average around $279 followed by the neckline at $290.00. This makes a range of $55 (290-235). Holding above the neckline of $290 gives bulls a target of $345 (290+55). This lands bulls on the door steps of the April highs of $347.50. However, there is work to do on the upside, with the 200day moving average currently at $297.51 and a gap to fill at $296.8 from June 28, 2010. CME is expected to report earnings before the bell on October 28, 2010.

RISK DISCLOSURE: PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING IS SUBSTANTIAL AND SUCH INVESTING IS NOT SUITABLE FOR ALL INVESTORS.

Thank you and best of luck trading!

Stewart Solaka

futuresMONSTER

Twitter: @CHICAGOSTOCK

EMAIL: CHICAGOSTOCK

Saturday Rock Blog: Back to You (ICE)

Disclosure: I own ICE calls.

A Chart a Day #2: Fibonacci on ICE

Long time readers know ICE has always been want of my favorite stocks to watch. Yeah, the IPO was on my birthday but thats not why I like it so much. I like it because it moves. Well that and they seem to have a pretty solid business model, and I like a nice bedtime story to go with my charts.

ICE worked on a base for many months between $50 and $85 before breaking out early this year. It broke out and had sported a very nice, innocent looking, up channel for about six months until last Monday when.. WHAM! ICE lost 23% in two trading days. It simultaneously broke the up channel and lost it's upsloping 50 dma on well above average volume. CCI watchers were on there toes after it crossed zero last week, way to go guys. ICE seems to have found support at the top of the base ($85) which also turns out to be the 50% retrace of this year's rally.

Now if you ask me, I'd say ICE is not done dropping yet, in the near term. Today ICE closed below that key $85 level after holding it the past two days. Also, the 200 dma and the 62% fibonacci lie not too far below at $79.67 and $77.29 respectively. Given today's weakness and how obvious the $85 support is, I'd bet ICE sees at least $80 if not a few bucks lower before bouncing. After the bounce, bulls better re-take and hold $85 or the cracking ice just might melt.

Year to Date 2009 Returns

There has been alot of talk lately about how some sectors and certain stocks have gains for 2009. Most of this talk centers around the nasdaq which was up .63% as of Thursday's close although after Friday's rout it now sits -2% for the year. Here I'm just gonna throw up a number of different charts highlighting the range of 2009 results for various index etfs and individual stocks. In each of these charts the blue line is horizontal from the close of 2008 and the purple line is some sort of trend I see in the lows. I should note that some of these are 3 month charts while the rest are 6 month charts. Lets start with the ugliest sector ETF, the financials XLF:

(click to enlarge)

The financials are down about 33% this year and I think the important level that needs to break before a test of the years highs is $9.50.

However, looking at the Nasdaq 100 (ticker QQQQ) over the past six months you can see certainly see some signs of a bottom. The 2008 lows have held, plus some change and the index is up in 2009. That being said, the majority of the gains in 2009 were on the first trading day of the year and this index has failed to take out the highs made early this year. I think $31.50 will be a key level to watch:

ICE is a stock which is sort of a tech-financial, and they are right on breakeven for the year. I will give ICE credit for a higher low this year but the longer term tendency to make lower highs below a falling 200 dma remains. If ICE could make new highs for '09 and take out that 200 dma I could be bullish, but until then this one looks like a great short. Recently it tried to break it's 200 dma and failed, that too me is a bearish sign and a suggests a short entry here:

Going back toward the pure technology stocks, GOOG is solidly up for thi s year. Only at a few times has it been in the red and those lows were progressively higher. With a rising 50 dma below this might be one of the better charts I've seen lately. If I were looking to be bullish on something I might choose GOOG after a pullback:

Before we get too excited about GOOG, I should also note that it is still very far from it's 2009 high at $381. So google is up 10% in 2009, but its down 10% from it's yearly high. Furthermore, that pesky declining 200 dma is much higher.

First Solar (ticker FSLR) is another decent looking tech stock. You can see that it's up for 2009 although most of that gain came on the first day of the year. FSLR has a nice looking base formation and I think that the recent cup n handle could take it higher int he context of a strong stock market:


I'll leave you with my favorite index ETF to watch, the Russell 200 small caps (ticker IWM). Its down for the year and in my opinion headed decisively lower:

Any thoughts on these, additional charts (links) are welcome in the comments.

Disclosure: I own QQQQ puts.

At the bottom end of a narrowing range

This weekend I've been looking at this rising wedge/pennant pattern that seems to be present in all the major indexes. It starts in late November when the last 52 week lows were made and coincides with a seasonally strong period of time. Volume has declined as the range narrowed and it seems something is about to give. Friday's action suggests we may be headed lower since all the major averages except the Russell 2000 closed and the Q's back below their 50 day moving averages. Below I've got the double Russell 200 etf UWM, which I bought on Friday at $19.19.

Given the late action on Friday (which involved 50 dma breaks) I'm not so comfortable with this new position which I was buying at potential 50 dma support. If we slip much below this level I will once again be worried that the long term down trend is continuing (and get the heck out of UWM). Its not over for the bulls just yet though, we are merely at the lower end of the rising and narrowing range. The daily stochastics have given a sell but the CCI is holding.

If the market doesn't breakdown here then one long term chart I keep looking at and like is the ICE weekly. It seems to have good support around $60 and it's 50 dma is beginning to slope upwards:
I own some ICE with a stop at $60, and frankly, I am not worried about all the analyst downgrades last week. Analysts have proven their ineptitude to me time and time again, I view their opinions as buying opportunities in this case. First off all, ICE stands to benefit from the new CDS exchange system being developed. Further, they will see higher volumes from a renewed interest in commodities as they bottom. ICE actually announced record volumes last Tuesday in energy contracts. Read: record volumes->record revenues or analysts are wrong. But of course, I'm in it for the chart.

Awesome Examples of Failed Breakdowns

This is the 400th post, hurray! Both of these failed moves came from blowout earnings report and great guidance, I'd encourage you to look into these reports. FSLR and ICE both gaped higher and ran to the highs today on massive volume. In doing so they reversed significant chart breakdowns from the days prior. As I mentioned on Sunday, failed moves lead to fast moves and that's exactly whats going on with these two. Its hard to see these slowing their ascent for a few days. Click on the charts for more details.And by the way, yes, I am now bullish on First Solar. If you recall my multiple bearish posts before about FSLR, I thought it was an over bloated pig at $300 with a 150 PE. I said my target for it was $120 and it went there. Now their PE is a more reasonable ~25 and FSLR does have some good things going for them; Obama's energy policy, residential expansion, lowest cost per watt and they are demonstrating resiliancy in the face of economic hardship. I currently don't own any FSLR but looking to add and I have some JASO and SPWRA calls.

Bullish Setups for Knife Jugglers

Where to start? This market is full of amazing buying opportunities. Tonight I'm going to throw a few long ideas out there in stocks that seem to have stabilized and a few more that might get a dead cat bounce. Obviously, its going to be very hard for any stock to rally if the market continues to collapse next week but I think we have reached a point where buying stocks is extremely low risk. There is no reason to think that the bear market is over but there are alot of reasons to expect the market to bounce after the Dow had its worst weekly loss ever.

This weekend everyone is talking about AAPL which had a 9% gain Friday and barely had a loss for the week despite the broader market getting crushed. I see AAPL finding support at $87.5 and not having resistance till $115. I would note however, that AAPL is in a severe downtrend (see the cross of death) and there is no reason to expect anything more than a bounce based on this chart. I'm targeting $115 and keep a tight stop at $87.

The reward to risk ratio on that trade is not very high and you might be looking to hold AAPL for longer than the week or so it should take it to hit $115. A decent looking longer term pair trade is to short three QQQQ's for each AAPL that you go long. The AAPL/QQQQ ratio has found long term support at 2.7 and is showing positive divergence on the CCI. This chart really emphasizes the relative strength in AAPL lately:


Two others that I ran into this weekend were ICE and IBKR. These are both companies that I have liked for a while and the stocks seem to be finding some serious support. I had been tageting $65 on ICE since June and buyers have sure stepped in at that level. It looks good for a rally back up to that breakdown area at $115:


IBKR looks good up $26 but might find resistance at the declining trendline shown in red. Part of IBKR's business is in options market making and you have to think they are making a killing right now in that area. This is one I would want to buy and hold.


Other stocks that I won't bother posting charts for but have been crushed and might get a big dead cat bounce are CHK, CVX, NVDA, JWN, GM, JASO & SPWRA.

Disclosure: I own AAPL calls

The ICE is Breaking

ICE Made a new 1.5 year closing low today. The volume was not strong enough to confirm what looks like a major breakdown, but this stock is in trouble. The scale of the pattern gives a long term target in the middle of the 2006 price range. In the very short term, next support is around $110 which is where I'd expect a bounce back up to the breakdown price ($114). But then it drops to $61? Things are starting to get really ugly.

ICE Setting Up For a Nice Short

This chart looks alot like the AAPL chart I posted earlier. ICE is about to smack up against it's 200 dma at $152.50 after a nice run. As we know well, ICE tends to fake traders out with false moves and I wouldn't be surprised to see it break the 200 dma before reversing. Since ICE and the broad market are in primary downtrends, I'm thinking there may be a nice short entry on ICE at horizontal resistance around $155. There should be heavy resistance in the $152.50-$155 range which seems like a decent area to try a short. I'd place a stop around $157 and target that area of price congestion around $130 or the 50 dma at $133.71.

Pullbacks

I'm really tired so this is going to be a short post on the recent pullback. I ran into a great article by Bulkowski on throwbacks and pullbacks over the weekend, take a look. Bulkowski defines a pullback as the climb in price back to the base (breakdown price) within 30 days after a descending triangle breakdown. In other words, after a stock breaks badly on large volume it often "pulls back" to the price where the break occurred. According to Bulkowski's statistics, pullbacks occur 56% of the time after an average initial decline of 9% in the three days following the break. Now take a look at the S&P 500:


Depending on where you draw the base of the descending triangle the pullback may or may not have completed last week. Notice how the S&P 500 pulled back to the August low at 1370 last week almost to the penny, then sold off again. The volume was lower on Friday as the market declined so I think there is still a good chance that the we rally back up the November lows before tanking again but we'll see. Bullkowski says there is a 56% chance that the pullback occurs so returning to 1400 on the S&P 500 should be slightly more likely than continuing to fall in the short term. I would really like to see a rally back up to that 1400 area where the 50 dma will be and declining volume would be ideal ( what we are seeing so far). However, I have little faith in this market and will take profits on the long side when I can.

Right now seems like a great time to be looking at individual stock charts for completed pullbacks for short entries. I don't have any specific charts for you tonight but maybe I'll throw some up this week. A few other noteworthy news bytes:

Bush will give his state of the union address Mon night
CFC reports earnings Tues before the bell, no conference call
FOMC decision on interest rates on Wed, market predicts .50% cut
GOOG, MA, ICE and AMZN earnings this week
Credit squeeze is a windfall for the exchanges

Disclosure: I own NYX and ICE calls, also BAC puts

Volume is in an uptrend!

Well it looks like the crash you expected is finally upon us. Most of you are probably aware of the carnage in worldwide markets over the past two days and the collapse in the US futures. To be honest I don't really have a whole lot to say about it, just look at some of the archived posts. For the past year we (the SG authors) have been talking about the seriousness of the issues facing the markets. Now that bear market is hitting the world in full force, well, who is really surprised? Ok, the fact that the crash of 2008 is upon us is a very serious matter, people have been financially destroyed by this event and there will be more blood on wall street before this is all said and done. For traders who will be taking advantage of the insanely high volatility tomorrow, please take these "circuit breaker" price declines into consideration.

Instead of getting all doom and gloom I thought that tonight I would write about a more positive scenario facing the exchanges, specifically the NYSE Euronext. The argument is simple, the exchanges charge small fees for every transaction that occurs. When volumes grow so do their earnings. After looking at a number of charts I have concluded that volumes swelled in the last bear market. This makes sense somewhat because volatility increases and that goes hand in hand with higher volume. Take a look at this ten year chart of the dow jones industrial average and note the volume 2000-2002:

You see pretty much the same trend on the new york stock exchange:


Volume seems to steadily increase until the end of a bear market when it spikes which is consistent with typical technical analysis. Furthermore, this seems to add to a longer term trend in volumes increasing over time. So it appears the exchanges have long term organic growth with some acceleration during bear markets. While the examples I gave are for stocks I think its safe to say you see the same thing in commodities and futures markets. In fact, the most recent headline on ICE is that they hit an all time high in futures volumes last Friday. With all the craziness in going on right now you can bet that they will be breaking that record for a fourth day in a row tomorrow.

Some have argued that with the credit freeze up the merger and acquisition activity is done for a while, but last week the New York Stock Exchange bought out the American Stock Exchange in what looks like a sweet deal for NYX. It seems like a takeover of ICE or NMX by CME or NYX is still on the table to support valuations. As far as the nyse/amex deal, the reason why seems so good for NYX is they are getting commisions on the biggest and most heavily traded etf's in the market. Take a look at these volume trends of amex ETFs over the past year (top). Notice a trend?

All of those etfs shown and options on them are now traded on the NYX owned exchanges. NYX is benefiting from both the etf boom, including the rise of inverse market etf's like QID from proshares and the increasing volume due to volatility. Now I'm no specialist on the sector but it seems pretty straightforward that the exchanges, especially NYX, are going to see a huge windfall from all this market activity. They seem to have timed their amex acquisition perfectly.

Now I know the sound of "stock exchange stocks could do well in a bear market" sounds somewhat suspicious but it makes sense to me. It would be a relatively simple thing to check if it weren't for the fact that every exchange traded exchange has come public in the last five years. Neither NYX, nor NDAQ, nor CME, nor ICE were publicly traded during the last bear market so we can't just go check their charts and see what happened. In fact the concept of a "for profit" exchange is relatively new in general, so maybe its the case that they will suffer materially in some unexpected (or expected?) way from a bear market. Let me know if you have any thoughts on this. If the markets go flat for a long time that will certainly be very bad for the exchange business, and thats a real possibility in my opinion. But for now volume is in an uptrend!

Disclosure: I have no position in NYX but I own some ICE calls.



Good luck out there tomorrow and be safe. I'll post an NYX chart tomorrow sometime, it doesn't make sense to do one until we see what happens in the morning. Stay tuned...

Volatility spikes as panic ensues...

The only indicator not pointing to a bounce in stocks has been the volatility index VIX. At the market lows in August and November the VIX spiked to 37.50 and 31.09 as seen below indicating a panic. Today the VIX climbed over 4 to hit a high of 28.51, breaking the trend line made by the two most recent VIX highs. Volatility usually spikes at turning points and it appears we are close to one in the markets with this kind of action. The VIX could spike further up into the 30's sure, but after today's 17% gain its probably time for a relief rally. I am now in some beaten down growth stocks (WFR, SIGM, JASO and ICE) and cash, it seems to risky to stay short here.


On a side note, I have very very perplexed by the VIX basically going flat since the start of 2008 while the market basically crashed (nasdaq is down more than 10%). This is quite unusual and seems to indicate a general complacency about the decline but there are other theories. It might be possible that as we enter a new regime for the market (bear mode) the usual indicators may fail to work like they used to. Specifically, in a bear market volatility may tend to decline with prices as they "trend." Whereas volatility might spike on sharp short covering rallies, it makes sense to me but this goes against the usual "volatility spikes at market bottoms" idea. I have also wondered how the put to call ratio has been able to steadily climb lately while volatility remained dormant. This is generally a rare event for markets and has been suggested to be a very bearish scenario.

Bullish setup in CVX

CVX likes to rally hard off its 40 week moving average, at least in the last three years (click on chart above). Furthermore, a significant breakout will occur if CVX makes a new all time high over $95. I like the front month $100 calls when $95 is crossed.

And heres an ICE chart thats a few days old, but its still valid:


In more Santa Claus related news, I saw today:

Happy Birthday ICE (two yr old ticker)

The ICE ipo was two years ago last week and while the price action couldn't look better, i see some long term divergence in the on balance volume. The volume seems important going forward so I have the price by volume for ICE's two year history along the left vertical axis:
What I mean is that the stock price made a new high but the OBV did not because the volume has been much higher on declining weeks than it has on rising weeks. You can see this is mostly due to the correction last March.