Bullish Bear Trap (IWM breakout)

Disclosure: I'm long small caps.

Sunday Rock Blog: Fade the Yen Apache

Last October I posted this chart to argue my position in FXY $123 puts:

It turned out to be my best trade of the year as the yen completely collapsed down to $110 recently (from $126).  I think the yen sell off is nearly complete with FXY nearly reaching its ~108.50 measured rule target.  Furthermore, the 14 day RSI hit 10 recently (extremely oversold) and divergences have appeared on the CCI and RSI (foreshadowing a trend change).  I still think the long term bull market in the yen has officially ended, but FXY needs to consolidate the recent decline and the world need to adjust to lower yen exchange rates.  I could see this retracing back to ~$117 in the near future, at which point, new shorts would be of appropriate risk/reward.

Disclosure:  I am long FXY Feb $115 calls.

Saturday Rock Blog: Time to Pretend

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?

How can you mend a broken chart? (BIDU)

Looking at BIDU's daily chart (above), all the signs of a long term reversal are there. In fact it looks rather close to the "proper" shorting point according to O'Neil (for a reversal). From a bear's perspective there's pretty much nothing to not like here. I'd be surprised if it saw higher than $135 and below $110 would be a very clear break. If it does break, the symmetric triangle targets a ~$60 move but I don't see any support on the weekly chart until about $40. People forget how many times BIDU split as its momentum carried it higher. I don't know anything about the fundamentals of BIDU (and I really don't care to) but this chart sure says something big has changed

Disclosure: I don't have any position in BIDU but am net short the market. I may buy BIDU puts next week.

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.

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)

US Treasuries Cross of Death

30 Year Treasury Bonds Daily 04/13/10-10/21/10:

The 30 year is currently trading under its 50day moving average. The last time the market was under this average was in September and bonds were able to hold to move higher. This move comes as bonds failed to retake the August highs of 137 and have now fallen under this 50 day moving average that has the market bear flagging and testing the trendline support from May’s breakout. Seeing the bear flag confirm with another leg down will have the 20 day moving average cross down and through the 50 day creating a “death cross”. The last time the 20day crossed through the 50 day was in April as it created a golden cross and the market began its move higher. This current cross can attempt to change direction in the market’s current trend. A test of the 100 day moving average down to 129 along with the September lows would be targeted. The fed is expected to buy treasuries today and the question is will their purchases be enough to hold yields at these levels? The St. Louis Fed President James Bullard has proposed the central bank buy $100 billion in long-term Treasuries next month and consider more purchases later. Are they bluffing? Buy stops to be triggered on a move through 133.

Bloomberg: Treasury Traders Increase Bets on Inflation for a Third Consecutive Week- http://bit.ly/cJVyrL

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

S&P 500 Rallies as Cross of Death Completes

After completing a nearly perfect H&S top on the S&P 500 daily and hitting new lows for 2010, the bulls have come out to squeeze the bears. What a surprise! Nope, seen it a million times. Just when the bears get a grip on things the market miraculous rallies to squeeze the bears. I think stock have likely begun a new bear market as evidenced by a number of technical indications. The series of lower highs and lower lows on both the daily and weekly time frames is an obvious one. Then there's the cross of death on the dow and the S&P, note that this has not yet occurred on IWM or QQQQ yet (but it will soon). Further, you can see that the 50 dma and 200 dma on the S&P 500 are now both declining. I could go on and on about how strong the economic argument is for a renewed weakness in stocks, but.. eh, I'll leave that for another day. There were some short term buy signals this week and after the bulls retook 1040 its no surprise that there has been a squeeze on the false breakdown. Once the market falls back below 1040 I think I will be ready to declare a new bear market with certainty and bet the house short. For now I am happily long as I wait to see how far the retards on Wall Street continue this low volume squeeze. I hope you are all enjoying your summer?

Disclosure: I am long IWM August calls.

Speaking of Goldman, decent short entry point?

GS six month daily:

Dollars hanging low on the tree? (DLTR)

There seems to be decent support at $42 the failed breakout above is ominous. $45 is where the 2007 top was so there's good reason to think that the Dollar Tree's (DLTR) strength may be ending. I like how the 50 dma is inching towards a 200 dma cross over (cross of death) and also how the stochastics and CCI are giving sell signals. This stock is in the IBD 100 so if it starts to roll it may roll hard. I'd expect the 50 and 200 dmas to act like support but once those break the lower $30s are in store. Once/If the cross of death occurs we can start talking about a long term reversal here.

Disclosure: I own DLTR puts

Oil: The Model Short

Its somewhat stunning to see the lifeblood of modern society to fall by 2/3 in less than six months, could we have seen it coming? The oil crash of 2008 was a textbook short and gave a number of winning sell signals on the way down. If you are looking for some good signals for trading anything take a look at this chart:

There is still no sign of a bottom in oil but its obviously way too risky to short here. Maybe if oil could manage to rally back up to the 50 dma but thats pretty far off at this point. I have the "ultimate fib" on there, but so far it has not provided any support at $56.50. If oil could recover that level it might be worth watching for a ride up to the 50 dma (~$75), I'm not holding my breath.

For a quick comparisson check out the dow over this same six month time period. There's not a whole lot to say here other than that volume is picking up which suggests some kind of bottom is near. However, after cracking through some major support levels last week its going to be tough for the market to rally without a capitulation event which we just haven't seen yet.

The ideal situation for the dow from my perspective would be a big washout early this week followed by a seasonally reinforced rally into 2008. Perhaps a Citigroup bailout will be the catalyst for a major panic/capitulation next week. Good luck!

Saturday Rock Blog: Turning Japanese

The Japanese yen is one bearish looking currency. Since peaking in march, the FXY etf has clearly been in a down trending channel and recently had a cross of death (50 dma / 200 dma crossover) on the monthly time frame (not yet on the daily). I wouldn't bet against the yen just yet though. The cross of death is clearly a lagging indicator since it involves the fifty day average price falling below the 200 day average and the FXY CCI crossed zero a long time ago (a leading bearish indicator). If you look closely at the more recent chart action you'll notice FXY has found support repeatedly at $92. If the yen can stay flat or move higher in the coming weeks, say above $96, then a big rally could be in store. On the other hand, if $92 breaks I'd expect the next leg down to begin in earnest. Its also worth noting the well established counter trending nature of the US stock market and the yen. Its time to pay attention to the carry trade again.