Desi Finance Technical Analysis

2012-01-16T18:02:00.000-06:00

BULLISH AND BEARISH ARGUMENTS ON THE STATE OF THE MARKETS:

BULLISH:

1) Financials have been strong and have been leading the market as of late.
2) We are still in a daily uptrend, although in the backdrop of a larger bear market.
3) Market is shrugging off bad news and continuing higher - i.e., s&p downgrade of the eurozone
4) Macro data improving slowly - jobless claims, employment situation

BEARISH:

1) Broader markets still in a larger bear market and are at critical retracement levels (78.6% on monthly)
2) $TED spread has been rising since the August drop with only a minor decline in January. (TED spread is an indicator of perceived credit risk in the general economy.[1] This is because T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks. When the TED spread increases, that is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing.
3) 10 year yield which has generally been following the broader equity market in same direction has been diverging. In other words, in the recent weeks while markets have moved higher, the 10 year yield has not. (The bond market is not believing this rally).
4) The CBOE put/call ratio is at .74 (quite low). This is a contrarian indicator.
5) The investment sentiment numbers have posted a 2 week consecutive highly bullish bias (not seen in 6 years). This is also a contrarian indicator.
My viewpoint remains unchanged. I believe we have the potential for a quick rally to 1307 area this week and that's it. We will see panic setting in through end of this month and into February of a potential Greek default. That will take center stage for the next few weeks.

2011-06-12T23:33:00.000-05:00

NEW TA VIDEO:

6-12-2011

2011-05-24T21:33:00.001-05:00

I am writing this quick post to update my video from Sunday given some critical price action on Monday and Tuesday.

STOCKS:
Critical after hours session going on right now in the futures markets. We are approaching some very significant support levels in the equity futures markets. If these levels hold (particularly 1290 for /ES (e-mini 500)) we should see a decent rally in the next day or so.
COMMODITIES:
gold has already started back upward and oil is looking quite ready to pop back up. USO would be a superb low risk play with a stop below the recent low at 37.72.
BONDS:
have staged an incredible rally since end of April, however, as of monday's close, the rally has officially been broken. I think we will see bonds slide again (contrary to my video on sunday since critical break of support occurred on monday)
DOLLAR:
still in an uptrend, but started to flirt with some key resistance levels above

SUMMARY:
I expect equities and commodities to move back up in the next day or so and bonds and dollar to slide once again.

2011-04-03T15:26:00.000-05:00

4-3-2011

2011-03-27T16:57:00.001-05:00

3-27-2011

2011-03-21T07:03:00.002-05:00

New TA video for:

3-20-2011

2011-03-09T11:37:00.001-06:00

I'm going on hiatus...

2010-09-17T21:10:00.004-05:00

I abandoned this blog some time ago due to time constraints, but I am playing with the idea of starting it up again if people find it helpful. Please post comments, it keeps me interested and gives me good feedback on how to make things better. In any case, I want to share with you two videos that I just created for the members of desifinance.com:

Lets take a look at the S&P 500 and the IVY Portfolio.

2010-07-13T21:51:00.003-05:00

I have been very impressed with the recent run by the bulls. They were able to take the market past the recent 61.8% retracement (SPX=1085) and actually close above it. Does this mean that the downtrend is over and that a new uptrend has started? Not exactly. The trend is still down for multiple reasons: 1) 50 DMA is below the 200 DMA, 2) SP500 still closed below the 200 DMA today, 3) We still have lower highs and lower lows on the daily chart. Given all of these facts, I think we should not get too caught up in this recent rally but at the same time we should heed caution about shorting at this time. Until we see a breakdown in the upward momentum (use the 30 or 60 min charts), I would not take on any large short positions. I expected a breakdown near 1085, but that did not happen. So, for now, patience pays. I am waiting for one of two things to happen: 1) the market breaks down on the 30 or 60 min time frame, potentially signaling a short, or 2) the market continues its advance and closes above 1131 which would then change the trend back to neutral or potentially start a new uptrend. I think the market has advanced too far too quick and #1 is more likely. Let's see...

2010-06-21T21:44:00.000-05:00

Looking at the annoted chart above, you see three blue downward sloping diagonal lines under RSI, Stochastics, and MACD. During the same time period you have a horizontal line of support (black line) under the price. This 'divergence' is often a lead indicator of a larger impending move in the direction of the indicators. It is not 100% certain as nothing in technical analysis is, but clearly it is a time to be very cautious. Also, we have what everyone and there mother have been talking about, the "head and shoulders formation." I don't give too much credence to such patterns, but when many people start putting a lot of emphasis on something, one of two things occur: 1) The pattern takes on a life of its own and does not follow the consensus and the market does a fast and furious fake out and continues higher, or 2) the pattern slowly comes to fruition. In this case, I think #2 will be the case since we have a negative divergence in price and we have already had a 61.8% (1220 area) important fibonacci retracement from the high of 1576 to the low of 666.

So, once again, cash is king and by no means am I recommending you to follow my lead. I just want you to be aware of the potential scenario that is developing.

2009-12-28T23:23:00.001-06:00

Given that the volume was low again, my plays worked out fairly well. I entered FSLR long in the morning and sold shortly after. Also, had MGM which I sold later in the day. Before close, I entered short with FWLT. Also, I am holding $ES_F short overnight.

2009-12-24T17:17:00.011-06:00

Due to time constraints I am going to write sporadically. I am trying out some new trading methods with individual high beta stocks. Here is a list for Monday - 12/28/2009. These are meant to be fairly short-term 1-5 day holding period trades. I may trade some of these myself and will tweet them if I do.

potential plays:

aig - short below 30 or long above 30.73
amag - short with stop loss at 39.15
amzn - short below 137.5 and long above 139.7
bidu - short below 414.15
ctrp - short below 73.01 or long above 73.36
drys - short below 6.02
fslr - long with stop at 132.80
gnw - long with stop at 11.79
hdb - long above 130.5 or short below 129.5
ice - long above 109.72 or short below 109.15
joyg - short below 54
ma - short below 254.54 or long above 255.81
masi - setting up for long or short
mgm - short below 9.42
mr - setting up for long or short
sina - setting up for long or short
vprt - setting up for long or short
wynn - short below 59.02

MY TOP SHORT PLAYS ARE:

HDB
MGM

MY TOP LONG PLAYS ARE:

FSLR
ICE

Let's see how this plays out on Monday.

2009-12-09T17:48:00.003-06:00

S&P 500 close = 1095.95

Long-term trend = L

Short-term trend = L

____________________________________________________________

Markets started down, ended up. The short-term trend is back up for now, but should be viewed with caution. I am skeptical of this bounce even though things are a little oversold and we are in the bottom end of the trading range. I have been pretty much sitting on the sidelines for now until I get a better feeling for this market. It is so tied to the $USD right now that it is really a day traders market and things can shift in a matter of minutes.

Levels to watch for tomorrow:

1098 - resistance

1085-1086 - support

I WILL NOT BE WRITING FOR A FEW WEEKS.

2009-12-08T21:01:00.002-06:00

S&P 500 close = 1091.94

Long-term trend = L

Short-term trend = S

Intermediate (SWING) trend = S (12/7/09)
Intermediate (SWING) position = NONE (purchase price = $0)
Intermediate (SWING) stop loss level = NONE

(click on link on the right to see 'swing trade performance')
(ALL OF THE ABOVE ARE SUBJECT TO CHANGE INTRADAY)
____________________________________________________________

Although the market opening looked quite bleak, the pullback was fairly controlled. I think we may see a little weakness tomorrow followed by buying. Until we break out of this trading range I have been talking about, I don't think the markets will do anything different. In other words, we will likely ping pong between the current trading range.

Levels to watch for tomorrow:

1098 - key resistance to break to revert the short-term trend back to up

1088 - today's low should serve as support tomorrow

2009-12-07T20:52:00.002-06:00

S&P 500 close = 1103.25

Long-term trend = L

Short-term trend = S

Intermediate (SWING) trend = S (12/7/09)
Intermediate (SWING) position = NONE (purchase price = $0)
Intermediate (SWING) stop loss level = NONE

(click on link on the right to see 'swing trade performance')
(ALL OF THE ABOVE ARE SUBJECT TO CHANGE INTRADAY)
____________________________________________________________

Markets are in a totally non-trending phase. This is a good time for a trend trader like me to stay out of the market. It is very hard to find an edge in this kind of a market. Although, the short term support was broken today at 1106, I am a little hesitant to even call it a new short-term trend. Will watch for now until markets find direction.

Levels to watch for tomorrow:

1110 - resistance

1096-1098 - support

2009-12-06T12:47:00.002-06:00

S&P 500 close = 1105.98

Long-term trend = L

Short-term trend = S

Intermediate (SWING) trend = S (12/4/09)
Intermediate (SWING) position = NONE (purchase price = $0)
Intermediate (SWING) stop loss level = NONE

(click on link on the right to see 'swing trade performance')
(ALL OF THE ABOVE ARE SUBJECT TO CHANGE INTRADAY)
____________________________________________________________

You have not traded in the last week or so you are wiser than me. The markets have been so whippy as of late that the longs and shorts are constantly getting stopped out for a loss. This happened to me on Friday after going short on Thursday. I was up nicely as of close on Thursday and then the Friday gap up stopped me out for a decent loss. It has become a day trader's market. Swing and position trading is a little difficult right now.

The markets are still in an uptrend on the longer frame charts. Take a look at this daily chart, the trend line is up and the market is essentially in an uptrending channel. The last few weeks have been a trading range. Take a look at this 60 min chart, you see the range bound action between 1080 area and 1120. I had mentioned a week ago that we would likely hit the 1121 area. We came within 2 points of this on Friday. This represents the 50% retracement level from the all time highs to the low of march at 666. If you believe in fibonacci levels, you know that the golden levels at 38.2%, 50%, and 61.8%. The markets will often revert after retracing to one of these levels. I would not be suprised to see a multiweek pullback to start. The other possibility is that we retrace to the 61.8% level that would put us near 1228. I cannot predict which will happen, but I think it would be wise to take some off of the table if you have been lucky enough to ride this run up from March.

Let's see if the markets finally break out of the trading range this week and find some direction.

2009-12-03T15:58:00.002-06:00

S&P 500 close = 1099.92

Long-term trend = L

Short-term trend = S

Intermediate (SWING) trend = S (12/3/09)
Intermediate (SWING) position = TZA (purchase price = $11.57 AND 11.81)
Intermediate (SWING) stop loss level = 11.35

(click on link on the right to see 'swing trade performance')
(ALL OF THE ABOVE ARE SUBJECT TO CHANGE INTRADAY)
____________________________________________________________

Markets broke down a little today and the short term trend reversed. I bought TZA on the break of Russell 596 and then again at 592. I think we could see a move back down to the lower end of the recent multi-week trading range which would put us at around 1085 on the S&P 500 and around 575 on the Russell 2000.

Levels to watch for tomorrow:

S&P 500:

1097 - small gap and potential support

Russell 2000:

581 - small gap and potential support

2009-12-02T22:09:00.002-06:00

S&P 500 close = 1109.24

Long-term trend = L

Short-term trend = L

Intermediate (SWING) trend = L (12/1/09)
Intermediate (SWING) position = None (purchase price = $0)
Intermediate (SWING) stop loss level = NONE

(click on link on the right to see 'swing trade performance')
(ALL OF THE ABOVE ARE SUBJECT TO CHANGE INTRADAY)
____________________________________________________________

Choppy boring day in the markets today after a nice gain yesterday. Markets are still overbought, in particular, keep an eye on the Russell 2000 tomorrow. If Russell breaks 592, short term trend will reverse and cause a sell off. Levels to watch for tomorrow:

S&P 500:

1115 - resistance

1105 - support

Russell 2000:

599 - resistance

592 - support

2009-12-01T16:25:00.004-06:00

S&P 500 close = 1108.86

Long-term trend = L

Short-term trend = L

Intermediate (SWING) trend = L (12/1/09)
Intermediate (SWING) position = None (purchase price = $0)
Intermediate (SWING) stop loss level = NONE

(click on link on the right to see 'swing trade performance')
(ALL OF THE ABOVE ARE SUBJECT TO CHANGE INTRADAY)
____________________________________________________________

Well, from oversold we became overbought in one day! I think this trading range between 1080 and 1112 area could last for a while. At this point the markets just keep getting whipsawed by good news and bad news. Not sure what real good news is at this point when the markets are near their highs.

Tomorrow should likely be a day of consolidation which will then setup for a move back down or potentially a break out to the upside from the trading range.

Levels to watch for tomorrow:

1112-1113 - strong resistance due to multiple rejections at this level

1103 - decent support

1082-1086 - strong area of support

2009-12-01T08:15:00.001-06:00

S&P 500 close = 1095.63

Long-term trend = L

Short-term trend = S

Intermediate (SWING) trend = S (11/27/09)
Intermediate (SWING) position = None (purchase price = $0)
Intermediate (SWING) stop loss level = NONE

(click on link on the right to see 'swing trade performance')
(ALL OF THE ABOVE ARE SUBJECT TO CHANGE INTRADAY)
____________________________________________________________

My trading has been halted this week due to personal obligations. Thus, I will not be tweeting much this week.

Looks like the markets chopped around for most of yesterday with a decent end of day finish that did not take out the intraday high of 1097. Markets are oversold in the short-term and we could see a bounce tomorrow. Levels to watch for tomorrow:

1099 - a break of this level would reverse the short term trend back to up

1092-1086 - strong band of support

2009-11-29T16:50:00.003-06:00

S&P 500 close = 1087.27

Long-term trend = L

Short-term trend = S

Intermediate (SWING) trend = S (11/27/09)
Intermediate (SWING) position = None (purchase price = $0)
Intermediate (SWING) stop loss level = NONE

(click on link on the right to see 'swing trade performance')
(ALL OF THE ABOVE ARE SUBJECT TO CHANGE INTRADAY)
____________________________________________________________

I don't think that I have seen the futures that far in the red since prior to the March 2009 lows. The evening of Thanksgiving the futures market looked frightening after the world markets were down more than 3%. It looked like we could end up being down more than 300-400 points on the DOW. However, the markets proved to be fairly resilient during a shortened session. The DOW opened about 200 points down, but pared a significant portion of the losses by the end of the session. Where does that leave us for this week?

I think the price action last week was quite confusing especially since it occurred on low volume. This week all of the big boys will be back from holiday and ready to trade full steam. I think we will see some major whipsaw action on Monday. I will probably let the dust settle before I decide which way to trade. At this point the longer term daily trend still remains up, in fact, the daily close on Friday was above the 20 DMA which is around 1082. However, the short term trend is now down and will stay that way unless we break the 1100 area.

Tomorrow, I see pretty much a down day with potential for some upside in the early morning. Levels to watch for tomorrow:

1100 - recent high; break of this level MAY reverse the short-term trend back to up

1082-1083 - 20 DMA and also the low from Friday; this may serve as mild support

1071 - 50% fib support on the 60 min chart (for the recent leg up from 1029 to 1113)

2009-11-26T11:58:00.000-06:00

THANKSGIVING, MARKETS CLOSED.

2009-11-25T20:52:00.000-06:00

S&P 500 close = 1110.63

Long-term trend = L

Short-term trend = L

Intermediate (SWING) trend = L (11/23/09)
Intermediate (SWING) position = None (purchase price = $0)
Intermediate (SWING) stop loss level = NONE

(click on link on the right to see 'swing trade performance')
(ALL OF THE ABOVE ARE SUBJECT TO CHANGE INTRADAY)
____________________________________________________________

Given that tomorrow is Thanksgiving and Friday is shortened session, I decided to close my BGU swing position for 2 reasons: 1) my short-term trend line was briefly breached at the end of the day, 2) Market leadership is waning and things again look overbought in the near term. I only made a small amount on this swing trade, but at least I was able to lock in a profit for this first trade using my new method.

Friday should be relatively quiet barring any major world events. Levels to watch for Friday:

1112 - recent high and resistance

1108 - mild support area

1097 - more significant support; a break of this will reverse the short-term trend back to down

2009-11-24T15:21:00.005-06:00

S&P 500 close = 1105.65

Long-term trend = L

Short-term trend = L

Intermediate (SWING) trend = L (11/23/09)
Intermediate (SWING) position = BGU (purchase price = $50.65)
Intermediate (SWING) stop loss level = 1097 area

(click on link on the right to see 'swing trade performance')
(ALL OF THE ABOVE ARE SUBJECT TO CHANGE INTRADAY)
____________________________________________________________

There is not a whole lot to talk about. Markets did not move much today as expected for a holiday week. Market was able to find some support around 1097, close to the 1096 area (61.8% fib level) and bounce from there to breach intraday resistance and create a new high for the day. However, the markets did not quite close at the high but look poised to continue higher tomorrow.

Levels to watch for tomorrow:

1112 - recent high and resistance

1106-1107 - minor resistance

1097 - decent new support; break of this could revert the short-term trend back to down

2009-11-23T17:22:00.005-06:00

S&P 500 close = 1106.24

Long-term trend = L

Short-term trend = L

Intermediate (SWING) trend = L (11/23/09)
Intermediate (SWING) position = BGU (purchase price = $50.65)
Intermediate (SWING) stop loss level = 1086 area

(click on link on the right to see 'swing trade performance')
(ALL OF THE ABOVE ARE SUBJECT TO CHANGE INTRADAY)
____________________________________________________________

Markets opened with a bang this morning reverting the short-term trend back to up. Futures were up strong and markets continued to move higher for about the first hour before nervous profit taking ensued. Thereafter, the markets faded throughout the remainder of the day without any more buying interest. However, neither was the opening gap filled nor was there any technical breakdown. The short-term trend and long-term trend are still up and buying should follow tomorrow or at least by Wednesday unless there is a major reversal. Given that this is a short trading week due to Thanksgiving holiday, volume should stay relatively light until next Monday. However, as Brian Shannon says, 'only price pays.' So, keep an eye on key levels regardless of the light volume.

Levels to watch for tomorrow:

1112-1113 - recent highs and areas of resistance; a break of this should put the market in position to test the all-time high 50% retracement level at 1121

1102 - 38.2% fib level support of this recent move

1099-1100 - 50% fib level support of this recent move

1086 - significant recent area of support

2009-11-21T06:53:00.028-06:00

S&P 500 close = 1091.38

Long-term trend = L

Short-term trend = S

Intermediate (SWING) trend = S (11/19/09)
Intermediate (SWING) position = NONE (purchase price = $0)
Intermediate (SWING) stop loss level = 1096 area

(ALL OF THE ABOVE ARE SUBJECT TO CHANGE INTRADAY)
____________________________________________________________

I am so glad last week is over. That truly was one of my more difficult trading weeks of the year. Choppy markets are the worst for trend traders. I know that options expiration weeks are usually a little tough to trade, particularly as you get closer to options expiration Friday, but last week was really hard. Last week was a doji on the weekly charts. So I thought, are all of the options expiration weeks like that? To look at this further, I went back through 2009 and marked the options expiration weeks on the weekly chart to see if all of them looked like a doji but that was not the case. Here is the chart marked with the options expiration weeks. In either case, trading during options expiration week always requires a little more effort.

I am always trying to learning new things, particularly when it comes to trading. Although I like to stick to my basic strategies, I am constantly looking for ways to improve my success. I have been toying with this new method of swing trading that would allow for longer holding periods with looser stops and less intraday monitoring. In addition to the current signals, I am going to start posting these swing trader signals on my blog as another item at the top of each post. These will also be posted on twitter if the signal changes intraday (please trade at your own risk; see disclaimer below). I am going to take a smaller scale position based on these signals and I will let you know of my success in the next few months. I will primarily be trading BGU/BGZ and TNA/TZA. I think this method will be ideal for catching larger swings with longer holding periods and will reflect the intermediate trend.

Next week is a short trading week. Markets are closed on Turkey Thursday and then a shortened session on Friday (markets close at 1pm ET). So, this is another week probably better suited for day trading strategies rather than swing trading.

The overall long-term trend still remains bullish based on the higher highs and higher lows on the daily chart for the broader markets. The short-term trend remains down since Thursday's breach of the 1102 level. There are several areas of support below the current market close. Given the shortened week, I doubt that many of these levels will be taken out this week.

Levels to watch for Monday:

1096 - Moderate area of resistance; a break of this will revert the short-term trend back to up.

Next Fibonacci level supports: 1088, 1081, and 1075

2009-11-19T17:39:00.004-06:00

S&P 500 close = 1094.9

Signal = L/S

Position = N

Is this week over yet? It feels like this has been one of the hardest trading weeks of the year. The intraday trends have been fairly non-existent leading to very volatile and choppy price action.

Today the short-term trends broke (see yesterday's post) immediately after the open and led to an immediate downward slide. I had a pending order to buy BGZ on break of 1102 and that resulted in a nice quick trade. I couldn't ride the wave down longer since I was not able to monitor the trade closely. The markets never were able to come above water, however, the end of the day price action was mildly bullish. Price broke above the intraday resistance area of 1093-1094 and was able to close above the 1094 fib level. Tomorrow should be a continuation of the upswing in the morning followed by a fade in the afternoon. Remember, tomorrow is options expiration, so be wary of the whipsaws. I may just sit tomorrow out (who am I kidding).

Levels to watch for tomorrow:

1109-1110 - significant resistance area

1102 - minor resistance

1088 - support and fib level

1081-1082 - next fib level support

2009-11-18T19:13:00.001-06:00

S&P 500 close = 1109.8

Signal = L/L

Position = L

I couldn't write my post last night, so I am writing this morning before I look at anything else.

I was testing out some intraday trading strategies yesterday, but this week is not the time to be doing any of that given that it is options expiration week and trendless. I ended up holding onto some TNA overnight since the ultrashort term trend went positive late in the day.

I am going to make this quick. Once again, the market is trying to find direction. The S&P 500 looked a bit stronger than the Russell 2000. In fact, the Russell broke through its short-term support but the S&P 500 did not follow. I always look for this synchronicity before I take a major short or major long position. At the end of the day, they both closed above their recent short-term supports.

Levels to watch for tomorrow:

1102-1103 - short-term support; break here reverses the short-term trend back to down

1111 - new level of moderate resistance

596-597 - short-term support

603 - new level of moderate resistance

2009-11-17T17:51:00.004-06:00

S&P 500 close = 1110.32

Signal = L/L

Position = N

Another consolidation day in the markets. Hard to make money on these days if you are a trend trader like myself. I was able to make a little profit on TNA during a mid-day upswing, but lost some of that profit getting whipsawed during the end of the day going short and then long and then short again. Again, sometimes if you trade the shorter time frames, it is just part of the game. That is why stop losses and money management is so important. Even though I got whipsawed out of positions today, I still came out ahead at the end of the day (but not by much).

Tomorrow's price action, only god knows. Although both long and short term trends remain up, I haven't a clue which way the big boys are going to take this market tomorrow. The S&P 500 ended on an upswing while the Russell ended on a downswing. I am flat going into tomorrow morning. Levels to watch for tomorrow:

S&P 500:

1113 - recent high resistance

1102 - new short-trend support and area of 50% fib on the shorter time frame; a break of this will reverse the short-term trend back to down

Russell 2000:

605 - recent high resistance

597 - new short-trend support and area of the 38.2% fib on the shorter time frame; a break of this will reverse the short-term trend back to down

2009-11-16T20:58:00.003-06:00

S&P 500 close = 1109.30

Signal = L/L

Position = N

Markets keep surprising you when you least expect it. Today was another big upswing day that many people did not expect, including myself. In fact, I did something I rarely like to do and that is hold a position over the weekend into Monday. I unfortunately bought some TZA on friday in after hours and decided to hold it to the open on Monday. Needless to say I covered my position immediately at the open. Luckily I had a fairly small position, so no big loss.

The markets seem like they have no ceiling and that nothing will stop them from continuing to go up. When it starts to feel like that is when you have to question what is really going on and who is really buying. As much as I would like the markets to correct by about 10-20% from the current levels, that may or may not happen any time soon. However, there are a few key levels above that are going to be important to watch. The first level is at 1121 area which is the 50% fibonacci retracement level from the 2007 high of 1576 to the 2009 low of 666. The next level of resistance on the daily chart is at around 1200-1228 which represents the 61.8% fibonacci retracement level. On the opposite end, the most recent significant daily support is at 1029. So, what is going to happen a few weeks from now? I don't know. Let's talk about what may happen in the next few days.

Clearly, the long and short-term trend are now both up again. So, the shorter term picture looks bullish. The short term level of support is at 1088 and the short term resistance is today's high at 1113. Tomorrow, look for the markets to pullback a little before resuming upwards once again. That may be a good time to enter a quick long trade. Levels to watch for tomorrow:

1113 - minor new resistance

1088 - decent support area for now

2009-11-13T16:26:00.003-06:00

S&P 500 close = 1093.48

Signal = L/S

Position = S

Markets were quite volatile in the first hour or so this morning. I waited for the dust to settle before trying to figure out which way to trade. Once we broke the 1093-1094 area, next stop was to the 10 min fibonacci level around 1097. Then, markets broke back down and whipped around again in the afternoon. Luckily, or maybe skillfully, I was able to make some decent money today going long first and then shorting around 1097.

The daily trend still remains bullish above the 1029 level. The short-term trend is still down based on the break down on Thursday. To ride this short-term trend down further, I am holding onto TZA through this weekend. Recently, some of the larger moves have come as either gap ups or downs on Monday mornings. Let's see if we get a gap down on Monday.

Overall, the markets are starting to look like they are topping out. However, let's not jump the gun and call the recent high the high for the year. We still have another 7 trading weeks left before the new year. Levels to watch for Monday:

S&P 500:

1094 - 10 min FIB resistance

1084-1085 - next level of decent support

Russell 2000:

587-588 - 10 min FIB resistance

575-577 - next level of decent support

2009-11-12T21:18:00.003-06:00

S&P 500 close = 1087.24

Signal = L/S

Position = N

The day started out quite mixed. Markets were up and down for the first hour. Then, markets broke above the minor resistance level of 1099 and hit a high of near 1102 only to start the downward slide. It took a while before the 1093 level was taken out, but once that happened the markets slowly continued down the whole day. The momentum on the downside was a little lacking and never escalated. This made be be a little more cautious about continuing to hold my BGZ position that I initiated at the 1093 breakdown. I had mentioned the 1087 level throughout the day saying that would be the next support level. That level represents a fibonacci level and is also the area of the 5 DMA. Interestingly the markets closed right at that level. So, what now?

If we break down below 1087 tomorrow morning and stay there for at least the first half hour, then the next stop could be 1075. However, all of the time frames from the 5 min to the 60 min are now oversold. Given that we are oversold near a decent support level, I think a small bounce tomorrow is fairly likely. I am in cash for the moment and will be watching for clues to see which way we go tomorrow. The levels to watch for tomorrow are:

1094 - previous support level, now a decent resistance level

1087 - fibonacci level, 5 DMA area; a decent support level

2009-11-11T16:07:00.007-06:00

S&P 500 close = 1098.51

Signal = L/L

Position = N

I was working out this morning watching CNBC, which I absolutely hate. I watch it with a completely cynical viewpoint to see what the idiots are saying. Once again, all the morons were jumping on the bandwagon this morning when the futures were up saying that the markets are forming a new base and we are going to go much higher. Every time the markets are up they think the markets will continue to go up. I think they constantly mislead the average investor to buy at the top and sell at the lows. Bunch of bullshit if you ask me. The markets could very well continue to move higher, but based on the price action today, it looks kind of risky to go heavily long at this point in time.

The S&P 500 made a new year high at 1105.37 but failed to close above the recent high around 1101.36. The NASDAQ is also still below its yearly high at 2190.64. The DOW is the only major index that closed at a new high for the year again. The Russell 2000 did manage to close above its 20 DMA today. So, all in all, there are a lot of confusing signals across the markets on the daily charts.

Looking at the shorter time frames, the markets look like they could have a little more gas left for an upward thrust. This will happen only if the markets can break through the 1099 level on the shorter time frames in the morning tomorrow. Otherwise, a break of 1093 should revert the short-term trend back to down. The close today was right between this 1099 and 1093 area that I tweeted about earlier today. Levels to watch for tomorrow:

S&P 500:

1099 - minor resistance; a break of this could mean we continue higher or at least retest the 1105 area.

1093 - a break of this will reverse the short-term trend back to down.

Russell 2000:

588.2 - a break of this will reverse the short-term trend back to down.

2009-11-10T16:09:00.004-06:00

S&P 500 close = 1093.01

Signal = BL/L

Position = N

Market closed essentially flat. A very narrow doji day today after yesterday's big move. The trends are still aligned up for now, so bulls remain in control. Interestingly, the Russell 2000 once again failed to close above its 20 DMA. I think this is an ominous sign of what is to come. I could be wrong, but I think the Russell is leading the markets. We are fairly overbought in the near term, so a reversal in the next day or two would not be surprising. Levels to watch for tomorrow:

S&P 500:

1101 - year high and likely an area of significant resistance

1087 - new significant support level; a break of this will reverse the short-term trend back to down

Russell 2000:

592.3 - 20 DMA

583.8 - new significant support level; a break of this will reverse the short-term trend back to down

2009-11-09T20:31:00.002-06:00

S&P 500 close = 1093.08

Signal = BL/L

Position = N

I am making a little change to my signals. From hereon, the "Signal" will mean what the objective signal is at the current time. It will not reflect my subjective viewpoint. Instead, the "Position" will reflect where I stand. In other words, the market could be showing a long signal but I may be neutral in my position as I am as of close today. The reason for this change is that I want to separate the objective and subjective portions of my analysis.

So, today the markets pushed higher through their 20 DMAs. All except for the Russell 2000 closed above their 20 DMAs. In fact, the Russell 2000 is showing a lot of weakness relative to the other indexes. Its 20 dma has crossed below the 50 dma which usually means their will be more downside in the near future. It will be interesting to see if the Russell is leading the market. The other indices may follow suit, but don't bet on it just yet.

The S&P 500 closed 8 points from its high for the year. The DOW closed at its highest level for the year. The NASDAQ is about 37 points from its high for the year. I am not sure what to make of any of this, but one thing is certain and that is the fact that the weekly, daily, and short-term trends are still pointing up. Until that changes, the bulls are in control for now. People have been talking about this latest rally lacking volume. I think that is a very valid point and something to keep an eye on. However, don't bet on short positions until we have a break down on at least the shorter time frames. The levels to watch for tomorrow:

S&P 500:

1101 - year high

1065 - most recent significant support level

Russell 2000:

593.5 - 20 DMA

589 - minor support level

2009-11-08T21:21:00.002-06:00

S&P 500 close = 1069.30

Signal = BL/N

Quick post tonight. Since I have been away from the markets for a whole week, I have new energy and a clean perspective. Looking at the price action from last week, looks like we had a decent rally from the 1029 level. We never hit the 1019 area that I was expecting the markets to touch. Instead we now have a close just under the 20 DMA which is at 1070 right now. Tomorrow it is very important for the markets to close above that 20 DMA for this rally to continue. Otherwise, we will have a swift breakdown. Levels to watch for tomorrow:

1070 - minor resistance

1065 - a break of this level SHOULD reverse the short-term trend back to down. Will look to go short here tomorrow.

2009-10-30T21:17:00.004-05:00

S&P 500 close = 1036.19

Signal = BL/S

To be a good trader you have to consider all possibilities. Yesterday, it looked the markets could do no wrong and that we would perhaps pause a little and then definitely move higher. In fact, the futures this morning were not that negative until just prior to the open things started to look weaker. I was expecting a mild pullback at the open to the 1060 area where I thought the markets would find support and then resume upwards. However, looking at the premarket activity in the SPY and IWM, I saw a mild discrepancy. IWM was opening below yesterday's last support level while the SPY was opening at or just above that level. Thus, I knew to be very cautious at the open in terms of going long. In fact, just after the open as the Russell 2000 broke through yesterday's last support at 578 area, I immediate went short with TZA. That was the right call because the S&P 500 soon followed. The mistake that I made was selling way to early. I want to briefly talk about exiting a position.

I find that finding the entry point is the easier of the two. Exiting a position takes a lot more finesse. I will often exit half of my position once I hit my stop loss amount. In other words, if my stop loss is about 30 cents and the stock moves up about 30 cents, I will sell half. This way if the other half gets stopped out quickly thereafter, I have lost nothing. The harder part is holding onto that other half even when you know you have a decent profit waiting to be had. I could have simply followed the trade today placing stops all the way to the end of the day before I would have gotten stopped out. Instead, my greed took over and I sold way too early. Trading requires a lot of discipline. Discipline is something that needs to be practiced over and over. I need a little more practice in that department from time to time.

Last, I just want to touch upon the longer term picture. Clearly today was a horrendous day for the bulls. Giving up all of yesterday's gains and then some was not what people expected after a positive GDP number. Whatever the interpretations are on why the GDP was better than expected are irrelevant when it comes to technical analysis. Everything is priced into the broader indexes and reflected on the charts. Based on the charts, the key support level still rests at the 1019 level. This is the most recent major support level on the daily chart. Although it seemed far away a few days ago, that level is now only 17 points away. Will we test that next week? I can almost guarantee it. Whether we bounce up a little on Monday or not is to be seen, but 1019 will be in the near future for sure. The key thing to watch will be the price action near that level. If we briefly go below it and bounce back up, no big deal. If we close below it significantly or close below it for more than just one day, that will be very important. If that happens, that will mark the end of this crazy rally from the March lows. One other support to watch will be the weekly 20 dma which is currently at 1003.

I will be off next week in the Caribbean and will not be writing any posts. I will write my next post on Sunday - November 8. Good luck next week!

2009-10-29T16:25:00.005-05:00

S&P 500 close = 1066.11

Signal = BL/L

The markets started off strong after the GDP number came out better than expected. This number combined with oversold markets was the reason for the massive gains today. From a technical perspective, it was bound to happen on any decent news.

I said yesterday that if we broke 1055, the short-term trend would revert back to positive. The markets broke that level fairly shortly after the open and never looked back. I had a contingent order to by BGU on that resistance break and was happy to ride this groovy train up from there. I was careful to protect my profits all day today since the markets have been a little more jittery lately. I got stopped out at the end of the day on a break of 1064.

Tomorrow's price action is a little difficult to forecast, however, the short-term and intermediate trends are both positive. Thus, the benefit of doubt must be given to the bulls. On the top side, the levels I will be watching are the 20 dma - which as of today's close is at 1071 and also the 1074-1075 area which played a significant role as a support level on the way down not too long ago. On the downside, the nearest important support level is at 1060. The other thing to watch tomorrow will be the US dollar. The dollar dropped today which also helped the markets to rally. However, at the end of the day there was a small spike in the dollar that took it above a short-term resistance level. It will be important to see how this trades overnight as it will definitely effect the markets tomorrow.

Levels to watch for tomorrow:

1071 - 20 DMA; likely to act as a first level of resistance

1060 - current area of short-term support; In the morning if the markets give back a few points, I may go long near this level and place a stop right below it. Remember, it's all about reward/risk.

See you tomorrow. Also, I will be off next week and will not be trading or writing at all. Off for some fun in the sun.

2009-10-28T16:40:00.004-05:00

S&P 500 close = 1042.63

Signal = BL/N

Another ugly day in the markets. I said yesterday that we would likely be up unless we started another leg down in the morning. Unfortunately, that is exactly what happened right after the open. The markets never made a decent attempt at a rally at the open and things just went downhill from there. Another thing I mentioned yesterday is to wait for a resistance break before going long. So, by waiting I am happy to say that I was never on the wrong side of today's trend. Over time I have painfully learned never to anticipate the market's next move but rather react to the key levels.

So, now we are below the 50 day moving average (DMA) on a closing basis. The last time that happened was back in late June and early July. If you look at what happened in June, right after the first closing day below the 50 dma, the markets made a doji day and then rallied from there to the 20 dma. I am expecting something similar to happen now.

Longer term picture, believe or not, is still bullish until we take out the daily support level at 1019. Once again, the markets are oversold on all time frames, from the 5 min up to the daily level. So, a bounce is just a matter of time. However, on the weekly level we are overbought. So, this is my prediction: we bounce from here in the next day or so, then we rally to the 20 dma through next week, then we either continue up or move back down. If we go down from the 20 dma, then the 1019 level may come into play. Predictions are fun, but I don't ever swing trade based on what I think is going to happen 2 weeks from now.

Levels to watch for tomorrow:

1055 - currently this is the level that would change the short-term trend back to up. This will likely change tomorrow late morning unless we break through this right off the bat.

1035-1041 - small band of support

1019 - key daily support level

2009-10-27T16:22:00.002-05:00

S&P 500 close = 1063.41

Signal = BL/N

Ok, so we did not break 1073 today to the upside, but we broke below 1065 and bounced off of 1060 twice. I think the probability of us going up tomorrow just increased significantly and once again the upside resistance needs to be taken out before going long tomorrow. The markets have overextended themselves to the downside and unless there is another leg lower right from the start in the morning we are definitely going up. Levels to watch for tomorrow:

1069-1073 - a break of 1069 should start the momentum up and a break of 1073 will confirm a short-term trend reversal back to the upside.

1060 - should now serve as support

2009-10-26T15:05:00.002-05:00

S&P 500 close = 1066.95

Signal = BL/N

Market stumbled around most of the day today, up then down, then tried to go back up. Markets are very very oversold and a bigger bounce is highly likely tomorrow. The key level to break to get the momentum going will be 1073. Downside risk is minimal unless we break through 1065 which is a strong area of support. I bought some BGU at the end and am holding overnight.

Levels to watch for tomorrow:

1073 - a break here will potentially reverse the short-term trend back to up.

1065 - strong support area

2009-10-23T17:40:00.005-05:00

S&P 500 close = 1079.60

Signal = BL/S

Well we had a nice couple of days for the bears. I made some good money with BGZ this week. So, is this the start of a major correction? It is really too early to say especially since we are still above the 20 dma on the daily chart. Remember, the bulls live above the 20 dma and the bears live below the 20 dma. As long as we are above the 20 dma and the trend is still up on the weekly and daily charts the benefit of doubt has to be given to the bulls. I am not saying that we are going back up but if you are not already short, I would be careful to initiate a short position at this level without some sort of a minimal bounce.

Trading is all about risk and reward. If the risk to initiate a position is higher now than it was before, then you have to consider the possibility that you may be at the tail end of a move. I cashed out my short position today not because I think this leg down is over, but because I wanted to lock in profits and also because the shorter time frames are starting to look a little oversold.

The markets closed right around the stubborn 1075-1080 area I have been talking about all week. So, the markets could really go up from here back to the recent highs of 1100 or could break down through 1075 and go to the next support area at 1065. I think I will be just an observer early part of Monday until the market finds some direction. See you all next week and have a great weekend!

Levels to watch for Monday:

1095-1096 - for now, a break of this level would definitively change the short-term trend back to up; this will likely change intraday Monday

1080-1082 - minor resistance

1074-1075 - decent support; a break here could send the markets down to test 1065

2009-10-22T21:10:00.003-05:00

S&P 500 close = 1092.91

Signal = BL/S

I don't know how many of you have time to watch the intraday movement of the markets. Those of you that were able to observe the price action today saw that we touched down at the 1075 area, briefly broke below, and had a huge rally thereafter. Yesterday I talked about the 1075-1080 area being our first area of support. The key word in that sentence is 'area.' Beginner traders get hung up on specific price levels. Markets are not run by robots, although some would say majority of the institutional trading happens via automated programs. Given that humans are making decisions, the levels we talk about are just areas where the psychological shift has a higher likelihood of happening. In other words, fear and greed are highest at those levels and one always wins out over the other. So, the fact that we broke 1075 briefly did not mean that we would immediately break down to the next level to 1065. In fact, I sold a decent portion of my position at 1075 knowing that a bounce was very likely. After touching down at the 1075 area, the markets slowly moved up and then hit a temporary resistance at the 1084-1085 area. That is where I placed my final stop to protect the remaining profit I had left. Fortunately due to my stop, my BGZ position got closed for a profit and the markets continued higher. Stops are vital in this game. If you don't use some kind of a stop, you will ultimately get stomped.

Briefly let's talk about the short-term levels. The 10 min resistance is still at the 1098-1100 area. Until we break that, for now the short-term trend remains down. That level will change depending on the price action tomorrow. On the down side, the momentum will build if we break 1090.

On a different note, I want to talk about the longer term picture just for a bit. The markets have come so far since the March 9th bottom of 666. We have had some minor and some major pullbacks since then, however, nothing that has damaged the weekly uptrend. The key support level on the weekly chart is at 1019. Until that level gets taken out or a new support level forms, the longer-term trend remains up. Do not try to predict when the market will break this level, or what the market is supposed to do, or what level the market will close at during a given time frame. I do have a ceiling on the market and that is 1200. Do I think we will reach that before we break down below the weekly support? I don't know and no one else does either. So, for now I am going to continue to trade within the intermediate uptrend and not worry about what will happen by year's end. All I can say is that my long term portfolio remains 66% cash and the other 33% between bonds and commodities. At this point, I have no equity positions in my long-term portfolio.

Levels to watch for tomorrow:

1098-1100 - short-term resistance area; a break of this tomorrow morning will reverse the short-term trend back to up. Be careful during the first 1/2 hour due to high volatility spikes if you execute any trades in this area

1090 - very minor support; a break of this should build some momentum to the downside

1075 and 1065 - more important support levels

2009-10-21T21:50:00.003-05:00

S&P 500 close = 1081.40

Signal = BL/S

Those that read yesterday's post and followed today's price action were likely not surprised. I talked about there being an upswing in the morning that would fade by the afternoon or by Thursday. Well, that is exactly what happened!

This morning the critical support area I was watching was at 1086. As the markets moved higher a new area of support formed at 1094. I said in my intraday tweet (see the column on your right) that if we broke 1094 I would short the market by buying BGZ. Since, I already had a contingent trade entered at that level, my order executed immediately when the 1094 level broke. If you look at the 5 or 10 min S&P 500 chart, look at the price action right after that support break! It was like a dam broke and people could not sell fast enough. Not only did 1094 break, but soon after the markets crashed through 1086. So, now the short-term trend is clearly down. Where do we go from here?

There is some decent support at the 1075-1080 area. Depending on how the markets open, we could easily cut through this area or vacillate in that zone for the morning before going lower or higher. If we do go lower, then next major support sits at 1065 (my target area to sell the remaining shares of my BGZ position). If we move higher, I would like to see the markets stay below 1098 in order for the short-term trend to stay negative.

Levels to watch for tomorrow:

1098 - need this roof to hold for the short-term downtrend to continue

1075-1080 - moderate area of support

1065 - strong area of support

2009-10-20T20:41:00.008-05:00

S&P 500 close = 1091.06

Signal = BL/N

Apple failed to lift the markets higher and the 1100 resistance level was not taken out today. That was absolutely necessary for the upside momentum to continue. Since that did not happen, a retreat is now imminent.

Considering the markets have had a huge run up since October 5, it is now time for the markets to pull back. I have a feeling that the markets will try to make a last effort to push higher tomorrow morning and then fall back towards later in the afternoon or by Thursday. The daily chart is now overbought, and the short-term trend almost reversed back to down today. This is the opposite scenario of what I talked about on October 4. In other words, we have a formation that could result in a decent pullback in the markets very soon.

The key support level to break for the short-term trend to reverse is 1086. I think if that level gets taken out early tomorrow, then a quick move down is almost certain. That level of support obviously could change if it not taken out early tomorrow morning. Stay tuned for my intraday tweets.

Key levels to watch for tomorrow:

1100 - recent high

1086 - key support for short-term trend reversal for the S&P 500; similar levels for the other indices are: Nasdaq = 2151, Dow = 9992, Russell 2000 = 614 (short-term trend has already reversed)

1075 - gap level support and first profit target area for shorts if 1086 is broken

2009-10-19T17:38:00.002-05:00

S&P 500 close = 1097.91

Signal = BL/L

Markets are in overdrive mode currently in after hours trading after Apple reported blow out numbers. Apple is up about $12 in after hours trading. This will certainly help the markets gap above the 1100 resistance tomorrow. The short-term trend did turn back to positive intraday today after going negative on Friday. So, now the intermediate and short-term trends are once again aligned and more upside will follow. However, what should the upside target be if you are long on a swing trade at this point? I think a reasonable upside target is around 1118-1120. This represents the 161.8% fibonacci projection from the recent retreat from 1080 to 1019. I think that we will likely see a reversal in the broader markets near that area. However, until we see significant supports break, a short position would be foolish even near those levels. Remember, always trade in the direction of the trend and react to what the charts are telling you instead of anticipating the market's next move.

Levels to watch for tomorrow:

1118-1120 - potential area of resistance

1096-1100 - will serve as a new area of support

2009-10-17T20:40:00.002-05:00

S&P 500 close = 1087.68

Signal = BL/S

Markets paused a little on Friday. However, options expiration day price action is always a little 'suspect.' Although the 10 min support levels broke on Friday, little downward price action followed. Monday will clarify whether that support break was significant. Regardless, there are still two areas of support below at: 1075 and 1065 that need to be broken for momentum to build. On the up side, the resistance is now at the 1096-1100 area. That will be a little tough to crack without the markets retreating a little this week. Since the picture is a little cloudy for now, wait until 10:30 am (ET) before initiating any trades on Monday.

Levels to watch for monday:

1096 - recent high

1081-1086 area - recent areas of support

1065 - strong area of support

2009-10-15T19:09:00.002-05:00

S&P 500 close = 1096.56

Signal = BL/N

DOW 10,000 mentality has brought the late buyers out of the wood works. These are the so called 'weak hands.' I think there is potential for upside but we are soooo overbought in the short-term that a one day drop of 1-2% is very likely going to happen soon. I only like the commodities right now for a longer term investment (I own DBC and DJP). In terms of levels to watch for tomorrow:

1100 - mental barrier more than anything; If we break that, then 1200 is a real possibility before year end

1086 - a break of this will reverse the short-term trend to down; downside potential is to about 1075 gap and support area and then the more significant support area of 1065.

2009-10-14T16:51:00.003-05:00

S&P 500 close = 1092.02

Signal = BL/S

INTC lifted the markets again. Now we are at the yearly highs. I have been patiently waiting for a break down of the short-term trend and it is not happening. However, I refuse to chase this rally. I will stick to some day trading for now until the short-term trend reverses. Seems like the bulls are continuing their march ahead into the frothy skies of wall street. I wonder what will be the catalyst to bring wall street back to reality? In any case, I will not be trading for the next 2 days. I may try to write tomorrow and Friday. Otherwise, I will see you Sunday night. Stay warm, it's getting cold here in Chi town.

2009-10-13T21:12:00.002-05:00

S&P 500 close = 1073.19

Signal = BL/S

Well, Intel does it again! Its outlook ahead for the sector was upbeat and markets responded by moving higher in after hours. Based on the after hours price of SPY it looks like the markets will gap above or near the recent high of 1080.

The intermediate trend has remained bullish now since the first week of July. The short-term trend also remains positive. Although today we came close to breaking support near the 1065 area, the buyers stepped in to protect that level. So what now? I think it is a little premature to say if we move a lot higher from here, but for now the bulls are still in control. My 2009 year high for the S&P 500 is 1200. I still think we will correct one more time before we reach that level.

Levels to watch for tomorrow:

1080 - recent high from September

1070 - minor support; a break of this will lead to a test of the 1066 area

1066 - major support; a break of this level and the short-term trend will reverse back to down

2009-10-12T17:53:00.004-05:00

S&P 500 close = 1076.19

Signal = BL/N

Markets moved a little higher but could not take out the recent high of September near 1080. If we break 1080, then 1100 should be a chip shot. If we break the 1071 area, then we will still need to crack 1065 area before things start to fall apart on the downside. Tomorrow should be a consolidation day with little direction ahead of INTC earnings after the close. Levels to watch for tomorrow:

1080 - recent high from September

1071 - intraday low from today; a break here could start a reversal of the short-term trend

1065 - real support area of the short-term trend; if this breaks, more significant downside should follow

2009-10-11T17:36:00.003-05:00

S&P 500 close = 1071.49

Signal = BL/N

The weeks ahead are likely going to be volatile with most of the major companies reporting their Q3 earnings. From a technical standpoint, the markets are overbought within a bullish intermediate trend. The short-term trend is still positive as of Friday's close. So, for now the bulls maintain control even though they are starting to get exhausted. Monday could finally bring an end to the short-term trend and we could get a sell off through Tuesday's close. INTC reports earnings after the close on Tuesday and I am sure that everyone will be reading into their every word during the conference call. So, for now I am on the sidelines and waiting for the short-term trend to go back to down. Levels to watch for tomorrow:

1080 - recent high at the end of September

1065 - short-term support; a break of this area and the short-term trend will go back to negative

2009-10-08T21:56:00.003-05:00

S&P 500 close = 1065.48

Signal = BL/N

Well, markets pushed higher for another day. Even though I personally have a neutral short-term signal, the short-term trend is still positive. The short-term trend was close to reversing this afternoon, but the bulls held up their end just fine into the close. The Russell showed some weakness and we will see if that weighs on the market tomorrow morning. At this point, respecting the short and intermediate trends have helped me stay put and not go short, although I took a small position in TZA in after hours since it broke its late afternoon support just before close. Yes, I have missed out on the gains in the last 2 sessions, but I have not lost money. In any case, the level to watch early tomorrow morning is:

1064 - short-term support; if broken the short-term trend COULD change (the real support still sits at around 1050).

2009-10-07T16:29:00.006-05:00

S&P 500 close = 1057.58

Signal = BL/N

One of the more range bound days in a while. The S&P 500 fluttered between 1050 and 1058 for the whole day. This type of price action is generically called 'consolidation.' However, what are the big boys doing? Are they slowly buying shares (accumulation) or are they slowly unloading there shares (distribution)? Do I dare try to predict that? NO! I would rather buy a confirmed breakout. Graphically, another way to spot areas of consolidation is to look for contraction in the bollinger bands. The markets oscillate between periods of high volatility (wider bollinger bands) and periods of low volatility (narrower bollinger bands). Low volatility precedes high volatility and vice versa. So, what do you expect to happen in the near future? I would say tomorrow or Friday will be a high volatility day. In other words, we will likely breakout of today's trading range and move one way or the other.

Looking at all of the time frames, the intermediate bullish trend is intact but losing steam. The short-term trend still remains positive and that needs to be respected. However, since we are short-term overbought I am still hesitant to go long at this point. I would rather see the markets consolidate some more through tomorrow before I consider going long.

I think we may be fairly range bound between the 1020 and 1080 area during the next few weeks of earnings season. However, there will be plenty of opportunities to trade. Numbers to watch for tomorrow:

1058 - 1061 - represents the highs for the last two days, respectively. A break above this area could mean we test the recent high of 1080.

1050 - today's low; a break of this would reverse the short-term trend back to down.

2009-10-06T16:34:00.002-05:00

S&P 500 close = 1054.72

Signal = BL/N

Markets were up again as the short-term trend continued to stay positive. We easily broke through the 1045-1050 area but could not break the R3 level for the day near 1063. The short-term trend is still up as of close today but the market is short-term overbought. More gains are possible if we do not break through the support at 1047 tomorrow morning. However, the risk to reward is a little high for a long position at this point and thus, I am changing my short-term signal to neutral for now. So, levels to watch for tomorrow:

1060-1063 area - represent today's high range and the R3; a break above this could lead to further gains

1047 - short-term support level; a break of this will reverse the short-term trend to down

2009-10-05T20:16:00.007-05:00

S&P 500 close = 1040.46

Signal = BL/L

I said on Friday that we are still in an intermediate bullish trend and that we were quite oversold making for a good setup for an up day and that is what happened today if you look at the end of the day numbers. However, if you were watching what happened this morning as the S&P 500 broke its resistance around 1031, it was quite interesting. I bought BGU (long) at $47.42 as the S&P 500 broke 1031, but soon after that there was a fairly significant 'outside' red candle on the 10 min chart at right around 10 am (ET). I honestly got spooked by this candle and sold my long position for break even. In any case, what I usually like to see is the momentum build immediately upon entering a trade rather than it building later as it happened today. That is significant for two reasons: 1) It takes the price a lot further away from my initial stop which decreases my odds of being stopped out, and 2) it confirms that the break of that level that I thought was significant, truly was significant. So what tomorrow?

Here is a 60 min chart of the S&P 500. On this the lower line is the 'slower' uptrend line from mid-August and the top line is the downtrend line from the recent high at 1080. I think there is some more upside left for tomorrow morning and the upside will be limited to about the 1045-1050 area (to the underside of the downtrend line) unless the big boys step back in. That area also happens to be the level of the 20 dma. Even though that area may be a great level to go short, I will not take a short position until we break a support. At this point the short-term support sits at the 1035 level. So, until we form a new support or break the current level at 1035, I will not go short. There are some under currents in the daily price action that lead me to believe that the intermediate trend could soon change. That is another reason that I was a little more cautious with my long position earlier today. When the intermediate trend looks like it is about to change it is always wise to be more careful and be willing to let a trade go if you have to. Preservation of capital and money management are the keys to successful trading.

Levels to watch for tomorrow:

1045-1050 - the 20 dma and also the area of the downtrend line

1035 - current short-term support; a break of this level tomorrow morning and the short-term trend will reverse back to down.

2009-10-02T15:02:00.003-05:00

S&P 500 close = 1025.17

Signal = BL/N

Markets gave back a little more today but bounced off of support around 1020 (see my tweet from pre-market open today). Although it found support at 1020 area, the markets could not break above the intraday resistance at 1031. That number is the key level to watch on Monday morning. The intermediate trend is still bullish and very oversold. This can create an environment for a huge and quick upswing. That is likely what will happen if the markets can quickly break the 1031 level on Monday AM. If that level does not get broken, then more downside will be likely. At the moment I am on the sidelines and am ready to buy a break over 1031.

People have been asking me what am I expecting in the next week or two. I think there are three possibilities here:

1) We don't break 1031 on Monday and continue further down
2) We break 1031 on Monday AM and reverse back to the upside up to about the 20 dma (1049 area) and then start the downward slide again
3) We break 1031 on Monday and reverse back to the upside and continue to move higher above the recent high of 1080.15

I think #1 is very unlikely, but #2 and #3 are very likely scenarios. It is hard to tell right now whether it will be #2 or #3. Time will only tell if the next leg up really has legs to get above 1080.15.

Number to watch for Monday:

1031 - a break above this will reverse the short-term trend back to up and realign it with the intermediate bullish trend.

2009-10-01T15:31:00.005-05:00

S&P 500 close = 1029.85

Signal = BL/N

Some would consider the bullish intermediate trend over as of today. I still think that there is one more major thrust upwards left in the markets before I call an intermediate trend change. The short-term trend is still down but will likely reverse tomorrow or by Monday.

I had a nice position in BGZ since yesterday morning that I made some money on (total gain = .75), however, I had to close out the position early since I could not be in front of my screen for most of the day today. Oh, well. Anyways, I am looking to trade this market back up with BGU one more time. The levels to watch for tomorrow morning:

1040 - a break above this tomorrow morning will reverse the short-term trend back to up and will be the buy signal to the long side (for tomorrow morning only)

1025-1030 area - there is decent support here. Given that we are fairly oversold in the short-term, I don't expect this to break tomorrow.

2009-09-30T18:59:00.002-05:00

S&P 500 close = 1057.08

Signal = BL/S

Markets whipsawed all day today with violent up and down moves. The volatility was due to end of quarter 'window dressing' by the mutual funds. The intermediate trend is bullish, but the short-term trend is down. I bought BGZ today and am holding half of my position overnight. Let's see if the bears can gain momentum tomorrow. Levels to watch for tomorrow:

1064 - a break of this to the upside will reverse the short-term trend back to up

1051 - a break of this to the downside and the bears will gain momentum with next supports at 1046, 1041, 1035

2009-09-29T15:12:00.008-05:00

S&P 500 close = 1060.61

Signal = BL/N

One of the most trendless days in a little while. The markets stayed above important supports but also could not break out above resistance levels. I should have sat this day out completely but I tried to force it early on and lost .80 today on BGU. Actually, it was a mistake on my part not to glance at the Russell 2000 chart to look for synchronicity. There was a lack of this 'synchronicity' and I ended up in a trade that should have never been placed. So, unfortunately I gave back 2/3 of my gains from yesterday.

Trading is about being disciplined and following your system while being able to adapt to the curve balls that the markets will often throw at you. When you fail, you MUST learn from it and not let it break down your confidence. In any case, I wised up and sat the rest of the day out.

The intermediate trend still remains bullish. The key levels in the morning will be:

1065 - a break above this will resume the rally from Monday

1057 - a break below this will reverse the rally from Monday and continue the larger downward move that started last Thursday

2009-09-28T23:00:00.003-05:00

S&P 500 close = 1062.98

Signal = BL/N

Right after this morning's open there was a buy signal as the S&P 500 broke the 1053 resistance level. I bought BGU there and sold it initially as the index hit 1063 and made 1.23 on the trade. That level was the R2 pivot level for the day, also just below the next decent resistance area around 1065. I kept flirting with the markets thereafter buying back in and selling - not smart, but couldn't control myself. I thought I was going to hold a position overnight as we headed into the close, but I got stopped out of my remaining portion of BGU for a profit. Overall gain for the day was about .90, not bad. I was actually somewhat relieved about getting stopped out since I am little unsure of where we are headed tomorrow. I am still bullish, but with caution and thus I am in a neutral cash position right now.

Level to watch:

1066 - I will buy back long tomorrow if we break above this area tomorrow morning.

2009-09-25T17:06:00.002-05:00

S&P 500 close = 1044.38

Signal = BL/N

Today's price action was very indecisive. The markets looked for direction all day but the day ended on the fence. My gut feeling is that we are headed back up but I will wait until we take out the short-term resistance overhead around 1049-1053 before going long. Have a great weekend!

2009-09-24T17:00:00.002-05:00

S&P 500 close = 1050.78

Signal = BL/S

Closed my short trade today for a total average gain of about .75 on BGZ.

The shorter term trend remains down for now but I am expecting a little bounce which should setup for another short play. The numbers to watch as of close today:

1080 - needs to hold for short term trend to remain down; this can change with the market action tomorrow

1045 - if it gets taken out then short trend will continue quickly, but I expect a better entry point after a bounce tomorrow, stay tuned...

2009-09-23T15:06:00.004-05:00

S&P 500 close = 1060.87

Signal = BL/S

Important supports broken today about 1/2 hour before close. This was the confirmation signal I was looking for to go short. I bought BGZ today with an entry price of 20.92. I would have liked to see the 1057 level taken out since there is some more support there. The next level of support is at 1040 area. The S&P 500 is now below its 5 dma, I am looking for the slope of the 5 dma to rollover by tomorrow and that will confirm further downward movement. Remember this is a scalp trade. In other words, the longer intermediate trend is still with the bulls for now but the shorter term (few days) trend is now with the bears.

Congrats to those that followed this trade. Let's see if we can build on this tomorrow.

2009-09-22T15:02:00.003-05:00

S&P 500 close = 1071.66

Signal = BL/S

Markets were a little higher today but I have a feeling we are getting ready for a more sustained (several day) pullback starting tomorrow. I could be wrong since I do not have technical confirmation for this as of today's close. My trading model has yet to give a firm signal. However, I already entered into a small short position earlier this afternoon with BGZ. I will buy more if I see confirmation of this tomorrow or conversely will sell my BGZ if the markets go against me and there is no confirmed sell signal. Follow my tweets tomorrow!

2009-09-21T16:06:00.002-05:00

S&P 500 close = 1064.66

Signal = BL/N

Mild pullback without any significant damage to the uptrend. Bias remains with the bulls for now. However, it looks like we could consolidate for another day before turning back up or possibly reversing. Still bullishly neutral and patiently watching.

2009-09-20T22:56:00.002-05:00

S&P 500 close = 1068.30

Signal = BL/N

Nothing has changed. Bulls still in control.

2009-09-17T15:37:00.002-05:00

S&P 500 close = 1065.49

Signal = BL/N

Markets showing their resiliency once again. Profit taking is being kept to a minimum for the moment. I am continuing to watch for a setup on the short or long side. I am still on the sidelines at the moment. Stay tuned...

2009-09-16T17:51:00.002-05:00

S&P 500 close = 1068.76

Signal = BL/N

More upside today as expected. Mild resistance up ahead near 1100. It's too late for me to chase this trade, thus I am still on the sidelines in my trading account waiting for a little pullback.

2009-09-15T21:01:00.002-05:00

S&P 500 close = 1052.63

Signal = BL/N

The market has crossed another small psychological level. Above 1050, there is not much resistance all the way to the 1200 area. We could see a rapid ascent in the markets if profit taking does not thwart this rally. At this point, I am still looking for a good trade setup and I am on the sidelines. I am waiting for a pullback to scalp (short) in the near-term and then will look to enter a long swing trade thereafter.

2009-09-14T20:42:00.001-05:00

S&P 500 close = 1049.34

Signal = BL/N

I think there is more upside potential, but the risk to reward for a swing trade is too risky for my taste. Sitting this out for now until we get a little more oversold.

2009-09-13T13:02:00.002-05:00

S&P 500 close = 1042.73

Signal = BL/N

2009-09-11T10:57:00.008-05:00

I have been doing some work on my personal trading system. As you already know, I am more of a swing trader than a day trader. This means that my holding time for most positions is between 1-10 days, usually around 2-3 days. Instead of continuing to write detailed posts about the market each evening, I am going to try something new. I am going to simply rate the S&P 500 price action for the intermediate trend (the trend most commonly used by swing traders). In other words, I will rate the price action as follows:

Bullish/Long (BL/L): I am trading my full position size going long in a bullish intermediate trend.

Bullish/Neutral (BL/N): I am sitting on the sidelines but overall bias is bullish.

Bullish/Short (BL/S): I am trading half of my position size going short scalping in the opposite direction of the bullish intermediate trend. I will have to closely monitor my trades intraday.

Bearish/Short (BR/S): I am trading my full position size going short in a bearish intermediate trend.

Bearish/Neutral (BR/N): I am sitting on the sidelines but overall bias is bearish.

Bearish/Long (BR/L): I am trading half of my position size going long scalping in the opposite direction of the bearish intermediate trend. I will have to closely monitor my trades intraday.

Time permitting I may write detailed posts from time to time. In any case, I want to try this as an experiment to further remove any noise from my thinking and my posts. I will try to continue to tweet my trades in real-time.

Expect my first new post this weekend.

Temporary Hiatus

2009-08-24T07:37:00.002-05:00

I am taking a little hiatus from this blog. I will start writing again in a few weeks. Thanks for reading. I may continue to tweet my trades.

Bears Losing Ground

2009-08-20T20:15:00.003-05:00

We are now beyond the 61.8% fibonacci retracement from the recent high/low on both the S&P 500 and Russell 2000. This does not bode well for the bear camp. The only glimmer of hope for the bears is that this is options expiration week and price action can be a little suspect. Also, the markets are overbought in the short-term so a little pullback tomorrow or Monday is likely. However, if we surpass and hold above the recent 60 min highs at 1013 on the S&P 500 and 577 on the Russell 2000, then game over.

I removed my stop for my short play just because I do not trust options expiration week price action. I do not want to get prematurely stopped out and then see the market collapse. I am willing to risk a little more just because of this reason. Tomorrow may be choppy price movement as traders exercise options. Monday will be the real showdown.

Bearish Intermediate Trend Intact

2009-08-19T17:30:00.002-05:00

No technical damage for the bears today. However, if the bears are to keep control they really need to gain momentum soon. The current levels of resistance to hold for the S&P 500 remain at around the 1004-1005 area based on the 60 minute chart. Today's further upswing marks about 50% retracement from the recent low of 978 when measured from the high of 1018. We are at a similar retracement level on the Russell 2000. If we retrace more than 61.8% then the bears will likely loose control. For momentum to gain strength on the downside, we really need to dive below the 993 level tomorrow for the S&P 500 and the 558 level for the Russell 2000.

On the right side of the blog I have added two new links. These are the pre- and post- market movers. These can be good day trading candidates as they will likely be high volume movers.

Remember it is options expiration week so the markets will be manipulated by the big boys until they close out their large positions. Typically price action during the latter part of these weeks is somewhat suspect. Be careful with stops and getting whipsawed. See you tomorrow.

Bounce Into Resistance

2009-08-18T21:46:00.003-05:00

Today's price action was exactly what I had hoped for. The markets bounced moderately into resistance and almost filled the gap down from Monday. The volume was lighter today than on Monday and there was no technical damage to the bearish intermediate trend. In fact, all of the major indices (except for the DOW) are below their 20 day moving average. The 20 dma often is the line between the bears and bulls for swing trading.

I think the markets will do one of two things tomorrow: 1) Continue a slightly upward move to completely fill the gap or even go beyond that to about the 1004-1005 area on the S&P 500, or 2) Resume the downward slide. I am using that 1004-1005 area on the S&P 500 and about the 564 area on the Russell 2000 as my stop loss areas.

Let's see the bears can gain some momentum tomorrow!

Finally a Break Down

2009-08-17T14:44:00.003-05:00

Well, the 2 week trading channel in the markets was broken today. Thanks to the Asian markets, the US markets started off to a bad start and could not gain any traction throughout the trading day. All of the intermediate term supports were broken all across the board.

The pullback I have been talking about has started and I think we should see more downside to about the high 950's on the S&P 500. If we breach that area, then the low 900's is possible. I will be trading this leg down but will also be getting ready to enter my longer term long positions once I see the intermediate trend reverse back to the upside. For the longer term, the markets should be ok unless we breach the 869 area.

For now, I am holding a small position in TZA. I will add more shorts on any significant bounce in the next few days. Follow my tweets.

Channel

2009-08-15T15:42:00.005-05:00

Markets are in a channel. This means that they are vacillating between a high and a low. They are basically non-trending for the short-term with the overall bias still to the upside. The S&P 500 range is between the low 990's to about 1015 area. Until, the markets break out of this range, traders can take advantage by shorting near the top and going long near the bottom while keeping stop losses in place just above or below the range. On Friday before the close, the markets made a little brisk move to the upside so a continuation of that into Monday morning will not be surprising. I closed my QID position for a nice profit just prior to this upswing on Friday.

LONG-TERM VIEW:
Longer term where are the markets going? Overall, the weekly and daily charts still look quite bullish even though we are overbought at this point. We have higher highs and higher lows on both time frames so kudos to those that stayed in the markets or bought prior to this second leg up. However, the monthly time frame looks like a straight line up and this is impossible to sustain. So at some point we will rest and pullback to more reasonable levels. I think that a pullback should take us back near the 925-950 area.

Aimless Markets

2009-08-13T14:54:00.003-05:00

I am not sure how many of you saw the futures this morning but it looked like it was going to be a 200 point plus day on the DOW and at least a 20-30+ point day for the S&P 500. Then, more data came out this morning - primarily the jobs data which spooked the markets and the markets were down soon after the open. Once again, the markets are now starting to look a little rattled and traders really do not know which way to go - buy more longs or sell and take profits. I expect that we will resolve this indecision tomorrow or by Monday. Taking a trade on the long or short side is a little risky due to such indecision. I should be in cash, but instead I am still short with QID. Nasdaq has still somewhat of a downward/range bound bias relative to the other averages. However, I have stops in place for protection in case I am wrong.

FOMC Dance

2009-08-12T21:12:00.003-05:00

What is the big deal about FOMC announcement days? I just don't get it. Nothing new or unexpected comes out on these days but yet the markets act schizophrenic right after 2:15pm(ET) for about a 1/2 hour. That is exactly what happened today.

I personally hate these days as they take out all stops on the long and short side. I think in the future I will temporarily take my stops off during the FOMC days. In any case, as you can probably tell I got stopped out of a portion of my QID trade. None of the major indices closed above there recent highs but only the NASDAQ is still in a confirmed intermediate downtrend. I am still waiting for the other indices to follow suit and I am still holding a small position of QID.

The $VIX is still within the large weekly triangle formation and hasn't really moved a whole lot. It is really not giving any 'signals' as to what is to come. The $VIX has not really been helpful as of late, so I would ignore it for now.

The $NYMO is close to the zero area (no man's land) and thus, not very helpful at this point.

Last, we are getting to some frothy levels on the number of stocks in the S&P 500 above their 50 dma. This is what happened before the decline in June. However, only price pays and that's what everyone needs to pay attention to. Let's see what happens the rest of this week now that the FOMC dance is over.

38.2%

2009-08-07T16:11:00.008-05:00

Well, today we finally retraced 38.2% from the S&P500 high of 1576 to the low of 666 and hit 1014 (38.2%) on an intraday basis. We actually went slightly above it on an intraday basis only to close below it at 1010. On the DOW we barely crossed the 38.2% level today and then closed under it. On the NASDAQ and Russell 2000 we are between the 38.2% and 50% retracement levels. So, what does all of this mean?

These areas act as resistance/support levels and are called Fibonacci levels. Read more about that here. Although, they are not necessarily levels of supply and demand, they are looked at by many traders and if many people act one way or the other near these levels, that can affect how the markets move. Once again, only time will tell what significance these levels really hold.

To update you on my trade from yesterday. I raised my stop on the QID trade after the open only because the markets looked a little choppy in the morning and I did not want to get stopped out prematurely. So, I raised my stop to the previous high near 2015 which held nicely during the day. I still believe that the weaker action in the NASDAQ and SMH today is a leading indicator of what is to come next week for the other indices. However, the S&P 500 and Russell 2000 have not definitely broken below their supports just yet. These levels are respectively at: 992 and 556. So, I would hold shorting those for now until they follow NASDAQ's suit. Once again, look for synchronicity of the indices before taking a position to avoid getting whipsawed into a trade (see my old post on this topic - search the word 'synchronicity')

I will hold off writing the LONG-TERM VIEW post this week and will come back to that the following week. Also, I may or may not post on Mon and Tue. If not, I will see you Wed night.

I Smell Bull Burgers

2009-08-06T15:29:00.004-05:00

I think the bears were sharpening their claws today. They showed some signs of awakening. I think the bulls could be in some trouble tomorrow if momentum can pick up a little more for the bears. Let's see why...

Today, the S&P 500 breached the 60 min support at the 994 level intraday but it managed to closed above that. However, it did close below its 5 dma at 999. The Russell 2000 started out the weakest at the open but it did not break its support at 555. On the other hand, the NASDAQ, which has been the leader in this whole rally, not only breached its 60 min support of 1977 but closed below it. So, to start I took a small position with QID at the close (with a stop above the most recent 60 min resistance at 2004 area). I have a feeling that the other indices will follow the NASDAQ tomorrow or by Monday. If I am wrong, I will get stopped out with a small loss.

Let's talk a little about stops and where to set them. First, you must figure out what type of trader you are and that determines the primary time frame that you trade within. For me, I am usually a swing trader and therefore, I use the 60 min time frame primarily to find supports and resistance levels. So, let's take a close look at my trade from today.

I saw that the NASDAQ had not only breached its 60 min support at 1977, but it had stayed below that for at least 2 bars on the 60 min chart before I took my QID position. I usually will wait for one bar below this area to make sure I do not get whipsawed, but in this case I was able to take a trade even after 2 bars below this level without the trade getting away from me. So, after taking my QID position, I immediately put a stop sell order above the most recent 5 min high near 1983. Why at that level? Well, once I enter a trade I want to make sure that it goes in the direction as planned. If it goes against me, I do not want to incur a huge loss. So for that reason, I use a tighter stop in the beginning and use the 5 min or 10 min time frame to find the most recent resistance level. Once the trade goes as planned or in this case, we made a daily close below our important 1977 level, I will change the stop to give my trade some more breathing room. So, after the close my stop now sits just a little above the 2004 level which is the most recent 60 min resistance area (see this chart). As the trade unfolds I will do a couple of things: 1) I will probably take half of my position off of the table and let the other 50% run, 2) I will also tighten my stop once I see that I have a decent profit in the trade. So, I may ratchet back down to a 10 min stop closer to the end of my trade on the remaining 50%.

Let's see what happens tomorrow and I will let you know how my trade unfolds. Follow my tweets.

Transition Phase?

2009-08-05T20:07:00.002-05:00

Today's choppy market action looked like a potential distribution day. Investors are likely feeling a little cautious here. The ones holding positions are probably getting a little worried about being burned again and may be selling into this rally finally to lock in profits. The ones that have missed the rally are likely trying to get into the tail end here to see if they can catch a last upswing. So, who will win? It's all about supply and demand in the end. If the sellers out weigh the buyers, then supply exceeds demand and prices will fall. I think the sellers will win, but when? I don't know for sure and cannot predict that. Instead I wait and watch for a support break.

CSCO reported after hours and although numbers were better than expected, the stock was down about 3% in after hours trading. I do not expect this to be the catalyst to take the market down, but the markets look a little tired now regardless of these earnings. I think a pullback is in the near future especially since we have not been able to close above 1007 for two days in a row now. One more day below this area and I think we could finally start the pullback. It all depends on how the markets open tomorrow and what happens to the support areas. The 60 min support level to breach now sits at the 994 area. A break of this will definitely lead to a test of the more important 982 area. If we do move up, there is another number that traders are watching and that is the 1014 area. This is the 38.2% retracement of the fall of this market from its highs in 2008. This will also play a significant role of resistance. So, in the end, I think that the baton is slowly being handed over to the bears, but only time will tell when that actually has taken place.

If you are long some positions here, use stops to protect your profits!! I will write a post on how to use stops in the near future.

1007

2009-08-04T15:07:00.003-05:00

Well, we reached the next level of resistance but did not close above it today. On an intraday basis the S&P 500 barely poked its head above the 1007 level but retreated slightly into the close. This does not necessarily mean that the markets will reverse from here. The benefit of doubt should still be given to the bulls until we see a break down of recent support levels. The most recent significant support level is still at the 982 area. I would like to see a break of this level before calling an end to this rally. For all I know we could gap up higher above 1007 tomorrow morning.

Since there is not much else to write about today, I want to make sure that people know about stocktwits.com. It is a great web 2.0 style site exclusively designed for the trading community. Check it out!

Same Story, Different Day

2009-08-03T17:16:00.002-05:00

More green in the markets today. The S&P 500 closed above the 1000 level. Although that level is psychologically important, the more important level is at 1007. There should be some resistance at 1007 followed by the next resistance area of 1044.

This market has proven to be quite resilient since the upward run from March 9. It has climbed this wall of worry for a long time with only a few reasonable sized pullbacks since then. As long as the uptrend remains intact I would not consider shorting this market. The 60 min support remains at the 982 level. A breach of that level could end this recent rally for at least a little while. Some sort of catalyst is needed to break down the bull psyche and bring us back to reality. I am not sure what that is going to be.

The XLF finally managed to break above the stubborn $13.08 resistance area on a gap up today. The next resistance level is around $13.68 and then nothing until about the $16 level.

The NASDAQ is above 2000 with no real resistance until about 2150.

The DOW has no significant resistance level until about 9500 area.

The Russell 2000 has a minor resistance level near 584 and the next major resistance is not until about the 640 area.

Unless we get a pullback soon, these indices could bust through and move significantly higher very quickly given that there are not many resistance areas above current levels. I am not sure what will happen, but the healthy thing would be for the markets to pullback (wishful thinking).

Uptrend Remains Intact

2009-08-02T21:57:00.003-05:00

We have now been in a strong uptrend for 3 weeks now. As a result, the weekly and daily moving averages are all lined up in a bullish formation (the shorter averages above the longer averages) and all of their slopes are pointing up. This is a good sign for higher highs to come. However, the fact that the prices have stayed above the 5 day moving average for such a long time without a pause is a sign of caution. I would be cautious about trading long here until a nice pullback of prices back to the 10 or 20 day moving average.

The 5, 10, and 20 dma's for S&P 500 as of Friday's close are: 982, 972, 938. Obviously these numbers will change day to day, so the important thing is to follow the price relative to these moving average lines. I expect the markets to take a breather and rest between the 10 and 20 dma for a brief period before a next leg higher. When will that happen? I am looking for a break down of the 60 min uptrend. The current support on the 60 min chart is at 982. This also happens to be the 5 dma. So, a break of the 60 min uptrend will start the pullback. I do not expect this pullback to be a prolonged or severe one. I think there are many buyers waiting for such a pullback having missed this last rally. So, I believe buyers will emerge relatively quickly with any reasonable pullback.

LONG-TERM VIEW:
For the long-term investor that is not already in the market, what to do? I do believe that higher highs are in the future, but at what cost? In other words, if you are trying to time this market for going long when should you get in? I cannot answer that question for you since that depends on your horizon of what is "long-term." I am still a little torn as to what to do with my long-term portfolio. On one hand the weekly and monthly price action has been quite bullish with prices closing above significant moving averages (10-month and 12-month), however, on the other hand the longer term monthly moving averages are still sloping down and have yet to turn flat. So, I am going to wait a little longer since I see a pullback around the corner and we also have significant resistance just above current levels around 1007.

No Sellers?

2009-07-28T23:35:00.003-05:00

A few weeks ago everyone, including myself, was talking about a head and shoulders pattern and that we would break down and slide into the low 800's on the S&P 500. Now, just after a string of good news, no one wants to sell? So, let me ask you this, can the market continue to go up in a straight line and maintain prices above a rising 5 day moving average for ever?

I am not going to be the bear here and say no, but the reality is that this upward movement is not sustainable for much longer. The markets still, however, look poised to move higher given that they did not give much back in the last two days of trading. The markets have been consolidating the last two days and it looks like we could see one last euphoric move up tomorrow before we see a significant pullback.

So, long story short, the rally is not done just yet. I think we could see a big move tomorrow to the upside followed by healthy selling into next week. At this point, if you are long, not much to do until you see any major evidence of a reversal of this multi-week rally. Any systematic pullbacks should be viewed as healthy. If you are looking to go short, do not fight the tape until we see a breakdown of the recent 60 min supports. The last support level is right around the 969 area (today's low).

I will not be writing any more posts until the weekend. See you then.

Groovy Train

2009-07-24T17:22:00.004-05:00

The markets have been on a tear since July 13th. The late comers keeping jumping onto this groovy train taking the markets higher and higher. Soon enough we will not have many buyers left and the markets will have a vacuum effect which will pull them back down until more buyers emerge. The exact point in time at which this will happen is uncertain, but the odds are against a much higher move. So, if you have missed the train (like I did as did many other traders), wait for the turn around and then get on the train.

I think we could see a pullback to around 925 but 943 area is more likely. This is the level of the 10 day MA. Stocks and markets in strong uptrends tend to stay above their 10 day MA. However, the way to time the entry is by following the swing points on the 60 min chart. At the current time, the 60 min trend is still pointing up and has not even reversed. So, entry for a long position would be taken once the trend reverses to the downside and then reverses back up. I will be keeping an eye on this since I need to jump on this runaway train myself.

The first major upside target is around S&P 500 1007 area. Then there are other targets above that level with the ceiling likely at around 1200 (38.2% retracement from the all time S&P 500 high of 1576.09). I am not saying that we are definitely going to hit these targets, but they are a possibility if the momentum continues.

Next week I may not be able to write a post every night since I am taking a little time off. That's it for now.

Momentum

2009-07-23T17:06:00.007-05:00

Momentum. That says it all. The markets keep building on gains when you least expect them. The markets keep getting new participants each day bidding up prices. People that did not get in this recent rally that started on July 13 are finally starting to get on board. Who are these people?

Well, they say 'dumb money' follows the 'smart money'. You can say that the smart money started this rally on July 13 and now the 'dumb money' is chasing this rally. That may be true for the most part, but even so I am not dumb enough to short this market heavily until I see the signs.

So, let's take a look at two charts. First, this is the 60 min. chart for the S&P 500. I have drawn several horizontal lines on the chart. If you look from the early July high of 931, we came down forming lower highs and lower lows. On this side of the chart, the horizontal lines are above the lower highs since it was in a short-term downtrend. Then, on July 13th, we broke through the 887 high and started this massive rally. Since then we have formed several higher highs and higher lows keeping with the definition of an uptrend. On this side of the chart, the horizontal lines are below the lows. This uptrend will continue until a low is taken out. The most recent low is at around the 951 level. So, if we move lower before moving higher and 951 is taken out, then the uptrend will reverse and potentially start a new short-term downtrend. Until then, no major shorts should be taken if you are trading this time frame. On a side note, I mentioned that I shorted the XLF yesterday as it took out recent low. It looked like it was poised to move lower, however, due to the massive tidal wave of the market, it was also lifted up with everything else and as a result it broke above my stop and I was stopped out for a small loss today.

The second chart I want to show you is the weekly chart of the VTI (Vanguard Total Market Index ETF). I think that this is the chart to follow for the longer term investors. I think following the S&P 500 weekly chart has been a little misleading because of the increased volatility in this index. Taking a look at this chart you can see that the weekly swing high was broken in early April starting a weekly uptrend. If we trust this chart and not the S&P 500 chart, this is telling us that we have been in an uptrend since April and that the uptrend is definitely in tact and will continue to be so until we take out a swing low. The swing low to watch on a weekly basis for now is the recent low at 43.60. So, in a way I am redacting my previous analysis for the longer term view and I think we are already well into an uptrend. So, what to do now? Having missed my entry point for going long, I am waiting for a pullback now. I am not sure if the market will be so generous as to pullback significantly close to the 43.60 area but when it does pullback a decent amount I think I may start to shift a significant portion of my cash back into the market.

Time for a Pullback

2009-07-22T22:21:00.003-05:00

It's time for the markets to rest. Today was that day of consolidation prior to the next minor leg down. The S&P 500 basically moved sideways for most of the day making another intraday high but was still unable to close above the weekly swing high of 956.23.

How much of a pullback do I expect? Well, there are a few ways to estimate a pullback. One is looking at recent areas of significant support. There is a very good area of support around 925-930 on the S&P 500. The next area is between 910-915. Another way to estimate areas of potential reversal is by using Fibonacci levels. The 38.2% retracement is right around 925 and the 50% retracement is right around 915. So, we have both methods giving us similar readings. Thus, a good area for a healthy pullback will be to around 915-925 level. So, if you plan on shorting this next leg down, that would be a good area to exit at least a portion of your position.

The XLF was quite weak at the open this morning relative to the markets and it managed to bounce a little during the remainder of the session. However, it broke its intermediate swing low around 12.02 this morning and unless it can break above 12.34 (recent intermediate swing high) the path of least resistance will be down. I actually shorted some XLF this morning and have a stop a little above the 12.34 level. The Fibonacci levels for the XLF are at: 11.80 (38.2%) and 11.61 (50%).

Goodnight.

Reversal?

2009-07-21T21:37:00.003-05:00

Markets are definitely overextended. However, never bet against the trend. In other words, wait for the sell signal before going short. That did not happen today.

Although, the markets looked like they were digesting this recent up move today, they ended up positive and made an intraday breach of the recent high at 956.23. Additionally, in after hours Apple delivered earnings to Wall Street's liking and the stock was up about 5% in after hours trading. This will certainly mean a higher open for the markets tomorrow morning. The question is: will they be able to continue building upon the recent gains? I think there is a possibility but the odds are against a much higher move. We could see a close above 956.23, but I still think by the end of the week we will be below that level.

Tomorrow, keep an eye on the low from today at 943.22 on the S&P 500 and 518.59 on the Russell 2000. If we go below these levels on an intraday basis for 30 min or more, I think we will have the start of a decent pullback. I am expecting the markets to pullback to recent support areas around 915-930 for the S&P 500 and around 500-515 on the Russell 2000.

I will be away from my desk for most of tomorrow, so I will not be tweeting. Keep your eyes wide open tomorrow and do not get whipsawed in the morning volatility!

Overextended

2009-07-20T14:55:00.005-05:00

I said yesterday that we would see more upside today and that surely was the case. The S&P 500 extended its gains for a 5th day higher. The close today at 951.12 puts us right below the recent high of 956.23 (which is also the recent weekly and monthly swing highs). I think we may see a breach of this area tomorrow or even a daily close above this level. However, I do not see this week closing above this area. Why?

First, the markets are very overextended to the upside in the short-term and a pullback is needed. Second, to close above a weekly or monthly swing high will take a lot more momentum than we have left in this current leg up. So, the healthiest thing for the market will be to pull back and take a breather which would then setup for a next leg higher.

I will be looking for a counter trade to go short in the next day or so. Stay tuned.

More Upside or Consolidation?

2009-07-19T13:57:00.010-05:00

The coming week we will likely see a little more upside and then consolidation. In other words, I think there is a little more room for the markets to move up to about the 950 area. Then, we will see a pullback in the markets that will ultimately lead to some consolidation and range bound action.

At this point, the bulls are in control and the best thing for the bears to do is wait until the bulls are finished eating. Once that happens, a counter trend short trade could be taken if the recent intraday supports are taken out. On Monday morning the first support I will be watching is the one that held throughout the day on Friday and that is the S&P 500 934 level followed by 927 area. If these are immediately taken out on Monday, there is a chance for a quick downward slide, but I think we will likely see some more gains before that happens and establish a higher support intraday.

If you trade short-term, stops are key. Always use them and never cancel them.

I am going to try something different with this blog for the longer term investor in me. Since, I also am a long term investor in my retirement account, I like to keep an eye of what the price action is doing on a more macro level. For this, I rely on the monthly and weekly charts as well as the daily chart price action. So, once a week I will write a separate "LONG-TERM VIEW" paragraph on my weekend posts that will touch upon some key levels of more longer time frame charts. I intend to do this to help me better navigate my longer term investments. Please feel free to add comments if you agree or disagree to any of my viewpoints. I like to hear what other people are thinking out there. Evaluating the markets from different perspectives is very important.

LONG-TERM VIEW:

Although the daily chart looks quite bullish having taken out the recent swing high. We have yet to take out the weekly swing high at the 956 level which also corresponds to the most recent monthly swing high. If we can get a weekly and/or monthly close above this level, then further highs will likely follow. I am cautiously optimistic about the long-term view. I am optimistic because of the daily price action but am cautious since we still have declining moving averages on the longer term charts. Although the moving averages are a lagging indicator, they are still important to look at. What I want to see is for the moving averages to start decelerating and turning flat with price action confirming a bullish uptrend on the weekly charts before I move any of cash in my long-term account back into the markets.

That's it for now. See you tomorrow night.

Clarification of Time Frames and This Blog

2009-07-16T09:08:00.024-05:00

I want to write a somewhat lengthy post tonight for a few reasons. There have been some questions from you guys regarding the time frames that I use for my trades. I will clarify those. Also, I want to reiterate that this blog is meant as a public diary of my trading method and trades. It is nothing more than that. Please consult your own financial adviser or do your own analysis before investing any real money. Having said that, let's talk about the time frames first.

I am both a swing trader and a long-term investor. I swing trade in my personal account and am a long-term investor in my retirement account. Perhaps you can argue that you should swing trade in your retirement account to avoid short-term gains, but that is irrelevant for what I am going to write about right now. The way to look at charts of different time frames and what information they give you is to think of each time frame as a generation of your family. So, for a swing trader, the time frames would correspondingly look like this:

60 min. chart = ME!
daily chart = older sibling
weekly chart = parents
monthly chart = grandparents

Am I crazy? Well, let me explain this further. If you are a swing trader, the way to think of the information on the monthly time frames is similar to advice from your grandparents. The advice definitely means a lot, but may not be relevant to the current times. They are far disassociated with what is going on in your daily life to understand the little nuances. The information on the weekly frames is similar to your parents advice. It is very relevant, but also a little out of date - so to speak. This advice should be used a reference point to keep you in check once in a while. The information on the daily frames is like the advice of your older sister or brother. They usually know what they are talking about since they were just in your shoes not too long ago. Trust what they are telling you. Then, there is the 60 min time frame. This is the time frame that I trade off of being a swing trader. This is equivalent to your daily thoughts and actions. Sometimes your actions may differ from the actions or advice of your siblings, parents, and grandparents and at other times your actions will be in alignment with your family. So, let's put this in trading perspective.

As a swing trader, I have the most success when trading off of the 60 min time frame. This allows me to hold a position for as short as a few hours (rare) to several days. I look for buy and sell signals on the chart as a downtrend reverses to an uptrend and vice versa. Do you have to trade in the same direction as the daily trend? Not really. If you do, you will likely see some larger gains in that direction, however, there can be some significant profits with counter-trend trades as well particularly when they become the 'trend changing trade' (similar to what happened from Monday to Wednesday). I also use the 5 and 10 min time frames to zoom in on the price action to get a better idea of precise entry and exit points. Sometimes, if you rely on these shorter time frames too much you may lose the bird's eye view and get fooled with your entry or exit points and get whipsawed. This has happened to me quite a bit lately and I am now starting to rely more on my 60 min. chart signals.

As a long term investor, I have always been a buy and hold person. My whole life I have been told that buy and hold is the only way to go if you are a long term investor. Now after the massive losses during 2008 I am not so sure and I question the merit of just buy and hold. I understand that asset allocation changes are key for a buy and hold strategy, but I think use of longer time frame charts are also important to the whole strategy for a successful long term investor. So, for my longer term investments, I will be flipping my asset allocations using the weekly charts. The weekly charts will give buy and sell signals that will likely allow me to hold positions for several weeks to a year at a time. I have developed two baskets: bull market basket and bear market basket (fidelity offers this type of trading). Without getting into too many details as to what are in those baskets, the bull market basket comprises 70% equities and 30% bonds, while the bear market basket comprises 70% bonds and 30% equities. Some may ask, why not just go all in or all out? I suppose if I could time every turn in the market just perfectly I would do that, but the reality is that if I miss time a turn in the market I could really mess up my long term account. So, for this reason I am using a slightly more conservative strategy of asset allocation in combination with market timing.

For those interested my swing trades continue to follow my tweets.

Daily Downtrend Over?

2009-07-15T17:16:00.010-05:00

Today's price action was quite impressive and relentless into the close. The markets started strong with a gap up this morning due to a solid earnings report by Intel after the close yesterday. I expected that the markets would stall around the 910-915 area but I was wrong. Even though I was wrong, I did not short this market today since a sell signal did not occur. I watched from the sidelines to see if there would be some sort of late day pullback to reverse the short-term trend, but that did not happen. Instead the markets pulled higher and closed above the recent swing high. So what now?

Well, the S&P 500 managed to barely close above the recent swing high of 931.92 to close at 932.68. The NASDAQ and DOW also closed above their recent swing highs. The Russell 2000 and VTI did not close above their swing highs. Given that the 3 major indices closed above the swing highs, I think we have to give credit to the bulls and consider this an end to the recent downtrend. I am not saying that an uptrend has started yet, but it is certainly a possibility now. In the next several days, we will have a controlled pullback if this is now the start of a new uptrend. During this pullback we should not see the markets pullback to below the recent swing low of 869.32. Any pullback up to that level would be considered technically in the favor of the bulls.

My game plan is now to close out my small short position (my emotional buy) and then to consider going long when the next buy signal comes. Pictorally, this is how it would look: S&P 500 60 min chart. I have labeled points A,B,C,D,E, and F. Points A and C are the recent successive lower highs, and points B and D are the recent lower lows. Thus, we were in a downtrend until today. Today's close is point E which is higher than point C. Thus, the downtrend has technically ended. The only way an uptrend would be confirmed is if we get a higher low. In other words, if the next low (point F) is higher than the most recent low (point D) then an uptrend would be confirmed. We cannot predict that we will definitely go into an uptrend, however, we do know that the downtrend is over at this point. So, if you are in a short what do you do? I can't speak for you, but I am going to close my short during the next pullback and look to go long as we start turning back up as long as we do not take out point D.

Once again, we can all guess what we think is going to happen tomorrow, but the markets don't care about what we think. We must react to what is happening rather than following our predictions. I predicted a pullback today after a slightly higher open, but I was wrong. However, I did not act on my prediction and buy more shorts. Instead, I stayed disciplined and waited for a signal to go short but that never came. So, now I wait for a pullback (short-term trend reversal) and then a new buy signal (short-term trend reversal) to sell my shorts and immediately go long. How far we will pullback is hard to day, but there will be some support around the 38.2% and 50% fibonacci retracement levels around 908 and 901, respectively.

Hopefully we will get a pullback tomorrow, but only time will tell. See you tomorrow night.

Nothing Has Changed

2009-07-14T20:36:00.006-05:00

Today's intraday market action did nothing to change my bearish view. Although the markets pushed forward slightly as expected and the short-term trend did not give a sell signal today, the trend remains down. I went short a little early just because I was 'trying to catch the top'. This was an emotional trade, which is not something I like to do, but just cannot help myself at times. However, knowing that I was entering a little early, I only bought 1/3 of my total short position today. I will enter into my full short position once a real sell signal is generated.

After hours Intel reported earnings and Wall Street was quite ecstatic. So, tomorrow we can expect a gap higher in the morning with an open in the range of 910-915 unless the overseas markets take profits or the core CPI number due out at 8:30 (ET) rattles the markets. I still believe that we have a strong chance of reversal after the open since the band of resistance between 910-915 is fairly decent and the downtrend line projects through the 915 level on the 60 min charts. Once again, our daily swing high is not until 932. This means that the downtrend stays in tact unless we break this recent high.

The weekly $VIX chart is still in a triangle formation and still has not broken out. The real breakout may not occur for another week or two but when it does, the markets will move significantly in one direction or another.

See you tomorrow.

Smokey Mountains

2009-07-13T21:48:00.010-05:00

Have you ever hiked through the Smokey Mountains? If so, you know what it is like to be strolling up along a nice stream on a warm summer day under blue skies feeling care free wishing it will never end. All this is true until you spot a black bear! This happened to someone I know. Although he was told never to run when you see a black bear, his instinct was to haul ass and that is what he did. So, what does this have to do with the markets? Some of you get my point already, but for those that do not, read further.

Today was one of those nice days in the Smokey Mountains where everything seems great. The DOW +185, Nasdaq +37, S&P 500 + 22. Don't let today fool you into thinking things are rosy and this will never end. Tomorrow or the day after is when we will spot that black bear on our nice walk down the stream. When he shows up, it will not be pretty. I think we are setting up for a nice fall. I could be wrong, but I will be confidently wrong if I am.

Today's bounce was expected as I wrote yesterday. I was not in the least bit surprised and in fact, I was hoping for such a bounce in order to decrease my risk of entry in going short. Remember, risk management is key to trading. We know that our recent S&P 500 daily swing high of 932 is our exit point in case we are wrong about taking on a short position. The closer we get to that point the lower the risk for a short trade. Today we closed at 901, which means there is still a 31 point risk on the table. I do not think the risk will decrease below 22 points. In other words, I do not see the S&P 500 going above 910 and in fact, I think that the high for tomorrow will be around 907 (61.8% retracement of the recent swing). I will likely short sometime tomorrow once I get a definite sell signal (follow my tweets).

I believe that we are firmly in a downtrend on the daily charts for all of the indices and the XLF. Tomorrow morning Goldman Sachs reports earnings at 11:00am (ET) which will surely move the markets. Here is my prediction: early morning we will see a little more upside, but post GS earnings the markets will start to slide following the XLF down. Another important company reporting earnings tomorrow after the close is Intel (INTC). That will certainly be important for Wednesday morning's open.

Last, few important economic numbers are due this week: core retail sales tomorrow and core CPI on Wednesday.

So, sleep tonight and get your rest because the bears will be out tomorrow ready to pounce.

875

2009-07-12T07:21:00.005-05:00

875-877 level on the S&P 500 has proven to be formidable support twice already. The market came down below this level on Wednesday and Friday of last week but managed to close above. Remember, it is not just the intraday break that we want to see, but rather a close below it. If traders go home over night below this level, then further downside will certainly follow.

Although we are not oversold on a weekly level (more downside possible), in the short-term, we are quite oversold on the daily charts. The stochastic is below the 20 level and the fast line has crossed the slow line. So, this bounce that I have been talking about for the last 2 days that has yet to happen, will happen. It is inevitable and important if the bears are going to crack the 875 level on the next try. Remember, the markets move in waves, not just in one direction. In order for the waves to do some damage, they need to garner strength. The only way for the waves to get stronger (short of panic selling), is to recoil and then build again. That is what will happen early part of this week. I am still expecting an upside bounce for 1-2 days followed by further selling as long as the recent swing high of 932 is not breached. I do not expect 932 to be breached since there is some decent resistance between 900-910 now (convergence of several moving averages - 10, 20, 30, and 50 sma).

So, this week, get your guns loaded and be ready to short this market. The closer that we get to the 932 level, the less your risk on this trade. How does that work? I will talk more about managing risk this week. See you tomorrow night.

Sleepy Day On Wall Street

2009-07-09T21:13:00.002-05:00

Today's market action was pretty boring. However, all but the Russell 2000 took out yesterday's high and respected yesterday's low. This is still bullish and more upside tomorrow is possible. The Russell 2000 formed an inside day today. Any break above today's high on the Russell will likely lead to more upside tomorrow.

Remember, we are still hoping for the markets to bounce up further. We do not want to chase the bounce but instead we want to get ready to short it. As long as the recent high on the S&P 500 at 932 is respected and not taken out, the bears will maintain control.

The VIX has been slowly inching up on a weekly basis, but is still stuck within our longer term triangle formation. Not very helpful at this point.

As a side note, I do not trade individual stocks, but one came across my radar and that is RIMM. It looks like it could be a ripe shorting opportunity if it does not break the $72.50 to the upside. It could take a serious dive if the markets turn back down as I am expecting in the next day or so.

Not a whole lot else to write about tonight, so I will say an early good night.