Monday, February 28, 2011

Bulls showing their muscle

12:30 pm

SPX climbed above SMA 120 and EMAs are pointing up but didn't give a bullish crossing yet. Daily DMI turned positive! The day is not over yet but a close above SMA 120 is going to cancel the downtrend momentum.

Once again bulls are pushing market up despite mixed economical data. Home sales in December were revised sharply lower to a fall of 3.2% versus the prior estimate of a 2% increase. This is a huge revision but who cares? Add this to even a bigger news, a GDP revision from 3.2% down to 2.8% on Friday, yet the market went 14 points up. The good news for today is that the Chicago business barometer, which also is called the Chicago PMI, rose to 71.2 from 68.8 in January, more than it was forecast. 

Friday, February 25, 2011

Bearish week

Market rallied today but SMA 120 acted as resistance. Overall indexes moved around 2% down this week. However, starting with yesterday afternoon market rallied no less than 25 points!

The intermediary time frame bearish momentum is in a very great danger, any move on the upside on Monday is going to cancel it. Honestly, I didn't see any reason why market rallied today. The pullback it's supposedly due Libya's riots and to the price of oil. From what I red today the situation in Libya it's getting worse. Saudi Arabia promised to increase the oil production to compensate for whatever is lost in Libya. This indeed is a good news but the oil jumped 1% today. Wasn't that supposed to be bad for stocks?

But let's forget about this oil drama and concentrate on the biggest news that hit the market today, GDP was revised down from 3.2% to 2.8%. This is a huge revision, no less than 14%. Why did the market celebrate this news? Bite me! On the other hand I must admit reading fundamental news is not my strong point so I guess those who bought today know something I am not aware of or I don't understand. That's why I stick with technical analysis, I buy when the market goes up and I go short when it goes down without being concerned WHY market is moving up or down.

So, the good news for bulls is that SPX couldn't push above SMA 120. DOW, the other index for which this pair of EMAs and SMA are working is also bellow SMA 120. So there is some hope that market is going to stay bearish next week but the market action starts to resemble November's dip and not a real move on the downside. When the move is real price stays bellow SMA 120 for a few good weeks after the sell signal is generated. The only noticeable exception I have in mind is the April-June 2010 plunge when market went up and down SMA 120 for a few days before plunging to fresh lows.

Since September market was incredible bullish and every move on the downside was short lived and not really profitable on intermediate time frame. Keep this in mind and don't get too comfortable on the short side.

I told you yesterday that VIX did not behave, it went down with the market instead being a contrarian indicator as usual. This shows a lot of nervosity and uncertainty in the market. Even more,  dollar and precious metals went up or down in tandem for the second day in a row.

Since EMAs shows a bearish crossing and price is just a little bit bellow SMA 120 I am still hanging on my shorts but once again I have my finger on the "cover" button on Monday.

Morning update

After an almost reversal day SPX is challenging SMA 120. This is way too soon, a sign that the bearish momentum is not going to last for long. If SMA 120 holds I expect market to move back to 1300 next week but it may not go lower than that. Market action resembles the November one.

Thursday, February 24, 2011

Almost a reversal day

Bearish move in the morning with a fake move up followed by a fresh low around 1294. However, the 15 points rally after hitting 1294 should give bears something to think about. This correction is entirely due to the oil price. If Libya turmoil ends (no sign of this, but just in case...) and oil comes down expect bulls to buy with both hands.

The good thing is that market had no intention to come closer to SMA 120, which is still rising by the way, but I must say this almost reversal day did scare the pants out of my short ETFs. Reversal days are never a good sign for the current trend. Technically it was not a reversal day since the market closed a little bit in red after all but we need to be careful here. In a way the same thing happened yesterday, market hit a lower low then immediately reversed and gained 13 points and that didn't prevent another low today.

Looking on daily chart I can see that SPX manages to stay above the 6 months uptrend line and also above SMA 50 meaning that the long term remains bullish. In November SMA 50 acted as a support level. 1,300 remains the psychological support level and SMA 50 (1287 at the close) an obvious technical level. On the upside, the most important resistance level is SMA 120 (around 1319 at the close).

Dollar went down again but gold and especially silver did not have a good day either (silver lost more than 4%).

I mentioned in the morning that VIX did not behave today, it was mostly down today despite market being also on red. It closed 3.6% down and it went on green only around 2 pm when market plunged 14 points. This shows confusion among market players.

Bulls defending the 1300 level

Tipycal bearish action, a short jump up in the morning then moving lower. Do you remember the action 1-2 weeks ago? Market down in the first 30-60 minutes then establishing higher highs. Now it's the same but in reverse which is a good confirmation that the leg down has more room to go.

The only bullish sign it's bulls' stubbornness in defending 1,300 level. Bears made 3 attempts this morning and one yesterday. Let's see for how long is going to hold.

Also be aware of the fact that VIX is 1% down despite market being down which frustrates me because I have a few options and they are much lower today with SPX at 1,300 than were yesterday with SPX at the same level. Options depend a lot on VIX.

Anyway, market behaves in bears favor this time and a third day in the row on the downside is going to consolidate bears' position. Let's see if market is going to slip bellow some key levels, 1300 or even worst SMA 50 (1287).

Wednesday, February 23, 2011

Sell signal. Is it for real?

Market went down for a second straight day. However, bulls managed to pare some loses and SPX lost only 8 points after being down as much as 14 points around 1 pm. At 1 pm oil started going down after briefly reaching $100 per barrel so the stocks and oil were 100% correlated today.

EMAs did cross and market moved bellow SMA 120 but after getting a fake sell signal on January 31st I am a little bit cautious. I must say it looks more real this time. The two EMAs are farther apart than at the end of January and price did not even made an attempt to come closer to SMA 120. Daily DMI has turned negative for the first time since mid November.

Even more EMAs also crossed for DOW a thing that didn't happen on January 31st.

I am trying to understand why market players are more worried now than they were a few weeks ago when Egypt crisis arose. For one, Libya it's a much bigger oil player than Egypt, then it looks like Gadhafi is going to push the country into a civil war than giving up the power. But I think even scarier is that Libya may not not be the last country in the region to see huge riots. If oil jumps to $110-130 it's going to put a lot of pressure on the global recovery. This is the big deal!

Let's see if bears manage to consolidate their position tomorrow.

Going down

With oil just a few cents bellow $100 market is plunging big time. SPX is 15 points bellow SMA 120 and now it's battling the 6 months uptrend line, around 1,300. EMAs just gave a bearish crossing

Dollar is moving down again helping precious metals to have some gains.

Tuesday, February 22, 2011

Bears having another shot

Very bearish day with a bearish closing, no less than 27 points on SPX but the big question is: is it going to be for real this time? Three weeks ago market plunged on Egypt news but recovered as soon as Mubarack gave up its power. This time seems to be a little bit more serious, Libya has a pretty big oil reserve so the impact to World market is bigger and Gaddafi it's a different kind of dictator that is not going to resign without a fight. I don't think he has any chance to remain in power but it may take a while until we are going to see the winner. The thing is there is no bad news coming from the economy at this point (some of you may argue against this) so the only reason market plunged today is Libya riots and an overbought market. I say this because most likely as soon as the Libya affair it's over we may see market jumping up again. Unless, of course, other Middle Eastern regime is going to be in trouble.

Let's leave politics aside and try to see what market is trying to tell us. You probably noticed that SPX slipped a little bit bellow SMA 120 on hourly chart and EMAs are almost ready to cross (and they will do cross tomorrow). However, let's not forget the January 28th plunge when we got a bearish EMAs crossing but we've got a bullish crossing next day (granted the day EMAs crossed market was already above SMA 120). I think this happened due to the same scenario, market had no reason to plunge except being overbought on short term and the only reason moved down was because of Egypt. As soon as Egypt crisis was over market rallied back to 1,300 and gained another 40 points after that.

Some people may point out another issue, that market is rallying since September gaining an amazing 300 points in between and without any significant correction except that couple of weeks in November. Looking back in the last 10 years I hardly see any rally as powerful as this one. So a correction may be due with or without Middle East turmoil but definitely the Libyan crisis is the catalyst (or the best excuse to take profit).  

Dollar moved 0.27% up today which, of course, didn't help stocks (they like a weak dollar) but didn't pushed precious metals down at least on US market, that was closed yesterday. On European markets gold and silver was higher than Friday but lower than yesterday.

Morning weakness...

... but don't get too enthusiastic since market is very strong on long term. This may be a good opportunity for bears to make some cash but they need to be very fast if bulls decide to buy this dip again. SPX slipped bellow EMA 50 this morning something I didn't see in the last 3 weeks.

Today's market move looks bearish so far with market dropping 17 points at the open, moved up 10 points then dropped  12 points, just a little bit bellow the morning low.

For the bearish momentum to continue it's important that we are not going to see even a mini-rally towards the close.

1:03 pm, bulls are hiding, market lost another 7 points and is getting closer to SMA 120

Monday, February 21, 2011

World markets down

Markets around the World are down today due to riots in Libya. Probably SPX will also go down tomorrow (11 points down as I am writing this) but the question is are we going to see a small correction or just a temporary dip as three weeks ago when it went down due to Egypt unrest?

Precious metals look like a safe bet right now since they are rising when the market rise but also in times like this. Silver is rallying, $33.8 an ounce right now, up 6.3% since Friday close and I think it's a better deal than gold at this moment.

Saturday, February 19, 2011

Extreme bullishness

Looking back from 2003 to 2011 and I can hardly see any other period as bullish as one saw in the last 6 months. Maybe July 2006-February 2007 but even then SPX advanced from 1020 to 1220, not from 1040 to 1340. Even more, weekly DMI it's officially at the highest level in the last 10 years equalizing the level saw on January 2004.

Market has probably more room to move up since I don't see bears giving up. Many days on the last 3 weeks I saw VIX moving up despite market moving up as well signaling that the option players are still heavily buying puts anticipating a reversal. But what if the market continues to moves up? Well, bears are going to get squeezed again and they are going to be forced to cover (buy) pushing the market further up. Until we are going to see a move bellow April's low on VIX the rally is going to be intact. Another possible sign of a reversal is going to be a higher high on SPX followed by a plunge by the end of the day. So far exactly the opposite is happening, market is giving up a few points in the morning and finishes at it's daily highest value.

It would be interesting to find out who is buying at this point, are the mutual funds or the little guy. If mutual funds are buying expect more movement on the upside, if the little guy is buying then we are closed to a top, a big one or a small one, who knows.

Silver had a huge move on the upside in the last few days and there are rumors that there is a shortage on silver coins!

Next week we are going to see another round of earnings with HD, WMT, HPQ, LOW, PCLN among the big companies that could potentially move the market. 

Thursday, February 17, 2011

Weekly DMI at the highest level

Market looks invincible at this point with bulls jumping on every single dip, if you can call 5-6 points a dip. This is very bullish but very scary at the same time, if you are long, of course. I don't remember when was the last time I saw the market this bullish, this is way above April's 2010 madness. As a confirmation of this incredible bullishness the weekly DMI has jumped above April's high and is at the second highest level since 2003! As you know neither VIX nor DMI are giving very good buy or sell signals but when I hear people buying like mad AT THIS  LEVEL it's really scary. Holding on your longs is one thing and buying here it's a completely different matter. I hope things are going to work well for bulls, I don't want to see people losing money but...

It's never a good idea to argue with the market, as tempting as it is to go short it's safer to wait until you see some weakness. SPX continues to stay way above SMA 120, 27 points at the close today, but what it's really unbelievable is that it's not even touching the EMAs!

Gold and silver recovered the lost ground, silver actually hit a higher high today, that is not really surprising keeping in mind that dollar is sinking every day.

All the best!

Wednesday, February 16, 2011

Bulls in control, morning update

After a small dip yesterday bulls are, once again, in control. They are buying every single dip. I was actually surprised they let SPX going 4 points down yesterday. SPX is now 28 points above SMA 120. The only thing bears can hope is that SPX could touch EMA25 or EMA 50 but it looks like bulls are determined to push the market further up. VIX is at April's low but nobody seems to care at this point. If you want to short the market better look at Brazilian and Chinese markets that seem to be weaker than US or European markets.

Thursday, February 10, 2011

Flat day, bullish action

It doesn't look that this market has any intention to go down. It looks more like a pause before another move on the upside. After going down 8 points in the morning bulls got in control for the rest of the day. For this market to go down we need to see exactly the opposite type of movement, market trying to establish a higher high in the morning then bears to move it a little bit down towards closing. Market moved a little bit bellow EMA 50 but the move was so short lived it wasn't caught on hourly chart. As soon as SPX touched 1,312 it took only 15 minutes to climb back to 1,319.

No matter how overbought this market is, it's not going to go significantly down in the absence of some bad news. If a 14% plunge of CSCO, one of Dow components, couldn't move the market down I don't know what could. Mubarak's resignation? Just kidding.

This is not a good time to buy but it's risky to go short as well since nobody can know for sure how much this market is going to rise. The market became hugely overbought since January 19 when it reached 1295 but the bulls couldn't care less, they pushed SPX another 30 points.

The dollar went up a little bit without affecting the downtrend.


VIX went 1.3% up but is very close to its lowest level in one year.

Do you want to know what ETF rallied the most (as far as I am aware) in 2010? BAL, the cotton ETF.

SGG, the sugar ETF rallied too but not YTD, only from June until now.

SPX is 4 points down after hours. Well, it was 8 points down this morning...

Take care!

Morning weakness

It's 9:00 am and it looks like CSCO is going to bring down the market. Two levels of support we need to have in mind today, one at 1,308 and the most important at 1,300 where the SMa 120 is going to climb today.

Except CSCO earnings there are no other bad news today (so far).

12:00 pm

Once again market recovered after a morning dip.

Tuesday, February 8, 2011

Up and up

It's 10:30 a.m. and it looks like bulls don't care about that the market is overbought on short term, SPX is now 26 points above SMA 120. No resistance ahead on short term term. Short term support around 1308.

Please pay attention that VIX was up yesterday despite the 8 points gain on SPX. Today is also up while SPX is slightly on green. Something is "cooking" right there.

Friday, February 4, 2011

Very dramatic week

After a 23 points down last Friday SPX managed to rally this week no less than 35 points! Unfortunately, I've got a pretty nasty whip-saw price moved bellow SMA 120 but I also got an EMA crossing. It's the second time, in a row when the system gave me a bad "sell" signal. In November was not actually too bad, only 5 points and the two signals where spaced out, two weeks I think but this time I've got a "buy" signal immediately after I've got the "sell" one. Last time this happened was on November-December 2009 when for 6 weeks I've got many false buy and sell signals. Every system has its own limitations!

Obviously the market is now bullish on all time frames. On long time frame was bullish anyway even with last Friday drop, but I was hoping that the intermediate time frame turned bearish for good and we were going to have a nice downtrend. I like nice downtrends because they are also followed by nice uptrends and viceversa. If market continues in one direction for too long you can feel that is "tired" and starts having these big moves ups and down from day to day which are not good for my health :)

On short term market is getting once again overbought, meaning we may see another drop at least bellow both EMAs if not challenging SMA 120 again but without necessarily seeing a change in trend. Onc the trend changes market can stay as much as 30-50 points above SMA 120 for a few good weeks. After that price gets closer to SMA 120 and every time it gets more than 20 points above SMA 120 the chance of a short correction on short term is getting pretty high. In January I warned you at least 3 times that market was overbought on short term, now I am doing it again. Please notice that SMA 120 is climbing 2-4 points every day so even a few flat days in a row can get rid of the overbought condition.

Looking at the weekly chart there is a potential level of resistance ahead,1320, that corresponds to both April's 2006 high and to the end of a very "busy" area, 1220-1320 according to "volume at price indicator".

All the best!