Saturday, March 24, 2012

A down week

SPX retraced from its higher high (1,414) and we have the first week on the downside since the beginning of February. Intermediate time frame looks a little bit bullish with EMAs not advancing anymore but rather flat. 

However, on the long term this week on the downside did't produce any significant damage. Notice that weekly DMI while bullish is still at a moderate value meaning that there is more room for the upside on long term. 

At this point it seems that the area around SMA 120 (1,382) is the best support for this ongoing rally. 1,383 is also the four months uptrend line so we have too reasons to watch this level. 

I am not too much interested in individual stocks but here and there if I see opportunities I jump on them. I was wrong about AAPL, it continued to go up despite the weekly DMI that screamed "overbought". Another stock in a crazy uptrend is PCLN that went over $700 after trading in a range and looked like was topping for a few good months.

So, I have in mind two individual stocks for trading next week but I am talking about options, more exactly I am thinking about a straddle on either F or RIMM. Just to refresh your memory in case you are not familiar with options, a straddle means I am going both short and long at the same time. What I want to see is a big move either up or down, I don't really care. I am losing money if the stock remains more or less at the same value. The reason F is a good candidate is because is trading in a tight range , oscillating around 12.5. This means that at the present time both "calls" and "puts" are cheap. The only reason I may not buying it next week but a bit later is because the earnings are coming on April 26  we may not see any real move before earnings. This means that options are going to get even cheaper. 

The second stock I have in mind is RIMM. There is nothing at the technical level that suggest this is a good straddle candidate but we are going to hear some news very soon about their new cell phone prototype. I am not expecting any miracle from this company so the chances are that the stock will strongly move down after the news. However, there is a slight possibility that it may move strongly up if the news about the new phone are decent, especially keeping in mind that the stock is beaten down. 

Overall market remains extremely bullish on long term but there is a chance to see some weaknesses on short and intermediate time frame. If market moves down on Monday we may see a bearish EMAs crossing. If it happens I am going to keep my mouth shut since I was wrong last time when I thought we were at the beginning of a decent correction. It turned out that it was only a whip-saw, not a bad one since the difference between the "sell" and "buy" signals were not that great but a whipsaw. 

Friday, March 16, 2012

Everything looks bullish

After a 20 points whip-saw once again SPX turned bullish and managed to establish a clear higher high 30 points above the April's 2011 high. All 3 major indexes cleared important psychological levels, Dow cleared 13,000, Nasdaq 3,000 and SPX 1,400.

Daily DMI is a very high level but weekly DMI shows that there is room for more gains.

Also the intermediate time frame looks interesting with SPX way above rising SMA 120 but also above both EMAs. As you notice from my previous posts SPX is more or less touching one of the EMAs and as soon as it goes above EMA 25 a small correction towards EMA 50 happens.

The only exception is when the trend changes from bearish to bullish. Judging from the extreme bullishness we are seeing right now it may be very well possible that a new leg up has started. I've seen that only one time in the last 4 years, in November 2010 when we also had a pretty bad whip-saw. So don't be surprised if you are going to see market moving further up before an eventual correction.

The only thing that makes me suspicious of this new leg rally is the extreme value of VIX that has broken the previous low and is now at its lowest value since 2009. Historically, I've seen even lower values such as those around October 2007.

Bonds seem to be in trouble recently. If you look at TBT, the short 20 years treasure bond ETF it looks like is bottoming at the moment.

Take care!


Thursday, March 8, 2012

Not again!

SPX has climbed above SMA 120 and EMAs are almost ready to give a bullish cross. This pretty much cancels the signal generated two days ago. If market goes up or stays flat tomorrow the EMAs are going to give a bullish crossing. Once again is not easy to make money on the downside. Very frustrating! 

To make things even worst daily DMI has also turned positive.

To cheer out the bears a little bit I need to say that Dow, the other index for which the EMas crossing + SMa 120 works is a little bit more bearish than S&P500. Dow is still bellow SMA 120 with no bullish EMas crossing yet.

Russell 2000 remains the only bearish index.

It is possible that market is going to do a lateral consolidation for a while (bouncing between 1,377 and 1,340) like it did in few ocassions when the sell signal was cancelled the next day. 

Wednesday, March 7, 2012

Downtrend intact

11 am update

SPX is moving up today but the downtrend is still intact. Market may go up to the three days downtrend line (1,355). The important thing is SMA 120. If SPX hits this MA and move immediately down then we will know that the downtrend is for real. Once again, for intermediate time frame the most important level today is 1,359 (SMA 120).

After hours update

SMA 120 remained safe today but bulls managed to recover half of yesterday loss. I've seen this before, last time, if I remember correctly, was in November 2010 when we had a whip-saw. For the bearish momentum to continue we need to see market down tomorrow. We also need to see market making a lower low, a move bellow 1,340 if not tomorrow at least in the next few days.

As usual in the last few years it is hard to make money on the downside with bulls having FEDs covering their back. Rallies are easier to trade than pull-backs.

The good news is that bulls couldn't push the market above the 3 days downtrend line. This is good news on short term but it doesn't do too much to the intermediate time frame I am interested in.

Tuesday, March 6, 2012

Sell signal

It's 10 am and the market has turned very bearish with SPX losing no less than 17 points. The day is not over and we may see buyers jumping in in the afternoon but the thing is that SPX moved bellow SMA 120 on hourly chart. Even if SPX manages to recover some ground the important level is around SMA 120 (1359), if SPX remains bellow this level the correction has started for sure. EMAs crossing while not so obvious right now it may look better by the end of the day.

Another bearish signal is that daily DMI has turned negative.

I'll come with details later.

Take care!

3:42 pm update

Bears are in control. Daily DMI has turned negative but most importantly we have now a nice bearish EMAs crossing on hourly chart. Also important is that market is bellow a declining SMA 120. The correction has started. How long is going to last? I don't know. What I can do is to look at obvious support levels.

After hours update

Let's see what are the potential support levels. First is SMA 50, that is around 1,322 right now. Next potential support level is in the 1,290 area followed by the 3-months uptrend line that resides around 1,265. These are the levels we need to watch.

Sometimes the plunges are going in a straight line, at least the initial phase but some other times I see SPX trying to re-conquer SMA 120 before plunging resumes. So, even if market is going to up in the next few days the important thing is to see if SMA 120 is going to act as resistance or not.

Long term, obviously, was not really affected by these 3 days on the downside. (weekly DMI is still positive). The only thing I see bearish on long term, and I mention this many times, is that SPX did not make a clear higher high (way above April 2011 high) before a decent correction, assuming at this point that the correction just started and we are not going to see a whip-saw.

Last year my EMAs crossing on hourly chart gave me a lot of whip-saws (remember I had to go to 2 hours chart to make some money). However, since the rally started in mid December the system generated a clean 100 point on SPX. Remember this system works only for intermediate time frames and generates good results only when market moves nicely either up or down. If you trade on short or long time frames the signals generated are useless. I just wanted to be clear here. Anyway, let's hope we are going to have a decent correction so we can make money on the downside.

All the best!


Monday, March 5, 2012

Some damage today

A second down day in a row produced some damage at the technical level. DMI remains positive on both daily and weekly charts. SPX moved bellow the lower edge of a trading channel established since December 27. I am not going to make a big deal about this since the uptrend slope was hard to sustain. SPX can still move up but at a slower pace.

SPX touched SMA 120 today but found support there (1,359) and recovered a few points by the end of the day. EMAs are pointing down but there is no bearish crossing yet. 

I told you on Friday that all indexes are bullish but I was actually wrong. I forgot to check RUT 2,000 the only index that shows negative daily DMI and a bearish EMAs crossing on hourly chart, a crossing that happened on March 1st. There is a reason I am mostly watching SPX and not other index. SPX is never the first nor the last to show a change in the uptrend or downtrend. 

Dow moved bellow SMA 120 on hourly chart for the first time in four month. However, by the end of the day it moved above SMA 120. If you zoom in you may see a tiny bearish EMAs crossing.

Nasdaq is touching SMA 120 for the first time in four months and EMAs are almost crossing. However, I must say that this particular set of EMAs and SMA 120 doesn't function as well for Nasdaq. They are mainly best fitted for SPX and Dow. 

In conclusion, the intermediate time frame trend has not changed yet but indexes are at their most bearish point in four month when the rally started. Trimming the longs seems like a good idea at this point. Too early to go short but this could change in a matter of 1-2 days. 

All the best!


P.S. For a good laugh please visit my kid blog. He likes to collect flags from different countries. 

Saturday, March 3, 2012

Another bullish week

Market moved down a little bit on Friday but remained positive for the week. SPX consolidated its position above April 2011 high but Dow struggles with 13,000 psychological level. However, Dow managed to close above 13,000 for one day this week.

The most bullish index is Nasdaq 100 (QQQ) without any doubt due to the amazing bullishness of AAPL stock. The weekly DMI screams "overbought" but AAPL managed to add another 45 points this week and will probably reach 600 soon. QQQ established an unbelievable performance, 9 bullish weeks in the row, something I haven't seen in the last 10 years, the maximum performance being 8 weeks in the row.

All time frames are bullish on every single index. The intermediate time frame on SPX, the one I like to trade, shows SPX getting rid of the slightly "overbought" situation since now resides between the two EMAs. Despite the overall bullishness I suggest a little bit of caution at this point. I am carefully watching SMA 120 that is now around 1359, only 10 points bellow the current SPX level. Once this level is crossed market tends to suffer a correction. Obviously we need to also have a confirmation from EMAs crossing, EMAs that are now flat. 

MACD looks different on different time frames. On daily chart MACD shows a bearish crossing. However, daily MACD is usually pretty choppy and not that trustworthy. On the other hand weekly MACD is a very good indicator and is still positive. 

I remain cautiously bullish at this time and prepare to switch sides if SMA 120 on 60 minutes chart is going to get crossed. 

All the best!