Sunday, March 29, 2009

Long Term Analysis

Haven't even looked at the market since Wednesday. I've had problems with my dog, and then with my grandmother out of town. I've missed all this churn for the past week, thankfully.

We can see a bullish, rising wedge forming for over a week now. It appears that XLF may be falling through support, but it's still within tolerance, and the aftermarket moved back up to 9.19. This pattern should break Monday or Tuesday. I've reached boredom with looking for a reversal, so I'll be looking at FAS. However, since I'm a pretty good contrarian indicator, I'll just keep an eye on XLF and get ready to go either way, FAS/FAZ. Recent narrowing of the channel has reduced volatility of the financials, and I've seen traders (the smart ones) moving into pure equities (not the ETF's) to get bigger profits. After enough people get bored with XLF, there may be good opportunity for a big move when this bullish wedge breaks.

As for where this market is going to go, this rally has really felt like "the bottom." But I still have serious doubts. Recent news about Tobin's Q-Ratio has apparently gone out to the CFA's of the country, as I've heard several of them talk about it recently. One of them is Steve Pomeranz, to whom I listen every week. Here's another CFA who explains Q-Ratio and where it is today. Mr. Pomeranz, by the way, states that the Q-Ratio during 1932 was around 0.30 (& 1921, 1949, & 1952), today it's at 0.76. He also quotes an analyst who believes we'll be in a rally for 2 years supported by the Stimulus until it wears off, and then we'll see things drop to 0.30 by 2014. Congress has been known to extend laws dealing with money, so I'm not too sure about this analysis. But a decent, 2-3 year rally could compare with the the roller coaster ride of 1965-1977. Listen to his radio show from March 23, 2009. He explains all this in the first 7 minutes.

Long term, this looks like a Bear Market Rally that will remain relatively flat for a few months, churning around to look like a wide, dome shape. This rally is being floated by all the stimulus getting pumped into the system by the Fed and Congress with borrowed money. I don't think this jump-start is enough, the fire needs to be put out at the source, and there's not enough fire trucks. This thing is world-wide, and repercussions are still rippling around across the oceans. There is still a lot of room to fall, and I don't see that the fundamentals have really changed enough to turn things around...yet.

Also, here is a monthly chart of the S&P 500 since 1928, log scale. Look at the very right side, 1999-present. I'm concerned about the negative divergence between the double tops and the MACD & RSI peaks down below. Not a good sign...

Tuesday, March 24, 2009

And Now for Something Completely Different...

Hey guys! I just found this cool, new thing! It's called, Moving Averages!!! It's SOOOOOO cool!

Ok, seriously. I've been placing EMA's in my charts for years, now, but never really used them. I just put them there because some big-shot money-makin trader told me to a while back. Now, thanks to, I've realized a little better how to use them to time entries and exits. Also, checkout for true, expert knowledge.

I've put up a 10-MA and 12-EMA on my charts and started browsing around. Visual back-testing has helped me come up with a few clues on how to use them, so I'll be trying it out in the near future.

With that in mind, I think I am ready to call a local top to this rally. XLF is breaking down, and I'll be looking to get back into FAZ tomorrow after the morning pop (Stewie, are you reading?).

20 Day XLF. I see a Megaphone Pattern expanding for a week now, combined with declining trends in MACD and RSI. Blue EMA curve is also leading a bearish sign, and I'll be looking for confirmation after tomorrow's opening.

5 Day XLF. I'll be watching for price to not penetrate the Blue EMA line, and for that line to lead a decline. There's a good chance that XLF will break through the channel support around 8.75.

Thursday, March 19, 2009

Well class, what did we learn?

Never, EVER, stand in the way of a trend for so long. I broke all the rules, bet too much, pulled the stops, and denied losses in an emotional fury.

So, where do we go from here? Markets finally pulled back from this week-long, insane rally today, but there is SO much conflicting information to try to figure out a trend right now.

1) Financials have led the rally, possibly because they reported better earnings this week. But, has the situation really improved?
2) Ben Bernanke, and the FOMC have both made announcements this week that appear crafted to jump-start the market. And while the Fed announcement to buy back 30-yr treasuries sounds like a good thing, they're going to have to print money to do it. This will cause inflation, the Fed's bane.
3) President Obama is going to be on TV tonight. I expect he will change from his "doom & gloom" speech to "roses and butterflies are coming soon".
4) There are a lot of bloggers talking about going short during the week, only to have become quickly squeezed out.
5) There's new offerings sponsored by the government help resolve housing problems, get/keep people in houses, slow/stop foreclosures, and find new ways to deal with all the bad loans out there.
6) Half the traders out there are saying that we still have months of more downside to go, or would that be just sideways chop? And I'm hearing more doom & gloom into this rally. One stated, "if this really was the bottom, then we wouldn't be asking ourselves right now if this was the bottom." THE BOTTOM is typically characterized by so much despair that people have given up on looking for a recovery.

It all just seems too easy at this point. Some want to compare this to The Great Depression, but the markets haven't really behaved the same. To match the Depression, the Dow would need to fall another 4952 points from today's close of 7400, to bottom at DOW 1846. I think we're due for a pullback, but I expect a short one for now before the rally continues to, at least, 825-850 SPX.

Then again, perhaps all this news is really just noise. Look at the charts and turn off CNBC! I just can't stop the feeling that we'll have a higher low during this consolidation, followed by more rally. Then, we might see another HUGE drop in a month or two.

I just noticed that how today's volume compared in the Bullish ETFs to the Bearish ETFs. FAS had almost 6x the volume of FAZ, and dropped 20% while a theoretical inverse drop in FAZ (if you reverse the open and close numbers) would have only been a 13% drop. I think it means the bulls are pulling out, but the bears aren't jumping in. I wonder if tomorrow will continue consolidation?

Wednesday, March 18, 2009

Short Squeeze?

Today moved as predicted, although a little more pronounced than expected. I've heard a little buzz here and there that this week's price performance may be influenced by the fact that this Friday is Expiration Day for March options. I don't really understand HOW that affects stocks right now, so I hope to get more info as the week unfolds.
The rally today seemed fairly strong, especially since many traders (who blog) expected a shorting day today. After looking at the low volume, I'm thinking today was a short-squeeze play: churning out the timid bears before really going down. Of course, my opinion is biased right now. But, I DID read a comment on a blog today that theorized that since 'no one believes the rally, then there really is a rally.'

True Dat.

Monday, March 16, 2009

Hangin' in There

Still riding the FAZ for the first up-day since I got in. Volume was good for a turnaround, we'll see tomorrow. I also got a Regulation-T notice from my broker. It basically means I can't day-trade with a cash account, which is what I'm working with, unless I trade small enough to have cash on hand to settle the trades 3 days later. So, I couldn't pop out of those FAZ trades as soon as I had wanted to, anyway. Live and learn.

Stewie is nervous, he is back in FAZ at a lower entry, but has noticed ALL other bloggers are also currently short. His comments are that many of these bloggers are rookies, like myself, and that might be a bad sign.

Another trader on Trader Interviews has stated that he'll look for good ol' setups, and then trade against them, betting that the rookies will take the setup but the big fish will go the other way. There's been a lot of that these days, a lot of chop has washed out traders for a while now.

The thing that bothers me about this assumption is that MACD and EMA's are all in a different orientation. I'm not sure if that is more important, or if just the long-term to short-term line relationships are more relevant. The after-hours trades are already pointing at a head-fake, so I'm expecting higher Indices and lower FAZ tomorrow still. I predict FAZ will form a red candle with a long, lower shadow, but may not drop below today's lows.

Thursday, March 12, 2009

Stupid Is As Stupid Does

Had another shot at dumping FAZ at a decent price (high 59.50) in the opening minutes. But again held on to see if it would go higher. Today wasn't that day, and the words, "wealth destruction" keep entering my head. Still confident that the rally will end soon, and will be watching price action closely again tomorrow.

What did we learn today? When that voice in your head tells you to shoot, SHOOT! No more second guessing the guy, at least take SOME profits off the table.

Looking around at long-term sentiment, I'm finding rumors that oil is moving up to a more stable price (which usually moves the markets opposite these days). That's also spurring talk of inflation again, more bear-talk.

As for pics, WTF is going on with Scottrade? According to their chart, FAZ shot up like nuts at the close, but the numbers at the top say it closed at 41.60. Even Yahoo! says it has dropped off even further since the close. I'll have to see what Scottrade's chart looks like after the open tomorrow.

Wednesday, March 11, 2009

Ride the FAZ

During a break at work this morning, I check out Stewie's blog to see what's new. He had just put in a post that states that FAZ and SKF are in good, short-term positions for the upside. I check it out and figure I could tell what he was talking about.

Looking at the 5-day, I see FAZ is bouncing off a lower channel and the overall rally is expected to be short. Price action was showing a swift turnaround from the opening activity, and it looked promising.

I jumped in at 54.69 and watched it rocket up to about 60. I needed it to get to above 64 to make back my losses from Monday, but I was still willing to take what I could off the table. However, I instead hung on to see if it would go higher and had to get back to work. When I got the chance to look back at it, the price had plummeted back down to 55. I watched to price go back up and down two more times, each time considering that I should jump off near 60. But I kept waiting, hoping, actually, for it to cross 60 and shoot up even further.

I watched the prices at the end of the day to see which way they would go. They're moving in the right direction, so I decided to hold overnight. Very, VERY risky with a 3x short ETF! But looking at the long-term charts, and figuring that the bear rally may be over after tomorrow, I figure that the risk is reduced. Aftermarket action climbed up, too. I may be in the money right now, but it could always gap down tomorrow and fall away. Keep the finger on the trigger.

To the experienced day-trader, these are all probably horrific, newbie mistakes. Let me just say that the worse part is not my inexperience, but that I have to limit my trading severely because of my job. With patience and better stops, I expect to find a balance and routine into a part-time trading schedule.

That's also why I have this blog. I don't care if nobody ever reads it, because it will be here for me to look back and study my own mistakes.

Tuesday, March 10, 2009

Snap Out of It!

After getting my rear handed to me in some short-term trades, I've remembered to better log my trades. I've mostly stayed away from the markets through all this downturn, and have read about daytraders getting washed out of the Game over the past few months. I'll be watching the S&P as a primary indicator of what's going on in the markets in general. The financials are also volatile, which could be a good place for short-term soon as I get around to examining them.

The charts seem to tell me that we still have farther to fall, but right now is a time to consolidate.

Monday, March 09, 2009

Unnecessary.. France.

Good beat, I like the guy with the 'fro.

I'm my own Contrarian Indicator

A trader who goes by 'Stewie' is one of the best traders I've met online. I frequent his blog often and recently commented on what I'm doing with my retirement money. It took another guy to help me realize that I might be a contrarian indicator for the full-timers out there. How's that for confidence?

In other news, here's something I put together today to relate to my real job.

I used to read Dilbert in college and wonder if my life would actually end up like that.

Sunday, March 08, 2009

We're B-a-a-a-a-a-a-c-k!

Hey, I found my old blog! It will be nice to record my thoughts and musings again, now that I've sold the restaurant and returned to my old ways again. So much has changed since my last entry, but I'm just going to pick up where I left off for now.

The markets are in the middle of a "death spiral", and I'm starting to see signs of blood in the streets. We're certainly not there yet, but I believe the rebound will be just as fierce as the fall. More to come.