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...

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 dshort.com, I've realized a little better how to use them to time entries and exits. Also, checkout iBankCoin.com 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.

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.



****UPDATE:
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?

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.

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.

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.

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.

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 trades...as 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.

Unnecessary..

...like 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.

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.

Pizza Party

It's official, I have bought my first business. Not just a piece of stock, but the whole thing. Got a great deal on an Italian restaurant in South Daytona, about the price of the equipment. This is what has been distracting me from all the stock research I was doing only months ago, but I'm hoping to find a new routine soon.

I never saw the sudden drop in stocks that I was waiting for in October. However, it seems that things are starting to stall as we approach the election next week. I'm sure there's a pattern usually seen after off-Presidential elections, but I'm not going to play that game this time. I'm starting to like news-less research all over again!

Besides, the blogs are where it's at! Mainstream media is best for the herds (but there is BIG money in it)!

Taking it in the Shorts

Whew! Over a month since my last post, and nobody noticed. Oh well, there's been so much going on in my life that I haven't had much time to look at investing, let alone write about it.

Meanwhile, my virtual stock game at VSE is showing my getting ripped a new one from betting agains Google. All I can say for myself is, "ow." I'm keeping the short for now because I'm getting some change back that I lost.

Now I know why some money managers NEVER attempt to short. Not a good idea when the Dow is breaking new highs and the other indices are tagging along!

Cheers! And here's to more posts to come soon!

A Lot of Loud Silence

As I peruse throught the various stocks and indices out there, I notice that volume has been gradually decreasing for months and more. It's like more people are either sitting on their bets, pulling out of the markets, or just aren't sure where to go (uncertainty). Sure, a few stocks here and there are moving around, but I sure am noticing a lot of volume trailing away. I suppose whenever the market decides to get moving, it's really gonna move!

Perhaps when the reality of housing hits, ARMs convert, foreclosures go up, cats & dogs start living together, we'll see renewed interest in stocks? Or more running for cover?

Speaking of housing, there's this great comment I read off of my favorite (other) blog, The Big Picture:

"...To complete the global picture, consider this - in one of the condo buildings I surveyed in Pune (near Bombay), the builder told me that 50% of the condos were sold to US investors who used, wait for it, HELOCs in their US properties to buy property in India."

And I thought the lottery was the only tax on stupidity!

Bond-O

My last post addressed how the news and gossip that I read sound very upbeat and positive about the markets. This is a good sign that the smart money might be ready to take some profits. Correct me if I'm wrong, but this rally/correction to the bear-correction may soon be ready for its own correction.

Some say that the bond market contains the 'adults' of the markets, and bond prices are rising. Isn't that a sign that we might be in for some more bad days in stocks? There are all the reasons, FED Watch, Oil prices, housing, etc.. but the fact remains that bonds are rising.

Even this morning, the local Orlando news had a story of realtors admitting that the soft landing is going to be harder than previously thought. They expect the slump in sales to bottom next summer. But they were wrong about the landing (or just didn't want to admit it), so I take their word with a pinch of salt.

Been Off Track

It's been a while since my last post. My excuse is that I haven't had much to say the past few days. I've been busy with work and family, and really haven't been able to keep up on the markets.

This has cost me in my trading as well as my blogging. I've been hammered the past few days, losing gains while not keeping on top of them. Tonight I begin to scan the indices, news, and other blogs that I watch for updates and find out what I've missed. Gold has fallen, oil is down, and the markets have been rallying in concert.

It's been 3 days now for the Nasdaq to rally, and it's showing signs of weekness. Since I've been hurt shorting so many times, I hesitate to short now. I was hoping to become more bullish, probably because of this uptrend that we've been in for a few weeks now. Meanwhile, the prophecies of another major correction in October still linger, with a few mentioning it. Now WOULD be a good time for another correction, because no one expects it.

There are several reasons that things are up this week, Options expiring Friday, oil down, consumer confidence rising, VIX down, optimistic FED expectations, and the smart money is pounding the Bears. I expect to see some profit-taking on Friday as the rest of us newbies decide to go long.

As for myself, I'm going take a good, long look at the big picture before I jump back in.

Long Weekend

Well, the 'adults' are back in the markets, as CNBC put it yesterday. And trading is supposedly back to serious trading, as everything closed way up on Monday.

It's good to see an up-day, but I feel that the recent end-of-summer rally is a bit overbought. In particular, I noticed Ford's chart was showing a weeker slope with possible signs of a turnaround. I shorted yesterday, right before Bill's announcement of his new CEO. The stock is up on the overnight news, but I'm not ready to give up yet. The stop is set, and I expect the price to recover down to the low of a channel, maybe to 7.80, before recovery.

Basically, the good news had already been 'baked in' to Ford's stock. I wanted to go long when I first heard Ford had hired a well-known turnaround manager, but the stock had already rallied. But I watched it rise another 2 bucks while waiting for the rocket fuel to burn out. I don't expect to be short more than a week, as I have good faith in the new CEO. However, it will be a long and slow recovery.

Here's a random question:
Why is it that the really cool/funny commercials these days are by the credit card companies? Namely, the Capital One commercials, and the Citi Identity Theft victims are my favorites today. Until about 5 years ago, the beer commercials were the best. What happened? Did those talented marketers move to companies that serve the credit card companies? Or is this a sign of the times, that money is no longer in beer, but in the financial industry?

It's KATRINA all over again!!! Shut down the State of Florida!!!!

Tropical Storm Ernesto didn't gather enough strength in the waters between Cuba and Miami to attain hurricane strength. Still, a large storm is about to roll over the state and officials have decided to shut it down. The image below states that max sustained winds will be 45 mph, while the evening news is all over Central Florida (where I live) covering those who are stocking up on ice and putting up hurricane shutters.

I shouldn't be too surprised at this irrational exuberance, given today is around the anniversary of Katrina in New Orleans, 500 miles away. I can understand the officials being 'better safe than sorry', but hurricanes and tropical storms lose strength over land. Ernesto will hit Miami rather hard, but not at hurricane strength. It will cruise its way up through the middle of Florida, losing strength the whole time.

I say Orlando and Daytona are over-reacting, closing schools so that the school buses don't have to drive in 'high winds'. We will get rain up here, lots of it dumped down, but not the high winds.

I'll be home with the kids, checking the markets and reading books. Cheers!

Running Scared

As I plow through a list of stocks to find opportunities, I couldn't help but notice that many companies (listed under $10) are forming symmetrical triangle patterns. Even more interesting, is that the points of these triangles should appear around Q2 of 2007.

Now, from my limited experience, I've seen breakouts from triangle patterns usually happen before the point is reached. I pulled up a chart of the S&P 500 to get a guess of where it might be in Q1-Q2 of 2007. It's currently riding a channel up, and could be anywhere between 1300 and 1380 if it stays in that channel.



That diagonal line cutting the channel was where I noticed some consolidation on the resistance side. The line follows the upper level from March of 2004 through today, with the exception of the breakout and resistance from Nov 2004 through May 2005. I left that in to note some interesting behavior how that line seems relevant. But this it technical analysis, so it might not mean anything beyond this point. The Stochastics show signs of peaking already, but the momentum and RSI still have room to grow (not shown).

I'm concerned about the weakening Stochastics. I'm dropping my shorts (pun intended) and starting to find myself in more long positions. But I'm afraid this may be too much of running with the Bulls, and the Bears will sneak out from the trees and take us by surprise.

The XAU is nearing resistance, and gold itself is showing weakness at the end of its own symmetrical triangle.



Hmmm....

Just When I Thought Gas was Getting Better

It's a conspiracy, I tell ya! These oil barons in South America and the Middle East are creating "news" because it keeps oil prices up. The political wing-nuts can say what they will about conflicts, but oil traders are buying up oil futures on any dip. Oil briefly dropped below $70 a barrel Friday, but it didn't last very long. Here's the article:

"VIENNA, Austria (AP) -- Oil prices rose back near $72 a barrel Monday, rebounding from declines the week before, after Iran insisted that it will not suspend uranium enrichment.

Prices also appeared underpinned by concerns about supply disruptions in Nigeria due to civil unrest and fear of potential hurricanes that could strike Gulf of Mexico refineries. Traders were also watching for signals of where fuel demand is headed in the wake of BP's production woes at its Prudhoe Bay field in Alaska...

Speaking after Iran's military test-fired 10 short-range missiles, Foreign Ministry spokesman Hamid Reza Asefi said a nuclear compromise would have to be reached during future negotiations.

"Everything has to come out of negotiations," Asefi said. "Suspension is not on our agenda."

The U.N. Security Council passed a resolution last month calling for Iran to suspend uranium enrichment by Aug. 31 or face the threat of economic and diplomatic sanctions.

"It is very difficult to decide what to do now in this situation," said Koichi Murakami, an analyst with brokerage Daiichi Shohin in Tokyo..."

Enough said.