Jun
7
2010
Looking at the market using technical analysis, the forecast is weak. Like the television show that asks ” Are your smarter than a fifth grader?”, studying the graph of the S&P 500 can be just as simple. Technical Analysis is chart reading. It has numerous methods and reference frames that can be used. When things are as chaotic as we are experiencing now, the simple approach is often best. I like to look at charts and apply the simplest and most obvious patterns I can find. This almost always defaults to what would I teach in chart reading 101, and I use the basics that I could teach to a fifth grader. Today’s answer is revealing, simple, and weak.
Pull up a chart of the S&P 500. Use the Weekly chart to clear up some of the noise. The January low, at 1050, was touched again at the end of May. Reading the chart, and applying standard chart patterns, you get a textbook example of what is called a Head and Shoulders pattern. Any fifth grader would see this. It says we will go back up to 1150 (the shoulder line or left shoulder high), and then start back down to 1050 (called the neckline), and break lower. This is a basic chart pattern that is taught on the first day of class. Show this to a group of fifth graders and the majority would see this.
The next step is to look for the next bottom (or support) and that I would apply the retracement numbers of 38%, 50%, and 61.8% of the previous market’s run. Again using the simplest approach means I use the 2007 top and the 2009 bottom. The corresponding number gives 1015 as the first target lower. (Note this is the minimum.)
So, there you have a snapshot of the current market, with three numbers to outline today’s potential direction. We are in a trading trange with 1150 being the significant upside number and 1050 as the lower trading range limit. So you can buy here, to sell at 1150. go short at 1150 and look for the break through the 1050 neckline, then look for the next bounce at 1015.
This lets you trade the market without listening to the noise from the Euro, the oil spill, and the BRIC nations.
May
18
2010
Where do you put your money to save your retirement? The market has been the casino of the last 30 years. In 1981 the stock market began a bull market that lasted until 2000. This was after 15 years (1966-1981) where the DOW was flat, bouncing around the 1000 level. The average investor did not see any returns from the stock market during that time, other than dividends. The market ran until 1987, and then crashed. This was a costly time for the new investor. Most small investors lost half their wealth in that downturn, and many left the market never to return again. Then, as pension plans and 401k’s made people invest in mutual funds (whatever they are), the average person became exposed to the stock market. The 90’s was a wild ride where everyone increased wealth, or lost big in the lottery call the dot-com boom. The crash that came in 2000 caused people to postpone their retirement hopes but not forget the juice of playing the market. This ended a 19 year bull market and began a bear market cycle that is anticipated to last 15 years. This time we will hover around the 10000-14000 level on the DOW, and the 1500 level on the S&P.
Even though we are in a bear market we will have counter-trend rallies that are fast and furious. We have had a bull run that reached 14000 on the DOW,and 1500 on the S&P and then collapsed below the 2002 low. Are we in for six more years of this roller coaster ride. Currently the rally off the 2007 low reached 11250, and has shed 1500 points in a matter of hours. Retirement hopes are trashed again, and people are on the sidelines in CD’s waiting for a safe time to re-enter. At 1% returns for CD’s nobody will be retiring soon.
What does a person do?
If, when, the US economy gets back on track the buy and hold strategy would return. The two problems I see with this is: One, we are comfortable, not as ambitious and hungry as our elders, and Two, our dollar is losing strength as we print trillions to spend our way out of the financial crisis. The first problem will not change until we have to start dealing with less. The second has had some unexpected changes. Every currency in the world is experiencing weakness due to excesses.
Some thoughts.
Gold appears to be an option, especially as a safe haven to currencies. A good 30%+ of one’s portfolio. Then a third in emerging markets and/or individual growth stocks (off the new high list). This group will hold the next Intel, Microsoft, Cisco.. And the final third in bonds or cd’s, while we wait for a clear horizon. Buy and hold is probably 3-5 years away.
May
7
2010
What do read from yesterday’s storm? The market may never come clean about what occurred yesterday. The bottom line is the market became very illiquid an hour before the close. What is more amazing is the speed at which the market came back. The net result of yesterday’s trading is everyone on the outside lost money.
The stop losses I had were all executed, and by the nature of the beast they were executed as market orders which were filled miles from the stop. The only comfort is I had few positions to protect.
Where do we go from here? The lines in the sand were 10600 and 10300. These levels should have provided a couple independent up days in a down trending market. The final number would have occurred at the 9800-10000 range. Now we will have to wait for these levels to be washed through again.
This morning, the job numbers are better, but the unemployment number is higher, and we will have buying as a repositioning of yesterday’s stop loss fiasco.
I will be re-entering positions in CAAS, AFAM, VZ, and GE. Fortunately the GLD position did not have a stop loss on it.
Look for sideways for the near term while the Greece issue plays out, and it may be worth waiting until Monday before jumping into new stocks.
Apr
28
2010
With the Dow reaching 11,250, is this a top?
There are a few sell signals we can look at, but the overall market has ignored all the bad news for the last 13 months.
The sell signals are worth reviewing.
1.) The 11,250 DOW is a 61.8%, retracement of the loss we experienced from 2007-2009. Definite Sell
2.) The market is reporting first quarter earnings, the January earnings season resulted in a pullback that lasted three weeks and gave us the February 5th low.
3.) We are entering the Sell in May and go away cycle that has worked in recent years. (It did not work last year.)
4.) We are due for the four year cycle low this year. ( We may have put this in a year early.)
It is a good time to take some short term profits. I think the market still has some gas in the tank to go further, but a pullback would be healthy.
At this time I have taken profits in TLAB, NTRI, and closed a small position in MBHI (at a loss). I am still holding positions in GE, VZ, and some longer term NTRI.
I like CAAS, AFAM, and am slowly building a position in dividend stocks for my IRA account.
Apr
19
2010
p
Is the Market facing headwinds with Goldman?
I find it very interesting the government files against Goldman on Option expiration. Any information leaked at 9:00, would have made the April 180 put selling for a dollar a dream play, and it is well hidden. As I look for the data on Friday’s trade, IBD shows some 30,ooo contracts in the 175 & 180 strike price that were selling for pennies, and closed at $15 and $20 respectively.
Meanwhile, the Alcoa calls expired out of the money, along with the Cree puts. I also tried to catch the swing in ISRG and lost a couple points on that play.
With tax season behind me, I am moving my IRA money into stocks. The run we have had from last March’s bottom has been intense. Unfortunately, it is only now people are starting to look back at stocks. I will be dollar cost averaging into stocks that are paying dividends, and see if I can kill this rally.
Verizon has a 6% dividend and will be my first entry.
The market will open lower this morning, as a follow through to Friday’s bad news. The volcanic activity will cause a hit to the European economy, and therefore to the global economy. If we do not reverse in the first two days this week look for a 5% pullback.
CAAS is back in the 20’s, and ISRG is weak in the premarket along with GOOG. I will be watching the put options on the last two.
Apr
5
2010
Trading earnings season with Alcoa as a benchmark. The options I picked up last week, have dropped this morning on a downgrade of Alcoa. The
15 call for April is trading at $.28. The downgrade does not scare me, because I am suspect of any Marketmakers moves this close to earnings. I will hold
through earnings, and consider the play a lottery ticket.
As I write this, the market has been open for ten minutes, and not much change. This week does not have many news events to move stocks. Do not overtrade.
I am entering CAAS and AFAM with tight stops. IBD had CAAS listed as one of the top 15 stocks in the world.
Get ready for the “Sell in May and go away” cycle.
Mar
26
2010
DOW 11,200 is still in play. Yesterday’s reversal has been stalled with this morning’s GDP revision and the Greece situation has positive vibes. The market looks higher. Sentiment indicators are reaching extreme optimism, which to contrarians means we are near a top. (Play with caution.)
The CAAS position was close at one point gain. ( That is the my first rule in trading, if you have a one-point gain in a day, Take it.) Unfortunately, the stock had
positive news and gapped to 24.40 on the open Thursday. It dropped all day, and closed at 22.69. This morning pre-market bid is 23.14. Anyone that knows me, knows I believe gaps are made to be filled. Another up open makes me leery and I will watch the stock before I play again.
Alcoa was the worst preforming DOW stock on Thursday. We cannot have an economic recovery without the metals being strong. Alcoa should be an interesting beginning to the earnings season.
AFAM is still on my radar, the entry will be at 36.50-37.00 if market conditions allow.
Mar
24
2010
Short term plays – CAAS, Alcoa, AFAM. Yesterday, I entered CAAS at 20.75, and bought 20 of the AA 15 for April. The other stock I am looking to enter is AFAM.
AFAM had a run from 36 to 39.50 over the last 5 days. I am looking for a pullback for a day ortwo, to catch a run back to its old high at 42. I will start a position
at 39 and add on a pullback to the 36 level.
Mar
23
2010
How do I find a trade? – Look at the earnings season.
The market continues to leave the station. We are higher 9 of the last 10 days. Any trades placed now may have more risk than reward.
The next earnings cycle starts April 12th with Alcoa. So let’s start there.
Alcoa’s performance since their last earnings report has been poor. Alcoa was 17.50 prior to their January earnings report. They disappointed and the stock retreated to
12.50 by the end of January. Since then the economy has shown signs of strength and Alcoa has traded in a range from 12.50 to 14.00. At this time Alcoa is $14.47. The chart indicates $20.00 as a channel high.
The 14 calls are at $.87 and the 15 calls are $.37. They expire four days after Alcoa next announces. I will start a position buying 20 of the 15 calls.
Mar
16
2010
Trading the week of option expirations is difficult when the market is trading sideways. The expensive stocks like GOOG, AAPL, AMZN, and ISRG can return nice profits if you can call the trend over the next 4 days. Another play is GLD. The 109 call closed Monday at $.63 and should open at $1.20. Google, the 570 call should be good for 1-2 points.