Friday, December 30, 2011

SPX in 2012 and beyond...

Tomorrow is the last trading day of the year, and it is time for me to write the last post of 2011.

I am continuing to digest all of the 2012 predictions I heard from various (respectable) market participants. I have noticed that increasingly the bear case is tipping the scale, with many saying that 2012 will be a difficult year, and 2013 will be even worse. I understand all of the worries, and have outlined some of mine here as well. But I am a trader with open mind and two sharp eyes. I pulled up S&P 500 monthly chart and I saw a completely different picture. This is exactly the case when I have to say: "trade what you see".

I would like to wish all of my readers a very Happy New Year!!

click on chart to enlarge

Thursday, December 29, 2011

2011 Performance Comparison Chart

A quick look back on the year that was (via comparison chart) shows how 2011 has been a year of two halves. First half (prior to July 25 week) consisted of fairly close performance by bonds and equities, but after that investors went on a rout. You can see that long-end US treasuries outperformed by the widest margin, while corporate bonds and dividend-paying large caps beat the broad stock  indexes as well.

Many say that market made no sense in 2011, with correlations at nearly 1 on everything, clearly seen on the chart below. But I think that financial market is not broken at all. It had to deal with many unexpected obstacles in realm of risk-on/off environment, combined with Fed's treasury market  intervention, and occasional  shenanigans of HFT. In the beginning of October I became more constructive on the market and disconnected from the bear crowd, which is still stuck in "2008 all over again" scenario. Corporate bonds and dividend-paying large caps have recovered nicely, with DJU, DVY, and LQD now above where they traded before the rout began at the end of July. This is very different from what happened in 2008, when everything corporate related got demolished due to much weaker balance sheets. 

If you want to share your views on what may happen in 2012, do not hesitate to write your comment here.

click on chart to enlarge

I am sorry to be the bearer of bad news

It is after midnight on Dec 29th 2011. I am driving back home with my family from a very pleasant and festive party. A corner of my eye catches a bright gas station sign "$2.93 per gallon for unleaded gasoline". I do not hesitate for a second, full tank please!
While filling the tank I immediately recall what was just discussed at the party: Iran, Hormuz, $200 oil, $5 gasoline, bicycling to work, etc...
So I said to myself: "when I get home I will write a late night post about gasoline and crude oil, and where I see them going.
Folks, here it is. Bull flags and symmetrical triangles almost always result in the direction of the trend. Sorry, but I see much higher crude oil and gasoline prices ahead. Get that sub $3 per gallon gasoline, while you can. At least you will not be mad at me if I am wrong...

click on chart to enlarge

Wednesday, December 28, 2011

Is GLD ready to bottom?

On Dec. 15th I posted a chart of Gold futures' long-term support. GLD is now approaching that buy zone on a second test. I am patiently waiting for price to enter a confluence of supports: trendlines, horizontals, and bollinger bands.

This trade has a very high R/R ratio. I am projecting approximately 15-point bounce to the upside, or roughly 10% move, with a stop 2 points below the buy zone.

click on charts to enlarge

GLD weekly

GLD daily

Update on Dec 28 @ 5:00 pm
Trade was initiated at close. I am using GLD Feb call spread. Will update the progress here...

Update on Jan 3 @ 10:50 am
Sold 2/3 of position. Stop to b/e.

Update on Jan 4 @ 12:15 pm
Out last 1/3. 

Monday, December 26, 2011

Most Important Stocks To Watch In 2012

With only 4 trading sessions left in 2011, all gurus are out there throwing their predictions for 2012.
I am not going to downplay their ability to foretell the exact level of S&P 500 at the end of 2012, but I would not put any money on their subjective opinion. Traders can see minutes, hours, days, weeks, maybe a few months out, but if you hear (from anyone) the exact number for an index or a stock one year out - it is just a guess.

So I decided to let my followers know what I think about 2012. I am still not sure what the exact outlook should be, due to enormous uncertainties facing the stock market in the next year. Rather I would like to focus on what I see, not what I think. Next year may be as volatile as this, it could just be range bound all the way. I am way too realistic, practical, and humble to predict more than a few months out.

The biggest thing for next year (in my opinion) is to concentrate on what will lead and what may lag, and just go with that. I am going to watch the next two stocks as my best guide for trading DOW and NDX. These companies have the biggest weighting in their respective indexes. They are the leaders in their space, which also happens to be the biggest weighted in S&P 500. So if we know where these two stocks will go, we will be able to predict the direction, albeit not the exact percentage of the stock market's move. They by far have outperformed their peers, and their indexes - not surprising, they are the leaders.

So here they are compared to their indexes. I will not be surprised that we will get the same picture at the end of the next year, whichever way they go, up or down. Once again, we just want to be correct on the direction.

This is my very modest prediction - IBM and AAPL will dramatically influence the outcome of where DOW and NDX trade in 2012.

click on chart to enlarge

Friday, December 23, 2011

Houston, we have a problem!

While stock markets in Europe and US are rising (albeit not skyrocketing), one thing is being grossly overlooked. I have pointed this out two weeks ago. This is my biggest worry and should occupy (had to use it for the lack of better word) traders' minds over the 3-day weekend.

Here it is in a pictorial and undeniable way. This is the scariest chart of them all.

Treasury Futures Trade

With equity market grinding higher into the end of the year, treasuries are on the defensive. This, by all means, is merely a retracement in a stubborn bull market in treasuries. I see a possible further weakness in 10-yr T-note futures down to 129'09 level.

While this weakness is due to Eurozone debt crisis relief equity rally and also some unwanted supply at auctions during the week, it will take more than just a two-point T-note futures sell-off to convince me that risk is out of the woods.

There is a laminate of 50/100 dsma a few ticks away from current price. Stop scoop will give traders an extra reason to drive the price down below to my projected target.
You can see from the chart below that price is traveling inside the channel, head and shoulders has developed, and box extensions are near perfect. Do not get carried away though, this bull is not dead yet.

click on chart to enlarge

Thursday, December 22, 2011

Charting AAPL

In light of trepidation in tech land due to ORCL's surprising miss, I wanted to look closer at one of my favorite "generals" of the market - AAPL. I realize that it is in a completely different segment of tech, and parallels are not to be drawn here at all. Nonetheless, if the whole tech sector is to crumble under the weight of possible enterprise spending slowdown/cutbacks/freeze, AAPL (with 12% index weighting) may become a make or break stock for NDX, by either smoothing or exaggerating the ensuing decline.

In order to understand how strong this amazing stock has been, one has to pull up the weekly chart (shown below). You can clearly see that price has respected boundaries of an uptrend channel (with 75-point width) for almost 3 years now. 50-week simple moving average has been a very good guide and support. A double-top head and shoulders with triple bottom neck and a distance of 73 points has now developed (but not fully completed due to right shoulder still being in progress).

I see two scenarios for this universally loved stock:

1. Right shoulder does not materialize, price breaks above $410 and keeps on going to challenge the highs, eventually making new highs at the top of the channel, somewhere around $450 - $460.
2. Price runs into $410 resistance and gets rejected, right shoulder develops, price breaks down below bottom of the channel, below 50 wsma, and eventually below the neck at $353 and keeps on going down to projected targets. Ultimate target is 73 points (h+s distance) below the neck = $280. Possible support on the way to $280 would be $319, $310, and 75-point extension from channel breakdown (not known yet).

My first scenario is more likely because it is supported by direction of the trend and AAPL's very strong fundamentals, like enormous cash on balance sheet, fast growth, and reasonable valuation. But my second scenario is not to be totally dismissed until price decisively breaks above $410, especially if something goes terribly wrong with the company, its sector, or the entire stock market.

click on chart to enlarge

Wednesday, December 21, 2011

Is ORCL giving NDX heads up?

Tech is in a cloud today (pun totally intended). ORCL missed earnings and has cast doubt on robust tech spending. Big cap tech is getting pounded.

I decided to look at how ORCL compares to NDX. Obviously it is a huge component and will weigh on the index. You can see (from comparison chart below) how closely correlated the two are. ORCL is now completing its head and shoulders objective, with a little more to go (just like earlier in the year). NDX is not there at all yet. I would say that for NDX to follow ORCL down more, we would have to see more companies confirm what ORCL told us, which would let us know that this was not just a one-off event. If we get another high-profile warning or miss in the space, watch out below, October and August NDX lows would come into play fast.

click on chart to enlarge

BAC - retest of 2009 low coming?

On August 25th Warren Buffett invested in BAC. I was skeptical. Today the stock is struggling to hold $5 and looks more and more like it will head for the retest of 2009 low.

If stock market is to bottom, financials have to at least stop sliding. Will BAC retest of lows coincide with a lower low and a bottom on SPX in the beginning of 2012, just like in 2009??
Keep your eyes on BAC...

click on chart to enlarge

Tuesday, December 20, 2011

Could Dollar Index Be Ready To Sell Off Hard?

click on chart to enlarge

Stock Market Moves in Mysterious Ways

For a week now I have been stalking this move higher. It was lurking out there in a maze of negative European news. Today we finally get that long-awaited Santa Claus rally. This, folks, is all we may get, a move from just below 1200 on March S&P futures contract to just about 1250 at the highest point sometime before this week is over. You better use this opportunity to cut your losers, take profits on your winners, and just go flat and enjoy your holidays. Why do I say this? Simple and systematic approach to what many may view as schizophrenic market moves. But in reality, there were endless amounts of open gaps on various indices and important individual stocks that needed to be closed. They were all filled yesterday, and therefore gave the bulls an extra might to carry the prices higher and punish the late shorts. I view today's move as a gift in problematic and puzzled market, which will be just as hard to read in the beginning of 2012. I will not even dare try to guess when the S&P downgrade of EU AAA countries comes. We could be within days if not just hours (as I thought earlier last week) from a swift EU debt crisis-driven equity slide, which will take so many by surprise, again.

So I say: take profits on 1/2 right here @ 1234, move stops to b/e, take profits on all ESH2 @ 1250, reduce your risk in illiquid market, and rest through first trading day in January. It would be 16 points short of what I thought we would do, but good enough for confused  market conditions.

Spend time with your family and friends. Reward yourself for hard work during the year. Celebrate your achievements. Be safe, be wise, be flat soon...

Monday, December 19, 2011

Zoom Out and Relax

It was Sunday afternoon in US. I was doing my weekend reading. The doomsday predictions about how EU is about to disintegrate were dominating the headlines. Why does the media hype these kinds of cataclysmic events (like Y2K world-wide computer system failures), only to forget about them when they never happen? It is their job and they are good at it, this sells their content and pays big bucks in advertising.

And we, the traders, are to do our job that pays us - look at charts. So with heart rate accelerating, and all kinds of worries about the eventual Financial Armageddon II going through our heads, let's zoom out and look at EUR/USD, which many are saying will either go to parity or plain out disappear into oblivion.

Below is the monthly chart. You can clearly see that EUR/USD is trading 1200 pips above the low made in 2010, when Greece was about to fall off the face of the earth, and 700 pips above the low in 2008, made during Financial Armageddon I. Many say that this is a function of Dollar devaluation and relentless Asian and Middle Eastern diversification into Euro. Whether those are true or not, something is keeping this pair from collapsing.

I want to draw your attention to symmetrical triangle that has formed on monthly chart. There are potentially two more years left inside the symmetrical triangle before price gets to the apex. I will not be surprised if EUR/USD just trades inside of it and marks time for EU debt crisis to be solved and Fed's QE3 to go by. I say this pair is range bound at worst, and somewhat biased towards upside move in the short term at best.

click on chart to enlarge

Saturday, December 17, 2011

Weekend trading thoughts

It is practically impossible to write here all the thoughts that go through my mind. As a macro trader I have a lot to worry about over the weekend. Due to some time constraints I will discuss just a few points.

My favorite "general", the one by whom I gauge my SPY target, has been under pressure last 5 trading sessions. Time to worry? No, not yet. IBM has a distinctive pattern of making new highs and breaking down below steep uptrend, only to retreat down to and bounce off the longer term trendline. It does that time and time again, punishing late longs and letting more patient ones in. Following is the chart, a picture is worth a thousand words. My mid-January target is $207.

click on chart to enlarge

On Friday multiple sovereign rating downgrades and negative Eurozone-related news sent many longs for the exits. Weighing heavily on their minds was a possible French AAA rating downgrade by S&P after the close of trading. It did not let them think clearly in order to embrace Santa, who is coming to town next week. Well, if France is about to lose its AAA rating, then why is the 10 Yr OAT (French bond) yield not skyrocketing? Chart, please!!

click on chart to enlarge

Friday, December 16, 2011

No recession in US

The economic data released over the last few days showed that recessionary risk in US is non-existent. All of those domestic slowdown worries during tumultuous summer months should now be abating. But why is there still so much strong buying of US treasuries? Two reasons: European debt crisis and world-wide economic slowdown. Traders are worried that good US data will not be enough to offset those huge underlying negative themes. So they grab the safety and send the yields down day after day.

Following is the TNX chart. I would like to see it bottom before I can say that risk can rally in sustainable way.

click on chart to expand

Wednesday, December 14, 2011

Can SOX give us a signal, again?

On Dec. 9th I suggested that we have to watch SOX for clues in this market. It gave us a perfect heads up on what was coming - vicious 3-day sell-off. Now that we have sold off to support levels, I would like to bring your attention to this important development. After the close tonight there was a deal in the semiconductor space. LRCX is buying NVLS in $3.3B transaction, which is 28% premium over NVLS closing price. The deal (all-stock, but nonetheless) is going to ignite some interest in the chip equipment space tomorrow. I expect this to get the SOX turnaround going and spill over to NDX, and eventually the entire market.
A $3.3B all-stock deal in chip equipment space will turn the whole market around? Folks, crazier things have happened...

Let's look at the chart.

click on chart to enlarge

S&P 500 Futures entered my buy zone

click on chart to enlarge

Charting VIX

click on chart to enlarge

Tuesday, December 13, 2011

Let's Update The Charts

click on charts to enlarge

Update on Dec 14 @ 1:45 pm
Out of gold at -80. That was a bad trade. Have to follow my plan. Close below 1600 triggers a sell.

Update on Dec 14 @ 1:50 pm
Closed all AMZN puts today. Came 5 points short of 1 remaining gap, but it is way oversold here. Nice trade. Need to look for cheap calls now.

Update on Dec 14 @ 2:00 pm
Copper (and all other commodities) is selling off hard. FCX lowered sales due to strike, and JOY warned on lower commodities demand. It is right at apex here, just closed the 3.28 gap. I still think copper is going to bounce higher.

Monday, December 12, 2011

S&P 500 futures buy zone?

Instead of going too much into the details of today's sell-off (Intel, China, India, etc), and also running around in full-fledged panic over a possible S&P's downgrade of AAA sovereigns in EU, I would like to be prepared for what will happen just after the actual event. I expect the downgrades (if they are coming) to happen within 24-48 hours.

Near perfect inverted head and shoulders has now formed on S&P 500 futures. Following is the chart of ES. It looks that by the end of trading on Friday of this quadruple witching week, S&P 500 futures will either break down below 1200, or (my prediction) will be trading above 1266. Price is forming a more pronounced right shoulder. It is also in a well-defined bull flag. As long as 1200 holds and price breaks above the bull flag, we will see higher levels ahead.

click on chart to expand

Sunday, December 11, 2011

A few quick trading notes

It is Sunday night, Asian session. Illiquid nature of year end is making some trading vehicles speed towards the abyss, only to stop short of a total collapse. I expect this type of trading to be detrimental to many traders who will wrap their heads around just one direction on the road to Dec 31. This will definitely be (in my opinion) a two-way market for the next few weeks. I think that traders will be looking for confluence zones to enter and exit their positions.

1. Take a look at what is going on with gold tonight, for example. It has done everything I expected it to do. Since it topped at 1767 on 12/2, it has declined to retest lower trendlines. Tonight 50 dsma stop hunt was brutal. A quick whoosh of 23 points in a matter of 3 minutes has returned the precious below 1700. There is a laminate of 150 dsma, prior low, daily BB, and 11-month trendline @ 1670. Do you think there will be a few buyers at that level? I will be one of them.

click on chart to expand

2. I think that SPX is another trading vehicle many players are looking to buy on a pullback. They may get the opportunity this coming week, again. Inverted head and shoulders, which has formed on daily, would preclude that from happening under normal circumstances. But quadruple expiration week may just do the trick to deceive the most. There is a laminate of 50 dsma and well-defined horizontal support to buy against. I am a bidder at 1220.

click on chart to expand

Saturday, December 10, 2011

Rally, and then what?

With the year end quickly approaching, I have been trying to put together an outlook for first half of 2012. I would like to express a few concerns about my outlook, which is still a work in progress.

We have started a possible relief rally into the end of the year. Relief from constant worries about European financial system collapsing and taking the whole world down with it. While underperforming fund managers grab every pullback on the way to Dec 31, a much bigger question arises - what happens after this year-end rally is over? Here are some of my worries.

1. The "new fiscal agreement" in EU is a plan but not a certainty. There are already a handful of problems I see. Ratification of changes will need to undergo  parliamentary scrutiny in many countries, with nothing less than a referendum in some. That will take a long time, much longer than this market wants to wait. Also the enforcement of new fiscal covenants will be very questionable due to outside-of-treaty nature of this new non-EU27 agreement. Great Britain may have done a great deal of damage to Merkozy by abstaining. I would not be surprised if more countries decide that yesterday's pact is a bit more than they signed for in the original EU27 treaty, and keep their sovereign independence intact.
So these possible obstacles may finally catch up with EU sovereign bond investors and send them running for the exits again. Let's also not escape the fact that while Italian 10-yr bond yield pulled back from highs, it still closed @ 6.5% on Fri, well above the sustainable borrowing rate level for Italy's declining economy in 2012.

click on chart to enlarge

2. Eurozone is in recession, yes it is already, just watch for EU PMI reports next week, they will be ugly. With 20% of S&P 500 earnings coming from there it will be practically impossible for us to decouple from their mess. Do not listen to TV pundits telling you we have already decoupled, they said the same thing after Japanese tsunami and Fukushima nuclear plant accident.

3.  Our things here in US are not looking too rosy either. I am starting to worry about a few items, some of which have shown up in the last few days:

a) SOX is going to be under pressure. I posted my detailed thoughts about this yesterday - ailing SOX  = ailing NDX = ailing market. I am expecting more semiconductor companies to cut their guidance, and/or preannounce and warn in January. That will be a detrimental affect on Nasdaq.

b) RLX is not acting like it is supposed to around strong holiday shopping season. It is in a wedge with a series of lower highs since October. It needs to break out or a test of lower trendline inside the triangle would come soon. What exactly is going on? I may have more questions than answers here. There are signs of much lower sales post Thanksgiving. While this is usually the fact, and shopping picks back up a few weeks before Christmas, I am worried about some internals. Various shopping traffic counters are reporting lower shopper counts compared to last year. Also the promotional sales are quite heavy and will weigh on the bottom line, as margins compress. That will be the worst possible outcome and will send the affected retailers' shares plummeting in January of 2012. A quick peek inside the index reveals a troublesome picture. While shopping numbers at brick-and-mortar retailers were setting records on Black Friday, the only shares making new highs lately are of the heavy discounters, off-price, and dollar stores: TJX, ROST, FDO, DG, and DLTR - all at the expense of DDS, JWN, TIF, KSS, LTD, GPS, JCP, SHLD, WMT, and TGT. Also internet has taken a huge toll on BBY, RSH, ODP, and SPLS. Folks, that kind of internal performance among the retail index components will not set the world on fire. Even during these times when consumers are shopping for mostly necessities, food and drug stores are not able to keep the margins from declining due to underlying rising costs.

click on chart to enlarge

And speaking of internet, AMZN is not acting well either. Why is the stock slumping when internet shopping was the strongest ever on Cyber Monday? Declining margins? It is in 5-wave downtrend, I think. Let the chart do its magic.

c) We have fiscal issues of our own. We have not resolved our debt problems. We also have a lame duck congress which has been very ineffective. Our lawmakers are playing a stalemate game with tax cut extensions, which are very vital for our fledgling economic recovery.
As I noted in my post before, 4th year of Presidential cycle is historically very positive for stock market. But our president has been unfriendly to markets, due to his policies lacking any pro-growth measures. He is the incumbent, and way too many way too early have already written him off.
These political uncertainties will weigh heavily on investors' minds in 1st half of election year.

Year 2012 will be an interesting balancing act for stock market, which does have some positives going for it as well, like lack of recession, accelerating GDP growth, very reasonable valuations, strong corporate balance sheets, and extremely high accumulated investors' cash on the sidelines.

Update on Dec 12 @ 9:10 am
Intel warns!! Are you going to watch SOX index now??

Update on Dec 13 @ 4:00 pm
November retail sales disappointed today. Retail index is down 3%.

Update on Dec 14 @ 7:40 pm
Retail index is quickly approaching lower trendline of triangle. I expect that support to hold.

Update on Dec 23 @ 6:25 pm
Italian 10 Yr Bond Yield closed at 6.98% today. This can not be good, and is clearly a vote of no confidence by the debt market in all current measures to solve the crisis in EU.

Friday, December 9, 2011

Watch this index!!!

This morning I would like to discuss something extremely important. No, it is not Europe, well, at least not directly. It is SOX - Philly Semiconductor Index. Those of you who follow me, know that I have been using SOX to predict market's direction all of this year. This is the backbone of Nasdaq, guts of all tech products, and it is lagging today. Last night and this morning TXN, ALTR, and LSCC - all cut their guidance due to weak orders from customers across the board. Folks, we are in 4th quarter!! To add insult to injury, DD, the unlikely source of tech news, warned on its quarter and said that it was due to weakness in electronics.
Why is this so important? Like I said above, SOX is the leader, it has led NDX all of this year, and has been impeccable at that.
Following is the chart. Price ran into resistance @ 150 dma, broke below 50 dma, and is currently supported by 100 dma. There are 2 gaps below. Watch SOX, it may be telling us something here.

SOX may fill 2 gaps below

Thursday, December 8, 2011

DAX is the main chart

In this market, where everything is so closely correlated, traders need to find what market leads, and just follow it.

Below is the chart of today's trading session. On it I display SPX and DAX futures side by side, starting from the time DAX cash market opened. You can clearly see how closely they trade.

Our stock market problems are mostly Europe related at this moment. ES wanted to rally and got ahead of DAX a few times during the session, but DAX was like the anchor, keeping ES in check. So until DAX bottoms and reverses, this US equities sell-off will not be completed.



Wednesday, December 7, 2011

New Section

Today I started a new section on my site - Charts. In it I will share some of my charts. I will try to put an explanation next to or on the charts I post.
Chart is the best depiction of collective action by market participants over a particular period of time. Very often a chart is all a trader needs to make an educated decision on a security he/she trades. If you are a starting trader - do yourself a great favor - do not place a single trade until you have perfected your charting skills.

Tuesday, December 6, 2011

Quick market thoughts

Futures and forex are 24 hr markets. But really, the main events will take place in Europe in the next 48-72 hrs. I expect some kind of movement during upcoming European session, judging by the way all charts are setting up. I will be taking cues from DAX. Quick observation across the asset classes shows one underlying theme - breakouts everywhere are about to occur:

1. US equity index futures are about to breakout higher. Buy stops need to be in place, these things just take out stops and go higher overnight with European markets. There is a 3rd test of overhead resistance setting up just 5 ES points higher from here.
2. EUR/USD is trying to break out of the falling wedge. A quick move above 20 dsma may be all this thing needs to take on a life of its own, and wipe out 700 pips of stops overhead. Buy stops have to be placed here as well. This is definitely not a sure trade, but could be a bear frying event that lasts weeks. One tricky part is ECB on Thu.
3. Treasuries are in a bear flag on short-term charts, and looking to break down, IF equities move higher, and most importantly, European resolution finalizes. What a huge move down this could be. Gauge this possible short by TNX break out of the wedge, and gap fills @ 22.50 and 24.
4. Gold is looking like it is trying to build on a daily hammer. I am a bit skeptical until break out of the symmetrical triangle. This said, I covered my short and will observe the action. Plenty of room to the upside if breakout occurs.
5. CAD is looking to break out of its triangle as well. This commodity currency has to get back into pretty close correlation with oil, which has been moving higher. BOC upgraded their view of Canadian economy today. This is going to help my view that CAD has to catch up with oil.

Good luck!

Update on Dec 7 @ 8:20 am
DAX did not break out. All risk assets will have to wait for that fact to take place. I will provide the chart with levels to watch shortly.

Update on Dec 7 @ 4:10 pm
Series of frantic news had failed to ignite sustained breakouts. Keep your powder dry until DAX tells us where to go (imho). Treasuries and VIX have spiked in a bid to provide some security for longs. This may mean that traders are still long but are buying protection.

DAX futures is a guide for b/o.

AMZN is in 5th wave down

Techs were weak all day today, not participating in rally. The most notable laggard has been AMZN. This is a very surprising development, because the holiday season is usually Amazon's strongest time of the year. I am not going to argue with the market though.
Ever since it hit 2011 high on Oct 17, AMZN has been in a downtrend. I believe that 5th wave down has started, and will possibly take the price down to fill 3 open gaps.

Following is the chart. You can see a broadening rising formation, which was a bearish signal. There are multiple trendlines which were broken, leaving the price vulnerable to drop down to supports  beneath. AMZN ran into 200 dsma (red) and gap fill, and has sold off hard. I highlighted possible targets below (in yellow). Price is traveling down in a falling wedge pattern, which I think will eventually become a bullish reversal signal, on the break of the downtrend. In order for this 5th wave to be negated, price has to get above 200 dsma.

AMZN 5-Wave Sell-off
(click on chart to enlarge)

Monday, December 5, 2011

Gauging SPY rally with IBM

In Saturday's post I said that I will buy the weakness in SPY (hopefully we are about to get that due to S&P EU credit downgrades worries this afternoon) to ride the rally into the year end. I also would like to gauge where this SPY rally may culminate. For this task I decided to use the bluest of the blue chips - IBM. This stock has correctly predicted all the bottoms and tops in SPY since November of 2008.

Below is the chart that shows the correlation between IBM and SPY. You can clearly see how IBM holds the ground on SPY sell-offs and leads SPY on the rallies. When IBM tops, SPY follows on the sell-off.
Also I show (on another chart) how IBM likes to extend its fib to 78.6% and sell off at that level.

This is what I am expecting to happen at this time as well. IBM is making new highs and is getting ready to take SPY along with it. After hitting a double top on Buffett's purchase announcement, the stock has been weak and filled open gap @ 177, predicting a severe weakness in SPY. Gap fill has served as a buy signal, and strong rally of last week took it to historic highs today. SPY is lagging a bit, but should break through the downtrend soon (just like previous times, shown on correlation chart).
IBM likes to rally into the earnings. So sometime in the middle of January IBM should hit $207, which is 78.6% fib ext. I intend to use that catalyst as a final target for SPY rally.

(click on charts to enlarge)


IBM fib ext

Sunday, December 4, 2011

CAD vs OIL - correlation broke down

There is almost 100% correlation between all risk assets in this market. But one of them has broken down. Canadian dollar and Oil have not been moving in lockstep, like they did since March of 2009. Near perfect correlation broke down at the end of October.

I am probably not smart enough to figure out exactly what is going on. But my main reason would be the fact that Canadian economy has been cooling a bit. Economic reports have been coming in weaker than expected. Carney, Flaherty, and even Harper have all been talking down CAD, by making remarks about how European debt crisis is weighing on Canadian economy.

It is not clear if this broken correlation continues much longer. Below are the charts which show in detail what is going on. Oil has broken above September highs and has taken out $100. CAD has been unable to trade above Sep highs and stays in the downtrend, with parity becoming a resistance. There is a symmetrical triangle on CAD which will break out soon (like in 2010). Keep your eyes on this development, as CAD has also been closely correlated with SPX.

(click on charts to enlarge)




Update on Dec 7 @ 2:25 am
It is clear that CAD wants to catch up with oil.
BOC upgraded economic view on Tue.
Watch parity as the first target.

Saturday, December 3, 2011

EUR/USD - Two Big Moves Coming?

I would like to bring your attention to a pattern, which I think may play out in EUR/USD in the coming days.

Following is the daily chart. The most important thing is to identify that price is in a severe downtrend. It is impossible to trade from the long side but for a very short period of time and with a reduced (if not minuscule) size. So until this pair makes it above 20 dma (dark blue) and stays there for two consecutive closes, it will probably continue downward to its 2011 lows, and perhaps slightly below.
You can identify the "twin" pattern on chart (highlighted by red dashed lines), and see how the current picture may unfold. This is obviously not a cast in stone, but a very similar price action up to this point.

Those of you who follow me know that I like falling wedge pattern to predict a sharp bullish reversal. It is clear from the previous twin pattern that once this possible (last) move down finalizes, we then may get a reversal and a sharp breakout to the upside. If that happens, massive short covering may take the price back to the upper trendlines.

One thing is certain, the price looks like it will not stay put at this level for too long. Use the double wedge trendlines and 20 dma to guide you in this trade. It is inconceivable that we are going to get such a huge whipsaw move at the end of the year, when FX desks wind down their activities. But perhaps it is the illiquid year-end market nature and uncertain European debt news-driven environment that will actually fuel such a move.

Let's see what happens...

(click on chart to enlarge)

Generals Held Supports

In my Nov 17 post I showed how the "generals" of stock market were finally coming under pressure, foretelling a sell-off. I also pointed out that they would have to hold their supports for year-end rally to begin. That is exactly what happened. The confluence of open gaps and moving averages has served as a magnet, but also became a launch pad for bulls. Following are the updated charts of those pivotal market leaders. Nov 17 is highlighted in blue.

It is very important to identify that at this juncture these stocks are ready to breakout to higher levels. This said, I think that a minor pullback will occur in the first part of next week. I will use this opportunity to reestablish long positions in the market. My ultimate goal is to buy SPX @ 50 dsma. But market may not want to let many in, as underperforming fund managers will chase into the end of the year. So I will scale into my positions on weakness, using short-term charts' support levels.

(click on charts to enlarge)






Friday, December 2, 2011

Out, out, out...

We are up 100 SPX points since last Friday. I would like to use today's strong open to get out of all remaining equity positions. It has been a good and very satisfying rally.
Trading gods are to be thanked. A very humble trader says: "take what market gives you".
Looking to reload SPX at 50 dsma.

Thursday, December 1, 2011

TNX is ready to break out

With tomorrow being NFP day, I decided to discuss a 10-yr T-Note short trade.
I have been literally stalking TNX to the apex of its wedge. I think it is getting ready to break out to the upside, just like in 2010. My targets are 22.50 and 24.00

TNX is ready to break out
(click on chart to enlarge)

Update on Dec 2 @ 4:20 pm
Definitely no breakout. Price got to the upper trendline and reversed hard. Equities sold off and contributed to treasuries' strength. We will have to see what happens next week. Price is now resting on 50 dsma. If no hold here, next support comes in @ 19.96, which is an open gap from Nov 29. Patience will be the virtue here, wait for it to break out.