Tuesday, October 30, 2012

Correlations Are Important

In the last six to nine months or so I have witnessed many stock market "pros" in total state of confusion. Without mentioning any names, they regularly appear on business (alphabet soup) network, I think these talking heads have forgotten one of the most important components of trading - market correlations. Their loyal followers have been confused by them, and are probably losing faith at this time.

Correlations matter for very simple reasons - they depict current state of the market, while predicting where it is possibly going. They show which asset classes are in demand, while letting us know what is being dumped at the same time.

These gurus, whose names I will once again omit, have been in a dog house. They have been wrong umpteen times in a row - mistakenly calling the tops and bottoms in various markets, while missing a simple fact of being ignorant to market correlations.
You can't be short Apple and U.S. Treasuries at the same time - they move opposite to each other. You can't be short AAPL and be long SPY at the same time - they move together. You can't be short U.S. tech stocks, while being long Canadian stocks and Loonie at the same time - they are like one. These facts are not obscure, they are right in front of us - all on the charts, and they have been in place for many years, nothing has changed.

Follow the charts, and forget the talking heads!

click on charts to enlarge

Sunday, October 28, 2012

AAPL - Where To From Here?

Remember this comparison chart I first posted on September 16th? AAPL went up 9 and dropped 105 (111 if you count afterhours) since then. No, I am not looking for a pat on the back. All I care about is where this most influential stock on the planet is going next. I am looking for more downside.

click on chart to enlarge

Friday, October 26, 2012

The Scariest Chart

I finally decided that this is the scariest chart of them all. Boo!

click on chart to enlarge

Thursday, October 25, 2012

Tail Fill

No, this is not a trip to the zoo. This is a quick post about a tail fill play.

Those who traded together with me in various chat rooms, know that this is one of my favorite short-term plays. Once 4hr candle is formed and has a long tail, I put on a trade to fill it. This is a high-percentage play (just like a gap fill). In this example I use current NQ chart (I am typing at 20:30 est) just as 4hr candle closed. The idea is to fill the long tail, which formed just after AAPL reported its earnings in afterhours. Traders shorted NQ because AAPL was halted. When AAPL reopened NQ quickly followed AAPL up, hence the long tail was formed.

Very Important! This is not an advice to trade this particular set-up. Use extreme caution and your own research.

Update on Fri. Oct. 26 @ 12:45 am
At this time you should be 1/2 out, you can divide the other half in two and place those targets at half and full tail fill (or as you please), stop goes to b/e, and you go to sleep... 

click on chart to enlarge

Saturday, October 20, 2012

Dead Cat Bounce?

Caterpillar reports Q3 earnings on October 22, before the bell. The new week may start ugly. Looking at the chart below, I think that rally from the low in July was just a dead cat bounce.

click on chart to enlarge

Friday, October 19, 2012

SOX - Ready For A Crazy Move?

Double head and shoulders neckline and wedge breakdown will make this the winner of my scariest chart of the year contest, just in time for Halloween. 200 wsma is right there as well.

click on chart to enlarge

DAX - Was This The Top?

This stock index has been the leader of the rally from June lows. Strong resistance is not allowing it to advance. 50 dsma and trendline below are the targets.

click on chart to enlarge

Thursday, October 18, 2012

IBM - Crucial Test

Stock market is rallying, but the most important stock is not participating. IBM is looking to test crucial lines of support. If it breaks down, this bull market is over.

click on chart to enlarge

Monday, October 15, 2012

ES - Lookout Below!

Here comes another one of my wild stock market predictions. I am not afraid to be right again.  :)

click on chart to enlarge

Friday, October 12, 2012

Tech May Correct Some More

Technology stocks continue to be under pressure. Tech is the leading market sector with the biggest weighting in S&P 500. Daily and weekly charts of XLK are pointing to possibly more correction on the way. I think that S&P 500 will follow the tech sector down, as they are very closely correlated.

click on charts to enlarge

Wednesday, October 10, 2012

Another Scary Chart

Some charts are starting to look very scary. Cummins is one of them. This company seems to accurately predict how the world economy will fare. Earnings warning (second time this year) was blamed on weakness in China and North America.
Chart resemblance with 2008 is absolutely stunning!

click on chart to enlarge

SPX - Just a pullback? Or...?

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Saturday, October 6, 2012

Can You Believe This?

I am no Jack Welch to dispute the latest NFP number. Former, very successful, GE CEO came out yesterday publicly questioning the integrity of Household Data (table below), as total September 2012 employment increased by 873K, which he said is not possible at current GDP growth rate. But I say: it is what it is, and traders will have to trade based on it.
click on table to enlarge
Conspiracy theories aside, I would like to discuss something else I do not believe. So my immediate thought, as NFP release hit the tape, was: wow, unemployment (UE) rate is just 0.9% away from Fed's target! Charles "The Dove" Evans told us earlier this week, that UE has to drop below 7% for Fed to consider stopping QEInfinity. Do you believe him? Not in our lifetime, I say. The doves at the Fed are so scared of stopping their helicopter money drop, that as soon as they see UE just below 7%, they will use another economic criterion to peg their policy decisions to. At this rate (September showed 0.3% improvement) UE will drop below 7% in just three months. Can you imagine Fed stopping QEInfinity in January of 2013, after they told us that "rates will stay at exceptionally low levels through mid-2015"? I can't...

Thursday, October 4, 2012

Presidential Debate Trading Thoughts

As I watched the debate last night, I became more and more convinced about how one or the other candidate's win will impact the market. Forget the immediate effect, it lasts a trading session or two and wears off. The long-lasting effect, starting on Nov. 7 is the one I am discussing here.

Many traders (and I used to be in that camp, but no longer) assume that Romney is good for financial markets and Obama is not, based on the usual notion of republican pro-business political stance. But one has to look at other facts. Obama has presided over more than 100% rally in stock market. No matter how much you think he is against the business community, his policies did not stop the market from rallying hard. This brings the most important thought of mine: Obama's win will mean that Printer-in-chief Bernanke stays to serve out his full term. I think that if Romney wins, Bernanke will have to go. Even if Romney decides to keep him, radical republican party members will insist on his departure.

Does the market have the same notion? I absolutely think so. Most of the rally has depended on QEInfinity. Without Bernanke at the helm of Fed, the market is in huge danger. That is another undeniable fact.

So to sum up: Obama = Bernanke = Stock Market Rally. Romney Win = No Bernanke = No Stock Market Rally.

With this in mind one has to ask a question: why, when it looks like Romney had the upper hand in last night's debate, is the market rallying today? (At least in the beginning of the trading session, as I type...) Is it because of Obama's continuing lead in polls, despite the outcome of the debate? He is also still in a huge lead on Intrade.

Tuesday, October 2, 2012

AAPL iChart

I like my iPhone4, but I do not like AAPL daily chart.

click on chart to enlarge