Relief rally is here as bigger time-frame buyers step in

Dear readers, the bounce is here as bigger time-frame buyers from the weekly time-frame stepped in to scoop up beaten down shares. In my opinion, this bounce should have some legs for at least one week or more. I have to admit that the low volume gain is very questionable since we are all trained to look for the huge volume normally associated with such a power move up. My hypothesis is that there are many investors who are still hoarding cash on the sidelines. If prices continue their uptrend, then these late buyers should be tempted to step in to buy. In other words, this rally should still have some way to go.

 BAC Weekly Chart - Bigger time frame buyers stepping in to support at $6-ish area. Closing above the $8.54 mark for this week is absolutely crucial for BAC bulls as that would mean more buyers coming in the following week, thus pushing prices higher up.

BAC Daily Chart - I would take some profits off the table at the 50day MA mark and trail a stop loss to protect the rest of my profit.

Trend traders are already starting to cover on some stocks such as Bank of America (BAC). Note the close above the Ichimoku Kijun line, which served as the stop loss for trend followers who are short. Once these group of traders are out and with the late longs in, I am expecting some sorts of reversal at these areas. I would suggest that all longs take some profit off the table when/if price action move nearer to the 50day MA or below the Ichimoku clouds which should serve as major resistance.

It's anyone's guess whether stocks will continue to move higher or retreat at these resistance area. For aggressive traders who want to place their short bets, the best entry point would be at the area where the last of bulls exhausted itself. However, if the market really wants to go higher and goes into a consolidation phase instead, the prudent trader would do well to reverse his shorts and go long.

Good luck!

Bulls preparing to overun Bears in the short term

Dear Readers, we could see potential upside for stocks in the short term with the bulls preparing to lead the charge to overrun the bears. Unmistakably, we are definitely seeing higher lows and lower high being formed on the charts, creating what looked like symmetrical triangles pattern on a broad based basis. This coil-like action could see stocks breaking out either in a thrust upwards or downwards. You can probably guess my bias from the title of my post.

S&P500

Bank of America (BAC) gap up on extremely high volume on news that Warren Buffet will invest in the company. This could possibly be a change in trend for BAC, Change in trend is the areas where investors want to get into the stock as this could possibly be the last time we see BAC under $7.

AIG

General Electric

Direxion Financial Bear 3X

In my opinion, bears are losing their ground. Having said that, we should always keep an OPEN mind at all times in the stock market.

Have a great weekend! Cheers!

Closer and closer to resistance... will it break?

Dear readers, we are getting closer and closer to the resistance for most stocks. Will price actions goes higher or be stopped in their tracks? Its anyone's guess, for now. Being nimble and flexible in these markets should pay well due to the huge resistance created by the huge drop a few weeks back.

I have entered a long trade a few days back. However I am looking to take some gains off the table and then ride the rest up with a trailing stop. In this volatile climate, rallies off shorts covering are very powerful.

Looking a the charts, trend traders have yet to cover their shorts. For those who are looking to short the market, we will need this group of traders to cover their shorts position before a good short entry materialize.

Let's take a look at the S&P500 daily chart.

Trend traders would be forced to cover their short positions at the 1200 level. If that happen, we could even see a powerful rally as high as the 1250 region (50 days MA). That will be a good short entry point if that scenario occurs.

Stay nimble, folks!

Short term bottom in sight perhaps... but mindful of the gaps!

Dear Readers, futures are up about 100points before trading commenced on Tuesday. Charts are increasingly pointing to a double bottom formation, at least for the short term. However, I am mindful of the gap created by the gap down on Tuesday 18 Aug 2011. As we all know, gaps served as resistance or support. In our case, it is the former. See charts below.

If you think this is going to be a short term double bottom and you have the itch to go long, then you could buy with a tight stop loss just below the low of these 3 weeks. I would suggest taking some profits off the table if the price action nears the resistance area. Of course, this does not mean that for sure price action will cease to go higher at the resistance area. We can add more if price action closed above the gap and move higher from there. Remember that anything can happen in the stock market so never say never. Trading is so dynamic and such is the beauty of the stock market.

AIG

General Electric

Goldman Sachs

CAT

At this moment, the trend is still down unless proven otherwise.

Auto Companies

The stock chart of Ford Motor (F) caught my attention. Look at the 2 inverted hammers formed formed at current support. Interesting.. However, a check with General Motors does not reveal the same reversal candlestick patters. Nonetheless, I have no doubt that traders might take this trading signal with a stop loss just below the low of the inverted hammer at $9.90.

Ford Motor (F)

General Motors (GM)

  

Have a great week ahead.

Fear at its best

Banking stocks everywhere are on fire sale! Of course, what is keeping investors from buying now is the fear of the effect of the debt crisis and the implications on the economy. Brand names such as Citigroup, Goldman Sachs and Bank of America are at such fire sale prices that I am sure when we look back in a few years time, we will laugh ourselves silly that we do not pick up more of these stocks. 

The economy will recover, it always does. If there is any truth to this statement "Buy low, sell high", this is it. Check out the chart below for the above mentioned banking stocks.We will need to see if their support level will hold and whether it will turn out to be a double bottom formation.

Citigroup

Goldman Sachs 'The Shark'

Bank of America

Fear is really very powerful indeed. My understanding of how fear works in the stock market is that it create sharp sell-offs and equally sharp rallies as well when greed steps in. The stock market is truly one of the wonders of the world, IMHO.

Waiting game for signs of capitulation

Dear readers, it does not take a genius to tell that the stock market is dropping literally like a falling rock. And i mean its literally plunging on a straight line move. If you are a long only investor, we should be looking at signs of capitulation. Capitulation is defined in Wikipedia as:

" Market capitulation refers to the threshold reached after a severe fall in the market, when large numbers of investors can no longer tolerate the financial losses incurred.These investors then capitulate (give up) and sell in panic, or find that their pre-set sell stops have been triggered, thereby automatically liquidating their holdings in a given stock. This may trigger a further decline in the stock's price, if not already anticipated by the market. The contrarians consider a capitulation a sign of a possible bottom in prices. This is because almost everyone who wanted (or was forced) to sell stock has already done so, leaving the buyers in the market, and they are expected to drive the prices up.The peak in volume may precede an actual bottom."

Let's take a look at one cyclical stock, United Steel (X), which is more prone to the mood and swing of the economy. Note the gradient of the drop. It is almost strikingly similar to the one back in Mar '09.

United Steel (X) Weekly chart

Now, let's take a look at the daily chart. Again, note the gradient of the drop from a gradual move down to a plunging one. So now, we wait.
 
United Steel (X) Daily chart

Sitting on my hands, for now.

Golden Buying Opportunity or Market Meltdown?

Seriously, I had thought that the resulting aftermath of "that big sell-off" would resulted in a huge short-covering as well but what we are seeing now is a series of test on the long term weekly 200day support of the S&P500. The intensity of the drop indicates to me that it is more like a case of panicky selling more thatn anything else.This drop could either be an imminent market meltdown or a HUGE buying opportunity. And I am more inclined to the latter. We should see the market moving higher from here.

My take is that the market goes higher from here. If the market is meant to break this 200 day long term support on the S&P500 weekly chart of 1155pts, it would have bounced right off this level on the daily chart and then hit towards resistance before resuming the drop and eventually breaking the 1155 support. Instead, what we are seeing now is a consolidation of positive reversal candlestick on the daily chart which leads me to believe that the market might have formed a long term bottom here and thus creating a tremendous buying opportunity to load up stocks at this cheap levels.
 

This is my hypothesis, of course. I will only know on hindsight if I am correct on the markets. Meanwhile, my strategy is to go long at this level with stop loss and to add more if the market goes higher or bounce off any double bottom formation. For more conservative investors, one could buy only upon a successfully retest of the 1155 support. Of course, I am not oblivious toi the fact that the ride up will be choppy due to the huge overhead resistance. 

Good luck and have a great week ahead!

Market thoughts - 7 Aug 2011

Dear Readers, its like deja vu all over again just like back in the 2008 financial crisis. The S&P500 lost almost 7% last week. Utmost on everybody's mind now is that whether the markets will rebound from its current oversold situation. Almost every traders are expecting a bounce of sorts for the coming trading week. And just before the close of trading on Friday, rating agency S&P downgraded the credit rating of the US government. Question is: Is this downgrade already been baked into the current beaten stock prices? I, for one, think we'll see the market holding the low of the long hammer reversal candlestick formed on the Friday.

Not the time to be long but one should sell the short term bounce into resistance if / when the bounce comes. You can bet that investors who were not able to get out when the market plunged last week will dumped their shares on any spike in share prices when shorts cover and longs who sense bargain buys. There are signs that the hammer close on Friday on high volume might be a a sign of capitulation where investors dumped their last stocks holdings and no more sellers are to be found. We'll see. At this point in time though, cash is king in this environment.

On a separate note, I have come to know that the Baltic Dry Index (BDI) has been on a spiral downward trend and had not recovered since the financial crash back in 2008. The Baltic Dry Index provides an assessment of the price of moving the major raw materials by sea and is known to be one of the purest form of economic indicator in the sense that only member companies who have actual cargo/ships are allowed to trade in this index with no speculative players involved at all.

This brings us to this particular company Dryships Inc (DRYS), an operator of drybulk carriers who pegged its rates to the BDI. In other words, buying into DRYS is the exact of buying into the BDI. No rates go down forever. This would be a pure contrarian play and dead money while waiting for the index to recover. This might be a multi-bagger when the economy recovers. For all the contrarians out there, i present DRYS. See chart.

Weekend Updates - 1 Sep 2011

Here's a look at the daily chart of the S&P500. It will be the third time since mid-June that the crucial 200day MA will be tested. Will the overall market bounce off or break the support? Financial stocks are still in the dumps but there might be signs that they have formed a bottom as long as the lows of the reversal candlestick patterns hold.

There have been lots of talks that the financial sector needs to wake up in order for the overall market to move higher. Personally, I subscribe to this idea. The next most important point is to determine if the market has factor in the debt crisis for the financial sector? As we all know, stocks do have the ability to forecast the future and perhaps the reason why this particular sector have been stuck in a trading range since the 2008 financial crash could be due to the ongoing reported debt crisis. If this is the case, if this crisis is already priced in (which i am assuming it is - see my point above), we should see the financial sector moving higher soon since markets are forward looking. Anyone agree with me? Let's see.

Financials(Weekly charts)