"Even if the economy were to weaken somewhat further, we should be inclined to resist expected, reflexive calls to trot out the hammer again."
- Kevin Warsh, Federal Reserve Governor, Sun. May 25/08
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In this latest market rally that started in mid-Apr, each selloff attempt had no follow through, and was eventually met with buy the dippers. So what made the selloff on May 19 so different and special? At first glance, not much.
At first I was going to point to the BPSPX rolling over as a reliable sign of a top, but it also rolled over in the first week of May, and that was not the top.
It is only in retrospect that I saw the following signs of the top:
- BPSPX broke below, and closed below its 20d EMA
- SPXA50 broke below, and closed below its 20d EMA
- There was a Trader Vic's 2B top pattern. The first selloff attempt at the beginning of May identified resistance @142.4 - 142.5. Market broke above this resistance level last week just enough to flush out some buy stops. Then the close below 142.4 on Tuesday was confirmation of this reversal pattern. BPSPX was high enough at that point to improve the odds of this reversal pattern being a tradeable top. Had I been aware of these two key tidbits of information, I would have went short near the close on Tuesday. 
Note also that the banks and brokers did not participate in the market's attempt to break above previous resistance, another telling sign.
All of my tells have broken their 20d EMA trendline, confirming that the rally is over. However, since the market is now oversold, and the banking index has neared a support level, I'm not sure how much more downside there is. So, the scenarios that I am looking for, for this coming week, is a toss up between further continuation of selling, or a possible dead cat bounce.
Sectors:
XLE had a nice base and break pattern to the upside, and is only beginning to re-test that breakout level, so there is no technical reason to go short yet. However, Short term uptrend is starting to roll over, so a tradeable short could develop if any re-test of potential resistance @91 fails.
Even though I haven't traded any gold stocks, the above chart is interesting nonetheless for a couple of reasons:
- GDX broke a 2month downtrend
- GDX stayed above its 50d EMA for the duration of the market selloff this past week.
- 200d SMA is still trending up.
- All three trendlines (short, intermediate, and longterm trendlines) are converging at the 46.5 - 47.5 area.
Probably one key factor to watch here is for any further signs of weakness in the USD$.
Sunday, May 25, 2008
Weekend Market Review, May 25
Monday, May 19, 2008
Sell in May and Go Away..... Again?
Summary
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With the way that SPY/ES has been acting so bullish in the past week, even I thought that there would be a rally well into June.
This is the second selloff since the rally began in mid-April, another warning sign that this rally is getting stale pretty fast. The steepness and urgency of this selloff (note how steep the slope of the selloff is....!) is leading me to believe that the rally might be over. However, the previous selloff (May 7) had no follow thru, so the onus is still on the bears to show us that the rally is indeed over. I think we will see the decision played out in the markets this week.
Also, as indicated in my Jaiku.com posting, I am out of all of my Visa positions. Will be looking for another entry once the dust settles on today's selloff.
Thursday, May 15, 2008
Windows Vista Really Sucks !
Summary
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I mentioned before why I thought Windows Vista sucks.
There are those who have succumbed to the abomination that is called WinVista, putting forth the argument that, well, if you have a Quad Core, and 2Gb of RAM, then all my complaints are resolved. Well, I would gladly shell out the extra $1K to upgrade if I could find a reason to do so. WinVista just doesn't provide that reason. I mean, what can WinVista do, that cannot possibly be done on WinXP ??? Win95 => Win98 => WinNT => Win2000 => WinXP ; they were all part of a natural evolution that made sense, where each release added more over the previous release without breaking the look and feel. WinVista tries to add more upon Win XP, but fails miserably.
Well, there's one more reason to add to my argument:
You're freakin' kidding me, right? Taking 5 hours to boot up took a little time to get used to. Consuming up to 1Gb of RAM just to boot up I was able to eventually tolerate. But taking an hour to install a service pack, and locking me out of my own freakin' computer just to do so? You've outdone yourself on this one, Mr. Softie. I am just speechless. It's enough to drive a person to drink.....
Sunday, May 11, 2008
Weekend Thoughts
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Here are some interesting charts that I came across while surfing the past hour or so:
All of them look like good setups. If this were April, I would not hesitate to jump on them if they met my buy criteria. However, it is now May, and the market is not the same as it was in April. Case in point:
BPSPX (not shown in the above chart) is at 56, and the last time it was this high was near the middle of Dec/07. The SPDR Trust, Series 1 (AMEX: SPY) could not close above the 200d SMA, which is still trending down. SPY has actually climbed 11% since the lows put in in mid-Mar/08. While impressively outstanding, it is unusal for SPY to move so much in so short a time. I guess what I'm trying to say is that my opinion is that such performance is not sustainable. MACD and ADX are showing signs of a potential change in trend.
If I were to play any of the stocks in the first chart, I would be going in with caution in mind and it might even turn out to be a daytrade instead of a 2 or 3day flip. If I do make another trade this coming week, you can catch it on Jaiku.
Saturday, May 10, 2008
Fairfax Financial Holdings Limited (NYSE:FFH)
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Ok, so even if you throw away the fact that I only discovered the ascending triangle pattern AFTER I had placed the trade, there's some other interesting things about that chart when I was looking at it at that time which made decide to buy it:
So, I felt that there was a high probability of a reversal at hand based on the above three technical reasons. After I bought, I was discouraged to see it drop further below my entry point. But I was encouraged to see no follow through to the initial sell-off. That was key to my decision to hold on to the trade. It also helped to not micromanage my trade, nor monitor my trade every 3 seconds. As the trading session unfolded, it became more and more apparent to me that 276 was going to be the day's bottom. I held on, and flipped it the next day, +1R profit.
Friday, May 09, 2008
Uranium: Back From the Nuclear Winter?
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The chart of my uranium index still looks like it is locked in a downtrend, however, a look at some of the individual components provides a more interesting picture:
Many uranium stocks are trying to break their downtrends, with Cameco leading the way. This was one of the reasons that I bought Strathmore Minerals Corp (CVE:STM) (see picture in my previous post). However, since I do not have confidence on the probability of success of this trade, it was only a small position. On the other hand, these stocks have been so beaten up, that the downside risk is really not that bad. Definitely something that bears watching next week.
Flip #2: Fairfax Financial Holdings Limited (NYSE:FFH)
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I made another flip trade, this time in Fairfax Financial Holdings Limited (USA) (NYSE: FFH). Bought yesterday (too soon) on the TSX exchange at 280.38 CAD, then flipped it today at 285 CAD.
Though it looks like I made some decent money, I was also risking a lot of money, so in terms of risk, I made less than 1R. All those traders who live and die by the religion of how much money they put at risk in a trade are overlooking one key factor. I have developed my own theory about risk, and it involves the notion that risk is not only about the size of your stop, but it is also about the probability of an event happening. If I risk 1R (where R=amount of dollars risked) on a trading pattern that has 51% success rate, then I make ((51wins - 49loss)/100) ==> 2% of 1R over time. However, if I risk 0.5R on a trading pattern with a 75% success rate, then I make 50% of 0.5R over time. So with the probabilities in my favour, I can risk less and still attain better results. And to take it one step further, if I know I have a high probability play, then I can risk more, which is what I did with my FairFax flip. I'll make another post (complete with a chart) explaining in more detail as to why I felt the FFH flip was a high probability play.
Anyways, I should post these trades in real time to make it more legit, instead of after the fact. But it is what it is.
waiting for Visa Inc (NYSE: V)
Summary
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SPY's selloff two days ago (Wednesday) seems to have been the catalyst for a change in trend in Visa Inc (NYSE: V). Right now, the path of least resistance is 82. This mild pullback also has the potential to be more than just a mild pullback. I have no clue how long this will take to play out, therefore, the best thing to do is just sit back and watch what the institutional participants are doing.
MasterCard Incorporated (NYSE: MA) seems to support my thesis on Visa with its break below 290. It will be interesting to see if, in the next week or two, whether or not Mastercard tries to fill that huge earnings gap that it left behind.
Tuesday, May 06, 2008
Sell in May and Go Away?
A brief look at some sector trends......
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Solar stocks was a recent favourite of short sellers, but I sense may be about to change after today's sector wide up move.
Playing oil stocks is a bit more difficult, since you would be obligated to monitor how the CL futures are being whipped around in addition to the volatile sector movements. But seeing a sector wide uptrend like this is probably what keeps the traders coming back to play again.
The whole shipping sector was in a sector wide uptrend last year, and it looks like round 2 of that uptrend is taking place now.
I am using the above stocks (and indices) as "tells" of the overall health and direction of the market. Right now, these tells are indicating a healthy market, however some signs of a potential change in trend are starting to show up as well.
flipping over YHOO!
Yesterday I mentioned that YHOO had found some buyers.
Well, when I saw it steadily climb up during pre-market and in the first hr of trading, I just had to jump in to get a piece of the action. I bought a small position @23.35, and today, flilpped it @25.85. Made $2.50 per share. I really don't care now if Mr. Softie agrees to take out Yahoo! for up to $37, since I already got my piece of the action, and I am happy with how I followed my plan - buy when the chart was telling me to buy, bought and sold without second guessing myself at whether I could extract another dime out of the trade.....
When a flip like this goes this well, the only thing you have regrets about is not taking on a bigger position.
Ok, onwards to the next flip !!!
Monday, May 05, 2008
Monday morning comments
Jotting down some notes on what I am seeing in the markets......
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Looks like there are some bottom fishers in YHOO hoping for a revival of the deal, as YHOO traded in pre-market at around 22, opened at around 23, and has steady risen to its current price @23.9.
The leaders are leading the market: RIMM, AAPL, GOOG, MA, V are all acting strong. Yeah, the strong market-wide action means we might not see Visa Inc (NYSE:V) drop below 80. I might have to look for a new entry in Visa Inc (NYSE:V).
The shippers is one sector that is in an uptrend - NAT, FRO, EXM, DRYS, TBSI, GMR are all acting strong. I've only started watching the shippers again, and am not sure when and where to buy them yet.
There was talk of a market rally in the fall, but the way things are going, we might be seeing that rally right now. BPCOMPQ is in a sweet uptrend, New highs are outnumbering new lows, market interals are healthy. Oh yeah, and VIX is trending down, which means investors are no longer as scared.
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