Commodity pullback?

Below is a weekly chart of SLV.


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My friend KM makes a good point: Silver should be pulling back some. As we can see, last week's action totally blew through the Bollinger Band. This typically indicates a turning point. The decline should be swift, and result in one ore more red candles.

There is some support nearby, however, $14.00 looks like the first really strong line in the sand.
With my stop in place, I am guaranteed profit and if it does pull back, I'll re-buy with twice the position size.

Happy hunting.

Three long weeks

For a long darn time now, the market has been moving up and down, making and loosing the same dollar over and over. Blah!

Of course, there are hot-spots: Gasoline (UGA), some commodities (SLV, GDX), agribiz (DBC), and more.

"The metal (silver) has gained 33% this year. In comparison, gold has risen less than 10%... The $15 level is a break-out area for silver," said George Gero, a precious-metals trader for RBC Capital Markets. "Silver is not a pure precious metal. It's also an industrial. So what helps silver is the fact that there could be a recovery." (From IBD)

Essentially, the market has been marking time with millions/trillions of dollars moving about with nothing to show for it. (Hmm... that sounds familiar.)

There is a chance of movement though:


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The last two highs in this daily SPY chart are lower than their predecessors. The lows are higher also. There are many more down days than uppers; I think I'm seeing a trend develop.

Probably best to wait it out until the market picks a direction. But, as mentioned earlier, there is a direction in several key sectors.

Rats! The FreeStockCharts.com hover widget doesn't work here. Oh well.

Testing...

This is a real-time daily chart of the SPY. I am trying out the widgets at FreeStockCharts.com

Had to chart the SPY because the pull-back seems to have failed... I am somewhat invested in bullish stocks and ETF's now.

My trading friend, KM703, offers us this daily chart of SLV, the Ishares silver ETF. In fact, he offers it just in time!


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Since Price is above the 20ma, and above the rising 50ma, this is pretty safe. Further, KM shows that key resistance points have been broken and there is plenty of room overhead for growth. The upper Bollinger Band has opened up, Volume is on the rise, and resistance at $15 seems to be pretty weak compared to the current level of momentum.

I am equally encouraged by the 30 minute chart which shows no intention of pulback.

Here is an interesting article about (among other things) commodities buying in China.

Here is a goldmine of commodity vehicles, some will be great investments rite now.

Update: Here is a great article on copper.

Thanks KM! You can contribute here anytime.

Update: There was a huge pullback this morning. I took advantage and bought in. I have placed a % trailing stop to sell just so I am protected... I don't plan to 'work' this one, I hope to hold it for at least a few weeks.

The Foole has been Fooled... leveraged ETF's have issues.

Here is a chart of SDD the 2x leveraged Ultrashort Smallcap 600 fund...



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Here is a chart of SAA the 2x leveraged Smallcap 600 fund...



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Notice that these charts do not reference Price, they are referencing position to the SPY, broad market index. Next, notice that they are both below the SPY. I am here to cry FOUL! Since they are opposites, one or the other of them should be in the money.

Sadly, this is not peculiar to this pair. From what I can tell, most if not all of the 2x and 3x pairs are not appropriately balanced. In fact, the Proshares website indicates: "This ETF is designed to meet daily objectives; results over longer periods may differ."

Conclusion:
- These are wonderful vehicles for intra-day trades. They provide access to markets previously unreachable and they leverage your gains/losses.

- It was suggested to use these as long term investments by our friends at the Motley Foole, but they didn't do the math (my friend IIC at SharpTraders.com did).

- It should be good (wonderful) for a longer term trade to short the opposite of the pair.

- Ultimately, to make reliable gains, we should invest in fundamentally sound stocks during a bull market. (I like the book Rule One Investing for this.)

Around the Horn

- SPY, Broad Market Index:
(Daily Chart) Uptrend broken. Overnight action has resulted in Price laying directly on the 20ma
- BGU/BGZ, Large Cap Sector:
(Daily Chart) Uptrend broken
- MWJ/MWN, Mid Cap Sector:
(Daily Chart) Up-trend thoroughly broken. Lower high, lower low.
- TNA/TZA, Small Cap Sector:
(Daily Chart) Up-trend thoroughly broken. Lower high, lower low.
- TYH/TYP, Technology Sector:
(Daily Chart) Up-trend thoroughly broken. Lower high, lower low.
- FAS/FAZ, Financial Sector:
(Daily Chart) Up-trend intact. Lower high, lower low.
- ERX/ERY, Energy Sector:
(Daily Chart) Up-trend intact. Lower high, lower low.

Monday may be a good day to place long positions in short ETF's.

News headlines

http://www.google.com/hostednews/ap/article/ALeqM5jXPJmkJdyKGBu_J5HvhnfYCkYAzgD98B6O7G0

TOKYO (AP) — Japanese stocks fell Friday...

WASHINGTON (AP) — New rules for the credit card industry...

SINGAPORE (AP) — Oil prices stayed above $61 a barrel Friday in Asia as investors sought a hedge against inflation amid weakening U.S. dollar...

BANGKOK (AP) — Asian stocks wilted Friday as the possibility of credit rating downgrades for major economies and bleak unemployment figures in the U.S. added to fears the recent massive rally was built on shifting sands....

LONDON (AP) — British Airways on Friday reported its biggest full-year loss since...

WASHINGTON (AP) — Auto lender GMAC Financial Services will receive $7.5 billion in additional government aid...

WASHINGTON (AP) — The federal seizure of struggling Florida thrift BankUnited FSB is expected to cost the Federal Deposit Insurance Corp. $4.9 billion...

Further: (From here)

"Currently, 46¢ of every dollar that the federal government spends is borrowed, which makes each dollar worth less in terms of other paper money alternatives, or in terms of a basket of commodities."

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Hmmm... Methinks thes headlines may seal the deal for bears, at least for today.

Have fun!

The 20 is broken

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The chart above is the broad market index, the SPY, daily.

As you may notice, the center line of my Bollinger Band, the 20 day Moving Average, has been breached. In fact, we closed below it. This powerful signal indicates the beginning of a pullback.

There is a lot of support below (see this video) so no one has a clue how deep the pull-back will be, but I'm hoping that it will be significant. The market needs a higher low to draw in basketfulls of sidelined money.

Oops... dinner is ready... gotta go!

Market may be turning

My friend D7 at freetradingvideos.com did a great wrap-up video last night... It's a must see.

http://www.freetradingvideos.com/vlog/Events/default.asp?Year=2009&Month=05&Day=20

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Something that nobody seems to be mentioning is that the last day President Bush was in office, the SPY closed at $92.85. That level was tested on the 7th, and 8th of May. On the 8th, the market actually did close above that level ($92.98). The theoretical line in the sand then failed. Yesterday made a high only 5 cents below that.

Somehow, I can't see how market fundamentals have improved since then. Therefore, I expect a significant pullback.

D7 and I agree that it is early to place your investments... that would be betting. Like he says in the video: "trade with your eyes not with your mind."

Here is a 60 minute chart of FAS:

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Is this a Head and Shoulders forming?
This could indicate a small recovery and pull-back in the making.
A downtrend in financials can pull the rest of the market.

The Stars Were In Alignment

The TRIN was in the mid 70's virtually all day.
The TRINQ started over 1 but fell to .5's during the day.
The TICK 8ma was positive all day.
The TICK Q 8ma was positive all day.
The VIX fell to new lows.
The Advance/Decline was above 50% all day. (51 to 76 range)
The A/D Q was above 40% all day.
The banking index was improving all day.

The results:
The SPY bounced off the daily 20ma thus reversing its downtrend.
I covered my small short position (sold TZA), bought FAS, and made money for the day.
The markets are, at least for a little while, bullish.

There are plenty of reasons for the markets to fall but for now, let's rock!

Update: This morning is not getting off to a very good start... As I write, the A/D is totally flat.

Note To self (and watchful readers): extreme Tick indications often indicate change in the air... on 3-3-9, the weekly Tick was -576 thus indicating oversold. Odly, there have been several times where the Tick was over 1000 resulting in trend reversals only half of the time.

When the SPY made a Head and Shoulders which failed to fall much, Tick was forming a pendant around the center of the trading range. I had full sized positions in EFU and SIJ... lost WAY too much on that!

AlphaTrends is out of my scope

Brian Shannon is a professional trader and trade teacher. He authors the Alphatrends videos that are abundant on YouTube. It is good stuff... so good that I paid a lot of money for his book, Technical Analysis Using Multiple Timeframes.

That's where the problem begins. When I bought the book, it was under the agreement that I would have access to his password protected Bonus webpages. Page 184 of the book tells me the URL and password. Since then, Brian has chosen to remove this section from the website. Further, his daily videos are no longer accessable without paying a subscription.

I emailed him with my concerns. He blew me off.

Due to this lack of integrity, I am removing his link from my universe.

Mistake? Maybe.

Poopy! I made a newbie mistake....
This TZA chart clearly predicted today's bullish Price action.
The two previous days printed a picture perfect Bullish Harami and I missed it.



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Had I seen that, I would not have owned TZA today.
Fortunately, my position was small due to my concern about the pullback.

So... am I bullish? No! I may not even exit this position. Here's why:



Click for larger... yada yada.

Depending on how the upper trend-line on this 60 minute SPY chart is drawn, our downtrend may still be in tact.

Oops... the SPY daily chart is a Bullish Harami. Bullishness is expected.
On the other hand, today's volume was low. There is a good chance it could be crying "wolf"; One would reasonably expect that large amounts of volume would be required to reverse a trend.

Tomorrow will be exciting... we get to learn things! Bring it on!

Did I explain that well enough?

New ETF's and Market Status

Direxion has added some new 3x ETF's to their list. I am including two of them here: Mid Cap, and Technology, since they have enough volume to chart fairly well and are so important.

- SPY, Broad Market Index:
(Daily Chart) Closed below up-trend line
- BGU/BGZ, Large Cap Sector:
(Daily Chart) Perilously close to breaking the up-trend line
- MWJ/MWN, Mid Cap Sector:
(Daily Chart) Up-trend thoroughly broken
- TNA/TZA, Small Cap Sector:
(Daily Chart) Up-trend thoroughly broken
- TYH/TYP, Technology Sector:
(Daily Chart) Up-trend thoroughly broken
- FAS/FAZ, Financial Sector:
(Daily Chart) Up-trend intact
- ERX/ERY, Energy Sector:
(Daily Chart) Up-trend intact

Conclusion:
Tomorrow should provide more information.
Before "betting the farm" on a downtrend, I'd like to see all sectors in agreement (well... except possibly energy).

All of these sectors are inter-related. If Large Cap is tanking, those businesses should be doing precious little business with the others. Then (note to self) this places the Real Estate and Financial sectors at risk.

I am holding a small position in TZA, because I think I know which way it's going to go.

Does this help you?

A temper tantrum

To begin, I must express my outrage... the one minute chart lies!
It only took me a few minutes to find an example 'cause it happens all the time.
Here is the one minute, two hour, chart of today's FAS Price action:


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Notice the points identified by the letters A thru E...

A marks the point where Price is highest
A is followed by a higher (than the previous) low, so we can expect a higher high to follow
B indicates a lower high

Therefore we should expect that the rally has ended and a downturn has begun (sell short here)

C This lower low and high confirm the downturn is intact

Now, here is where it gets sticky...

D This is a higher high than the previous
E This higher low confirms the beginning of an uptrend

But does it? No! From there, Price takes a nosedive. (Grrrr)
At point D my short trade stops out at a loss.
Then the stock merrily performs as I expect it to (without me).


Plan B and Oops!
Here is a 60 minute, 4 week, chart of the same ETF:


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A Higher high followed by a higher low (add to a long position at the breakout)
B Higher high followed by a lower low (stop out at a loss)

OK, with a lower low, the uptrend is over

C High of the day (Grrr! times 60)

This stuff is tricky!

Conclusions:
Don't be afraid to stop out at a small loss... it happens
Ya can't perfectly pick tops and bottoms
If you want to ensure a small profit, update your stop after every candle, or set a tight trailing stop
Ride out the ups and downs when you know a stock is moving your way on a higher time-frame

Help?

Around The Horn...

... in several ways.

I need to review the status of my favorite ETF's, and warn about the possibility of a market pullback.

- SSO/SDS, Leveraged broad market index:
(60 minute chart) Bull rally trend broken today. Still above the rising 50 ma but below the declining 20 ma.
(Daily Chart) Bull Rally, rising 50 ma.
- FAS/FAZ, Financial Sector:
(60 minute chart) Bull rally trend broken today. Still above the rising 50 ma but below the declining 20 ma.
(Daily Chart) Bull Rally. Above the rising 50 ma.
- ERX/ERY, Energy Sector:
(60 minute chart) Bull rally trend broken today. Still above the rising 50 ma but below the declining 20 ma.
(Daily Chart) Massive Bull rally. Above the rising 50 ma.
- TNA/TZA, Small Cap Sector:
(60 minute chart) Massive Bull rally still intact. Still above the rising 50 ma but closed at the declining 20 ma.
(Daily Chart) Massive Bull Rally. Above the rising 50 ma.
- BGU/BGZ, Large Cap Sector:
(60 minute chart) Bull rally trend broken today. Still above the rising 50 ma but below the declining 20 ma.
(Daily Chart) Bull rally. Above the flattening 50 ma.

From $14 to $35.60, TZA has moved a lot. More than double... Wow! We have yet to recover the pre-election levels but the run has been exhilarating. I wish I had bought and held for the duration, I'd have done better even with a smaller investment. I'll catch it next time.

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Now is a good time for me to sit back and watch. The market seems to be indecisive about its future (the next few weeks). Since the rally's trend lines have been broken, this might signal a change coming.

Market Tao: Rules List

Version 0.2.2
This list of Market Tao (definition) trading rules is a Beta release.
I'll update it from time to time, adding my findings and (maybe) yours. (please help)

Selling:
- Use stops or carry the memory of a bad trade, possibly indefinitely
- Update the stops to protect profits
- Trailing stops work well in certain situations
- Never hold over earnings
- Bollinger Band Sell signals take precedence over the Advance/Decline indicator on shorter time periods

Buying:
- "Stop to buy" is risky but can keep you from missing a rally
- If your entry is late, don't
- Go long or short depending on the 50 day (50 hour?) Moving Average direction and/or the 60 minute SPY patterns
- Daytrade long or short depending on the Advance/Decline indicators (Price and Volume)
- Look for price patterns and volume to indicate a developing trend
- The Adv/Dec line takes precedence over MA signals on shorter time periods
- Buy high. Sell higher
- Never buy on a declining Tick
- Watch for Trade #1 setups, but maintain Situational Awareness (many timeframes)
- Watch for 50 MA crossover setups
- Watch for Trade #3 setups that conform to the 30 minute gap strategy
Hey, What happened to Trade #2?
- When The Stars Are In Alignment, bet the farm (briefly)
- Make four Watch Lists and use the appropriate one
- keep an eye on the Bull/Bear Index and/or the alternate Bull/Bear index

Stocks:
- Why stocks?
- 3x ETF's make/loose more money than 2x'ers for the same time period. Some days they can move 25%
- Since ETF's are watered down by their sheer volume of members, individual stocks can make better short term investments.
- The Tick chart is important and responds much faster than the Adv/Dec line
- Win or loose, get over it
- Take care of the personal needs

Alphatrends update

Brian Shannon of Alphatrends has updated his web presentation. He no longer lives at blogspot.com. The link to his new home is posted in my right sidebar.

The good news is that his videos are longer and more in depth. Yay!
Sadly, the Bonus section (for book purchasers) has gone away.

QQQQ update

This hourly chart of the NASDAQ...


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...shows that the NASDAQ remains below its trend line, but is still outpacing the broad market index. (SPY) Definitely something to watch! Once they cross, I expect an exciting race to a new bottom will be on. I already have a small position in QID which I'll beef up when this thing gets more steam. Further, I'm watching my four favorite bear ETF's for signs of an up-trend... I'll let you know.

I just can't see how all this political news is bullish over the long term. (help me?) Further, with the price of energy on the rise, business fundamentals and expendable income will decrease.
Its a mixed bag though. Financial institutions are still undercapitalized (bearish) but "we the people" are going to inject more capital as needed (bullish). This will have a long term effect on our debt (bearish). When financials are healthy, industry and families will be able to satisfy their banking needs (bullish). Whew! I am not smart enough to get a read on that mess. Methinks few are. Therefore, the resulting fear and uncertainty may drive the markets down.

Which reminds me: With my ERX investment up 10%, I locked in the profit this AM... will re-buy later.

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The chart above was created at FreeStockCharts.com.

Someday, I hope to interview the web site owners and publish an article for the FreeTradingVideos.com newsletter.

FreeStockCharts requires an install of a Microsoft add-on called Silverlight which is a hassle. I hate to add more stuff into my PC for fear that overall response time will be reduced, mal-ware risk will be increased. Once installed though, I am happy to have access to these charting features.

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Oops! I just scrolled in to a tighter timeframe (by simply rotating the mouse wheel) and see that the Q's are significantly below the SPY now. Happy trading!

Update: My QID trade stopped out at a loss so I bought a large position in FAS. I'll sell most of it later today and hold some for future gains. At lease for the moment, the market has cautiously picked a bullish direction.

Caution is called for here...

Here is this morning's 60 minute chart of QLD...
Notice the little red candle under the trend line.


Click for a larger image, browser back.


The NASDAQ has fallen out of its bull trend in a big way.
Further, there is a lower high. A lower low is being formed as we speak.
I recommend extreme caution in placing any long positions but keep an eye on the bear stock ETF's like QID, FAZ, TZA, and BGZ. It is still early to jump into these ETF's IMHO, but their time may be coming soon. It's up to you to plan your risk/reward and thus, entry points.

Well, that's not completely true... The exceptions are things like DXO, ERX, and UGA which I continue to hold.

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Have you noticed that the price of gasoline is on the rise? I sure did. The price at the pump is an index that I watch. When it goes on the move, I trade UGA. Its so cool! As gas becomes more expensive, I pay more for it but make it back in my trading! Yum!

Note: DXO is up 6% but UGA is only up 2%. Methinks that UGA has some catching up to do.

This just in -- History about to be made

FAZ has tested the $10.00 line twice this morning. Ya might want to keep an eye on it since there is so much momentum in this month's rally.

Be careful with it though, the internal indicators are mixed. I have been leaning to give the Advance/Decline index a lot of respect. It is slightly bearish at the moment.

Oops. The Tick is also bearish......... we may have to wait a few days (hours?) for FAZ resistance penetration.

Update: SPY made a bear flag, the VIX is in a series of higher highs, The A/D is still bearish, the Bank index is falling, Tick is falling, all my favorite ETF's are under water, yada, yada, yada.

I think I'll take the rest of the day off.