Well, that was fast.
In the name of "...We need to stabilize/repair our financial systems. We need to get credit flowing again. To families and businesses. We need to stem the spread of foreclosures. That are sweeping our country..." The spending bill passed the Senate.
In reaction, stock values dropped. As I write, the markets are still open. Here is the current data:
- The VIX (fear index) is up 8.43%
- The TRIN (bearish trade volume indicator) is up 515.63%
- The Dow index is down 4.78%
- The Financial Sector ETF, FAS, is down 4.3%
- The NASDAQ is down 4.13%
All of these numbers are continuing to worsen. I will quit watching them so I can conclude this post...
Here is the point
I mentioned yesterday that the NASDAQ was in a confirmed rally. In light of today's news and market reaction, that is no longer true; the rally lasted 11 days and has now ended prematurely. Further, the Dow is so devastated, it has fallen lower than recent lows and might be reaching out to test the two month low.
To my friend Brian, and other position trade readers, you will only want to make longer term trades in a bull market. Yesterday, we had that in the NASDAQ. Today, everything has changed.
Since business is being devalued and personal wealth is reduced, financial market stability is now much more at risk. I hope that your mortgage payment is not placed at risk by renewed stock market losses, I know that many are.
Many people (weather they know it or not) are depending on the success of the stock market. Businesses, IRA's, 401K's, and even some seemingly unrelated investments (i.e. insurance annuities) are all tied to the success of the stock market. It seems to me that this spending bill has already done a lot of harm to to America and nobody, (even those who voted in support of it) has taken the time to read it.
Tuesday, February 10, 2009
Monday, February 9, 2009
Bulls are running the NASDAQ
The economic down-trend is very much in the news but the current confirmed recovery is not. In my little piece of the internet, I plan to inform readers of the truth. (I'm venting)
OK... here's the data:
The global economy went into a recession (duh). Since this hampers business profits and thus earnings, the markets responded with a sell-off. Looking at the charts, one sees that the NASDAQ formed a bottom on November the 21st. at 1295.48. From there, it went into a bull market and recovered over 22%.
On January the 6th, the day we voted to select a new President, the NASDAQ continued its gains and closed at 1652.38. The next day, markets knew the new Presidents name. NASDAQ sold off all day and closed at 1599.06. That's a bit over 3% loss for the day. The selling continued for 9 days and formed a bottom at 1440.86. In deciding what to do next, the market chopped a lot; fear and indecision ruled.
Since that day, the market retested this bottom and then form a new high. Then a higher low and yesterday, an even higher high. (THIS IS HUGE!)
Higher highs and higher lows is the definition of a bull market my friends, and in the NASDAQ, we now have it!
Bigger Picture Stuff
The S&P broad market index also bottomed on Jan the 21st, recovered, and then tanked after the election. It eventually bottomed and is again reaching for the heavens. Since we lack a higher high, the bull market is not yet confirmed.
Ditto that for the Dow Jones Industrial index.
A Dow theorist will also be interested in the transportation index, so here we go: DJT did form a lower low than Jan. 21 yet is in a confirmed bull market.
Next Step
The NASDAQ index is said to be a "leading indicator" which means that the other indexes should follow its lead. (It seems to be lagging by only a day or two.)
The S&P is said to be a six month leading indicator of the economy; if business recovers, within 6 months, people will be working, companies will be profiting, the economy can be expected to recover.
The Final Step
The final question is on the status of the recession. I am not bold enough to make a prediction. There is so much politics involved that we don't know which way it could go. Oops. the market still contains an unhealthy amount of fear and indecision.
Higher highs and higher lows are, by definition, bullish. This market has confirmed its bullish trend. The worst is behind us if politicians don't muck up the work that millions of smart and energetic Americans are investing in this country's economic future.
OK... here's the data:
The global economy went into a recession (duh). Since this hampers business profits and thus earnings, the markets responded with a sell-off. Looking at the charts, one sees that the NASDAQ formed a bottom on November the 21st. at 1295.48. From there, it went into a bull market and recovered over 22%.
On January the 6th, the day we voted to select a new President, the NASDAQ continued its gains and closed at 1652.38. The next day, markets knew the new Presidents name. NASDAQ sold off all day and closed at 1599.06. That's a bit over 3% loss for the day. The selling continued for 9 days and formed a bottom at 1440.86. In deciding what to do next, the market chopped a lot; fear and indecision ruled.
Since that day, the market retested this bottom and then form a new high. Then a higher low and yesterday, an even higher high. (THIS IS HUGE!)
Higher highs and higher lows is the definition of a bull market my friends, and in the NASDAQ, we now have it!
Bigger Picture Stuff
The S&P broad market index also bottomed on Jan the 21st, recovered, and then tanked after the election. It eventually bottomed and is again reaching for the heavens. Since we lack a higher high, the bull market is not yet confirmed.
Ditto that for the Dow Jones Industrial index.
A Dow theorist will also be interested in the transportation index, so here we go: DJT did form a lower low than Jan. 21 yet is in a confirmed bull market.
Next Step
The NASDAQ index is said to be a "leading indicator" which means that the other indexes should follow its lead. (It seems to be lagging by only a day or two.)
The S&P is said to be a six month leading indicator of the economy; if business recovers, within 6 months, people will be working, companies will be profiting, the economy can be expected to recover.
The Final Step
The final question is on the status of the recession. I am not bold enough to make a prediction. There is so much politics involved that we don't know which way it could go. Oops. the market still contains an unhealthy amount of fear and indecision.
Higher highs and higher lows are, by definition, bullish. This market has confirmed its bullish trend. The worst is behind us if politicians don't muck up the work that millions of smart and energetic Americans are investing in this country's economic future.
Saturday, February 7, 2009
Off To The Races!
Home for me is a little town called Indianapolis Indiana. You may have heard of it, its been in the news. Indy is the home of the Indianapolis 500, the "Greatest Spectacle in Racing".
I have never driven on the track but I hear that driving our main streets and expressways are pretty similar. That same competitive spirit carries over in our hearts and results in our competitive street driving skills.
It struck me the other day (while driving) that sometimes, to get ahead, I will get out of the lane that I am in and then get into another lane. That way, I believe that my results will improve. Sometimes I proceed with caution, other times, when the road ahead is clear, I am able to really go for it. Sometimes, I take a pit stop when the car doesn't feel rite or I need a break.
This driving paradigm is very similar to the way that I am learning to trade. Sometimes, to get ahead, I will sell a stock and buy a different one. That way, I believe that my results will improve. Sometimes I proceed with caution by buying just a few shares, other times, when the road ahead is clear, I am able to really go for it. Sometimes, I take a pit stop when the my spirit doesn't feel rite or I need a break.
Could I some day become the "Greatest Spectacle in Trading?" Could you?
I have never driven on the track but I hear that driving our main streets and expressways are pretty similar. That same competitive spirit carries over in our hearts and results in our competitive street driving skills.
It struck me the other day (while driving) that sometimes, to get ahead, I will get out of the lane that I am in and then get into another lane. That way, I believe that my results will improve. Sometimes I proceed with caution, other times, when the road ahead is clear, I am able to really go for it. Sometimes, I take a pit stop when the car doesn't feel rite or I need a break.
This driving paradigm is very similar to the way that I am learning to trade. Sometimes, to get ahead, I will sell a stock and buy a different one. That way, I believe that my results will improve. Sometimes I proceed with caution by buying just a few shares, other times, when the road ahead is clear, I am able to really go for it. Sometimes, I take a pit stop when the my spirit doesn't feel rite or I need a break.
Could I some day become the "Greatest Spectacle in Trading?" Could you?
Friday, February 6, 2009
Boy did I goof!
My reader, km703, pointed out yesterday that my sale of RTP might be premature. Let's see the end of day data. Price opened at $109.02. With the market now closed, Price is 113.82. I missed out on over 11 percent of gain. Obviously, km has acheived a level of Market-Fu mastery that earns my respect and encourages me to press on in my quest.
km 703, my friend, I hope you invested in the stock and kept every penny of that gain.
As I analyse my mistake, I see that I put more faith in the indicators, than in Price.
Ya might have noticed that throughout this blog, I capitalize Price. That is purposefully. In stock trading, Price is king. Whatever Price says is rite. If price is in an uptrend then there is no reason to sell.
On the other hand
When is Price not king? Is that even possible? Yes!
Before my readers think I am contradicting myself, let me explain.
I am holding several positions that are currently Priced below my entry point. There must be a reason that I am holding. That reason is intrinsic value. In my opinion, these stocks are likely to become profitable so the intrinsic value is greater than the actual value.
This can happen in many scenarios, I'll list a few that come to mind.
Fundamentally Undervalued: A companies potential to earn money is the basis of stock Price. If earnings and sales are good, and debt is reasonable and controlled, then there is a chance that current Price is below a fair value for the company.
Fundamental traders look for these gems and buy knowing that some day, Price will catch up.
Book Value: A companies book value is defined as the intrinsic value of the machines, real estate, warehoused stock, and such. Sometimes Book Value Per Share (BVPS) is below the actual stock Price. It can take a while, but sometimes Price catches up.
Short Interest: A company has been doing poorly in a poor market and Price has declined. Short traders have entered postions which, by definition, will have to be re-purchased some day. This short selling drives Price down even further.
There are stocks out there that would require days and sometimes weeks of buying (at average volume levels) just to cover the short positions.
I have made a lot of money on thess paradigms. and hope my readers do also. Especially you.
km 703, my friend, I hope you invested in the stock and kept every penny of that gain.
As I analyse my mistake, I see that I put more faith in the indicators, than in Price.
Ya might have noticed that throughout this blog, I capitalize Price. That is purposefully. In stock trading, Price is king. Whatever Price says is rite. If price is in an uptrend then there is no reason to sell.
On the other hand
When is Price not king? Is that even possible? Yes!
Before my readers think I am contradicting myself, let me explain.
I am holding several positions that are currently Priced below my entry point. There must be a reason that I am holding. That reason is intrinsic value. In my opinion, these stocks are likely to become profitable so the intrinsic value is greater than the actual value.
This can happen in many scenarios, I'll list a few that come to mind.
Fundamentally Undervalued: A companies potential to earn money is the basis of stock Price. If earnings and sales are good, and debt is reasonable and controlled, then there is a chance that current Price is below a fair value for the company.
Fundamental traders look for these gems and buy knowing that some day, Price will catch up.
Book Value: A companies book value is defined as the intrinsic value of the machines, real estate, warehoused stock, and such. Sometimes Book Value Per Share (BVPS) is below the actual stock Price. It can take a while, but sometimes Price catches up.
Short Interest: A company has been doing poorly in a poor market and Price has declined. Short traders have entered postions which, by definition, will have to be re-purchased some day. This short selling drives Price down even further.
There are stocks out there that would require days and sometimes weeks of buying (at average volume levels) just to cover the short positions.
I have made a lot of money on thess paradigms. and hope my readers do also. Especially you.
This one looks a lot like the RTP discussed yesterday. Its symbol is FAS.
FAS is a really fast investment vehicle; a three x leveraged ETF.
What does that mean? Glad you asked! One might on average, expect a stock to move several percentage points each day. A very low Beta stock will move precious little, a high Beta stock will move a lot. My experience with a few favourites indicates about 4% is the most one might expect on an average day.
An ETF is a somewhat diversified collection of stocks, therefore again, a 4% move is what I can reasonably hope for. Since an ETF is a collection of things, and some will move up while some will move down, 4% might be a bit aggressive. (Beginning to sound boring?)
To make this ETF more exciting, it has a leverage of times three. For every dollar moved, the ETF gains three. That in mind, on an average day, we can now hope to see a 12 perscent movement of FAS. On fantastic days, I have seen twice that.
Looking at the chart, we can see that familiar saucer pattern, and, it is within a W pattern. For that reason, I own this vehicle in two different accounts and plan to hold for up to several weeks.
FAS is a financial sector ETF, and that whole industry has been badly beaten up. Even more bad news came out earlier today, so there is substantial risk in the investment. Politics plays a big part in that risk, in fact, the current value of this ETF and the underlying stocks are probably as politically weighted as the underlying fundamentals.
Last night, the news indicates a lean towards changing the spending bill into a bail out bill. If that holds true, this investment could be a very good thing indeed!
Risk is mitigated by the fact that this ETF is diversified across the sector. Some of the holdings are not affected by housing market and credit problems. Those financial instututes should be enjoying the low cost of credit and customers who realize their inherent stability and strong management teams.
Another thing
While studying any chart, it is also important to look at volume. The attached chart indicates lots of traders becoming VERY interested. That's a good thing.
Since most of the volume looks like strong buyers, the pattern is being confirmed!
More options
The ETF that trades under the symbol XLF enjoys the same pattern but is only leveraged once.
UYG is the ProShares offering and is leveraged by a power of two.
FAS is a really fast investment vehicle; a three x leveraged ETF.
What does that mean? Glad you asked! One might on average, expect a stock to move several percentage points each day. A very low Beta stock will move precious little, a high Beta stock will move a lot. My experience with a few favourites indicates about 4% is the most one might expect on an average day.
An ETF is a somewhat diversified collection of stocks, therefore again, a 4% move is what I can reasonably hope for. Since an ETF is a collection of things, and some will move up while some will move down, 4% might be a bit aggressive. (Beginning to sound boring?)
To make this ETF more exciting, it has a leverage of times three. For every dollar moved, the ETF gains three. That in mind, on an average day, we can now hope to see a 12 perscent movement of FAS. On fantastic days, I have seen twice that.
Looking at the chart, we can see that familiar saucer pattern, and, it is within a W pattern. For that reason, I own this vehicle in two different accounts and plan to hold for up to several weeks.
FAS is a financial sector ETF, and that whole industry has been badly beaten up. Even more bad news came out earlier today, so there is substantial risk in the investment. Politics plays a big part in that risk, in fact, the current value of this ETF and the underlying stocks are probably as politically weighted as the underlying fundamentals.
Last night, the news indicates a lean towards changing the spending bill into a bail out bill. If that holds true, this investment could be a very good thing indeed!
Risk is mitigated by the fact that this ETF is diversified across the sector. Some of the holdings are not affected by housing market and credit problems. Those financial instututes should be enjoying the low cost of credit and customers who realize their inherent stability and strong management teams.
Another thing
While studying any chart, it is also important to look at volume. The attached chart indicates lots of traders becoming VERY interested. That's a good thing.
Since most of the volume looks like strong buyers, the pattern is being confirmed!
More options
The ETF that trades under the symbol XLF enjoys the same pattern but is only leveraged once.
UYG is the ProShares offering and is leveraged by a power of two.
Thursday, February 5, 2009
Here is a new chart for us to discuss... RTP
This recent pattern is called a saucer. I used well understood pattern power to take some good profits. I managed to buy my shares during the low part and ride it up until today. Life is good!
Actually, it wasn't entirely a bed of roses. I was very busy trading the shorter time frames and not focusing on the bigger picture. When the market took a dive, I would sell, even if at a loss, just to protect the principal. Then, when the market completed its little tizzy fit, Price would improve and I'd get back in, often at a higher Price. This is called buying high and selling low.
More recently, I decided that a Market Fu master would not behave like that. With my long term goal of Mastering Market Fu in mind, I began to do some mental exercises. When the mind is not focused on a bigger picture, it is justifiable to exit a winner early. When the mind is calm, little turns inside of a powerful up-trend are easily recognised as noise.
While I have not yet perfected mental stillness, I have been well rewarded for the progress made.
Oh, by the way, I'll be keeping an eye on this stock for another reason... another chart pattern.
I am expecting a small Price pull back tomorrow for reasons discussed in my future Bollinger Bands article(s). I am not expecting Price to fall below today's open. If Price falls below $100 and closes, then something very very bad must have happened. Once Price has recovered from this pull-back, I'll be looking for at least a week of raging bulls running and crashing through anything that resists them.
The larger picture, just barely visible in the accompanying chart, is possibly the formation of a "W" pattern. W's (more-so than the saucer) are well know patterns. Since this current saucer represents... ummm... 119 - 79 = 40 dollars of movement, (wow) The completed pattern should be at about.... ummm... 119 + wow = 160 dollars! Another $40 dollars of up-age could be possible.
Now, lets check that... On a larger time-frame, has the stock ever been that high before? On the four year, weekly chart, we see that in May of 2008, Price was a whopping $558 and change. So, is it possible to make $40 on this one trade? Easy! I'll take a bunch of those please.
I'll be looking to re-enter tomorrow or Monday. Then I'll try my best to stay calm and focused on the bigger picture through the little setbacks the market occasionally experiences.
This recent pattern is called a saucer. I used well understood pattern power to take some good profits. I managed to buy my shares during the low part and ride it up until today. Life is good!
Actually, it wasn't entirely a bed of roses. I was very busy trading the shorter time frames and not focusing on the bigger picture. When the market took a dive, I would sell, even if at a loss, just to protect the principal. Then, when the market completed its little tizzy fit, Price would improve and I'd get back in, often at a higher Price. This is called buying high and selling low.
More recently, I decided that a Market Fu master would not behave like that. With my long term goal of Mastering Market Fu in mind, I began to do some mental exercises. When the mind is not focused on a bigger picture, it is justifiable to exit a winner early. When the mind is calm, little turns inside of a powerful up-trend are easily recognised as noise.
While I have not yet perfected mental stillness, I have been well rewarded for the progress made.
Oh, by the way, I'll be keeping an eye on this stock for another reason... another chart pattern.
I am expecting a small Price pull back tomorrow for reasons discussed in my future Bollinger Bands article(s). I am not expecting Price to fall below today's open. If Price falls below $100 and closes, then something very very bad must have happened. Once Price has recovered from this pull-back, I'll be looking for at least a week of raging bulls running and crashing through anything that resists them.
The larger picture, just barely visible in the accompanying chart, is possibly the formation of a "W" pattern. W's (more-so than the saucer) are well know patterns. Since this current saucer represents... ummm... 119 - 79 = 40 dollars of movement, (wow) The completed pattern should be at about.... ummm... 119 + wow = 160 dollars! Another $40 dollars of up-age could be possible.
Now, lets check that... On a larger time-frame, has the stock ever been that high before? On the four year, weekly chart, we see that in May of 2008, Price was a whopping $558 and change. So, is it possible to make $40 on this one trade? Easy! I'll take a bunch of those please.
I'll be looking to re-enter tomorrow or Monday. Then I'll try my best to stay calm and focused on the bigger picture through the little setbacks the market occasionally experiences.
Monday, February 2, 2009
Here comes another chart.... this time, it is a big kahuna, the S&P 500, which is represented in its trade-able form, the SPY.
We can see a brutal down trend that began on January the 28th.
Today, February the Second, we can see a glimmer of hope, the downtrend momentum seems to be breaking up; the mid-day high was a pretty strong bounce. The bounce actually popped up to the 20 period Moving Average (ma) before retreating.
This is exciting for several reasons:
1) Price has not touched the falling 60 minute 20 ma for a couple of days
2) The mini rally broke the momentum of the downtrend
Sidenote:
Since momentum has been broken, we can expect some chop while waiting for Price to indicate a new direction. It could go either way but the bigger picture is down.
All of that to say, more than Price can serve as support and resistance; often certain indicators will have that effect. In this case the 20 ma did the trick. It is a major psychological barrier and a powerful tool that we can use. I like to watch that ma line for market direction (is it generally heading up or down?) and, of course, support/resistance. The 50 ma is also very powerful. More on that later!
We can see a brutal down trend that began on January the 28th.
Today, February the Second, we can see a glimmer of hope, the downtrend momentum seems to be breaking up; the mid-day high was a pretty strong bounce. The bounce actually popped up to the 20 period Moving Average (ma) before retreating.
This is exciting for several reasons:
1) Price has not touched the falling 60 minute 20 ma for a couple of days
2) The mini rally broke the momentum of the downtrend
Sidenote:
Since momentum has been broken, we can expect some chop while waiting for Price to indicate a new direction. It could go either way but the bigger picture is down.
All of that to say, more than Price can serve as support and resistance; often certain indicators will have that effect. In this case the 20 ma did the trick. It is a major psychological barrier and a powerful tool that we can use. I like to watch that ma line for market direction (is it generally heading up or down?) and, of course, support/resistance. The 50 ma is also very powerful. More on that later!
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