The Insightful Trader

After taking a breather yesterday, the market resumed it’s upward bounce in impressive fashion today. The market opened  with a 6-7 point pullback the first 15min, but from then on it was onward and upward the remainder of the the day so that by 10:30 we were right in the middle of a resistance zone in the 735 area. Pulling back slightly to catch it’s breath, by noon we were in a steady uptrend which gained momentum throughout the rest of the day. The net result was a DOW that closed up an additional 3.5% and a S&P that was up slightly over 4%. This was despite MSFT which didn’t participate at all, though once again the techs and semis were strong across the board.

Oil prices moved higher, above $47, as did gold, while the dollar showed a little weakness. The oil stocks did not really participate today until after lunch and then made a nice catchup move this PM. AG stocks failed to participate at all, trading pretty much mixed throughout the session. Financial Stocks were once again the shining stars today with many, such as COF, JPM and BAC up over 15% today and the BKX being up over 11%. Brokers were also strong. The result is that some of the financials are up 30% the past three days. GE, now considered a hybrid, was up  over 10% again today. Everyone’s favorite 2-1 financial trader SKF dropped a whopping 30 points today so that in 10 days its had a perfect round trip from the 140 range, up to 265ish and back down to 140ish again. Breath taking for those on both sides of the trade.

So where do we go from here. I’ve taken the liberty of drawing in some near term resistance levels in the SPX 60min chart below. Despite over a 500 point move in the DOW the past 3 days, we’re still only barely 1/2 way recovered from our breakdown at the 800 level just a few weeks ago. So even though I’ve been eagerly awaiting this bear market bounce, I think we’ll have some backing and filling as we make our way upward. How far can we go? The pundits are calling anywhere from the 800 level to 900 and even a 1000 on the S&P. We’ll look at some fibonacci levels later, but for now I took a few of my long positions off the table and lightened up a little on some of the others, notably AMZN and the Q’s. I’m still long some XLF calls and some AXP from the 10 area.

We had to wait a few days but finally we had a heck of a short term bounce, over 350 points led by the financials, of all things. But everything was strong with the exception of the metals with gold being off again. Our friends at Sentiment Trader posted this chart late yesterday. What it shows that on a historical basis we could be in for some positive moves over the next few weeks.

Of course all the talking heads led by Cramer who just 2 days ago was saying that after careful study he eas picking 5300 or some such as the bottom. Then last night he was enthusiastic about the rally that it was almost sickening. One area I do agee with him is that the SEC does need to reinstate the uptick rule and yesterday Barney Franks indicated that it could be done within a month. I agree that removing the rule was hurtful for the individual traders.

We do need to be careful here however. Looking at the charts, as you can see we have some gap resistance coming up at the 730-740 area. Plus we went from being oversold to over bought in 1 day on some of our indicators. So a gap up this am that stalls out in this resistance range, means we could see some pullback. So I’d be wary of chasing gaps until we see continued buying coming in.

The NFP came and went with not much reaction initially. Numbers for once were about in-line with what was expected but the big kicker was a revision showing that we had  lost even more jobs than reported from past months by another 160,000. The bulls were determined though, so we initially had a nice surge into positive territory which, surprise, surprise, was immediately sold into so that by 10:30 we were back where we had started and by 11 were definitely in the red. That’s where we remained the rest of the day finally working our way down close to the next support  area before staging a pretty healthy looking rally, on decent volume, the last 30 minutes of the day to barely finish in the green. Not the kind of bottom I was looking for if indeed it was a short term bottom. Flip a coin, not sure anyone knows at this stage.

I have to admit the most encouraging thing I saw all day was Cramer and others picking bottoms a 1000 points or further away. Much as all the pundits were calling for $250 oil and the DOW hitting 16,000 almost exactly at the top, perhaps this is a good sign that maybe we actually are close to a short term bottom. Have to admit, it looks pretty bleak out there. Speaking of pundits and their reporting, the hottest video on the internet right now is John Stewart’s takedown of CNBC on Comedy Central. This is a must see if you haven’t seen it yet.

I’ve got two charts for you to take a look at , the first is the 5min from Friday which looks a little encouraging whereas the following 30min still looks pretty grim.

As long as we hold 645ish area I ‘m still somwhat hopeful that we have the potential to make some type on meaningful bounce here.

What a week. After a nice little oversold rally yesterday, at least for the first 2/3 of the day, the futures were down overnite, only to come bouncing back the first half hour today. Then reality set in and it was pretty much downhill the rest of the day other than a couple of half-hearted bounce attempts. The net result was we were down about 4% on most the major indexes although tech actually held up quite well today, perhaps helped by ADBE’s  report. And of course tomorrow morning we have the Non-Farm-Payroll. The dollar is already weaker tonight and gold had a nice move up today after being whacked for the past7-8 days. Not that it did me any good after going long early this morning, of course after getting whipsawed a couple of times overnite, had Ed Seykota’s ‘The Whipsaw Song’ on auto replay, I went long at 913 and put my stop too close at 911, which promptly got taken out just minutes before it makes a 25 point move to the upside.

But speaking of NFP, what the heck, who needs jobs anyway? Having a job is way over-rated. With all the other governments around the world cranking up their printing presses, bound to be money for everyone. If not that, then we can all become day traders. What with the VIX back up in the 50 range again, volatility has been crazy in certain stocks this week. Make that most stocks. So what if your life savings are invested in C, which managed to barely escaped closing under $1.00 today or BAC sitting at 3, when you can make 20 points a day on SKF. It’s only up $100 the past week as financials continue to melt away to nothing. Sheesh, just made me wonder what the price does when every financial stock out there goes to 0, does SKF keep going to infinity? 

FAZ, one of the new 3-1 bear ETFs has gone from 48 to 103 high today in the past week. Glad I sold at 74 yesterday. Or you could have traded POT which has fallen from 81 to 69 since yesterday morning or GOOG which is down nearly 40 points this week and had a 20 point range today. Just read some gurus advice earlier in the week to buy GOOG at 340 and sell a march call for $10. He had it worked out to some pheonominal return on an annualized basis. Wonder how all the people that followed him into that trade are feeling tonight? So anyway, I say, to heck with jobs, and bailouts, we just need Uncle Sam to send all of us $25k to open  a day trading account and we’ll all be filthy rich in just weeks.

On a serious note, the market  still continues to hunt for the ever elusive bottom as the news just continues to overwhelm us. Between GM’s auditors warning, like where have they been hiding for the past 2 years, must have been stock analysts prior to becoming auditors; GE continuing to come under pressure despite denying they need money, does anyone believe any corporate CEO these days; and Moody’s finally waking up and threatening to cut bank ratings even more, they were playing golf with GM auditors I suppose, the market is like the fighter in the ring who has already been hit a few times to many. Every time it even thinks about standing up, it gets punched again. Our next support zone is coming up quickly in the 645-660 area. I’ve been joined on the potential bounce side by Doug Kass and then today money manger Steve Leuthold, who earned Grizzly Short Fund investors 74% last year by shorting stocks says now is the time to buy(moneynews.com). Of course a recent article on the businessinsider.com site has Robert Shiller’s cyclical P/E analysis which is interesting reading if you feel like being depressed. I actually agree with a lot of it, that we could see valuations must lower in the longer term, just hopefully not in the next week or two.

Before we get into our charts, a couple of interesting articles you may want to take a look at. The first by Larry Edelson from Money and Markets has a good discussion about the water crisis, which has been one of my pet concerns for awhile now, along with a few recommendations of water related stocks that may be of interest to you as  a longer term investment. In my opinion I truly feel that water may be the major causes for war at some point in the future. According to his article and I’ve heard similar numbers elsewhere, 10,000 children/day are dying due to water problems on our planet. Kind of puts a weak market in perspective doesn’t it.

The other article I read with interest since I trade currencies also, is Tom Dyson’s article yesterday in Daily Wealthregarding the Yen. He makes a good argument that Japan could be the first major sovereign bankruptcy.

I’m way behind on getting some new posts into the Trade of the Day area and we’ve had some really good ones both in stocks and currency. I will try to get those caught up this weekend. I’m still long some real small positions in Q, AMZN, and XLF calls and will probably add to the position if we get down into the 660 area with fairly tight stops at that point.

Here are several charts for today. First is a 16 year S&P showing support areas and the next two are the NASI and NAMO which are conflicting, although the NAMO is the more sensitive of the two.

Despite a couple of attempts at a decent rally yesterday, the market still finished slightly negative for the day bringing us to an unbelievable 11 days out of 12 that we’ve finished down for the day in the S&P. It also brought us to a close below 700, but we remain in the 685-700 support range with the intraday low hitting 692ish. The economic reports remain frightening. Automakers reported horrendous results again for February, down anywhere from the 35-50% range, depending on manufacturer. We had Bernacke making comments, trying to put on a positive spin to the stimulus package while Geithner was testifying most the day, which of course was cheap filler for CNBC listening to our leaders asking dumb questions for the most part. I could only take so much and had to shut off the sound after awhile.

Gold remained under pressure most the day before finally climbing some towards the end of the day although gold stocks did a little better. Overnite so far it has been trading in a narrow range in the low 900s. The dollar continued its climb albeit a little slower. Tech stocks which acted pretty well most the day, got hit hard in the late afternoon, while energy stocks were mixed with the exception of FSLR which had a great day despite some late day profit taking.

So the question remains, where do we go from here. Personally I feel like that we may be closer to a short term bottom, although it does bother me that a lot of others seem to feel that way also, which typically doesn’t make for good bottoms. Looking at it from a historical standpoint, we typically have decent corrective rallies, even in extremely weak markets, sometimes as much as a 50% retracement. I’d settle for 25%.  We haven’t in this sell-off yet, so though I feel like that we may have another 5% risk to the downside in the short term, I feel we may have more potential to the upside. Because of that I started nibbling at a few long positions, primarily with options and picking up a few shares of some of the safer high yield stocks. But notice I emphasize small here.

Take a look at the BPENER chart below. This has been a consistently reliable indicator on oil stocks and as you can see, we’re definitely getting into an oversold position here.
Positions held- long XLF,NLY, QQQQ, AMZN

What a month. Febuary, which started with a small promising bounce, turned into a disaster month for the market. We’ve now had 6 straight months that the market has been down with 8 out the past ten months being negative. Be sure to notice the volume level on the charts below. On top of that we start out the month of March with numerous economic reports which may not help the bullish cause. We have both the ISM index and services report Monday, Tuesday, we have pending home sales which could continue to remain ugly, Wednesday the Fed Beige Book comes out, Thursday we have January factoy orders and last but not least Friday we have N0n-farm payrolls. If expectations are in line, than we will have over one million less jobs than we had just 2 months ago. It will be an interesting week to say the least. Our technical indicators are oversold, but nothing says they can’t become more so. At some point I still feel we’ll have a bounce, but I’m still waiting for the market to tell us when and not venturing a bottom feeding guess. If you’re short then trailing your stops is probably your most prudent action.

After a strong close yesterday and overnight strength in many foreign markets, it was shaping up in the pre-market this am to be a strong opening. That’s exactly what we got, but the trade of the day was to short anything on the opening because that was the high of the day. The rest of the day was steady selling nearly all day, with the exception of a relatively weak attempt at a bounce around 2:15 that was quickly snuffed out within 15 min. Nothing was spared today. The financials, which had kind of held their own early, finally succumbed to the late selling pressure although the BKX managed to close even. The brokers and exchanges all got hit hard today, but then so did most everything else. Oils, oil servicers and anything else energy related, including coals and solar, were all under extreme pressure today as fears continue to mount that we’re nowhere close to the end of global slowdown and according to some well followed economists, we’re only in the 4th inning.  Even tech stocks, which have been relatively strong recently, were under the gun today with nearly all being down in the 5% range for the day. For GOOG that equated into a 16+ point loss. In other markets, the dollar staged a strong rally starting about midnight last night against nearly every major currency and gold eased off slightly today. The biggest bull market in the world right now is in gold coins which are in short supply worldwide as those with the capital seek safe ports.

The net result is that with a 27 point drop in the S&P 500 today we’re sitting right at the low of the past 12 years made back in October 2002. For long term investors they’re back where they started 12 years ago in 1997, as you can see in the chart above. I hate to even consider that return when you factor in the inflation factor for the past 12 years. As you can see on the chart the next support cluster comes in at the 685ish level on the S&P though there is a little support  where we are now from late 97 and the intraday lows from November. We are still in a primary down trend. However we are starting to get some indicators into the oversold position and if you look at the market historically you rarely have the kind of drops, see chart, especially from the 1300 level to here, compared to the 2001-2003 period, when there were several periods of nice rebounds. We haven’t had one, so as I stated last night, I think we’re entering that territory where we could see a reversal, which could be somewhat violent. I try not to get caught  standing in front freight trains and trying to pick bottoms, however if you’re short you may want to be alert.

After an extremely ugly day on Thursday and a big whoosh down Friday morning on worries what was going to happen to the financials the market staged a good rebound Friday afternoon to only close down about 1% for most the major indexes. The one exception was the NAZ which was just slightly down. The end result was a bullish candle formation on most the indexes.

In the 15min chart below, we see that we broke back above the upper line of a bullish falling wedge pattern. Of course you can see that we conviently bounced just above the prior low in Nov. I’m not looking for too much here as we now have a lot of resistance in the low 800 level and then further resistance at the 830ish level on the downside of the up trend line. So technically we could be set up for some further upside. But as always the case it seems lately, what comes out of Washington will probably have a pronounced effect one way or the other this week.

Stocks today traded in a narrow range today after some early selling the first 30 min. It then proceeded to make a slow climb back up to the 795 range before zigzagging back and forth downward to close at 788, down les than a point from the prior day. I think there may have been a collective sigh of relief that we at least stabilized or at least took a breather from the prior days selling.  The net result was that most the major indicies closed right at their prior close give or take a fraction.

 After hours HPQ disappointed investors with slightly worse than expected and was hit for a couple of points, but to be honest, I thought their sales and earnings were not too bad considering the economic situation. They’ve obviously made some good efforts on their cost cutting program.

The dollar continued strong and is close to making a breakout here to the topside sitting right at resistance and gold after being weak early manage to add on to its gains later in the day and seems to be determined to break the $1000 barrier again. Seems to me that that the trade is getting awfully crowdwd these days with the move up getting a lot of media attention. Where were all these buyers 60 days ago when the price was 30% lower? Did they really expect the new administration to be doing anything other than what they’re doing. So at the moment we’re sitting right at the next resistance level from the high in July as seen on the chart below. Admittedly and belatedly, as often the case, the media has been all over the story that Europe due to massive loans to Eastern European countries may have even bigger problems than us, and act like its a big surprise when anyone that reads anything other than the funny pages has seen this coming for many months. Overnite the dollar has started to pull back some.

Well, if you thought Friday was boring like I did, then Monday was anything but. With a large gap down, I kept waiting for at least some semblance of a rebound to put on some shorts but it turns out, other than a relatively slight bounce into the 11:00 hour, that was about it. The rest of the day the market chopped around below the 800 level though it did try a little rally into 3:30 which would have been rewarded on the short side if you weren’t particularly ambitious. I spent most the day watching and being glad to at least have some silver and gold plays, obviously not enough, which were the only commodity stocks positive. The net result was a really ugly day with most the major indexes down about 4% on average. The BKX was especially hit hard with the brokers taking a big hit led by GS. I remarked to someone that the BKX would need to nearly double just to get back up to its horizontal resistance line around 47.

 Obviously we have definitely broken our recent up trend line and generally strong support into the low 800 area for the S&P. Though somewhat oversold after today, we’re not at extremes yet though the DOW did close right on a prior low and has at least a little support here, but in this market, who can say how much.

I think our best bet would be if we could get some more selling early this am and then see if we could set up for some short term bounce from there. According to Jason Goepfert at the well respected Sentiment Trader “If SPY gapped upthe next morning, buying that open and holding for two days resulted in 3 winning trades out of the 8 attempts, with an average return of -1.1%. The average drawdown was equal to the average maximum gain at 4.4%. The average drawdown THAT DAY was -3.3% with all but one suffering at least a -2% drop at some point during the day.

Now for the other side…if SPY gapped down the next morning, buying that open and holding for two days resulted in all 6 winners, with an average return of +5.4%. The average drawdown during the trade was -2.6% versus an average maximum gain of +8.1%.” So that’s what I’m hoping for since for now the former support we had in the low 800 level will probably act as resistance, plus we’ll now have gap resistance at the 820 level. I think the primary thing for everyone to remember is patience.