Not much to say today dear readers as despite some interesting intraday action, the market remains stuck in the range that it has created for itself in the last one week. Both bulls and the bears can take some positives from today's action. The bulls will be pleased that 1040 on S&P held once again and if you are bearish, you gotta love the action at the close today. The numbers to watch remain 1040 on the downside and 1065 on the upside for the S&P with 2100 and 2158 being the corresponding numbers for NASDAQ.
Personally speaking, I took a position in ARUN today at 18.60.
I will admit it. I was thinking of not doing the Chart of the Day section today. And if you have read my post on how to trade markets such as these from earlier this evening, then you know the reason why. I will be damned if I know whether we end in the green or in the red tomorrow. But here lies the problem. As the regular readers of this blog (and thanks for being regular readers!), I started the Chart of the Day section just yesterday and I would hate to have a no show on just the second day. So, I must manfully carry on and come up with a pick. Now, I don't want to go with a momentum or breakout play as the market just doesn't seem to be treating right. I also don't wanna call a top or a bottom here. I am just thinking aloud here, so that you readers can know the thinking behind this play. Anyway, so I decided to go with a sector that has been performing well in the last few days irrespective of the markets being up or down. Yes, you guessed it right dear readers, I have decided to go with a gold miner for today's Chart of the Day.
AUY seems ready to make a big move here. I like the way how MA(50) has held up in the past few weeks and unlike most other gold miners I follow, it hasn't made any obscene moves to the upside with the recent run up in gold. 10.40 remains the key level and look out for a close above that. I also like the fact that inspite of the overall market action today, the stock had a narrow range day and managed to finish in the green.
A disappointing day for the bulls. I will admit that I, for one, after the market action on Friday, expected the bulls to put up a much better show today. It seems like we are stuck in a mini range here (1065-1039 on S&P). 1040 remains the key level here on the S&P and a close below that will probably lead to much further downside. As I had mentioned last week, the more we test this important support level, the weaker it will get.
So, where do we go tomorrow? I will be damned if I know! After the market action on Thursday, one wouldn't have given favorable odds for the bulls to make the kind of comeback they did on Friday. But comeback they did, and in fact, closed at the day's highs. Bullish for the short term, right? But we all know what happened today. The only thing certain is that the overall momentum still lies very much with the bears.
And how does one trade markets like these? Simple, you don't trade them. That is, if you are a swing trader. 100 point moves are just fine if you are a daytrader and anything is fine if you are a scalper but if you are a swing trader, and a disciplined one at that (the only kind you should be), all you are going to end up doing in these markets is end up trading a lot and end up getting stopped out a lot.
In my early trading days, I had often read that most of the annual profits come from a very small percentage of the trades. And after trading successfully for a couple of years (the first one was unsuccessful!), I can vouch for the veracity of this statement. Pull the trigger only when the odds are in your favor and all the variables are in place, no matter what your trading system is. One doesn't have to catch the entire move i.e. call tops and bottoms in order to make profits, just the meaty part of the move. Another free piece of advice for markets such as these would be take your profits if you can, or at least partial profits and move the stops for the remaining position to break even.
Here are some setups I like heading into next week.
AMMD - Holding up the gap support (from May) very well. A hammer formed on Friday and the stock closed right above MA(200).
APL - Consolidating very nicely after the big move up in July. A buy on the break of MA(20).
CBG - Forming a nice bullish flag after a big move up in July. Watch out for a break of the flag on the upside. MA(50) also creeping up to provide support. I like this the best of the lot.
SAI - Now, this is a highly speculative play but I like the intraday action on Friday as well as the positive MACD divergence. If you decide to play it, keep a stop loss below the Friday lows and be sure to respect it!
WTR - Consolidating nicely after the bounce from MA(50). Watch out for new highs.
Starting today, there will be a new daily feature on the blog titled "Chart of the Day". This will be in addition to the usual periodic watchlists. I will try and go through these charts in more detail compared to the setups given in the watchlists. Hopefully, it will be of some use to you readers out there!
Since the market bounced off a key support level on Friday and has room to run towards the upside, I decided to go with a short squeeze candidate for today - ARUN (short interest over 20% of float).
The stock consolidated nicely with MA(50) holding very well as support before making a breaking out on very impressive volume on Friday. It closed right at a key level and watch out for a break of 18.50 with volume.
Looking at the weekly chart, the next resistance level for the stock is at 21.50, thus giving it a lot of room to run.
I will be back later today evening with an overall analysis of the markets and the important levels to watch out for next week.
After the market action on Friday, all the sectors have put in multiple bottoms or reversal candlesticks and look bullish with room to run in the short term. However, the best looking sector out there is still the utilities which bounced from an important level - 30.36 - on Friday.
One can't really appreciate the importance of this level until one sees the weekly chart, so here is a 5 year weekly chart. The chart says it all, so I will simply shut up.
I will be back with overall market analysis and some stock picks from the utilities sector sometime this weekend.
With gold nearing all time highs, it makes sense to do today's watchlist on gold miners. I don't have the time to comment on all the stocks, but as always, all the important levels are marked on the chart. A lot of these stocks are looking to break out of their trading ranges, and a break of these ranges on high volume would be a good entry point.
Finally something to cheer for the bulls today as the markets bounced off multi-month support levels today. This bounce should come as no surprise to the readers of this blog as we knew that the markets were at oversold levels and the markets have continued to remain in this range for quite a few months now. Before moving forward, let's have a quick look at the charts.
The S&P bounced pretty much exactly off the 1040 level. This level has given support now four times now in the past few months, making it a very important support level and a hard nut to crack for the bears.
The Russel 2000 level also bounced off the support level and there is also a positive MACD divergence developing here.
The story is a little different for NASDAQ, which unlike the above two indices broke through its support levels yesterday, which now becomes the resistance level. The index closed right at this level.
Though it was a very decent performance by the bulls today, it is important to remember the momentum still very much lies with the bears. This bounce was expected since as seen above, 1040 is a very important support level and it was highly improbable that the bears were going to break it from oversold conditions. What they need is a period of consolidation, before having another crack at this level. Remember, the more this level gets tested, the weaker it gets. If you are long, what you really want to see is a further leg up tomorrow. As pointed earlier, consolidation around this level would be good for the bears and not for the bulls, as it will allow the market to work off the oversold conditions. I like the odds of being long here, but would recommend keeping tight stops.
There will be no post tomorrow as I will be away on travel but I will try and come up with a watchlist for the next two days later tonight.
The dollar is the key to where the markets head from here in my opinion. This is from a weekend post on the dollar.
"The dollar broke out of a two month descending channel earlier this month. Interestingly, in a show of strength, it broke out of this channel with a bounce off MA(200). Of course, there was the now common break of MA(200) for a couple of days, probably to run over some stops lying just below MA(200). The dollar consolidated nicely since that breakout and held the MA(20), before finally making a relatively big move up on Friday. So far, so good. But what makes things interesting now, and the reason why I decided to do this post, is the presence of MA(50) directly overhead. This presents the first big challenge to this uptrend in the dollar since its breakout earlier this month. "
Well, the dollar did have a crack at the MA(50) today and got rejected off it. The intraday bounce in the markets today coincided with the intraday weekness in the dollar, emphasizing the importance of keeping an eye on the dollar here. Here is the updated chart.
Time to turn again to the McClellan Oscillator to find out if the markets are oversold yet. Getting right to it, here are the two year charts for NYSE and NASDAQ McClellan Oscillators.
Well, there you have it. The markets are oversold. Now, as I always point out in such posts, don't take a bounce as a certainty just because the markets are oversold. Oversold can very easily become "more oversold". All an oversold condition means is that the odds of a bounce are high here and one should be careful while initiating new shorts or if you can take the risk, start initiating small long positions. Though in the current market state, you have to be really disciplined to do the latter as I expect any bounce to be a dead cat bounce and provide a good shorting opportunity. Such a bounce would provide a good opportunity to get rid of the long positions that you might still be stuck with. Another way to play the bounce, if it happens, would be to go long heavily shorted stocks such as GMXR looking for a short squeeze. Again, you gotta be a really disciplined trader in order to succeed in this.
Another miserable day for the bulls. The housing numbers, not surprisingly I might add, were much worse than expected. With the artificial push from the stimulus money gone, and actually having eaten into future sales, one can't help but wonder about the worth of all these stimulus packages. Forget about the housing numbers. Its dumb to expect people to be buying homes when they don't know if they are going to even have a job next week. And I can't help but be amazed by all this fuss about Ireland. Does anybody have the numbers on how big Ireland's economy is with respect to California and New York? Anyway. Let's have a look at the charts of the major indices. For a while, it looked like the stocks would make a comeback today, but any such hopes were shattered by the bears in the last hour of the trading session. While S&P and Russel 2000 still have major support levels underneath (last chance saloon), the same cannot be said about NASDAQ which opened below its major support level and then fought a losing battle against it. Have a look yourself.
Only hope for the bulls - the action in US dollar today. I will be back with posts on the dollar and gold and also checking if the markets are in oversold territory after today's action.
With a lot of talk out there of the markets being oversold, I figured it was time to turn to our trusty ol' McClellan Oscillator to see if the markets were actually oversold. And the answer is.....check out for yourself!
Answer: No. Not oversold. Maybe after another down day. At least according to the McClellan Oscillator, there is more room to the downside.
Going through the high volume movers of today, I was surprised to see a couple of longs in there too that I like heading into tomorrow.
CRM - A really nice long setup. Bounced from MA(50) last week and broke through the 1 year upwards channel. Consolidated well today. Stop should be placed below the trendline or below the gap support. So, a low risk play here.
ISLN - Broke from a range today on very impressive volume.
MTZ - Broke down hard earlier this month. Formed a double bottom and has managed to come up to MA(50). A poor close today considering the volume. Stop can be placed above MA(20), hence a low risk play.
NANO - Finally broke through 14.15 today but had a poor finish. I would wait for it to fall below 13.39 before shorting it. Conversely, a close above 14.15 would make it a good long setup. Go with the flow.
For analysis of the market action today and the immediate support levels, see here.
The market made the highs of the day within the first 15 minutes of the trading session and ended at the lows of the day. If I was forced to pick out a positive for the bulls today, then it would be that the support levels I pointed out yesterday still hold. In fact, the bears kinda missed an opportunity to drag the market lower today, with all the negative sentiment surrounding the housing data due tomorrow. No wonder the futures are down a decent bit as I write this. Here are the updated charts for the various indices with the next important support levels written on them.
With all this talk about the markets being oversold out there, I will be back later with a post checking whether the markets are actually at oversold levels.
I leave with a questions for all you readers - If everybody expects the markets to fall, does the market actually fall? What say you??
Take care and good luck! Trade small and take profits when you can.
The major indices are approaching major support levels. This might result in a short term bounce in the markets but overall, the charts are undoubtedly bearish and any bounce might be nothing more than a good shorting opportunity. There is simply just too much overhead resistance right now for the market to make a significant bounce unless there is some major (and surprising, I might add) bullish news.
SPX - Only positive for the bulls is a developing positive MACD divergence, increasing the likelihood of a short term bounce.
NASDAQ - Approaching major support levels as marked.
DJIA - The increasing trendline has now become resistance. But lots of other resistance before that to worry about. I just like good ol' fashioned TA working well in the sense that the index got rejected of this trendline twice.
Russel 2000 - The hammer formed on Friday is again signaling a bounce but again, the overall chart is bearish.