The week ahead

Sorry for the no show last week but things have been pretty hectic at work lately. Before I post any charts, let me just say that we are currently in news dominated markets where news might possibly trump fundamentals or technicals. And always remember to trade the reaction to the news rather than the news itself. Let's now move on to the charts.

Firstly, the markets are in oversold territory. This can seen from the Nasdaq and NYSE McClellan charts posted below. This means that the odds favor a bounce but we will have to see how much that counts for in a news-dominated market. But I would be very careful in starting new short positions or having too much short exposure overnight here.

Moving on to the S&P chart, all eyes will be on MA(200) next week. The market has found support here  five times in the last couple of months. 

But the strong support shown here the last couple of months makes me wonder if this is too obvious a technical level now. Let me explain what I mean by that. To be successful in the markets over a long period of time, you have got to expect the unexpected. The market works on the principle of fooling most of the people most of the time. With MA(200) being such an obvious support level, there will be surely lot of stops put right underneath it. I wouldn't be surprised to see the MA(200) break, all these stops got taken out and the markets to then go right up again.

I wont be posting a watchlist today as I plan to stick to day trades till all the debt news gets out of the way.

Take care and good luck!

P.S.: Here is my analysis of the Indian stock market posted on my Indian stock market blog.

This is why you never hold a stock through its earnings

I had underlined my earnings season strategy in the last post. Here is the link to that post. In a nutshell, the strategy is amazingly simple - NEVER hold a stock through its earnings report. No matter how confident you are about the results, don't do it if you are a short term trader. Sure, you might be very sure that the stock will beat the estimates. But do you know how the market will react to the news? Never trade the news. Its the reaction to the news which is important.

This is from the last post:

"Meanwhile here is a stock that I had posted about twice last week. TZOO was up over 10% yesterday and looks good for more. However, it does report tomorrow and like I have written above holding it through earnings would be pure gambling, no matter how good it looks."

The above was written when TZOO was at around 85 and it went on to make a high of 90.80. It reported earlier today and this is what the chart looks like now.

I rest my case

Take care and good luck!

Earnings season strategy

This is from a post that I had written earlier. This is my strategy for each and every earnings season, so obviously it is still holds true.

Do keep in mind that it is the earnings season and the big guns start reporting today onwards with **** reporting after hours. Any surprises and all the technicals get thrown out of the window. I know (and hope) that this is stating the obvious but please do see when a particular stock is reporting before getting into it. Also, do remember that what is important is not the news itself but the reaction to the news. It is very common to see a stock beat the street estimates easily and still fall down hard and similarly, a stock can easily rally on "bad" news.

I personally don't like holding any stock through its earnings. I feel that no matter how much one thinks one knows about a stock, holding a stock through its earnings is basically gambling. A bad reaction and one might not even get a chance to get out with a small loss. If you are great at studying the fundamentals of the company and the particular industry, you will be justified the argue the validity of this point here but again keep in mind, that a stock can fall down hard even on an earnings beat. If you are like me, you will just enjoy the action from the sidelines!

Meanwhile here is a stock that I had posted about twice last week. TZOO was up over 10% yesterday and looks good for more. However, it does report tomorrow and like I have written above holding it through earnings would be pure gambling, no matter how good it looks.

Take care and good luck!

Gold and gold miners

Gold has been a tear lately. So naturally, gold miners caught my attention. Wanting to see how the gold miners were faring with respect to gold, I plotted a comparison chart and well, the chart certainly warranted a blog post. So, here it is.

The gold miners are lagging gold by around 15%! As can be seen above, they were quite in sync with gold until March, but since then, they have fallen way behind. Based on this chart, I am expecting a serious up move in gold miners in the near future.

Take care and good luck!

Strategy and Stocks Watchlist

Today was a good example of why one has to be quick while playing these markets. The bulls were well in control for most of the day but ended poorly, to share the honors for the day with the bears. One must remember that just technical analysis is not sufficient to trade these markets. With all these debt problems throughout the world, these are news dominated markets right now, not markets that necessarily follow fundamental or technical analysis. To a large degree, its not only logical analysis that counts right now, but also the emotions and the sentiments. The good news is that while the bulls and the bears wrestle it out, you can make money either on the long side or the short side in these markets (or both), but the only condition is that you have to be quick. Quick in taking losses as well as gains.

Here are few of the stocks that are in my watchlist for tomorrow. Out of the three stocks that I posted yesterday, IMGN and PCYC were up 4.3% and 2.88% respectively. TZOO is still setting up, so it remains in my watchlist.

Take care and good luck!

Three for the watchlist

Here are three stocks to watch out for today. I am looking for quick plays here as I don't want to hold either large long or short positions overnight in these news dominated markets.

TZOO - A cup and handle pattern in formation here. The range seems to be getting narrower, so expecting a big move up if the market cooperates.

PCYC -Well, the chart speaks for itself. In a strong uptrend. Can be bought even on a pullback.

IMGN - Had posted about this at 13.37 last week here. Has moved over 7% since and I hope some of you readers caught the move! Like it for day trade, but seems a tad overextended to take new swing positions here.

Take care and good luck!

What is the dollar telling us?

A strong dollar does not bode well for the equity market. Considering this, signs do not look good for the market. Below is a daily chart of the dollar.

An ascending triangle has formed in the last few months and it looks like it will finally be broken today. Expect resistance at the MA(200). This is where the index got rejected in November and January and how the dollar deals with it, will provide a good estimate of the strength in the current move, and consequently, of the weakness in equity markets.

Let's step back a bit. The following is the weekly chart of the dollar.

The dollar is also going to come up against a multi year trendline in the near future. For swing traders, I would recommend keeping a close watch on this trendline and how the dollar deals with it as it could be crucial for the markets in general. Exciting times ahead!

Take care and good luck!

Bulls very much in control

Don't let the action on Friday fool you. The bulls are still very much in control and if anything, the late recovery by the bulls on Friday was very impressive. The market had reached such overbought levels, that it was a given that they would fall sharply on any bad news. Actually let me correct that. The market had reached SUCH overbought levels that a pullback was on the cards even if we got any good news. The bad jobs number was just a convenient excuse for the market to fall. But like I said earlier, the late comeback by the bulls was impressive.

So much for last week. Looking at the week ahead, the markets are still at overbought levels, at least according to the McClellan Oscillator. If you are bullish, and there really is no reason to be in the bearish camp here, what you would ideally like to see here is a low volume pullback or a period of consolidation. The market has two ways to work off overbought conditions, like the one it currently finds itself in, (a) a sharp pullback (b) a period of consolidation. No prizes for guessing what the bulls would prefer! Another big move up right here and the market probably gets rejected at upcoming resistance levels.

And if you are short or are looking to go short, don't try calling the exact top unless you are a day trader. By that I mean, be cautious and don't take large positions all at once. Stick to smaller time frames as the bigger picture is very much in favor of the bulls.

Days like Friday are good in assessing which stocks held up well and are going to probably lead the market higher. I will be back with a watchlist of such stocks later in the day.

Take care and good luck!

Watchlist

I will make this a quick post as I am short of time. I had posted about restaurant stocks on Tuesday about how many stocks in the group were setting up nicely and looked good for a big move up. After consolidating yesterday, most of them did well today. WEN has done the best so far this week, with gains of 7.71% so in the last couple of days. Hope some of you benefited from the call! 

Here are some stocks from that list which are still in the process of setting up.

No matter which stock you trade or how you trade, keep in mind that the markets are at extreme overbought levels here.

Take care and good luck!

Two for the watchlist

With the market still being at extreme overbought levels, I have been making doing a lot more day trading than I would normally like and avoiding new swing positions. So, here are two candidates that I will be keeping an eye on for some quick trading opportunities tomorrow. In case you missed it, here is a post on my underlining my complete strategy for trading in overbought markets.

Take care and good luck!

Restaurants on the go

Many of the restaurant stocks had a good day on Friday and even more are setting up nicely, making it the sector to watch out for this week in my opinion. Following are the setups I like with the important levels marked on the charts itself.

Take care and good luck!

Way overbought

According to the good ol' trusty McClellan Oscillator, the market is at its most overbought since last July. Following are the charts for the NASDAQ and NYSE McClellan Oscillators with the overbought levels marked on them.

 

 

Its obvious that the odds greatly favor a pullback here.

How to trade these markets?

(1) Don't go chasing momentum stocks now. Chances are you will be left holding the bag.

(2) Take partial profits from longs and let the rest run. 

(3) Don't wait to sell at the top. Calling the top is a fool's game.

(4) If you want to go short, start with a small position. This way you can give it room to run instead of being forced to call the exact top. If the market indeed reverses, you will get plenty of chances to add to your positions later.

(5) Most importantly, keep your stops on all short positions no matter how confident you are of a pullback here. Remember, the markets can stay irrational a lot longer than you can stay solvent. The above assumes that you are rational in the first place :).