Market Catches its Breath

Last couple of days have been a little lazy in the markets. Following the sell off, markets hit lows on 5/25, rallied then retested their lows. (Potential double bottom perhaps?)

I posted in the comments section last post that we may be setting up for the last shoulder in an H&S pattern. If this is true, your upside target should be around 1150 in the S&P, 10700 in the DOW, and about 2350 in the NASDAQ based on the H&S pattern. If the double bottom holds up, the targets are all the same. Coincidence? Maybe. But its two different patterns giving the same result. Expect the markets to remain boring the next couple days, then climb higher next week. Use today's and tomorrows price hold-up to get yourself some nice long positions with a holding length of a 2-3 weeks.

Back again....Slowly

After taking a year of from this blog (but not from trading) I am returning to action. I still use the same rules I have always used. But my discretionary actions have become more refined and my patience with the markets is much improved. I will be ending my experiment that I started last year, though I may pick it up again in the future. But for now, this will be my diary. I may not be as active as I would like, but I am going to try to write several times a week.

Obviously the market is in a downtrend.


I have taken positions in TZA and FAZ that I got into at the upper end of this most recent bear flag. There are no strong reasons for taking these etfs with the exception of the fact that I like the leverage they provide. Plus, with reports of a lot of credit being on the verge of "freezing up" in Europe, small cap companies and the banks they rely on would be some of the hardest hit.

I thought friday brought a break down from the bear flag in the indices. It happened on an increase in volume, but mondays futures strengthened into the open monday and stocks have traded relatively sideways all day (as of 1:00pm EST). 3:00 may bring a move, but the volume is still low. So either people are MIA, or are waiting. For what, who knows. Probably for the next knee-jerk reaction.

Pick Your Spots Carefully

While I wont post charts on the major indices, they are approaching old levels of support that I am anticipating will behaving as new levels of resistance. These are 740 in the S&P, 7100 in the Dow, and 13.80 in the NASDAQ. That being said, I saw a lot of interesting patterns today in the market. Some are patterns on the verge of breaking out, some broke out today, and others broke out already and are retracing just a little bit. Here are a couple examples. ASEI broke out today from a bearish flag pattern. I layed out my trade a little bit in a comment on my last post. The key here is that I think you can still enter this trade early tomorrow before it truly begins its run (its a short trade by the way...buying puts may also worked although I havent looked at options for this stock). While flag patterns typically move a similar amount to the pole of the flag, i have a hard time believing this stock will go down $20 on this next move. Instead I will fall back on my expectation of this moving 20-25%. That still means roughly 10-15 dollars.




BLL is an example of a bearish breakout that is retracing and is providing an entry point for a short position. I entered this trade on the breakout, but the current price also provides a good entry point. Key to this is the area of support it found late last week/early this week around $37. If it breaks through this area the stock could be in for very nice run down. Conversely, you know you are wrong on the trade if it breaks above new resistance (or previous support from the wedge) at around 39-40 dollar level. The risk reward in this case is about $2 risk to $6 profit. Very nice bet that myself and any casino would take anytime.
Finally, DNR provides a bullish case where a previoud breakout seems to be ready to pull back just a tad to provide a good entry point. $14 had been behaving as strong resistance dating back to October. As the stock eventually formed an ascending triangle and broke out on the 10'th. Now it looks to be ready to pull back and retest $14 as new support. A retest would provide a very good entry point for a likely run up to $18 (based on the ascending triangle). $18 also has acted as support/resistance in the past (dating back to at least a 3 year chart). You know you are wrong here if the stock falls and holds below $14 so I am going to set my stop just above $13. That is $1 risk for $4 profit potential. A nice profit:risk ratio.

INTC and GE

I continue to have problems downloading my videos to youtube. So I have to do this the longer way. Anyways, I had a question about INTC and GE as longer term, 2-3 year investments. Let me be clear from the get go, I usually hold about 2 months at most with the rare exception being held longer. About INTC, it is in a downtrend with strong support at $12 and resistance at $15. It has been trading in this range for about a month. Meaning it seems to be trying to find a bottom.

This is a lot more evident when looking the weekly chart. The range bound stock has a target of at least $19 over a longer time horizon. A break above 19 means it will return to the trading range it once held in the $20's. Again, this is why i dont invest, i trade. It is because it becomes more and more difficult to determine price targets, and relies more on fundamental analysis (which I dont really do) and less on technicals (which is my bread-and-butter).


As for GE, this stock is a train wreck. It is in a long term downtrend with no signs of slowing up. There have also been a lot of false bottoms, or kickback rallies, on the way down, making me even less trustful of any "bottom" that may form in the stock. Even though it is at $8 (down from a 3 year high of $42), there is nothing to say that it wont keep going. I do know this stock has been having a lot of problems with bad earnings and the like. So until those start to come back, and a low has been tested several times, I would stear clear of GE.

Hopefully I can have my video problems fixed soon. But in the meantime, keep your eye on GME(enter if it holds above 28.50), GENZ (nearing both horizontal and diagonal support, play the bounce), BIG (long play but earnings are next week), AOC(long at $39.5 or short at $38), PNRA(descending triangle), CRM (descending triangle), plus more bearish flags than I can count.

Next Video coming soon

I will be posting a new video in the next day or two. i tried to post one over the weekend but had some technical difficulties. But i think I have them all fixed now. next video will be up on the afternoon that I think the market, or at least some stocks on my list, get finished with their current swing downs. As for the markets in general, the dow broke through key support, and is just under 200 away from 7000. S&P is sitting a millimeter above support, as is the Nasdaq. Ill go into more detail on these later.

First Video Weblog

RIO

Here is a stock I have been watching for a while. In my real money account, I was buying this puppy up ever since it dipped below $10. With several hundred shares at an average price of 12, I had a large enough position to put on some covered call trades over the past couple days. I sold the Feb. 17 call on monday for 1.25 each while the stock was at just over 17. That was a lot of time value for just two weeks left in the stock. I closed them out today for 0.2 each. That was a nice 1.0 per share, or $100 per contract, profit i made in just a couple days. And with the stock looking like it is ready to bounce here, I may load up with some more shares with my new profits. i would like to see RIO stay above 14.9 by the close.