Thursday, June 26, 2008


Wheat - Close Out All Long Positions

If you have continued to hold your long positions in wheat then now is the time to liquidate these positions as we have a clear 5 waves up and a strong gap with a bearish reversal today.

Aggressive speculators can even look to establish short positions as wheat looks poised for a substantial pullback right here.

General Motors - When Stockholders Feel Like Puking

What do you get when you cross extremely high volume with an extreme gap lower move?

Well, in General Motors case, you get some very high odds that a panic low has been put into place. If we follow historical precedence of past GM stock behavior then this is exactly what has been the case in a vast majority of cases.

Today saw exactly this action and because of this historical precedence, which constitutes 80% of the technical work I do, it is a fairly safe time to enter into GM on the long side.

Now I know it will be really hard for many of you to pull the trigger on this one, for no other reason than the drubbing the stock has taken over the last 6 months and especially the last 2 weeks. However, it is exactly this "I have to be crazy" feeling we get that many times will tell us that the bloodbath is over and it is safe to go back into the water.

This play should be good for at least a 38% retrace move which translates into 10 to 12 points on the stock, with an outside chance at a 50% retrace move which translates into a 15-17 point move. With the downside being very limited at this point and the strong upside potential and a possible double on the stock price, the risk reward ratio is on our side.

There are a few ways to play this.
1. Call Options out at least 3 months and at or just out of the money.
2. Leap Call Options out at least 12 months and at the money.
3. Outright purchase of the stock.

Myself, I will be doing number 1 and number 3 and I really only anticipate a shorter holding period.

Equity Market Comment - 6/27/2008

While my short term market calls have been something to be desired over the last week and a half, it is always nice to see the bulk of ones portfolio hedged against market moves such as we have seen this week. The market moves lower and our portfolios remain virtually unchanged!

On the Aggressive short term front, our stop loss order have been getting a workout as I have been trying to go long in here for some type of bounce. As you can see this supposed bounce has yet to materialize, but once again it is strong evidence that protective stop loss orders are essential when short term trading.

Once again there is evidence that a short term low in being put into place and there may be an opportunity on the long side. However, given the downside momentum I am going to wait for any aggressive long side plays.

Intermediate and Long Term investors should be smiling from ear to ear knowing that they are hedged during this entire decline.

For the very aggressive there is a nice value play in General Motors right here and I will go more into detail on this in a new post.

For Intermediate and long term traders, keep your hedged positions in place and should some type of counter trend rally develop, use the strength to reduce your exposure even more as the real fireworks to the downside have yet to begin.

Tuesday, June 24, 2008

Equity Market Comment - 6/24/2008

We are starting to see the short term volatility that is indicative of a market attempting to put short term low into place. Today was a good example of such activity.

It is a good time for short term short sellers to cover their positions and take some very handsome profits. From here, aggressive traders should look for a spot to establish some short term call options or long equity positions.

Intermediate and Long Term Traders should continue to be extremely defensive with an equity allocation of no more than 35%. If you did not scale back your equity exposure yet, then this rally will allow you to do so before the final leg lower comes our way and final bear market moves lower are very typically bloodbaths so be prepared.

Monday, June 23, 2008

Equity Market Comment - 6/24/2008

The cash S&P 500 has reached the wedge downside target that I had discussed last week and has done so in a manner that is consistent with the current move being over or very nearly over.

With this in mind, if you have had put options or short positions in place for this decline, now is a good time to take your profits on them and simply sit on the sidelines until we get a stronger confirmation of this move lower being over. When we get this confirmation, then aggressive short term traders can look to establish long positions for the forthcoming counter trend rally.

Intermediate and Long Term traders should remain in their extremely defensive posture as this bear market continues. During the course of this bear market we will have periods of rally and at times very sharp rallies that begin to fool the masses into thinking the worst is over. Of course once we get a vast majority of players believing that this is the case and positioned on the long side of the market, we will know that another sharp leg lower is in the mix.

Thursday, June 19, 2008

10 Year Note Yields

The yield on the 10 year notes made it up to the 50% retrace level and was turned away as you can see on the weekly chart below.

This tells us that we are going to see rates move lower and at the very least a 50% move of the most recent uptick and an outside shot of rates moving to new lows.

This is where I would park my money that currently is on the sidelines with the continuing bear market.

Wheat Stop Update

Tighten up your stop loss on Wheat to a 20% profit level above your purchase price.
This will replace the breakeven stop on the second half of the position.

The breakeven point is simply to far away to justify a stop placement, so lets lock in at least a 20% profit on the remaining half of the position.

Wheat has reached a pinnacle where it is most likely going to move in one direction or the other in a sharp quick manner so stay alert.

NSC - Call Options For Aggressive Traders

Even in the middle of a bear market there will come opportunities on the long side and although they must be categorized as aggressive because of the condition of the overall equity market, they still offer some great profit potential.

Norfolk Southern made a very bullish Morning Star or Birth pattern today and was able to use the 50 day moving average as a launching pad for a possible move higher. The 50 day moving average as you can see, has been a good support level for the stock and until dis proven, it will remain a price level to look for an upward push in price.

The best way to play this will be to purchase July Call Options that are right at the money, which would be the 65.00 call options, currently selling for $250 per contract, each contract will allow you to control 100 shares of the stock. You can do the math on the leverage.

A protective stop should be put into placed based upon the underlying stock.
If you see the stock close below the low point of the Morning Star pattern (61) then all bets will be off and your call options should be liquidated.

For those of you who wish to learn how to calculate what the option price will be given this scenario of the price moving below $61, drop , me a line and I will explain it to you.

You can also research the Delta of an option and find out how to calculate this as well.

Equity Market Comment - 6/19/2008

We were a bit early on our call that a short term low had been put into place, as there was the outside shot of one last push to new lows for the move, which was satisfied today. Being early on a risky long call in a bear market is just simply proof once again that it is no feat for the faint of heart to put a bullish position into place in the midst of a bear market.

This is where we stand yet again, as the chart clearly dictates that there are strong signs that this leg lower on a very small time frame has completed and we should see some type of counter trend rally, perhaps into the 1385 to 1398 area on the S&P 500 cash index.

However, as was the case with the last potential bottom, these counter trend trades on the long side are really only for the more experienced trader and should be left on the table by the novice and even the intermediate skilled trader. The novice short term trader should be looking to sell strength which means that if in fact we do see this counter trend rally, the novice trader will look to sell it short playing the trend and leaving the counter moves to the experienced.

On the intermediate term front, we remain in a bear market and each progressive counter trend rally should get smaller and shorter in duration as we work our way lower to the final destination of a bear market low. In the meantime, intermediate and long term traders should stick to our very conservative equity allocation of no more than 35% into stocks and the remaining in cash and bonds.

Tuesday, June 17, 2008

WHEAT - Continues Its Strong Rally, But May Be Getting Tired

The long trade in wheat has paid off very nicely and it has racked up some very nice profits.

The chart however is just starting to show some early signs of exhaustion and while this may be nothing more than a very short term pullback forthcoming, it is enough to warrant selling half the long position and moving the stop up to your break even point on the remaining half.

Should a decline develop and only be of a short duration, then we may entertain putting the second half of the position back into force, but for now, lets enjoy some of the very nice profits we have amassed and protect the remaining lot with a no risk break even sell order.

Equity Market Comment - 6/17/2008

The market action today followed the script almost to a tee as it offered an excellent day trading set up with a very strong pre-opening market on a day that had some very high odds of being a down day. It is these types of set ups that offer some very low risk entry points and a fairly stress free trade.

Currently it looks as if we should finish our counter trend rally this week after the textbook pullback today. There are several measurements that signal 1385-1390 basis the S&P 500 cash as a very strong level of resistance, including the 200 period moving average on the hourly chart.

Short term traders can look to play this potential rally as it offers about 35 points potential, but as always, be very careful on the long side as anything can happen in a bear market such as we are currently in the midst of. Probability dictates one more move higher to the 1385 level before we continue our move lower but long positions here must be made with true levels of caution and very tight stop loss levels.

For those intermediate term traders that have yet to either establish a longer term short position or hedge their equity holdings, consider the move back to 1385 as yet another gift as the next move lower should be quite a bloodbath and one that should keep the masses perplexed as to the reason or nature of the decline.

Long term traders should continue to exercise the same level of caution that has been warranted since the start of this bear market and keep a very conservative equity allocation of no more than 35%.

Trend Analysis LLC Headline Animator