Thursday, June 26, 2008
Aggressive speculators can even look to establish short positions as wheat looks poised for a substantial pullback right here.
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.
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
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
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
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.
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.
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.
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
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.
Monday, June 16, 2008
Currently it appears that the market is quite close to the 50% and 62% upside targets for the counter trend rally, so if you had planned on playing the rally now is not a good time to even make this attempt.
On the ultra short term trend, the market movement and the days close indicate a high probability of Tuesday being a down day. Not the start of the next leg down, but a tradeable move on the short side just the same. Look for the week to have a general upward bias as we complete the counter trend rally in the 1375 to 1387 area on the cash S&P 500.
Intermediate term traders will be looking to get short once again once these price levels have been obtained. If you still have some volatile issues on the long side of your portfolio then use the muted strength we may see this week to either sell them outright or hedge them with options.
The main focus here is that the market remains mired in a bear market and until we see signs otherwise, we need to trade it as such by selling strength and being very careful if we try and trade the counter trend rallies.
Saturday, June 14, 2008
Now, as bullish as all this may seem, we need to keep all this in perspective and continue to treat all rallies as highly suspect and nothing more than a rally in a bear market. With this mindset in place, we need to watch the 1385 to 1400 area on the S&P 500 for a possible termination of a bear market rally.
Continue to use all rallies as a place to hedge your long term positions as we remain in the sell strength mode. Aggressive traders can look to purchase SPY call options at or near the open on Monday as long as we do not get a large gap up at the open. If we get this type of open then speculators will be looking to simply sell short or buy puts at the upside targets I mentioned earlier.
Thursday, June 12, 2008
Short term traders should currently be 75% flat in their trading account and still be holding a 25% short or put option position. The reason I continue to hold onto this 25% on the short side is the fact that Fridays have become the most negative day of the week and there is also an outside chance that this leg down we are currently in will be a 1.618 ratio and not just an equal length.
Wednesday, June 11, 2008
Today saw a huge move, enough so to warrant taking half the long position off the table and letting the second half ride. This type of trade is the absolute best as it offers a no risk proposition.
Wheat looks a bit over extended here and may be in need of a pullback before it can continue the current rally phase. If you went long on the buy signal, then look to exit half your position and move the stop loss up to break even on the last half. This will guarantee you a very handsome profit even if wheat works its way lower to your entry point.
I am looking for a pullback to the 8-8.50 level before we have another leg higher so keep these numbers in mind going forward.
Don't forget also that Wheat is not only producing nice profits for us but it also managed to tell us to exit our short positions in soybeans at break even so we owe quite a bit of gratitude to the grain.
USU now looks like it needs one final push lower below $6.10 before it can complete its first leg down. From that point, I would look for a counter trend rally to retrace 50 to 62% of the decline.
USU will become another shorting opportunity once a counter trend rally has been exhausted.
Oracle has finally started to move nicely with a very sharp move lower today.
The ultimate downside target remains 21.50, but taking 1/2 your position off the table with some nice profits would not be a bad idea.
First Bancorp is rapidly turning into a very nice short sale.
Yet again, another recommendation that you may want to take 1/2 to 3/4 of your position off the table with some excellent profits.
The chart shows the ultimate downside target.
The chart below is the wedge pattern I had spoken about last week and it looks like the S&P 500 cash index is getting quite close to the wedge target of 1315.
We also have a 1.618 ratio target of 1300 even for a downside target as well, so it would appear that we may very well be getting close to some type of short term low that could lead to a trade able rally. However, as I stated in the first paragraph, during a bear market we need solid evidence that a counter trend rally is indeed a higher probability and from this point we can look to establish some type of long positions to capitalize on such a move.
At the very least, these signals warrant our short and put positions to be reduced and/or closed out in waiting for a point to re-short the market after a counter trend rally. Our short positions have paid off very nicely and it looks like there should be just a bit more on the downside before we exit these positions. I anticipate exiting 2/3's of my positions on any early weakness Thursday as the daily trading pattern calls for a continuation of lower prices early Thursday with the final low being put into place in the 11:00am to 12:00 Noon time frame. Should we see the 1315 to 1300 price level during this time then I will exit all of my speculative shorts and remain neutral until I get strong confirmation that in fact a short term low has been put into place.
Intermediate term traders should continue to hold their hedged positions as should longer term investors. This decline in full could very well be a long ways from being over. Caution remains the most prudent word for equity allocation at this time.
Tuesday, June 10, 2008
Today was one of the first signs that it may want to work higher as it managed to find some resting support off the 50 period moving average.
With this new formation I am going to initiate a 50% long position in wheat with a tight stop loss just below the 50 day moving average.
I am still looking for a minimum downside target of 8 1/4, but there certainly no law agains taking half your profits at current levels and letting the other half ride.
While I was a little early in the original buy signal at $6.40, we have reached a point that can safely be used to purchase another block of stock and/or purchase call options.
Oracle has not declines as quickly as I had anticipated, but it remains clearly in a downtrend an has yet to reach its minimum target level which I have marked on the chart.
USU has retreated a full 10% since the initial sell signal, but appears to be mustering up some energy for its first counter trend rally of this decline. If you are short or have purchased put options then now may be a good time to take those profits and wait for another point in price to enter the short side again.
Today also saw and inside day with a down close on the S&P 500 cash index, which should lead to a rally on Wednesday. However, this rally should be used as a selling point or an area to purchase put options as the current decline has not come even close to showing any sign of exhaustion.
The trading pattern that I have posted over the last couple of weeks on the Wilshire 5000 remains very much in play and as I have marked on the chart above, you can plainly see where we currently are in the sequence and also how accurate the pattern remains.
In a nutshell, we remain in a sell strength trading mode and continue to look for small rallies along the way to add to our short positions. Your equity allocation should be extremely defensive.
Monday, June 9, 2008
I have targets in the 1345 area basis the S&P 500 cash index that should present some type of support for the market. This however should prove to be nothing more than a point of a small counter trend rally before the decline pushes lower once again.
The 1345 area is a good target for those who have been holding SPY put options to exit their positions and await a point to sell any strength once again.
The NASDAQ has finally broken down with a penetration of its lower channel.
The OTC market had been one of the slight glimmers of hope that in fact the market could rebound in a more aggressive manner, but all this has been dashed with the breaking of the lower trend channel.
As stated above, we may be nearing a very short term low after we see one more push lower in stock prices. Use this potential strength however to sell short, hedge or buy SPY put options as sharply lower prices seem to be in the cards over the intermediate term.
Thursday, June 5, 2008
This is exactly why it is important to follow the entire complex and not simply the one commodity you are interested in trading.
Currently the Beans have broken out of their wedge pattern and should continue to move higher. I have not entered into a long position as of yet as I am going to await a small pullback to the upper line on the wedge pattern. Take a look at the chart.
The pattern calls for a choppy, but higher morning session with the days high being made in the 1pm est. time frame.
From this high, there should be a very extensive decline that will catch many unaware as they participate in what they deem to be a follow through day of Thursday.
So, for those who did not get short near the close today, use any strength we may see in the morning as an opportunity to establish a position. This will be especially true if we see a run up in prices because of a good Jobs Report number which is due out at 8:30am est. Lately, this has been an excellent point to take advantage of either emotional buying or emotional selling as the market has had a very strong tendency to move counter to the morning move for the rest of the day.
So, you have a double barrel to look for here.
1. Strength into 1pm - Buy Puts
2. Strength off the Jobs Report - Buy Puts
While I remain intermediate and long term bearish at this point, we simply cannot just look the other way as far as the strength the NASDAQ has been showing over the intermediate term.
The uptrend channel has been held in tact and continues to call for higher prices, although we did have a quick double test of the lower channel line in a very short period of time, which is typically the first sign of a market losing its upward momentum. Regardless of this, there is no doubt that the NASDAQ remains in a bullish pattern and also that the 2591 level is going to be key to the OTC stocks potentially breaking away from the bear market.
Until that time however, with all of the other negatives I am seeing, I cannot in all clarity begin an allocation any higher into equities then the very conservative stance I currently have.
A close above 2591 will be very bullish and may in fact bring the broader market along for the ride, but we have to make it to that level first.
I remain very defensive on stocks and continue to swing in the direction of a new leg lower in a continuing bear market.
We have reached a point where if we get some type of solid reversal pattern then I will be putting on a long position as it seems fairly close to its downside target even at current levels.
This should have been a one day event however as the pattern calls for immediate decline after the relief rally. With this in mind we can safely call Friday a good test day as to whether or not the pattern will continue.
I exited my call options near the close today and entered put options as I fully expect the decline to continue. I only put on half of my put position however as I never like to hold a full line overnight. There are simply to many things that can happen.
Lets see what Friday brings us and we should be fairly clear as to what to expect over the next 2 weeks after tomorrow is out of the way.
The stock remains in a position that warrants short selling and put buying.
Be careful with the put options though and make sure you purchase contracts that
have enough open interest to prevent large and manipulative spreads.
STAR is a new short sale or put buying recommendation.
The stock formed a very reliable bearish Evening Star pattern, has unconfirmed upside progress and has its stochastics in sell mode.
Ford made a some what bullish reversal pattern today, although as you can see the candle was still on the negative side so it was not a textbook reversal.
Wednesday, June 4, 2008
Upon further confirmation of an intermediate term low being put in place, I will move my allocation to a full 100% of my designated allocation.
I also will be purchasing call options tomorrow morning.
Odds favor a decent rally Thursday as on the ultra short term basis the market has become quite oversold and in need of some type of relief rally. After this rally has terminated however we can expect more of the same as the market moves ever so closer to its lows at 1260 on the S&P 500.
Aggressive traders can look to buy calls for this counter trend rally as it should be in the neighborhood of 20 or so S&P 500 points. I am looking for a target of 1390 on the cash S&P 500 before we swing back into selling mode. This play on the long side is very aggressive so care needs to be taken should you decide to go this way.
More conservative short term traders can wait for the 1390 target area on the S&P 500 cash and then get back in on the short side for what could prove to be a very dynamic move lower.
Intermediate and Long term traders need to remain very cautious with a very low allocation to stocks and a very defensive posture. We will know more on this time frame once we see what the market does when it approaches the lows. For now, treat this market as a bear market and use strength to sell into.
Look for the stock to break sharply lower.
USU made its early morning rally today and continues to offer a modest play in put options or short selling. The stock is poised to follow the general market lower.
Tuesday, June 3, 2008
However, there are some mixed signals that may portend a one to two day rally before resuming the decline. More on these scenarios are below.
The intermediate term trend remains down as it appears a new leg of the bear market has begun. Of course this will not be 100% confirmed until we see the lows of 1260 on the S&P 500 cash violated, but caution remains the word on the street here.
From the short term perspective we have reached a point where we could make a move either way.
On one hand the market is very oversold and we have reached price levels that typically see some type of counter trend rally, perhaps 50% of this most recent 40 point S&P 500 decline.
On the other hand, there are multiple signals from the short term charts that we may just be entering into an acceleration phase of this decline.
With conflicting short term scenarios such as this, I have no choice but to stand aside in a neutral position and see where the market wants to go next.
If in fact we see some downside follow through tomorrow and then some stabilization, then we can probably expect a counter trend rally of 20-25 S&P 500 points, so a rally worth trading.
Short Term Traders should stand aside until there is some confirmations to the next trade able move. We have some very handsome profits off this decline so far and it certainly would not be a bad idea to cash some if not all of those profits in.
Intermediate Term Traders should continue to exercise caution and stick to an extremely defensive 20-25% allocation towards stocks.