Friday, May 2, 2008
The reason I make mention of this is the clear fact that in many many instances the 50% retrace level is a point of very strong resistance and in this current market environment could be construed as the termination point of a bear market rally.
This is not to say that the party is over! What it dictates is that all investors need to watch this price level with some intensity because odds favor prices to head south from here. If the market can close above the 50% level and move on to the 62% retrace level it would have some very bullish implications for the long term health of the stock market.
As I have also been saying, the next corrective force in the market needs to be monitored closely for a clue to the next major long term move in stock prices. First and foremost, the S&P 500 must be able to hold its most recent major lows in the 1260 area. This is a minimum requirement. The ideal situation will be for the market to hold the 50% retrace level of this entire rally from 1260 to current prices. I will be supplying targets very soon.
Because of the 50% level being achieved on the potential counter-trend rally, I am advising a reduction of equity exposure from the current 60-75% stock allocation down to a 40 to 50% allocation to stocks, just to be on the safe side. For those of you who have considerable capital gains in your stocks you can go to the option market and hedge your positions with put options and put a synthetic sell into place.
I will have more information on the Weekend analysis, but I thought I would get the preliminary outlook out in plain view.
Thursday, May 1, 2008
I still believe that this was a one day wonder and the market should see the corrective pattern return Friday. Friday is the worst day of the week both for return and also odds of being an up day. Being as the seasonal day of the week pattern has been so hot recently I thought I would run by the pattern for Friday for those who wish to once again capitalize on selling futures short or buying puts.
Friday, if it follows the typical pattern should see the market trade sideways to higher for most of the day with the days high coming in near the 1pm est mark. From there we should see the market fall apart and decline quite sharply. Therefore look to this time of the day to establish SPY put option positions or sell the futures short. Remember to always use a protective stop on all short term trades to protect yourself from unexpected events.
This being the case, the protective stop can be moved down to the breakeven level, effectively making this now a risk free trade. Risk free trades are the first and foremost type of trade we look for and we were fortunate enough to be given one so soon.
The decline in prices should continue and quite violently at that so move your stop to your breakeven level and get ready for a move lower that could possibly take your breath away!
Wednesday, April 30, 2008
The pattern for the last day of April was right on the mark, which increases the probability that the seasonal model for the first day of May should be fairly close as well.
This pattern for Thursday is also confirmed by the typical Thursday pattern as well.
The reason I bring this really only to the attention of Day Traders is that The odds favor this pattern to be a one day event.
The pattern calls for some follow through of the weakness we had today in the morning half of the day, with the days low being put into place in the 11:15 to 11:30 AM EST time frame.
Therefore, should we see some stabilization in this time frame tomorrow and a crossing of the 3 or 5 minute stochastics near this time it could be a very lucrative day trade for call options or going long the S&P 500 futures.
Remember that if you choose the SPY options to make sure you buy an in the money strike of at least 1 point and ideally an in the money of 2 points or more. Being as this will be a day trade only you need not spend the extra money on going out past May on the expiration.
This is a very high risk trade that will be going counter to the down trend that was confirmed today so keep a very close stop in place and make sure you only look to buy the calls in the time frame I mentioned above.
We were waiting for a small rally in the July Soybeans somewhere in the neighborhood of a 50% retrace and intra-day today we got just that.
We are now short the July Beans from 13.30 4/8 with a tight close only stop loss at 1365 even.
If in fact my analysis of the Soybean Market is correct then we should see and almost immediate decline from here and also in a rather dramatic fashion. This will allow us to know right away if I was correct and if the trade should continue to be held or not.
The stock has also been following the historical model to a tee and should it continue down this path then we should see an extremely sharp rally on Thursday and Friday as the chrt below demonstrates.
We also had an outside day with a down close which is also a bearish pattern.
With these two occurrences on the same day seems to give some credence to the possibility that a corrective mode is starting.
It is this corrective pattern that is going to give us a very good idea of what the equity markets may be facing over the intermediate to long term.
I continue to believe that this move lower should be very limited and the lows at 1260 not being violated, but the market will have the final say so on all of these theories.
Tuesday, April 29, 2008
The last 3 days are looking quite bullish for the stock with each day seeing an uptick in volume.
Aggressive traders are already long the stock or call options.
Conservative traders should wait for the breakout and the ability of the stock to close outside the pattern.
The market continues to await the Federal Reserves Policy decision tomorrow and also the non farm payroll data that is due out Friday. Therefore any type of short term positions you may have could be vulnerable to the events of the days to come. It is times like these that the best action for short term traders is no action at all at least until the market has an opportunity to digest the forthcoming items.
The technical picture continues to point to a corrective phase just around the corner, but I will not take any such position given the current pending market news. Of course you could very well score big if you happen to be on the right side of the market when the news is announced, but this amounts to nothing more than a crap shoot and I learned along time ago to steer clear of just such opportunities.
If you simply must play then the only logical strategy is to put a straddle on (Long Puts and Long Calls) and once the news is out and the market begins to react then keep the position showing you a profit and dump the one showing you a loss. This is a more expensive way to trade, but a much safer way also.
Monday, April 28, 2008
The stock currently offers a fairly low risk opportunity and a potentially huge reward.
Make sure to check out the last chart also which is a historical chart with the current price data (BLUE) placed over it. The chart pattern follows the current move by 94% so there is very good odds that LXU is in a very strong position.
Take note of the possible upcoming move in LXU.
Typically a set up such as this comes along once a year in each of the grains and this looks to be the time for Soybeans low risk set up.
The Commercial Traders are very heavy sellers of the Soybeans right now as they recognize an overvalued market that has been fueled by the Ethanol craze in Corn.
The downside potential for the beans is at least the length of the first decline, which was $4.61 per bushel. This would bring the Beans down to $9.54 per bushel, which is a much more realistic price based upon the current supply and demand factors.
We will be looking to short the July Soybeans upon a counter trend rally from current levels.
Look for the 13.30 to 13.45 area on the July contract to sell short with a stop loss just above the most recent highs.
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At this point the best thing the market can do in order to remain in a healthy position is to decline anywhere from 50% to 62% of the entire rally we have seen from the 1260 low on the S&P 500 cash index. This would actually aid the market in its quest for higher prices. The longer we sit in this area and go nowhere, the higher the odds that the big money will come in and be net sellers driving prices much lower than the 1260 low that currently stands as an intermediate term bottom.
I would not expect very much from the market Tuesday in terms of making a choice which way it wants to go as we continue to wait on some very big economic data and also the Federal Reserves almighty take on interest rates.
I continue to wait for a corrective mode of this rally in order to get a long term feel for the next major move in the markets. I still lean in favor of a correction followed by a move all the way back to the mid 1500's on the S&P 500 cash, perhaps even challenging all time highs.
Until then, the market action is very reminiscent of watching paint dry, but don't fall asleep just yet. periods of low volatility are followed by periods of very heavy volatility as sure as sunset follows sunrise.
One final note on the seasonal aspect of the current market.
We are currently in the Month End/New Month period that typically offers some pretty positive returns. We are also leaving April which historically has been a very good month for the market and this year is proving true to form with this month being up 5.57% so far, a very respectable number.
The last trading day of April tends to be quite a volatile day with strength in the morning followed by weakness in the afternoon. The last day also happens to be the Fed's Decision day, so for short term traders it could be a boon for volatility.