Early Pre-Holiday Equity Comment - 5/23/2008

Yesterday we talked about the trading pattern we are currently in and what the outlook from this trading pattern is forecasting.

You will recall, I posted two charts that showed a very similar movement both in price and time.
Below is an enlargement of those two charts and thus we can use the pattern as a forecasting tool.

The boxes I have placed around the price action are the two very similar patterns I am talking about and based upon this pattern we should be looking for lower prices again on Tuesday, but a potential reversal in those lower prices to close out the day. This reversal however could come as late as Wednesday as the short term price pattern for Tuesday based upon the market action of Friday, calls for yet another day of lower prices with very little hope for recovery. In all probability, this call for the reversal in prices on Wednesday fits the pattern more logically and with Tuesday being the day after a holiday it adds a higher chance of lower prices as well.

You can also see by the chart below, that once prices do recover and begin to rally, that there will be a substantial move higher retracing 50% to 62% of the current decline. This will be the calm before the storm however as the decline should begin to gather steam after a counter trend rally. I am getting a bit ahead of myself here though, as we still need to see that pattern continue as is laid out on the chart.

Another Shorting Opportunity

VIVO appears to have put together the best it can do on the recovery side of the stock.

From here, there are strong indications of sharply lower prices, with the ultimate downside target in the $18 area.

This one deserves some serious consideration, but as always, please use a stop loss to protect yourself from large losses.

First Marblehead Rewards Us With a 31% Move

LXU Update - 5/22/08

I continue to monitor LXU and it appears to be getting close to its last phase of decline in this area. I continue to look for $17 as an area to purchase the stock and or call options, however the call options are rather thinly traded so exercise caution on this endeavor.

The reason I say that the stock is getting near a termination of lower prices is the declining wedge it is forming which I have drawn in green lines on the chart. This formation is typically resolved with a breakout above the top line and then a sharp move higher from there.

It remains to be seen what exactly the stock will do, but we need to be alert to the probabilities before us.

Equity Market Comment - 5/22/2008

Below you will see two charts, both of which have very similar patterns to them.

It is patterns like this that we must always be on the lookout for as they tend to offer a glimmer into the future direction of whatever vehicle you are tracking.

In this incidence the pattern is tracking equity prices and calls for the following:
A low to be made in the next 3-4 days at markedly lower levels then current.
A sharp 4-6 day reflex rally that retraces 50% to 62% of the decline.
Then another leg lower that measures larger than the first leg we are in now.

Keeping this in mind, we can adjust our trading accordingly and look for short term trading opportunities.

The main thing to keep in mind however is that the market appears to have entered a new phase of lower prices and long term investments need to protect their positions accordingly.

For those of you who wish to use the daily trading pattern for short term trading, here is the run down for FRIDAY:

The general tone should be down, with strong movements followed by sideways action.

Open to 9:35am - Slightly Higher (High for the Day)

9:35am to 10:30 - Sharply Lower

10:30am to 11:20am - Narrow Sideways Consolidation

11:20am to 12:00 noon - Sharply Lower

12:00 noon to 2:30pm - Wide Sideways Consolidation

2:30pm to 3:15pm - Higher

3:15pm to Close - Sharply Lower

AS ALWAYS, YOU WILL NEED TO HAVE SOME TECHNICAL CONFIRMATION AT THESE TIME TARGETS IN ORDER TO WARRANT A POSITION.

I USE THE 9 PERIOD STOCHASTICS WITH A 5 PERIOD SMOOTHING ON A 3 MINUTE CHART TO CONFIRM MY TRADES.

EQUITY MARKET COMMENT - 5/21/2008

The action today has brought a breakdown in momentum with the the McClellan Oscillator breaking down out of the wedge pattern it was forming. This indicates that there is a very high probability that at the very least a corrective wave has begun and we should continue to expect declining equity values. It also confirms the premise that selling rallies is the prudent thing to do.


A major down day in the equity indexes today with the SPX looking like it wants to test the lower trend line at the very least.

The daily model was about 50% correct today with the massive sell off the market made, however the recovery that the pattern called for was quickly snuffed out as sellers remained the dominant force.

It would seem that today definitely confirms that corrective wave having begun and lower prices in the offing and as I have been saying, the nature of this decline is going to speak volumes about the long term viability of equity prices. The volume pattern does not bode well for the upside and thus the 45% equity exposure.

I have begun to even scale this allocation back not through stock sales but purchasing portfolio insurance by way of put options. This is an excellent way to protect the purchasing power of your investments without the need to pay large capital gains taxes. The only tax you are going to pay will be on the appreciation of the options once they are sold.

The NASDAQ has been getting hit harder than the broader market and most of that is due to the weakness in technology issues.

I would continue to look for this trend to continue.

For those of you who have been taking advantage of the daily trading patterns, below you will find the prospective pattern for Thursday.

Open to 11:15am - LOWER

11:15am to 1:35 - HIGHER

1:35pm to 3:20pm - CHOPPY CONSOLIDATION

3:20 to Close - SHARPLY HIGHER

REMEMBER, WE STILL NEED TECHNICAL CONFIRMATIONS AT THESE TIMES IN ORDER TO WARRANT A TRADE.

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Equity Market Comment - 5/20/2008

Just a quick update on LXU before I move on to the daily equity market comment.

The 38% retrace level appears to have repelled the advance of prices and we have gotten a sell signal on the stochastics and the candlesticks.

With these two factors in mind, we need to remain alert to an area to repurchase the stock for the next leg higher. The most logical spot to look is the 50% retrace level of this entire move higher which comes in at $16 1/2 and also matches the level on consolidation before the last sharp leg higher.

Keep your powder dry for this one.


The markets swoon lower today was hardly unexpected as it appears the corrective mode has officially begun.

The stochastics have coiled below the 80 level which confirms the intermediate term down trend. Don't forget also that the week on a seasonal basis has a strong possibly of being sharply lower.

The daily pattern I talked about yesterday was almost completely on the ball with the exception of the open. The market moved sharply lower into the 11:15pm time and then consolidated until the 1:15 time frame where it made another thrust lower. The low was made almost on cue in the 2:30 to 3:00 pm time frame and we had a nice 8 point snap back rally. Not quite 50% of the decline, but a nice trade able rally just the same.

For tomorrow, the daily pattern calls for a continuation of the decline for the early part of the day, followed by a very strong rally back to even and perhaps even a positive close on the day. Wednesday has the potential to be an excellent trading day on both side of the market. The pattern is as follows.

A flat open followed by lower prices right off the mark.
A choppy move lower with some very volatile swings from 9:45 to 11:00am. These swings could be quite lucrative for the ultra short term scalpers so if this is your poison then have your weapons ready.
This early volatility lower should lead to a fairly straight move lower from 11:45 to 1:45pm.
From 1:45pm to 3:00pm, look for a choppy move higher.
3:00pm to the close should see some very heavy upside action as the market moves its way back to unchanged or even a shot at an up close on the day.

So in a nutshell, Look to short from the open and hold until 1:45pm
Then cover the shorts at 1:45pm and go long from 1:45 to the close.
Of course these times are just estimates, but watch your trading tools around these times for a potential confirmation to this outlook.

The chart above shows the break of the wedges bottom line so based upon this occurrence we should see some follow through to the downside followed by a rally attempt back or close to the bottom line. This should be followed by another move lower this time a very strong move lower.

This pattern should be a very good guide for short term position traders.

Intermediate and Long term traders should continue to remain defensive in the face of potentially sharply lower prices in the near term.

ONAV - Shorting Opportunity

Nice short candidate and put buying opportunity.

Soybeans - Remain Short!

Soybeans sent a double negative today with a crossing of the slow stochastics and also a trend termination and reversal candlestick pattern.

I continue to look for the beans to fall out of bed and the set up for sharply lower prices seems to be right on the front door step.

Keep your shorts in place with a flat $750 stop loss from your entry price.

Daily Equity Market Comment - 5/19/2008

The daily pattern today was pretty much dead on with a slightly lower open and mildly lower prices followed by a very strong rally into the 1:00PM time frame. While the consolidation period was a bit more than I had expected, the 3:40 low came right in on time and made a nice 7 point rally in the futures.

The pattern for tomorrow calls for a flat open and mildly higher prices for the first 15 minutes to half hour. This should be followed by a sharp move lower into the 11am to 11:15am time frame.
From here we should look for a consolidation of the losses and a sideways pattern that leads into another sharp move lower starting at 12:45pm. This move lower should continue until 3:00pm at which time the market should stage a very nice come back rally of roughly 50% of its daily decline.

Short term traders can use the above template for prices as they see fit.

On the intermediate term front, the chart below continues to show a slowing of upside momentum and quite possibly the start of a very steep sell off starting tomorrow. We have a very negative stochastics pattern that still needs confirmation by turning lower and we also have a very negative two day trading pattern with 2 polar opposite days.

Remember also that Monday had the greatest odds of being the ONLY up day this week so a negative tone may be set for the week. Remain very defensive in your equity holdings with no more than 45% invested into stocks.