Sometimes It Is Not What A Stock Does, But What It Does Not Do!

Sometimes it is a stocks failure to follow through with a pattern or patterns that give us excellent buy and sell signals, many times better than what the confirmed signal would have produced.

Here is a good example of a stock at the make or break point.

First, the stock thrust above the 62% retrace level but reversed and backed off to close below this level. This is the first warning signal, but still not enough to trigger a trade.

Second, you have the wedge breakout marked by the 2 small blue lines that needs to see follow through to the upside. A move back into the wedge would be warning number 2 and this is enough to put on 50% of our short position or put options.

Third and most important is the Inverted Head and Shoulders pattern that broke through the neck line 3 days ago, but has yet to show real signs of strong follow through. A break back below the neck line (Large Blue Line) and we have our clincher trigger for a short sale or put purchase and an increase to 100% of our position.

Keep an eye on this one as it is not that far away from warning number 2.

FORD - Intermediate Term Low Getting Close

I am still waiting for one more push lower in Ford in order to close the window on the Gap marked by the green dotted line.

While there is an outside chance the low is in place as is confirmed by the two blue squares, the odds remain favored on another push lower before a trade able low is in place.

The nature of the next rally is going to tell us much about the health of the stock.
I continue to stand by my scenario of $15 over the next 12 months, but I am a bit more hesitant now because of the no trust issue I have with 3 main Bozo's that run the company.

ALLI - Up, Up and Away

ALLI continues to flex its buying power as it advances another 8% today.

Currently it is trapped a bit in between the top red moving average and the strong launching support it got off the green moving average.

If you purchased on the buy signal then continue to hold your long positions and move your protective stop loss to the break even point for a no risk trade.

If you were waiting for a pullback of some kind before entering, then continue to sit on the sidelines until the stock works its way through this squeeze.

For Short Term Traders

Today ushers in the last trading day of May and our quite reliable end of the
month trading patterns.

May's pattern shows the most strength out of all the months until about 2:45pm est where we can expect a reversal of the upward trend and a 50% retrace of the days strong gains.

The pattern for May's last trading day is as follows:

OPEN to 10:30am est. - Sharply Higher

10:30am est. to 12:00 Noon - Sideways Consolidation with a slight upwards bias

12:00 Noon to 1:40pm est. - Strong Rally

1:40pm est. to 2:00pm est. - Slight Pullback

2:00pm est. to 2:45pm est. - Higher

2:45pm est. to CLOSE - Sharply Lower, giving back 50% to 62% of the days gains

Please keep in mind that this is simply an historical pattern and although it may have strong probabilities, there are years that the pattern simply does not emerge. Here again though is opportunity as we look for a complete inverted pattern to play.

For example, if we see the market doing the complete opposite at the times specified above, then we can assume the pattern has inverted and we must flip everything to its opposite.

FBP Follow Up

ALLI - Strong Buy Signal

Below you will see one of my favorite long term buy signals.

It is know as the Double Morning Star and is very accurate
at forecasting long term price moves.

ALLI is sending a very strong signal to purchase shares at current levels for a potential
Double.

Equity Market Comment - 5/29/2008

The hourly chart shows a counter trend rally back to the 50% level and then a turn away from those levels. The first leg down shows a clear 5 waves down so we know that there is more downside to come our way. This is acting differently then the other pull backs we have seen during the rally from the lows so be careful if you have been riding this higher.

While I had expected the low of the first leg down to come in on Thursday, it now appears that Thursday was actually a potential top of the first counter trend rally. Therefore we should expect sharply lower prices from here.

This move higher was a bit more that I had envisioned and I have been stopped out of my put positions twice with very small losses, however, yet another opportunity to profit from falling prices seems to be on the door step.

Intermediate to Long term traders should continue to hold a very defensive portfolio just in case this next leg down is the second wave lower of the bear market. Also take notice of the high level of bullishness amongst small investors and you have a fairly reliable recipe for sharply lower prices.

Wheat - Just About Ready To Make A Major Move!

There seem to be quite a few commodities that are lining up for some good trades.

While the pattern on wheat does not tell us which way the price will break, it does tell us that there is going to be a decent sized move very soon.

Because the declining wedge pattern we are seeing in wheat typically resolves itself to the upside, I am going to tighten my stop loss on the Soybeans just in case they decide to follow along with the potential rally in Wheat.

Sugar - Put It On Your Watch List

Sugar looks to be completing its final leg lower.

Target is 9.17 which is the same length of the first leg lower.
It will be at or near that price level that I will assess the potential for a long position.

As of right now, Sugar is on our Priority One Watch List.

YET ANOTHER PUT BUYING OPPORTUNITY

Here is another low risk stock that is perfect for selling short or purchasing put options.

I will be purchasing the FBP June 10 Puts at .50 or better.

The stock has potential all the way back to its lows at $6 so there is ample risk to reward involved here.

Here Is One To Simply Buy and Put It Away For at Least 3-5 Years

Here is a stock that in 3-5 years you will be looking at it wishing you had purchased more when it was in the $5 range.

Crisis comes and goes and jumping on quality issues that have been hammered because of said crisis is how to make a small fortune over time.

It takes guts to buy a stock like this after it has taken the drubbing it has, but if you are looking for something to slap away in your kids college trust, this may be just what the doctor ordered.

One more very important note.
MAKE SURE YOU REINVEST THE DIVIDENDS BACK INTO THE STOCK TO COMPOUND YOUR INVESTMENT. IT WILL BE LIKE A SYSTEMATIC INVESTMENT PROGRAM THAT PAYS FOR ITSELF!

TNH - The Whole Picture

TRA chart for reference to this post.

We talked yesterday about some of the commodity based investments that have done very very well as oil has continued to move high, but many of these same stocks are starting to show fatigue and may be on the verge of a substantial correction.

Below is TNH, which is actually a limited partnership.

TNH is the one I spoke about getting out pre-maturely at $95 only to watch it continue to climb sharply higher. No complaints here though as we purchased it at $17 and sold it at $95.

The chart speaks for itself as it begins to show some serious long term cracks in its trading pattern. The parent company is called Terra Industries (TRA) and although the patterns on the chart is a bit different than TNH, it moves in lockstep with TNH.

There will be a strong play on the downside with TRA once we see TNH break the lower line of its wedge. Options are also offered on TRA, so when the time comes we will look into some put options to capitalize on what could be a mighty collapse.

The other reason I bring this stock up is that it tends to lead Crude Oil prices by about 1-2 weeks, so we may be able to get a heads up on the future course of crude oil prices simply by watching TNH.

Warning Bell - Small Investors Show Strong Bullish Sentiment

The S&P 500 should turn lower from here with the 38% retrace level having been achieved.

I have a 1360 target on the SPX for the first leg lower.
This should be a point that a substantial counter trend rally of 50 or more points may begin.

Short term traders should look to enter SPY put options right here to capitalize on the potential last push lower. Use a fairly tight stop loss on the put options as the SPX should be limited to 1397. Anything above that level and all short trades are off the table.

It took only two days of fairly mediocre returns to bring the small investors back to the super bullish stage as their appetite for Call options has once again inflated to levels that see short term tops within 24 hours of the reading.

This is clearly telling us not to be fooled by the past 2 days of rally in the market and remain defensive. Short term traders should be looking for some short sale and put option plays as this temporary blip up should be very short lived.

Potential Price Targets For Bear Market Low

Make sure you print this post out and reference the 1140 to 1170 S&P 500 targets for the most logical downside projection in order to complete the bear market.

These number represent 15% to 18% lower prices from current levels and a 28% decline from the all time highs.

We could very possibly see these numbers during the Summer months and still achieve an up year overall.

From a seasonal standpoint, Presidential Election years are quite bullish for stock prices and years ending in 8 have a tendency to get hit hard and then recoup all if not more than their losses.

So, if this scenario is to play out, it will offer some tremendous profit potential both on the decline and the potential subsequent rally from the lows. This is definitely something to pay attention to.
Take a look at the chart below for a visual of exactly what I just talked about.

Is The Dollar Getting Ready For Another Strong Move Higher?

The dollar has been in rally mode for over 8 months now against most of the other currencies but still has been struggling against the Euro. This might just be about to change as the Euro looks like it may just play catch up to the downside, thus sending the dollar sharply higher.

Ever since reaching a high of 1.12, the Canadian Dollar has been in retreat and rightfully so.

Inflation in Canada is as bad as it has always been and the Canadian dollar will soon reflect just those conditions.

I am looking for the Canadian dollar to move to the 80 cents on the dollar level.


The British Pound for a long time was the currency that just kept plugging along against the dollar as our greenback went down the tubes.
Just when you thought the Pound had made a major top and should work lower there was yet another sharp leg higher.

These tables however have seemed to have reversed themselves and now it seems that Sterling may be on the verge of yet another sharp move lower.

Of course all of this will come to the surprise of the Dollar Bashers who simply find it irresistible to short the dollar. The Middle East may just start licking their wounds two fold as the dollar rallies against their short sales and oil potentially begins a strong corrective pattern. It will be interesting to see how it plays out, but all of their short positions when covered could send the dollar screaming higher.

Lets wait and see what happens.

Crude, FDG, TNH

I have been so incredibly wrong on the movements in Crude Oil that I thank my lucky stars I never put a position in place, nor made a recommendation thereof.

However, there are some fairly convincing signs that point to a potential top in crude oil prices, the most compelling is the clear 5 waves up structure it has formed since its bull market began around $10. Yeah remember $10 when gas at the pump actually dipped below $1 a gallon?

There certainly seems to be a vast consensus that Crude prices will do nothing but go up and up forever, but we know that this is pure fantasy and typically when ideas like this circulate it tells us that a certain commodity has run its course in price.

Bull markets come and Bull markets go and this is no exception.
There is NO Oil Crisis........ PERIOD!
When the markets finally come to grips with this fact, then look out below with crude prices.
The problem is that nobody knows when the speculators will finally realize this fact and until I get more technical confirmation, I will steer clear of shorting oil.

One other note is that when Crude does finally break lower, it is going to drag Coal Stocks and Ethanol stocks down with it, so be very cautious with these shares as well.

I am just about ready to hedge the FDG that was purchased at $25 and now sits close to $80. It has been a very nice ride and the stock even out did my estimations by $15 per share, however it is starting to show signs of weakness and as is always the case, all good things must come to an end.

The other stock we have participated in, but currently are outside looking in is TNH. This is yet another one to watch for lower prices once oil breaks. This stock has gone from $17 to $170! I would like to say I was along for that entire ride, but I cut out at $97. Certainly not a bad gain at all, but obviously short of the mark by $70 plus. This is also a stock that could get cut in half price wise and become a good buy, so we want to keep an eye on this one as well. If you are one of the fortunate few who held the stock all the way to its current lofty levels, you might want to consider selling half your position and placing a tight sell stop at $150 for the remaining shares.

Ford - Who Needs Tickets To The Circus!!

Our timely exit out of Ford stock seems to have been well rewarded as the stock has crumbled after the clueless Board of Directors not 2 weeks after commending themselves on being ahead of their turnaround plan have suddenly shifted gears and said that their plan is now in danger of not delivering as promised.

Please don't even get me started on this bunch of clowns that run Ford Motor.
If I had my way I would axe the entire bunch starting with Mark Fields, the arrogant I am to good to move my family to Michigan officer.

Anyway, the stock seems to be attempting to put in some sort of short term low here and while there still remains about 5-6% downside risk left, it is time to start looking for a spot to get back into the stock for a bounce higher.

Soybeans Update

The beans continue to trace out a pattern that will see a substantial move based upon the direction of breaking through and closing on either side of the lines on the chart.

I remain short the beans on the side with the big money commercial traders expecting a sharp breakdown in prices.

This continues to be a very low risk trade as we are currently quite close to the high side of the pattern. A close above the upper line will have us cover our short positions. A break below the lower line should bring strong profits in a fairly short period of time.

Recently most of the commodities have been in lockstep with Crude Oil, so if crude oil prices should break lower then look for most of the commodity complex to follow suit.

LXU - Update

LXU reached its preliminary downside target and has since moved higher.

While the stock to me looks like it wants to make one final push lower to 16.25, we have reached a point where it would be safe to put 1/3 of your position into place just in case we have seen the absolute low and the stock moves sharply higher.

If the stock moves lower to the 16 to 16 1/4 area then add the other 2/3's of what you were going to allocate to the stock.

As of now, I am long 1/3 of my position in LXU

Equity Market Comment - 5/27/2008

The 30 minute chart of the S&P 500 cash index made a nice positive divergence today with prices moving to lower lows and the stochastics not confirming the low. This is typically a bullish development, but notice the last two price bars of the day and you will notice a bar with the line straight through equal on both sides. This is known as a Doji pattern and shows some serious apprehension near the end of the day about the higher prices we achieved earlier in the trading day. The real clincher to me is that we saw not just one Doji, but two in a row and this being late in the day when the institutional players are the market movers.

This coupled with the 30 minute stochastics working back into overbought territory tells me that the first leg down is not complete and we should see another push lower before we can expect anything substantial to trade to the upside.

Of course this is simply the short term outlook. The intermediate term remains in the defensive mode with any rallies to be used to sell or hedge into. We are entering into June, which has a very bad record for Big Capitalized stocks so this brings caution as well.

I remain very defensive with a 45% allocation to equities and some option hedges that bring the actual allocation down to 35% so it is safe to say that I remain very very cautious in here. The last time I had such a low allocation to stocks was in 2000 about 2 months before the tech meltdown.

Before I begin to sound to negative, there is some good news and that is the housing market looks to me like it has found a bottom and in all liklihood the worst should be over. Not that it was without its casualties as this correction saw the average home lose close to 30% of its value and in some pockets of the country where prices were grossly overvalued the values saw a 50% decrease.

Now before we all cry in our milk over this supposed collapse in housing prices, we need to call this correction in prices exactly what it is and that is a normal 25 year cycle correction in prices. The last major correction we had in housing prices was way back in 1983 to 1984, so this move in values was long overdue. It seems to be very difficult for some people to swallow as they had become accustomed to their home values going up 10-15% per year and now they see their values sitting just about right where they were when the properties were purchased. While it may be a bit painful for some and especially those who leveraged themselves to the hilt against their inflated home prices, take refuge in the fact that this is a normal correction in an ongoing bull market in real estate and these values will once again begin climbing.

The NASDAQ was by far the stellar performer today with a nice bounce off the lower channel line.

This movement might be the first sign of the start of a counter trend rally, before we get another leg down, but the jury is still out on this one. We need more than simply a bounce off the lower channel line to warrant a change in our short term trading strategy. A nice confirmation would be for the stochastics on the top of the chart to turn up and cross, but I don't think it quite has the strength to accomplish this just yet. This would mean that there will be one more push lower into new low ground for this move before we can muster a decent rally to retrace some of the downside we have had.

I had anticipated a low to come into place mid day Thursday and as of now, there is nothing to steer me away from this scenario, so look for lower prices to continue tomorrow.