Thursday, June 5, 2008

Wheat - Saves Us From Loss

We have to give a hats off to Wheat which gave us an early warning signal on our short position in Soybeans.

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.

Pattern For Fridays Trading

I did want to touch on the projected trend for Friday for those short term traders that utilize this data.

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

NASDAQ - Defying Gravity

There are always two sides to every story and I would be amiss if I did not give the NASDAQ the attention that it deserves.

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.


Once again I call your attention to Sugar as it makes its way ever so much closer to my 9.17 target.

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.

Equity Market Comment - 6/5/2008

A rather pleasant surprise for our call options and long positions today as the market made a 1.618 move today instead of equal length. It actually came just 15 cents shy of this target on the S&P 500 cash.

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.

Stock Recommendation Update

USU continues to mark time before it ultimately crumbles.
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.

Oracle continues to squeeze its way through its wedge pattern.
If and when it does break lower, it should be a sight to behold.

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.
However, there remains enough evidence of an intermediate term low in place to warrant purchase and call buying.

LXU is starting to look more and more bearish as the chart indicates.
I continue to look for a safe entry point in the $16 range, but should this bearish pattern play out, we could be looking at prices in the $12-$14 range.

Wednesday, June 4, 2008


More to come on this, but I have allocated 50% of my total position into Ford stock.

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.

Equity Market Comment - 6/4/2008

The market continues to demonstrate exactly how weak is has become as even the slightest amount of buying is met quickly by selling and does not allow anything to hold on the rally side.

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.

Stock Reccomendations Update

Oracle has reached the breaking point as it gets squeezed inside the wedge.
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.

Ford made its final push lower and found support in the 62% retrace level.
I have allocated 50% of my designated funds to the stock and I will be purchasing
call options in the morning Thursday.

LUX continues to trace out its consolidation pattern and I am still looking for the $16 area to buy the stock back.
We may have to be careful here though as a questionable wedge pattern is forming and should it break lower out of this wedge then the targets go lower than the $16 I am looking for.
Take a look at the wedge pattern below and ask yourself why this wedge pattern is questionable and not a pure pattern.

Tuesday, June 3, 2008


FORD - Needs More Decline

The chart on Ford continues to call for one more new low in the stock right arounf the $6.40 area before we can get a decent rally to trade.

I continue to monitor it on an hourly basis.

Equity Market Comment - 6/3/2008

As you can see, the trading pattern is currently in the second leg down as represented by the second downward sloping green line on the left side of the chart. With this in mind, it appears that we have quite a bit more downside left before we get a decent rally to trade.

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.

After a brief attempt at a rally early in the session, the sellers used that strength to continue their selling, which has not been a surprise to us.

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.

Monday, June 2, 2008

Wheat Tells Soybeans To Move Higher - COVER SHORT

Wheat has broken out of its descending wedge pattern we had talked about last week and has the potential to send bullish vibrations through the entire grain complex given the pend up demand in the grains.

With this in mind, I have decided that the short position in the Soybeans has taken on to much risk and I have covered the short at break even.

This is a case in point of why it is necessary to follow an entire complex of related commodities and not just the one you are interested in trading. These complexes and especially the grains have a tendency of carrying each other regardless of the individual fundamentals and or individual technicals. So while there really is nothing new in Soybeans to warrant an exit of the short position, the potential bullish breakout in Wheat is enough to warrant a reduction in our risk levels with the Beans.

Now, should the breakout in Wheat prove to be a failure and we see its price move back into the wedge, then we may re-enter the Soybeans, but until this happens I am going to remain flat the grains.

USU - Offers An Intermediate Term Shorting Opportunity

I remain bullish on USU long term, however, the stock appears to have completed its first leg higher and is very near a point of collapse.

It is because of this potential that I will be shorting the stock upon the violation of the lower wedge line as shown on the chart.

If you have been long the stock, then it would be prudent to either sell it or buy puts against it to lock in some very nice profits.

The potential for this decline is 50% to 62% of the rally from the lows which translates into a 30% to 46% decline in the stock price. Not a decline that I would hold my position through.

LXU - Update

I continue to monitor LXU for a re-entry point.

Currently the $16 level looks like a very good point to get back into the stock, but the most recent turnover in the price has given a new downside risk target all the way to $15. Therefore the strategy will be to place half your position into play at $16 and should the stock make its way down to $15 then we can purchase the second half of our line.

Equity Market Comment - 6/2/2008

The next leg lower appears to have begun with the decline today.

While there was a late day attempt to curb the damage, it was met with selling and although the DOW does not show the weakness late in the day, the S&P 500 does.

From this point I would look for the S&P to push lower early Tuesday with a potential reversal about mid day that should help the average to close mildy negative to mildly positive. We will need to see the lows of today taken out early in the day in order for this scenario to have high odds of occurring. This final push lower should be met by some buying that will send the market higher, but be not a fool about the intermediate term direction of this market. It is clearly down and if you did not have the opportunity to get aboard for the decline today, then the potential counter trend rally may be yet another opportunity to get short.

I remain very defensive in here as I continue to sell rallies and with my hedges in place on my long term portfolio I currently am holding only a 20% allocation to stocks.

The proceeds from the stocks that I sold outright have been placed in the 10 Year T-Note as we should see the Notes increase in value as equity continue to decline. Not to mention the yield on the T-Notes is much better than the prevailing money market accounts.

Remain very cautious in here.

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