Thursday, June 19, 2008

10 Year Note Yields

The yield on the 10 year notes made it up to the 50% retrace level and was turned away as you can see on the weekly chart below.

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.

Wheat Stop Update

Tighten up your stop loss on Wheat to a 20% profit level above your purchase price.
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.

NSC - Call Options For Aggressive Traders

Even in the middle of a bear market there will come opportunities on the long side and although they must be categorized as aggressive because of the condition of the overall equity market, they still offer some great profit potential.

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.

Equity Market Comment - 6/19/2008

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

WHEAT - Continues Its Strong Rally, But May Be Getting Tired

The long trade in wheat has paid off very nicely and it has racked up some very nice profits.

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.

Equity Market Comment - 6/17/2008

The market action today followed the script almost to a tee as it offered an excellent day trading set up with a very strong pre-opening market on a day that had some very high odds of being a down day. It is these types of set ups that offer some very low risk entry points and a fairly stress free trade.

Currently it looks as if we should finish our counter trend rally this week after the textbook pullback today. There are several measurements that signal 1385-1390 basis the S&P 500 cash as a very strong level of resistance, including the 200 period moving average on the hourly chart.

Short term traders can look to play this potential rally as it offers about 35 points potential, but as always, be very careful on the long side as anything can happen in a bear market such as we are currently in the midst of. Probability dictates one more move higher to the 1385 level before we continue our move lower but long positions here must be made with true levels of caution and very tight stop loss levels.

For those intermediate term traders that have yet to either establish a longer term short position or hedge their equity holdings, consider the move back to 1385 as yet another gift as the next move lower should be quite a bloodbath and one that should keep the masses perplexed as to the reason or nature of the decline.

Long term traders should continue to exercise the same level of caution that has been warranted since the start of this bear market and keep a very conservative equity allocation of no more than 35%.

Monday, June 16, 2008


Remember, we are only looking for a counter trend rally in here before yet another sharp sell off.

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.

Trend Analysis LLC Headline Animator