Week-End Equity Market Comment 2/2/2008

Fairly impressive week with the S&P 500 moving higher by 65 points or close to 5%.
The good news is that we are hearing any fanfare from this move up. If this move had been reversed and continued down 5% you would be hearing all the gloom and doomers talking about the sky falling. By not very many latching on to this past weeks move higher we have been given yet another indication of the importance pertaining to the low we have put into place.

The weekly chart has put in one, if not the most bullish candle pattern there is which should lead to a continuation of the bull market on a long term basis. This does not mean that we will not see a pull-back of sorts, but it indicates that these pull-backs should be used to add to equity positions.

This weekly chart will become even more bullish when the market continues its rally and the MACD lines at the bottom of the chart cross.

Remember also, that each time the equity markets, mainly the S&P 500 have reached their climactic bearish sentiment levels and then have sentiment turn back higher, the market has rallied 24% each time. I find it rather odd that this 24% is not an average, but each occurence with these specific conditions have rallied 24% from their lows before any decline of substance came about.

A 24% advance from our most recent lows on the S&P 500 puts the index exactly back at its all time highs, so we have a heads up that this is the very minimum we should expect.

By the way, 24% is certainly nothing to sneeze at, as it is better than 2 times the average return on equities.

On the short term front, the market has reached a juncture of sorts and a break either way is a possibiliy, although the probable outcome leans with a break down.

However, this market seems to have some heavy pent up buying pressure behind it so which way it breaks out of the wedge is a toss up.

The most important thing for short term traders is to jump on board the trend, whichever way it decides to move.

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CSC MAKES A TEXTBOOK PULLBACK

CSC MADE ABOUT AS CLOSE TO A TEXTBOOK MOVE BACK TO THE NECKLINE AND BOUNCE ON MUCH LIGHTER VOLUME.

THIS CLEARS THE WAY FOR HIGHER PRICES.

USE JUST UNDER THE NECKLINE ON A CLOSING BASIS AS YOUR STOP LOSS AREA.

THE MARCH CALL OPTIONS ARE ALL FAIRLY PRICED SO NO PROBLEMS WITH OVERPAYING.

WE ARE GOING TO PICK UP THE MARCH 42.5 CALLS, CURRENTLY 2.05/2.15.

MINIMUM TARGET FOR CSC IS $46.

AIRLINE INDEX - XAL

The airline index is up over 21% since the issued buy signal.

No question that we want to tighten up our stop to protect at least 80% of those profits.

I sincerely believe that on an intermediate term basis, this move up is merely a scratch on the surface of what is to come.

BULLISH INVERTED HEAD AND SHOULDERS PATTERN ON CSC

THE MODEL FOR CSC SHOWS SHARPLY HIGHER PRICES IN THE VERY NEAR FUTURE, BUT IT ALSO SHOWS A PULLBACK DAY FOR FRIDAY.

THIS PULLBACK MAY BE THE MOVE BACK TO THE NECKLINE ON LIGHTER VOLUME AND THEN THE SHARP MOVE HIGHER.

XAL - AIRLINES INDEX UPDATE

Since our buy signal on the Airlines Index (XAL), we have enjoyed a 15.8% advance and this in the face of some fairly volatile stock prices.

There are however some signs that it might be getting tired and should be watched very carefully.

Simply watch the wedge that is currently forming and if it breaks to the upside, then all the better returns for us. But, if it breaks the lower line then you will want to look at taking your position off the table and the profit in your pocket.

EQUITY MARKET COMMENT - 1/30/2008 & USU Update

USU made yet another attempt to break and hold back inside the wedge, but while it was able to break inside, it simply could not muster the strength to hold in place.

This is NOT a bullish indication of things to come, however, the hourly stochastics made a bullish stochastics cross so it may take working off or setting off a negative divergance before the stock can move lower.

We did not purchase the put options and we are going to wait until the hourly stochastics adjust themselves into a bearish condition.


Yet another wild and volatile day in the equity markets with stocks getting hit from the open and then putting together a rally that really gained steam in the afternoon.

The question at this point is whether or not the decline this morning was the culmination of the correction or not. The market reached beyond the 32% decline ratio, but did not quite get to the 50% retrace level.

This non event of the 50% retrace level suggests to me that the decline we saw end this morning was the first leg down of the ultra short term correction and the ensuing rally was counter trend, leaving the need for one more push down to satisfy the 50% decline area.

Here is a very interesting little tid-bit...... If the S&P 500 takes out the high of today which was 1385.62 then the odds of Friday being an up day increase dramatically. From 52% to 82%, so should we see some early morning strength and the high of today is surpassed then know that the odds of closing positive are very high.

We will know shortly if this scenario is correct or not. Either way, the market remains in the buy weakness mode.

The MACD has crossed on the daily chart from its deep oversold levels.

This is a good sign for the intermediate term.

USU - FAILS ITS TEST

USU FAILED ITS FIRST AND SECOND TESTS TODAY AND WAS UNABLE TO BREAK BACK INTO THE WEDGE.

THIS COUPLED WITH THE STOCHASTICS CROSS AND MACD CROSS HAS TURNED US BEARISH ON THE STOCKS POTENTIAL FOR FURTHER GAINS.

THE MOVE OFF THE MOST RECENT LOWS IS ALSO BEHAVING LIKE A COUNTER TREND MOVE, SO THE TREND REMAINS DOWN.

IF USU IS UNABLE TO RECOVER BACK INTO THE WEDGE AND BEGINS A RAPID DECLINE FROM THE BREAK THEN THE MINIMUM TARGET IS 5.90 BEFORE WE WOULD EXPECT ANY MEANINGFUL SUPPORT.

THE 5 DAY FORECAST ON THE NEURAL NETWORK IS ALSO CALLING FOR A FAIRLY SHARP RETREAT UNDER $7.

AGGRESSIVE TRADERS CAN LOOK TO BUY SOME PUT OPTIONS.

THE APRIL 7 1/2 CALLS ARE CURRENTLY .75 AND ARE YOUR BEST BET.

SOLID BREAKOUT SET UP

A SOLID BREAKOUT GIVES US THE SET UP.

A PULLBACK ON LIGHTER VOLUME TO OR CLOSE TO THE BREAKOUT POINT,

WILL BE THE TRIGGER.

EQUITY MARKET COMMENT - 1/30/2008

The McClellan Oscillator turned down hard enough today to warrant a caution signal to short term traders.

The heavy reversal day today also sends a caution flag to short term traders.

I do have a bit of concern about the stochastics only managing a move just above 50 before potentially turning down and thus the main reason I am only looking to bump up to 80% equities on this potential weakness. Had this indicator been more healthy then there would be no question that my next stop on the allocation map would be the land of 125%.

However, I want to be 100% sure that a major intermediate term bottom is in place.

I am sitting at about 90% certain, but as I said, if the stochastics roll over from just above 50 we will have to keep a very watchful eye on the substance of the ensuing decline.

Todays wild roller coaster ride brought confirmation to the micro short term model that the first micro short term leg completed with the sharp rally after the FED announcement.

This would bring into play a correction of this entire move from the lows near 1270 with 1328 being the most logical target for the end of the decline.

No question that yesterday was a good day to unload any ultra short term long calls or stocks that were picked up near the lows.

Short term traders should continue to hold cash and await an opportunity to jump back onto the long side of the market.

Intermediate and Long Term traders should embrace this potential decline as an area to increase their equity exposure and seeing as the three line break sentiment chart turned up yesterday it really clears the path to increase your equity exposure up to 80%.

USU - AT THE CROSSROADS

We are going to find out very shortly whether or not this rally in USU is a new impulse move higher, or simply a counter trend move back to the bottom of the triangle before breaking lower again to complete the triangles downside target of 5 3/4.

No question it is at the crossroads and it has been rather odd as to the 17% rally in the stock price, yet the April call options have gone nowhere to speak of.

Keep a watchful eye on this baby.

AMD - Time To Go Long

The Model says to get back into AMD.

The first trade was very nice and the second one has the potential to be even better.

The 39 day moving average has been some fairly strong resistance here, so a break and close above that level should send AMD sharply higher.

The AMD model tells us to get back into the stock, or call options, whichever one you think best.

The model has been very accurate and as you can see it calls for more upside action.

Commodity Outlook - 1/29/2008

We have been looking to put a short position into place on the Euro, however, with the FOMC announcement tomorrow it would probably be best to wait and see the results of their meeting.

This could Dictate the trend of the Euro over the next 5-7 trading days.


Nice reversal lower today on Sugar. We remain short the March contract and anticipate lower prices to continue from here.

Cotton seems to be marking time before it begins another leg down.

We remain short The March contract on Cotton and have locked in 50% of our gain.

Cattle are starting to wake up from their slumber and a move above 95.200 would be very bullish.

We remain long April Live Cattle.

EQUITY MARKET COMMENT - 1/29/2008 Part I

The big news today is the final confirmation of an intermediate term low being put into place as our holy grail indicator turned up today which bodes very well for the intermediate term direction.

I know it is not actually the Holy Grail, but it really is about as close to one as I have ever seen on an intermediate term basis.

The 5 minute chart is starting to exhibit signs of weakness and a potential ultra short term top.

Although the market will be fighting some seasonal strength with the end of the month and the second half of January and a Wednesday, it could take some doing to accomplish the task.

The FOMC announcement is tomorrow as well, so it should prove to be a very interesting day.

All I can say about this item is that the market has very high hopes of at least a half point cut and anything less would be Bernake Suicide.

There is some confluence coming into the market for a corrective phase. The wedge that is forming has a target that matches a 62% retrace of the rally you see on this chart.

If you have some short term call options in place, you might want to confirm the break on the triangle and should it break lower then lighten up on your ultra short term positions. This action is for short term traders only.

Intermediate and long term traders should welcome this potential brief pullback as an opportunity to increase your equity exposure.

COMMODITY TRADES UPDATE - 1/28/08

April Hogs are nearing an area for a potential breakout.

Look to trade the direction of the break.

Should be good for a quick 3-4 cents.

Remain short March Sugar and Cotton.

Remain Long March Cotton.

Watch List - Euro, Lumber, Coffee

EQUITY MARKET COMMENT - 1/28/2008

Today brought the Pre- State Of The Union rally that many anticipated, but perhaps a bit stronger than most expected.

Some of the momentum indicators have reached levels that dictate a short term overbought condition in the market, however, given the possible nature of this next move higher I would expect most of these models to continue further into overbought territory and further price increases in the indexes.



On the intermediate term front, today marked the turn up point of the fear indicator that is represented by the red line below the chart.

This almost the last piece of the puzzle we need for a full confirmation of the most recent low being a major low. The very last piece is the Three Line Break chart of sentiment or as close as I have found to an intermediate term Holy Grail and it is very close to turning up, but as of yet keeps us waiting.

The early morning decline in equity prices made just about a perfect bounce at the 50% retrace level and moved sharply higher from there.

Although I cannot rule out a test of the 62% retrace level, the probabilities are leaning heavily into the camp of the correction running its course.

In a nut shell, everything remains pretty much as we had thought it would and we remain strongly in the buy weakness mode.

Currently our assett allocation model to equities is sitting at 60%, awaiting only the turning up of our last intermediate term model.

If you did not have a chance to take a look at the weekend comment part II, please take a look at it as it offers some very serious insight into the current market conditions.

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COMMODITY TRADES UPDATE - 1/27/08

The opportunities in the commodity markets continue as there are a couple more potential trades developing.

As of now, we remain short Cotton and Sugar and Long Live Cattle.
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The Euro is one of the developing trades I spoke of and could be very near another sharp move lower. Although we are not there yet, keep a close eye on the stochastics and should they cross lower without obtaining the 80 level then look to sell short.
Lumber is our second developing trades and it seems like it has been in this category forever.

However, Lumber may have reached a point of selling capitulation and a cross and close of Lumber over the 10 day moving average that is shown on the chart will generate a short term buy signal.

How the move develops from that point will give us a good idea of exactly how large a move upward we could see.

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We remain short Sugar as it has been very volatile and has made its way back to our level of entry.

Due to the extreme volatile nature of this market keep your stop loss very close to current levels to protect yourself from upside volatility.

Sugar may just end up being a double entry before the trade sticks, but lets see how this current trade plays out first.



Coffee remains on the edge of a potential sharp decline and we are short from these current levels. Much like sugar try and keep the stop close as volatility could become a problem.

The potential reward from the possible decline in coffee prices however should be worth the possible whipsawing.

We have a very nice profit in Cotton and have move our stop up to one half of our current profit.

While cotton still has a very high probability of continued decline, don't forget to move your stop down to lock in more and more profit as it declines. Let the actual price take you out of the market as you move your stop down.

Remain long Cattle as it looks just about ready to strike higher.

We have a small profit so far, but not enough yet to move our stop to break even.

WEEKEND EQUITY MARKET COMMENT PART II - 1/26/2008

Probability model for the Russell 2000 seems to confirm our thinking on an intermediate term rally of some substance.

Blue bars are current market

Black are Markets History

This model also shows a test of the lows (not on this chart) after the rally is complete.




While we saw some profit taking on Friday, it did not take us by surprise as we were looking for the higher opening to complete the first micro short term up trend.

It is very possible that we saw all of the corrective forces we were going to see on Friday as the market was able to achieve a little more than a 38% correction. There is still the possibility of a 50 or 62% correction, but should this be the case it will afford us the luxury of adding to our equity exposure.

WEEKEND EQUITY MARKET COMMENT PART I - 1/26/2008

I thought I would start out this weekends update with a very interesting occurrence that is based on bullish sentiment levels and has shown some very consistent results.

Over 10 years, the sentiment level on the S&P 500 has dipped below 20% three times, not including the most recent move below 20 we had last week.

Each time this occurrence has happened and the sentiment turns back up as it did this week, the S&P 500 has rallied 24% from low to high. This would bring the index back to its all time highs at 1574 so this would hardly be considered a remote incident.

This is yet another indication of an intermediate term low having been put into place.

There is also another very interesting pattern that takes place in this situation and you can see it on the chart below.

Marked by the blue lines are when the sentiment turned up from below 20%.
The 24% number is the rally from low to high that materialized.

Now, after the 24% rally had run its course, what did the market do next!

Well, in two of the occurrences the market went on to make another new low and in the last incident, the market tested the lows and came very very close to the low level.

So, if things are to pan out much the way this pattern dictates then we should be in a fairly sizable rally phase, but know that once this rally phase is over with a move back up to the old highs that the market has a very high probability of moving sharply lower yet again.

We are starting to get some weekly confirmations of an intermediate term bottom being put into place, with the Russell 2000 giving a weekly buy signal on the stochastics.

Notice also the red line at the bottom of the chart which shows small speculators selling short like no tomorrow and we know that the little guys are typically very wrong at major turning points.

If this intermediate term low holds and continues to be confirmed then look for the Russell 2000 to lead the pack in performance.

The Mid Cap 400 has some of the same characteristics of the Russell 2000 so it looks to me like this next move higher will be led by the smaller companies.

The S&P 500 weekly did not give a weekly buy signal on the stochastics, but the RSI gave a very strong indication of a major low being put into place.

EQUITY MARKET COMMENT - 1/24/2008

The NASDAQ gave its confirmation of an intermediate term bottom today with the turning up of the fast line on the MACD.

Much like the S&P 500, the stochastics broke out today and confirmed a short term low at the very least.

Ultra short term, the put call ratio gave a caution signal today for short term long positions.
It did not give an all out short term sell but it is cautioning short term traders from overstaying their welcome.

Friday looks like it could be a consolidation day as the market has moved sharply higher from its most recent lows and the intra-day charts are starting to show a market structure that might need one last push higher or a turn lower.

Either way, Ultra short term traders should be looking to take some profits here.

Intermediate term traders can look to add to their allocations on any pull backs.

We currently have a 60% allocation to stocks and as long as things continue to look constructive, we will be bumping this allocation higher as opportunities present themselves.

So in a nutshell we have:

Short Term Traders - Take Profits or Tighten Your Stops Considerably
Intermediate Term Traders - Use Weakness To Increase Equity Exposure.

COMMODITY TRADE UPDATE - 1/24/08

Aggressive Buy Signal On Cattle.

We are long April Cattle from 93.750.

Protective Stop at 93.250 on a close only.

We have a very handsome profit on our cotton trade with an average cost of 71 1/2

We have moved the stop down to protect 50% of our profit.

Any further decline and the stop will be adjusted down accordingly.

We had a Bearish MACD cross today so it looks like lower prices for Cotton

Sugar gave us our entry signal.

We are short The march contract from 11.99

EQUITY MARKET COMMENT - 1/23/2008 Part II

We still have yet to get our Holy Grail sentiment indicator to turn up so we still will not go above 50% on the allocation to stocks.

The moment this indicator confirms the new upward thrust I will alert all of you and then we can begin to do some real buying.

The chart below has some interesting points on it.

By the way, if you have not checked out the Day Trading Blog at www.lowriskdaytrade.blogspot.com
then come take a look.

We have been doing quite well and sometimes we need only trade a couple hours a day and a few days a week.

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EQUITY MARKET COMMENT - 1/23/2008 Part I

You certainly cannot accuse the markets of being boring right now as volatility continues the dominant theme.

Today was not exactly what we had anticipated as we thought the market would rally right from the word go and not look back. The FTSE overnight took care of that scenario for us as the market got hammered early again.

The pattern we got today though is actually more bullish than had we gotten what I had anticipated, plus it afforded us yet another opportunity to increase our equity exposure.

A double back to back reversal pattern.
Not a very common pattern, but when it comes around it is exceedingly bullish.

I also like the put/call ratio remaining bearish during the course of the entire day.

It shows that most investors do not trust the reversal days and they continue to wait for the other shoe to drop. This is very bullish and a trend in this direction will support the market at higher prices.


Put/Call model generates a buy signal with the higher high followed by the turning down of the indicator.

We will have to watch this indicator very closely as the market rallies to get a feel for the sentiment of the market.

The rally after the August 2007 low was met with heavy call buying and sent up a red flag about the markets ability to hold onto the gains it managed to put together through October 2007.

We do not want to see a repeat of this action this time around, otherwise we may just be looking at a counter trend rally in a bear market. Obviously there will be more to judging the rally than just one indicator, but this is an important one.

A Look At China and The Shanghai Composite

The Shanghai market has made a vast amount of people some very good money.

It seems that everywhere you turn you here this pundit and that pundit talking about all the

opportunities in China and how these opportunities have just started to be tapped.

All of this is true, it was never a question of the long term viability of china's developing into the 21st century.

The question is..... Are the current valuations in Chinese companies in line with their fundamentals? Is the Chinese Market Overvalued?

These questions I really cannot answer because what is going on in China and how it is unfolding is a rather new event.

I do know this though. Through all of this time, there really has not been a strong hiccup in prices. You know, those scare declines that make everybody think the bubble has burst and the world is coming to an end.

Sure, the Chinese market has had a 10% correction here and a 10% correction there, but really nothing on the panic side. We know from past markets, whether foreign or domestic, that panics are all part of the system and actually are a necessary evil to keep thing balanced.

If you look at the current chart of the Shanghai Composite and then the S&P 500 in 1987, you see a rather eerie correlation between the two. It is not perfect, but the general structure seems to fit very well.

So what does this all boil down too?

Well, if I have a heavy exposure to Chinese stocks, I would certainly decrease my allocation considerably, perhaps get out of them altogether.

Then wait for the potential meltdown in prices and jump back aboard.

What about the effect this would have on our markets here at home.

Notice that the fallout from a debacle in the Chinese market typically only has a very short term effect on our markets. Sometimes our market just shrugs it off completely.

However, if the Shanghai is to decline in the manner that our equity markets declined in 1987, we would be foolish to think that there would be no carryover into out indexes.

However, I think the spill over will be very limited, 3-5% and being as Chinese stocks should be on the order of a fairly quick recovery (3-5 months), our markets should be able to whether the storm. It may just coincide with a test of the most recent lows in the S&P 500, but time will have to be the judge on that one.

Personally, my exposure to Chinese stocks at this writing is a big fat goose egg.

To much correlation for me and to much current risk.

There are better places to put your money right now, like right here at home.

MENT - All Aboard!!

MENT is just begging to move higher, so by all means let us listen to what it tells us and buy some stock outright and leverage it with call options.

PATTERN MODEL - CALLS FOR HIGHER PRICES

The blue bars reflect the current market and the black bars represent the predictive model.

A picture is worth 1000's of words!!

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