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.

PLEASE VOTE FOR THIS BLOG AT THE BLOGELITES LINK IN THE UPPER RIGHT HAND CORNER.

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.

p.s. Please remember to click on the BlogElites icon in the upper right had corner and vote the blog. Thanks.

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!!

PLEASE AND THANK YOU

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THE FEAR FACTOR

AMD - Following The Pattern To A Tee

Today's swing high in AMD fits very nicely into the model and at this point we are looking for
both a place to get long the stock again and buy call options.

I will be looking for $6.39 to begin the buying process again and I look for this to occur over the next 3-4 days. If the stock follows this pattern then look out on the upside because it will be about ready to explode.

Stay Tuned!

ANAD - One Day Completion of 5 Days Expected

ANAD completed what appears to be a brief corrective phase early this morning and then resumed its rally.

The model continues to call for sharply higher prices for the stock.

Being as busy as I was this morning with the market action actually ended up being a blessing in disguise as I was unable to do anything with both the option positions and the stock.

The stock is up 16% from our purchase and the volatility today really helped out the call options.

If we get a strong rally day tomorrow I will be taking half the position off the table with a tidy profit and let the other half ride. Of course even though we let the other half ride, we still need to manage the trade as though it was whole.

EQUITY MARKET COMMENT - 1/22/08

Today played out pretty much the way we had anticipated with the panic sellers dumping everything they could get their hands on in the first 5 minutes of trading.

The reversal day I spoke about yesterday like the reversal day in August 2007 also came to be.

We also have some serious mathematical ratios in play here as everything seems to be panning out to the most likely scenario of this panic low put in today being a major intermediate term low in the market.

If this is going to be the case, then we will know shortly, as tomorrow the market should have a very nice rally and the equity indexes should form a morning star pattern.

Should this occur, it will be strong confirmation of an intermediate term low and a call for an increase in our equity exposure.

The heavy put buying today, even as the market moved sharply higher off the panic lows is indicative of a large amount of fear in the market and the longer we can keep that fear or even dis-belief of anything constructive on the upside, then the longer the market can move higher.

Make sure you take a look at todays chart as it really shows the true picture.

THROUGH ADVERSE MARKET CONDITIONS COME BUYING INFLECTION POINTS

The overseas markets are getting hammered yet again tonight and the Globex S&P 500 futures are down a whopping 62 points, which translates into over 500 points on the Dow.

If we had not an idea that these prices had a possibility of being reached then we might be worried, even panicked.

However, times like these offer points of purchasing good quality equity issues that have been battered down to bargain prices. With only a 40% current equity exposure we are in the very enviable position of taking off the hands of the panic sellers these quality equity issues at a fraction of their intrinsic values.

While the majority of market players have been lightening their equity loads the whole way down, we have been in a very good position of mostly cash and hedged for 60-70% of the decline.

The question arises as to whether or not we removed our bearish hedge too soon and to that I certainly cannot answer anything but yes we did. However, by sidestepping 70% of declining prices and then only going back into equities by 40% we are in a very good position to capitalize on these current market imbalances.

Those who choose to unload their stocks at this point in time will in all likelihood be doing so at the bottom as investors have been doing since the start of openly traded markets. These mistakes get repeated over and over and it is up to us to take full advantage of such situations.

So if you are one of the many who has held fast to your 100% equity exposure through this entire decline please don't compound the problem by unloading stocks right at a bottom.

Instead, embrace this as an opportunity to perhaps shift some of your positions into stocks that will recover more quickly when the inevitable low is put into place and stock begin their long term rise yet again.

Know that these times of turbulance in the financial markets give birth to a renewed upward bias in stock prices and without these normal periods of declining prices coupled with panic and the world coming to an end, the markets would be sure to cause long term pain on most investors.

THE TIME TO BUY IS WHEN THEIR IS BLOOD ON THE STREETS AND YOU FEEL LIKE YOU WANT TO PUKE!

I realize that is not a very pretty way of looking at things and I am sure there was a more diplomatic way of phrasing this idea, but it has always been the blunt and coarse nature of this saying that has kept it in my mind always.

So, enough of the lecture already.

The bottom line is EMBRACE THIS DECLINE AS OPPORTUNITY AND NOT A CURSE.

LONG TERM BUY SIGNALS ON GGP

The last leg of this decline is equal in length to the first leg of the decline which should be a good place to engineer a change in trend.

This last leg has also been almost text book on a structure basis with all the earmarks of the final push lower.

Our long term model on GGP officially gave the green light this week-end when I did my work so look to enter the stock sometime on Tuesday. Use 29 5/8 as your protective stop loss.

For those so inclined to use leverage to trade GGP, as I always am, you can look to call options or if you wish to play the stock on a longer term basis you can look towards the LEAPS.

The April 35 calls are valued at 2.70 and currently trade 2.60/2.80 so you should not have a problem getting them at fair value. Stop loss of 29 5/8 on the stock puts your risk on the April 35 calls at 1.38 or 48%

Those of you who feel more comfortable with being in the money, the April 30 calls are valued at 5.61 and currently trade 5.50/5.75 so you have the same opportunity there. Having a stop loss on the stock at 29 5/8 puts your risk on the April 30 calls at 3.55 or 36%

To me, these are both unacceptable stop loss levels on these options, so while the outright stock purchaser can set their stop at 29 5/8, the option or leap trader should tighten that stop loss level upwards considerably. I will not lose over 25% on any option trade as I have found that anything past that level tends to forecast trouble.