Leadership
essentially rested yesterday as it slightly underperformed the broader
market. The exception was tech, which continues to be strong and
continues to see big upside pops on earnings.
The dollar was up on big volume yesterday but closed at resistance. The
dollar may eventually gain some traction, which of course is likely to
coincide with a market correction, but that correction may come later as
opposed to sooner. Perhaps next Wednesday's FOMC meeting will be the
catalyst triggering a dollar rally. In the meantime, we believe there
are still more gains to be had in tech stocks here given the solid
behavior in the group.
Thursday, October 28, 2010
Thursday, October 21, 2010
Yesterday's Rally Did Nothing To Taper Risk
We are at a very tricky juncture here. Sentiment remains sky
high and the VIX remains near extreme lows - both of which indicate too
much complacency. The dollar pulled back sharply off of resistance
yesterday as we indicated it was likely to do, driving stock prices
higher. Yet, the Dow remains firmly under resistance and virtually
nothing out there achieved new recovery highs on yesterday's rally,
meaning that all major indices and most stocks failed to break above
Monday's highs.
None of this is to say that prices can't continue higher here frustrating our short positions.
However, if prices do break higher, the risks of a reversal sometime next week are extremely high so if there is upside left before a more serious correction kicks in, it is likely to be muted. The real money, in our opinion, is going to be made on the short side over the next few weeks. The tricky part is going to be getting the timing right.
Bottom line, we will just have to wait and see if yesterday's bounce was just a one day phenomenon that will quickly reverse. Given the way the dollar typically behaves when it is correcting, probabilities are reasonably high we will see yesterday's rally faded today. This is not a prediction, but rather an assessment of probabilities based on past market behavior so we will just have to dig in today and see what develops before we act further.
None of this is to say that prices can't continue higher here frustrating our short positions.
However, if prices do break higher, the risks of a reversal sometime next week are extremely high so if there is upside left before a more serious correction kicks in, it is likely to be muted. The real money, in our opinion, is going to be made on the short side over the next few weeks. The tricky part is going to be getting the timing right.
Bottom line, we will just have to wait and see if yesterday's bounce was just a one day phenomenon that will quickly reverse. Given the way the dollar typically behaves when it is correcting, probabilities are reasonably high we will see yesterday's rally faded today. This is not a prediction, but rather an assessment of probabilities based on past market behavior so we will just have to dig in today and see what develops before we act further.
Wednesday, October 20, 2010
Dollar May Give Market A Short Term Breather
The
dollar was up on heavy volume yesterday and of course this hit equities
hard. As we have been trying to drill into everyone's heads over the
past week or so, the risks of getting long when the Dow was at
resistance, the dollar catching a bid, and sentiment levels too
extremely bearish were just too high.
Yesterday the market caved into this high risk scenario and marked a distribution day.
The dollar, however, is back at resistance measured by its 20-day average. The dollar generally doesn't turn on a dime so there is a good chance those who are short here will be frustrated the rest of this week when they don't get a waterfall to the downside like many are no doubt hoping for.
Nevertheless, the dollar is bottoming and preparing for a corrective bounce of one sort or another, so pressure on equities is likely to remain over the next few weeks and those trying to play the long side in this market are likely to be frustrated as upside participation thins out and as smart money sells into strength.
We aren't calling for a market top here mind you. Rather a much-needed correction that will likely last until the typical end of the year ramp up kicks off sometime next month.
Yesterday the market caved into this high risk scenario and marked a distribution day.
The dollar, however, is back at resistance measured by its 20-day average. The dollar generally doesn't turn on a dime so there is a good chance those who are short here will be frustrated the rest of this week when they don't get a waterfall to the downside like many are no doubt hoping for.
Nevertheless, the dollar is bottoming and preparing for a corrective bounce of one sort or another, so pressure on equities is likely to remain over the next few weeks and those trying to play the long side in this market are likely to be frustrated as upside participation thins out and as smart money sells into strength.
We aren't calling for a market top here mind you. Rather a much-needed correction that will likely last until the typical end of the year ramp up kicks off sometime next month.
Monday, October 18, 2010
If You Like Risk, Then By All Means, Buy on Apple Earnings
On
Friday the Nasdaq diverged sharply from the Dow and S&P on the back
of Google's earnings report. After today's close Apple earnings are
out. Given how sharply AAPL shares have risen into earnings it's pretty
much a given that the Apple report will provide the sell-the-news type
of event that early entry tech buyers have been looking for.
The major indices don't diverge for long and given the idea that AAPL earnings will offer a profit taking opportunity we suspect that the Nasdaq will come back to earth as opposed to the other indices playing catch up.
The S&P has now given us 3 reversal signals in a row and with conditions this overbought, we are looking for some type of correction early this week. What we do know is we won't be drawn in by a strong opening either today or tomorrow as the chances for a reversal after the AAPL report are just too high for our level of risk tolerance.
The major indices don't diverge for long and given the idea that AAPL earnings will offer a profit taking opportunity we suspect that the Nasdaq will come back to earth as opposed to the other indices playing catch up.
The S&P has now given us 3 reversal signals in a row and with conditions this overbought, we are looking for some type of correction early this week. What we do know is we won't be drawn in by a strong opening either today or tomorrow as the chances for a reversal after the AAPL report are just too high for our level of risk tolerance.
Thursday, October 14, 2010
Dow Resistance & Other Worries
A nerve-wracking market just got a bit crazier.
Take a look at the Dow via DIA. It tailed off at resistance yesterday.
Meanwhile, AAPL hit $300 and the QQQQ chart looks pretty much like DIA.
A person would have to be crazy to buy at these levels, especially with the financials failing to come along for the ride.
Nevertheless, crazy may just be what the doctor ordered. SPY still has room to move, the Fed is friendly, the dollar, as measured by UUP is probably on a collision course for $22 and believe it or not, the weekly charts look much less fearsome than the daily charts.
We've bitten our fingernails down to a bloody pulp here but this bull train is rolling. A weak financial sector and roaring bullish sentiment are likely going to be an issue moving forward, but here and now we may just see those betting on a double top DOW get their rear ends handed to them on a platter.
Even so, we're hedging our bets here and if DOW resistance becomes an issue we'll be quick to play the other side.
Take a look at the Dow via DIA. It tailed off at resistance yesterday.
A person would have to be crazy to buy at these levels, especially with the financials failing to come along for the ride.
Nevertheless, crazy may just be what the doctor ordered. SPY still has room to move, the Fed is friendly, the dollar, as measured by UUP is probably on a collision course for $22 and believe it or not, the weekly charts look much less fearsome than the daily charts.
We've bitten our fingernails down to a bloody pulp here but this bull train is rolling. A weak financial sector and roaring bullish sentiment are likely going to be an issue moving forward, but here and now we may just see those betting on a double top DOW get their rear ends handed to them on a platter.
Even so, we're hedging our bets here and if DOW resistance becomes an issue we'll be quick to play the other side.
Wednesday, October 13, 2010
A Swing Trading Stop Loss Strategy That Will Keep Your Accounts Growing
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Investment Advice from the Devil
Watch CNBC.
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Fed Indicates a Continued Agressive Posture
After yesterday's FOMC meeting the Federal Reserve issued a statement indicating they are leaning toward quantitative easing measures and perhaps a second round of economic stimulus. In plain English, they will likely be buying more treasury bonds to drive down loan rates and continue a weak dollar strategy at the risk of future inflation.
So while we continue to be nervous about the overly bullish market sentiment out there, the fact that the dollar base that was potentially forming gave way changes the picture somewhat for as we have also been saying, a weaker dollar likely means higher stock prices; especially in manufacturing and heavy equipment companies that are likely to continue to see sales increases from overseas buyers.
The semi conductor sector in particular has been taking a leading role of late and with Intel beating estimates yesterday, things continue to look good for the sector, which could push the QQQQ up into the $50s setting it up for a retest of almost 10 year highs.
We will be partially unraveling our short hedge position today and adding at least one long position. However, before we are completely out of the woods, we need to see QQQQ actually break resistance here and we need to see follow through higher today as opposed to an ugly fade-the-Fed day, which isn't unknown following strong late day rallies spurred by the FOMC statement.
Tuesday, December 23, 2008
Blog Has Moved!
We have incorporated the blog with our website so for future Stock Trading Updates please go to www.SRSFinance.com
In addition, be sure to check out our trading lessons, which we plan to add to on a regular basis.
Friday, December 19, 2008
Decision Time
The SPY is now at a price where the market needs to decide one way or the other where things go next. The price has been squeezed into a corner here and we will either see soon see a breakout or a decline that could lead to a retest of November's lows.
Our thoughts here, and they're just our thoughts, is that we will see the minor uptrend break and prices will move back to November lows and perhaps slightly beyond.
Despite the interest rate cut this week, prices have moved quite a way off their November lows and all the bottom callers are back as the crowd turns semi bullish.
Moreover, V-shape recoveries don't often survive in bear markets to which we remain.
The market was showing some good bullish divergences of late but it has failed to follow through with volume buying and as such we feel that the market must fall on its own weight once again. We wouldn't put money down either way until there is confirmation, but be prepared with a list of stocks to short should it break here as it could break fast.
Below are a couple of potential scenarios that could unfold from here:
Our thoughts here, and they're just our thoughts, is that we will see the minor uptrend break and prices will move back to November lows and perhaps slightly beyond.
Despite the interest rate cut this week, prices have moved quite a way off their November lows and all the bottom callers are back as the crowd turns semi bullish.
Moreover, V-shape recoveries don't often survive in bear markets to which we remain.
The market was showing some good bullish divergences of late but it has failed to follow through with volume buying and as such we feel that the market must fall on its own weight once again. We wouldn't put money down either way until there is confirmation, but be prepared with a list of stocks to short should it break here as it could break fast.
Below are a couple of potential scenarios that could unfold from here:
Thursday, December 18, 2008
When Will The Market Bottom?
That's the question that is on everyone's mind right now. The answer is, no one knows.
That doesn't mean that there won't be clues however.
We have put together an report that explains how to recognize a market bottom and how to trade it. Get in for the next bull market well before the crowd by downloading this report.
That doesn't mean that there won't be clues however.
We have put together an report that explains how to recognize a market bottom and how to trade it. Get in for the next bull market well before the crowd by downloading this report.
Rising Wedge
Yesterday the market failed to follow through on the buying that incurred following Tuesday's huge rate cut. As such, a trend has not yet been established and prices remain vulnerable to intraday reversals.
The SPY is trading in a rising wedge pattern. This pattern is quite bearish and unless we see some large volume up days we suspect that this pattern will resolve in a retest of November's lows.
We aren't comfortable shorting the market yet due to the recent bullish money flow divergences but unless buyers step up here this market is just going to fall on its own weight once again.
The SPY is trading in a rising wedge pattern. This pattern is quite bearish and unless we see some large volume up days we suspect that this pattern will resolve in a retest of November's lows.
We aren't comfortable shorting the market yet due to the recent bullish money flow divergences but unless buyers step up here this market is just going to fall on its own weight once again.
Wednesday, December 17, 2008
A Trend May Be Developing
The market has been range bound for the past two months. This has not offered position or swing traders much to work with as prices have stopped and reversed on an almost daily basis.
Yesterday stocks responded well to the Fed rate cut and the major indexes all closed above their 50-day averages for the first time since August.
What is different between the August breakout and this month's breakout are two important details. First, volume has been very heavy over recent weeks as a base of support was being built. Second, breadth was excellent yesterday as the vast majority of stocks were up on volume increases.
The trend is as yet unproven but if we can see a base of support establish above the 50-day averages then the rally potential into year's end could offer some excellent swing trades.
We still think that SPY $700 needs to be tested before any longer term rallies can develop but that doesn't mean that this rally can't be traded for a profit if it can first confirm.
Yesterday stocks responded well to the Fed rate cut and the major indexes all closed above their 50-day averages for the first time since August.
What is different between the August breakout and this month's breakout are two important details. First, volume has been very heavy over recent weeks as a base of support was being built. Second, breadth was excellent yesterday as the vast majority of stocks were up on volume increases.
The trend is as yet unproven but if we can see a base of support establish above the 50-day averages then the rally potential into year's end could offer some excellent swing trades.
We still think that SPY $700 needs to be tested before any longer term rallies can develop but that doesn't mean that this rally can't be traded for a profit if it can first confirm.
Sunday, December 14, 2008
Sentiment
Friday the market once again bought the weakness. This is bullish. Near term, however, sentiment readings are not favorable to the bulls. Long term sentiment has moved below neutral into the slightly bullish category. This does not favor a lasting move and may be a reason to short strength if we get it this week.
News Driven Market Demands Adjustments
Problem:
There are two important factors about the current market environment that play an important role into how we approach our trading strategies going forward:
A) The first factor that requires careful consideration is the fact that buyers have been fairly aggressive about buying dips. We have now seen the market hammered with bad news for weeks. This tells us that bad news is likely priced in and that a slightly bullish bias exists at this current time. That said, this is probably not a market that is ready to rally significantly; rather it's a market that is fighting off efforts to take it lower. This is an important distinction.
B) Second, on a daily basis this market is news driven and range bound.
The second factor is probably the most important factor to consider because it is this that has been affecting our trading results and it is to this that we must adjust our strategies to meet the current challenges that we are faced with in this unusual market.
The lack of a trend and the extreme volatility driven by daily news events has caused trade set ups to appear good and solid on one day only to evaporate the following day. Agilent Technologies (Ticker Symbol: A) is a great example. Two days of heavy volume and a tight range indicated that it was ready to break higher. When the market gapped down Friday the set up that drew us in eroded and A gapped down with the market.
Solution:
The solution to this is to adjust our strategies to the market conditions that exist. That means we must anticipate gaps and weak opens on some days. Likewise, because we have good evidence that dip buyers are aggressive even if follow through buying is not, we need to look for ultimate support on the strongest stocks and wait for the price to come back to us.
In other words, forget about following strength in this market. We need to buy weakness in strong stocks. This means we need to be patient. Much more patient than we have been; waiting for the weak open like the one last Friday before buying in.
There are two important factors about the current market environment that play an important role into how we approach our trading strategies going forward:
A) The first factor that requires careful consideration is the fact that buyers have been fairly aggressive about buying dips. We have now seen the market hammered with bad news for weeks. This tells us that bad news is likely priced in and that a slightly bullish bias exists at this current time. That said, this is probably not a market that is ready to rally significantly; rather it's a market that is fighting off efforts to take it lower. This is an important distinction.
B) Second, on a daily basis this market is news driven and range bound.
The second factor is probably the most important factor to consider because it is this that has been affecting our trading results and it is to this that we must adjust our strategies to meet the current challenges that we are faced with in this unusual market.
The lack of a trend and the extreme volatility driven by daily news events has caused trade set ups to appear good and solid on one day only to evaporate the following day. Agilent Technologies (Ticker Symbol: A) is a great example. Two days of heavy volume and a tight range indicated that it was ready to break higher. When the market gapped down Friday the set up that drew us in eroded and A gapped down with the market.
Solution:
The solution to this is to adjust our strategies to the market conditions that exist. That means we must anticipate gaps and weak opens on some days. Likewise, because we have good evidence that dip buyers are aggressive even if follow through buying is not, we need to look for ultimate support on the strongest stocks and wait for the price to come back to us.
In other words, forget about following strength in this market. We need to buy weakness in strong stocks. This means we need to be patient. Much more patient than we have been; waiting for the weak open like the one last Friday before buying in.
Friday, December 12, 2008
Another Weak Friday Open
Stocks are set for another sharp drop for the second Friday in a row. Last Friday buyers bought the bad news. Will they do so again today?
Tuesday, December 09, 2008
Base Breakout
The market formed a base after trading in a range over the past 6 or so weeks. On Friday buyers bought the bad employment report and on Monday stocks broke out of the base.
All this is quite bullish for the intermediate term outlook. Nevertheless, volatility remains at historic highs so chasing prices is not advisable. At best this provides the all clear sign to buy the dips as long as position sizes are kept low and stops are used.
All this is quite bullish for the intermediate term outlook. Nevertheless, volatility remains at historic highs so chasing prices is not advisable. At best this provides the all clear sign to buy the dips as long as position sizes are kept low and stops are used.
Thursday, December 04, 2008
Inverted Head and Shoulders
The SPY has formed an inverted head and shoulders pattern on its daily chart after last week's breakdown failed to follow through. We have seen great accumulation over the past two days as the right shoulder has been heavily defended.
Tuesday, December 02, 2008
Interesting Development
Yesterday sellers came back from the holiday break and hit the market hard. Unfortunately, all this did was mess up the charts so as to keep everyone guessing what to expect next.
It is our gut feeling that this market has gone down too far to provide good shorting opportunities that are worth more than just a quick day trade. We are not convinced that the downtrend is resuming here and we have the idea that this may just be part of a bottoming process. What type of bottom is anyone's best guess.
What we do find interesting is this. [Warning: What follows is a bit data intensive] Today we scanned all stocks above $10 per share that trade at least 1 million shares per day. Of this group we discovered that more than half (about 55%) are showing bullish accumulation divergences. About 35% of these stocks are showing no divergences while only 10% are showing bearish divergences.
We don't know if this means anything yet and it is certainly not reason to start buying stocks here but it may be telling us it's too late to go short even while it's still too early to go long.
In other words, it may remain just a day trader's market while a base-building process works itself out.
It is our gut feeling that this market has gone down too far to provide good shorting opportunities that are worth more than just a quick day trade. We are not convinced that the downtrend is resuming here and we have the idea that this may just be part of a bottoming process. What type of bottom is anyone's best guess.
What we do find interesting is this. [Warning: What follows is a bit data intensive] Today we scanned all stocks above $10 per share that trade at least 1 million shares per day. Of this group we discovered that more than half (about 55%) are showing bullish accumulation divergences. About 35% of these stocks are showing no divergences while only 10% are showing bearish divergences.
We don't know if this means anything yet and it is certainly not reason to start buying stocks here but it may be telling us it's too late to go short even while it's still too early to go long.
In other words, it may remain just a day trader's market while a base-building process works itself out.
Sunday, November 30, 2008
Overbought?
Stocks are overbought here after 5 days in a row without a pullback. Traders are also probably well aware that volume shrank on the rise. This is absolutely a classic short set up. The question is, will it work?
Our scans are showing us quite a large number of stocks behaving well here. A big, high volume down day would probably eliminate this finding, but it is what it is at this moment. The market usually does what everyone thinks it won't do, so does that mean this time it's going to continue higher?
We wouldn't put a lot of money on this idea, but we wouldn't short without confirmation either. Taking a wait-and-see view here seems to be the most prudent course of action as we enter arguably the most bullish month of the year.
Our scans are showing us quite a large number of stocks behaving well here. A big, high volume down day would probably eliminate this finding, but it is what it is at this moment. The market usually does what everyone thinks it won't do, so does that mean this time it's going to continue higher?
We wouldn't put a lot of money on this idea, but we wouldn't short without confirmation either. Taking a wait-and-see view here seems to be the most prudent course of action as we enter arguably the most bullish month of the year.
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