TAIEX Outlook - Week of June 6th

Apologies for not getting this out on the Sunday as I originally planned. So, without further adieu:

First off, let's check how the markets unfolded after my last update:

Looking at the $SSEC that has already begun a bounce off the lows, it would make sense that the TAIEX follow similarly. Targets for a bounce are a 50% retracement from recent highs to lows at around 7400, which also coincides with a gap fill. Above that, the 200DMA could be within reach at the 7600 price level.

I specifically noted the 7400 level as an area to watch for the first signs of distribution. While the TAIEX did not quite hit 7400, it came mighty close to that level, at 7373.98. Good enough for me! Now here comes the tricky part - where do we go from here. Here's a current chart of the TAIEX:



I'm afraid this week I'm actually at quite a loss for where it might be headed. The chart certainly looks a bit more volatile, with gap downs and gap ups a-plenty over the past couple weeks. At the least, I would be looking at a range-bound market between 7000-7400. Until the Taiwanese markets decide to break out of this range, I foresee more choppy prices.

Lastly, what does the trusty Shanghai Composite forebode for the TAIEX?



What we see here is orderly selling, something that is not indicative of a bottom. Short term and intermediate term bottoms usually occur on climatic selling. Accordingly, I would not be surprised if there was more downside for the Shanghai Composite in the near future.

The interesting thing is that most experts including your local investment adviser at your bank will likely tell you that this sell-off is just part of a normal correction that happens all the time in bull markets, and that they foresee higher prices. While I certainly don't know what the future may hold, neither do they. All I know is that the economy is worse than everyone thinks, and as such you should trade the markets accordingly.

TAIEX Outlook - Week of May 23rd

Not to say I'm good at this stuff or whatever (because I'm not), but it just shows that "fundamentals" and "news" does not really matter when trading stocks. I simply look at a chart, see support and resistance levels, trend lines, volume, and Fibonacci numbers.

What did I say back on the May 9th update when the TAIEX was hanging right at the 200DMA @ 7600 and change?

From here, I'm looking for some consolidation (sideways movement) before a lower high before moving lower once again. Again, looking at the Shanghai Composite Index, as long as it continues to slide, so goes the the TAIEX and likely the U.S. markets.

Well what do you know, it was as if the markets were listening to me. While I wasn't completely spot-on (the day after I posted that, the TAIEX dropped below the 200DMA before assuming the sideways consolidation). What did proceed after that was the lower high as well as the moving lower once again. Here's a snapshot of the market of where it stands now:



As you can see, the lower high was made at 7782.32, followed by lower lows. So that's that. Did I know about any earnings that may have "caused" Taiwanese stocks to go down or other "news" that experts claim have caused the markets to go lower? Not in the slightest.

So where to now? As I've mentioned before, I look at the Shanghai Composite Index for indications of where the TAIEX may be headed.



Looking at the $SSEC that has already begun a bounce off the lows, it would make sense that the TAIEX follow similarly. Targets for a bounce are a 50% retracement from recent highs to lows at around 7400, which also coincides with a gap fill. Above that, the 200DMA could be within reach at the 7600 price level.

Keep in mind that all markets have been under heavy selling pressure over the last month, and that it pays to be cautious being long. I firmly believe we will still see lower prices across world markets later this year. As a result, I am cautiously long SPY calls as of this moment and looking for an exit around SPX 1106-1117.

TAIEX Outlook - Week of May 9th

My previous post indicated my belief that the TAIEX would soon be under more selling pressure. Why? The potential setup was the double top forming, as well as the Shanghai Index leading the way down. Furthermore, the past week or so has started to see some distribution in the U.S. markets. The result is a swift move back to the 200DMA for the TAIEX:



From here, I'm looking for some consolidation (sideways movement) before a lower high before moving lower once again. Again, looking at the Shanghai Composite Index, as long as it continues to slide, so goes the the TAIEX and likely the U.S. markets.

For the 6th of May, the U.S. markets got shaken up quite a bit, with the DJIA down over 1000 points at one point today. It was definitely one crazy market, and one that I even got burned in. If you need anymore reason to not be invested in the markets, today is the prime example. Whether you believe it was actually a trader error (which I don't really believe) or not, the fact is that there is no one really trading this market anymore. It's all machines and "high-frequency trading" that is going on. How can your money be safely invested in the markets when the potential for a 1000 point drop in less than 5 minutes can occur?

Anyways, here's a live clip of the crash occuring on CNBC, followed by this funny video of a guy going crazy during the crash (live as well):

TAIEX : 4th Break of 50DMA

On the news of potential defaults by Dubai, the world markets sunk over Thanksgiving and into black friday. Glancing at the TAIEX, which along with the other Asian markets, has lead the way up in this rally since March, we should note what happens over this next week. Here's a 6 month daily chart of the TAIEX- take note of the times that the 50DMA was breached, and then taken back within the next 3-5 trading days.



If the TAIEX fails to regain the 50 within this next week, I will be looking in greater interest to establish a good short position on the markets. Careful out there! The markets have come a long ways since the lows in March, and a correction should be anticipated.

Inquiries Of Insider Trading: Taiwan & US

Anyone who has been watching stocks over the past year surely must have noticed all the blatant insider trading going on during the day/hours leading up to an announcement. What has been a large problem that continues to be unchecked by the SEC in the US, looks to be plaguing the Taiwan Stock Exchange as well.

The Taipei Times reports of possible insider trading in the Chimei-Innolux merger deal. Things such as this are a huge tip-off that someone was "tipped-off" about the deal:

Two days before the merger was announced, Chi Mei trading volume spiked to 142 million shares on Thursday and 184 million shares on Friday, four times and five times higher than its averaged daily turnover of 34.7 million shares in the first eight trading days of the month respectively, information on TWSE’s Web site showed.

Similarly, in the recently announced buyout of 3COM buy HPQ, the day of the announcement had 3COM (COMS) trading on heavy volume of around 22 million shares, with historical average volume at just around 9 million. Furthermore, there was heavy trading in the options on 3COM where a large lot of calls were bought on the front month options. Keep in mind that this was only about 7 trading says until November OPEX. As most traders know, buying front month options is a disaster in the making, unless you are expecting a large move that the market is not expecting. The time decay in the options in the last 2 weeks will kill your potential for a profitable trade if the direction and movement are not what you fully expect. The WSJ has a good wrap on this here:

Yesterday, options traders scooped up 8,000 near-term “call” options that allow them to buy stock in 3Com at fixed prices. Specifically, they bought November options that allow them to buy the stock for $5 a share, below the $7.90 a share that H-P offered for 3Com. Overall, 22 million 3Com shares changed hands on Wednesday, compared to its 52 week average of about $5 million, according to Bloomberg.

“Somebody knew something was coming,” said Stefen Choy, founder of Livevol, a San Francisco provider of options-market data and analytics, told Bloomberg. “It looks like very unusual call buying. I see this very frequently when there’s a takeover.”

The fact the same company involved in the Galleon case is again being mentioned for unusual trading activity shows how pervasive and persistent insider trading may be. It also shows the endless battled the Securities & Exchange Commission faces in trying to stamp this out. (The SEC, 3Com and H-P have all declined comment on the matter).

As much as I'd like to believe that the bad guys will always get caught, it seems like the SEC is simply looking the other way.

Continued 'Bull' on TAIEX

“Taiwan is a buy story as the economic and commercial assumptions from cross-strait ties are positive for the market,” he said in a phone interview today. “Asian markets will rely on company earnings beating expectations in 2010 as good year-on-year economic data in the first half of 2010 is mainly discounted.”

This above quote from this bullish article on the TAIEX. The author claims that increased cross-strait agreements and potential upcoming ECFA and MOUs and whatever other agreements they come up with, will strengthen the position of Taiwan equities.

Consider these few points, and take from this what you will.

The article mentions Ma Ying-jeou took office in May 2008 (specifically the 20th of May), and whos' platform consisted of "easing curbs on investments and increasing transportation links with China." May 20, 2008 marks the high over the past 2 years on the TAIEX. Despite all the "fanfare" over increased links and cross-strait agreements, the TAIEX has never seen those prices since.

What does this say? Well, it goes along with the saying, "Buy on rumor, sell on the news." Buy on rumor that Ma is likely to win, sell when he actually does. If you did? You made out like a bandit.

Furthermore, it sort of shows that fundamentals and the news that supposedly drives stocks, doesn't really drive price. If so, why did TAIEX trade down after news of the oncoming "Chinese stimulus" into the Taiwan economy? If so, why are global markets trading up since March, despite worsening economic numbers (U.S. "official" unemployed now over 10%!).

I will continue to watch the TAIEX carefully, as it may well turn out to be another "buy the rumor, sell the news" opportunity. Of course, higher prices are definitely possible, but my point here is to not trust these so-called "experts" and "analysts" at face value. How many can you recall, actually came out and downgraded stocks and called for the crash of 2008?

"God works in weird ways, markets work in twisted ways, to accomplish the most obvious in the most unobvious ways."

SinoPac - TAIEX to 10,000

Update 10/5/09: Based on my price levels, I took a short position on EWT at $12.25 (1 cent off the days high) via Dec 13 puts @ 1.05. Targets are seen below.

So with all the hoopla of the impending MOU, ECFA, and whatever other alphabet soup acronym they come up with, a fund manager sees the TAIEX jumping another 33% by the first half of next year. So let's see where does that put the TAIEX-- currently trading at 7411.88 right now, another 33% puts it circa 9857.80, about 1.5 points shy of the '07 highs of 9859.65.

Now the number make sense, but the question is do we get there? I certainly don't read the future, but I just read charts. Similar calculations on EWT (the ETF for the Taiwan Index on the US stock exchange), also puts a 33% jump on EWT at the previous highs of $16.17 to the penny. Impressive huh? :)

Take a look at this 5 year chart on EWT below:



Closed yesterday in the US side at $12.16 and likely to open lower tomorrow if the TAIEX continues to struggle today. You can see that it's hitting some decent supply area in the $12.20-$12.50 region, where there's a cluster of previous support and resistance over the past years.

Rather than taking a long position based on this recommendation to buy on the TAIEX, I would rather short the EWT anywhere in the $12.25-$12.40 region with a stop above the highs at $12.40, with targets of $11.72 - $11.47 - $11.00 - $10.60. Of course, his time frame is in the months, and mine is short-term.

But, that just means I believe you can get a better entry going long the TAIEX in the short to intermediate term if you wait for prices to come back from these overbought conditions. If you are so inclined to take a long position on the TAIEX, I would wait until it gets to around $11.00.

EWT Short Entered

I entered a short position via Sept 09 Puts, $10 Strike at around $10.13 on EWT. Cost basis is $0.85. Updated chart below:



There is a battle at the $10.15 line, and if it resolves to the upside, I may stop out at the current double top around $10.50.

Edit: May be a bit early to tell, but so far EWT looks like it will be moving down on Monday's open in the US considering that the TAIEX just closed 3.45% down. So far so good. And I'm making no predictions here yet, but just last week, a manager of a Taiwan fund called for 15,000 on TAIEX by 2011, and that "Taiwan stocks will be driven by “the China factor,” Lin said. “We have China on our side.” Let's keep this in the back of our minds as we head into 2011. For some reason, I find it so hard to understand how some people get these positions in these funds. How can one predict the price of a stock/index 2 years away? Furthermore, basing it on one factor, you also have to take into consideration the other side, what if China's economy stalls or also falls in this economy with a depression looming? Things for you to think about.

A Quick Update on EWT

Updated 5 day chart:

Things to notice is that after the gap down on Tuesday, we filled that gap on Wednesday and proceeded to wander downwards for the majority of the day, save for the end of day crap we've been getting lately. I believe the technical term for that is, gap and crap. What I'm looking for on Thursday and Friday's trading session is either another price rejection off that gap down level of 10.37, or if we can get above that, looking for supply at the 50% retrace from the lows of today to the close on Friday (10.43-10.45), and finally the last line would likely be the highlighted boxed area on the right of the chart, where a few trendlines meet.



I will likely enter into an initial short position on EWT on Friday if we look like we'll be closing below that 10.65 area, barring any strength in the stock (if) as it moves towards that target area.

See my previous post for more information on this trade.

Edit: Updated chart after Thursdays market. We got a bounce off the high on Monday at 10.52 to the exact penny, and sold off from there. This is looking good for the short setup, and so I will enter a short position in EWT tomorrow with the 10.70-10.75 being my stop level price. Are you ready to see some lower approval ratings for Ma? Because this chart is saying so.



Edit #2: FPP Asset Management claims recent rise in Taiwan stocks is done, and is "no longer compelling" to buy. The director of FPP Asset Management goes on to say that "“Cross-straits [sic] is mainly hot air and it is getting the locals excited, which is always a worry.”" As always, take so-called "expert" recommendations with a grain of salt, but in this case, this one is seeing what I'm seeing in the charts.

A Top May Be Near

I've got bulls breathing up my sides now, and there are certain things that cause me to think, wow, everyone is getting bullish. I just had another comment made to me about this, and so... this is just a friendly reminder to myself...

I definitely could be wrong, and the market may just run-up to 1000, but I've got my money bet that we turn south before going to 1000 SPX. If we bust above 900SPX, it may be done for the bears temporarily, and I'll have to take the loss.

Don't get caught up in all the bull! As many people say, in bear markets, stocks rise on bad news and fall on good news. What have we been seeing? Exactly this.

Some New Ideas

First off, review of my charts from last week...

LDK: Last week was looking for a breakout to the upside, but apparently it was a fakeout. Everything looked good for a move up but I guess it wasn't the time. From failed moves come fast moves (as indicated by the highlighted area)- the next day you see one big long red candle. Really don't know where to go with this one as the chart looks broken now. It seems to be just trading in this 12.50-15.50 range for the past months, so perhaps playing the channel would be okay until it breaks down or breaks out.



RL: Dropped below that support I had indicated previously, and I entered APR 35 Puts today for $3.00. A nice doji for today and a bounce off the prior support. A tight stop would be right above the 41.74 line, and that will likely be my stop. Although they are April puts, I could probably reload if it gets to the prior high and stalls there.


BBY: Dropped below the resistance line as planned, but today had a very good up day relative to other stocks. I will stay away from shorting here, and will see how it responds to the descending line at 30.5-31.


WLP: The biggest mover of the ones I mentioned last week. I missed the opportunity on this one as I was waiting for a better entry. But, it just sold off hard from the start of the week. A failed backtest of 43.84 could be a great short.


Some new shorts:

GES - Guess Inc. - Highlighted is where I would try out an early short, but it may proceed to ride the line upwards if the general markets continue higher next week. Obama hype? :) Pretty defendable position just above that area.


PALM - Palm Inc. - The ones who make the palm pilots, handsets, etc. This chart is incredibly run-up in a short time. Really no news on it, so I'm guessing just a short squeeze. I bought Feb 7.5 Puts on this today for 0.80, we should know pretty fast next week whether it will continue higher through this resistance, or retrace a good amount. The end of day on PALM showed some weakness, so my position is already ITM. Target is probably 5.2 for a first possible profit taking level, followed by the gap fill level of 4.50.


MYL - Mylan Inc. - It looks like it's coming into critical area as it's been riding the lower trendline since the October lows and now meeting resistance at around 11. I would wait on this one until it breaks eitherway.


DV - Devry - This one could be real interesting. It's entering the area where it's found resistance since late 2007. This area is also it's all-time highs. Not sure why the education stocks are so strong, maybe because a gloomy economy results in people going for cheap and quick technical colleges? Anyways, I only mention this because I've noticed ESI, also on my watchlist, being relatively strong. This seems like an easy short- enter short when it gets close to the resistance above, set stop above all-time highs. You could also say that there's a inverted H&S in there, but that will have to be confirmed. From the looks of the chart, it looks like one of those stocks that just never gets down, so I'd be careful with this one.


One long:

GLW - Corning Inc. - Target is 11 on the upside. It could be a decent buy on Tuesday if it doesn't gap up hard or anything. Safer would be to just wait for a pullback again, but may miss it altogether. Also of notice is that it's catching some support off the flattening 50DMA.


That's all folks. If I have time before I leave, I really want to do a post on today's /NQ futures trading that I did as it was extremely profitable and what I was thinking when I made the trades. Today was likely my last full day in front of the computer for the trading hours for the next couple weeks as I am headed out of the country (Taiwan). As I will have no computer access for the first couple weeks, I believe I will be limited to i-Cafe's. So, I'm going to have to do some careful advanced orders to position my portfolio for not-much-hurt while I'm away. Will need to place some carefully chosen OCO orders on most of the positions I opened today, with a stop and a target limit price to cover/sell at. Lord help me. :)

Edit: Alrite, /NQ trades today. I caught 27.5 points I believe, if my calculations are correct. That would be 27.5 x $20 per point (also known as handles in futures jargon). So that came out to around $550 today just from trading the /NQ. But, gotta take out the comissions, so that leaves $550 - 28 = $522.

See below for short entries and where I covered:


I think the biggest two things to take away from this are:
1) When we're trending, just let it trend until the trend changes! If I had kept my first short of the day and let it go until the downward channel broke (about when I covered one of my later shorts at 1173), I would have caught 24 handles on that one move. Add in the long trade, and it would have given me 40+ handles for today, you do the math! As you can see, instead I got in and out of shorts all throughout the morning. For the most part, it was because I was anticipating a, rip-your-face-off rally due to OpEx all day, and so I set in tight stops. So on every retracement, I'd get stopped out... which gets me to my second point...
2) Trade price action, not your emotions! Setting looser stops today would have been my friend today. Although this is all hindset, it did not really make any sense for me to set really tight stops. As I mentioned, it was because of my anticipation of future price action that caused me to do so. Resultingly, that let me ride the reversal all the way pretty much. But, had I got rid of that notion of, rip-your-face-off OpEx rally, I may have been more inclined to just set a stop above the previous highs, and tighten them just above every following lower high (which is what I did on the way up- raising the stop to just under the next higher low).

To my surprise, trading /NQ has been the most profitable for me since the start of this year. My other option trades have been 50/50, and I've left a lot of profit on the tables, as well as making a stupid mistake (again based on emotions) by buying OTM Jan 87 SPY calls earlier this week. They expired worthless. :)

Three Rules For The New Year

I can attribute a huge part of my "unsuccessful-ness" this year to one trade. From this trade, I will draw up three rules that I will follow this year. I've never been someone to do "resolutions" as I found it stupid to do for generic life stuff, like, lose weight, and lose weight; But, I feel that having rules/resolutions for my trading system would be very helpful for me this year. I've had mental rules, but I've never set them out on stone. Thus, I will do so here.

Setup:

Started building call positions in LDK late spring/early summer for their 2Q earnings announcement on 8/11/08.

By 7/23, I had built a position in LDK calls that was just about 1/4th of the account value, which is a lot.

What happened:

LDK had blowout earnings, and resulted in a subsequent move from 34 PPS to just above 50 at the peak, in less than two weeks. My calls exploded in value and I was quickly profitable on that trade by about 60-70%.

Result:

I lost 50% of the initial investment when it was all said and done. How can that be possible you may ask?!

Reason:

I was greedy and no longer thinking with a level-head. Add to that, I had no rules set in place at that time.

The Chart:



This was probably the one trade where I "bet the farm" and "backed up the truck" for 2008, and I blew it. I made a profitable trade and let it slip right out of my fingers. I urge everyone who trades to take a look at this and draw your own conclusions as to what went wrong, as well as take in what I feel I did wrong here.

My lessons:

• First and foremost, looking back, I realize how well it actually turned out when compared to what could have actually happened. I did not account for the fact that it is possible, that LDK had a bad quarter and I could thus lose the entire trade.
  
• Based on the above, I should have set a stop under the bottom red line (just under $31) as it found support there numerous times.
• After the gap up, at the very least, moving my stop up to just under the gap, or enter in a trialling stop would have been very smart.
• By the time LDK broke the previous high at $48 (upper red line), I should have moved the stop up to just under $48. Had I done that, I would have been out of the trade the day after it broke above $48, and only would have missed out on 4 more points to the upside. Whereas, I ended up holding, and lost 4 more points to the downside.
• The VIX crush post-earnings really hurt my trade, as you can see- I exited above my purchase price on the underlying, but on my calls, they were down.
  

Three New Rules:

1. Stops on every single trade. Near the end of last year, I was still trading without stops on some trades. Why? Because I was trading with the expectation of where the price will go, without regard for what the market was actually telling where it was going. Regardless of a stop or trailing stop, or how tight or how loose, a stop must be in place!
   
2. Cut your losses when the trade goes the wrong way. This goes along with the above, but I've always had a good mentality about, "letting your winners run," as seen in the above example; But, I also had a bad habit of letting my losers, lose. This would have been apparent in my trade above had LDK reported not too hot earnings, and with no stop in place, it would have resulted in a far worse trade than what transpired.
3. Be very cautious with options around earnings. Made the right call on the direction, but the VIX crush moved against me. A Rule? Well, just need to always be mindful and wary of volatility crunch, especially around earnings.
   

The Perfect Storm

So I've been "bunkered" down in our house for the past week with what started as mediocre snow in this region, but the past few days, has become quite a blizzard. Having ventured out once, traffic is slow, people are pissed, people do not like shopping in this weather.

This is icing on the cake, for a poor shopping season for retailers. Huge markdowns and last minute e-mail trying to get me to buy their items with free 2-day shipping to get it in time for Christmas speaks volumes. Now add to the fact that many families are stuck in their houses, and now you have less shoppers than even intended due to weather. I wouldn't think there be much impact if it was just this area, but this is happening across the U.S. Despite what they say, the patriotic thing is not to go out and consume and buy up more stuff on credit. Work and save is the way to go.

Too lazy to put up charts, but I'm in VFC puts and short the actual stock on ANF.

The Chart That Everyone Is Looking At

Getting caught up in the short-term 3/5/10 min charts, that I forgot to step back and look at the daily movement. The parallel trendline in red sloping downwards has kept us within that bound for a good two months now. Notice the two red vertical lines I drew indicating the overbought condition on the stochs, with the short-term indicator crossing over. Both times, the rally up was on decreasing volume. For a similar downside to result now as it happened in early November, I'd like to see the SPY overshoot the upper trendline on volume less than 400 million, and then correct and resume to the lower channel.

Short Idea - VFC

I wasn't paying much attention to the "sales" and "deals" that the North Face [.com] (yes I subscribe to them) was sending me, but after being bombarded with many emails in the past couple weeks, I realized that they could be a good short candidate once this rally runs it course. Retailers should get smashed (once again) once their 4Q numbers come out next January/February. (VFC is the parent company, which has a whole lot of other retail companies under them.)

Now why did I think to short them after getting bombarded with their "sales" e-mails? To me, it speaks volumes about how bad they need customers/cash. For the most part, the North Face fad is over, and everyone and their mom has one by now. Out of the other retailers in that brands list, it would make sense if the North Face was one of their best products with the highest margins. So as you may have noticed, or not, the deals that the retailers have been putting on (at least for clothing) have been many and steep. The retailers are hurting for money, and it's looking to be a bad Christmas season for them.

Here's the chart:



It's had a full retracement back to the Obama (Election) highs from Nov 4th. That retracement coincides with the declining 50DMA as well as a decent trendline that if, falls below, would make it a great short candidate. I will be eyeing this one closely as a potential short to put capital towards rather than towards the regular index shorts.

Missed The Boat

Here's a snapshot of some of my orders for today:



Pretty much, I was going to close out all shorts at SPX 792~ and immediately turn long. Looks like that 792 number should have been SPX 822, the initial line I drew in my previous chart below. Sums up the day- missed opportunities. I have a lot of re-thinking to do over the weekend in terms how I'm trading this market.

Haven't had time to look at the charts yet, but from just a quick glance at today's close, we should have put in a higher low. Higher low, next is higher high? If we put that in, things are looking extremely good on the long side. I ended up buying that SSO position at end of day today in case we just blow through the gap area on Monday (from the last Monday's gap), but I suspect a pullback will be in play. I will likely update Saturday night with a chart of where I will add to SSO/UYG/QLD. For the time being, I will not be entering short positions as I feel the momentum has temporarily significantly shifted towards the long side.

Edit:
I just had to show this to you guys. Seriously, is this what the 52% of the people that voted for Obama believe? If so, we're in deep sh*boop*, because what we don't need is people still thinking that things are getting better before they get worse. Why? Then we are ignoring the problem, because the problem doesn't exist in their minds.

Has any body noticed the market reacts the opposite way from the general thinking. Oil, houses, commodities were reaching new peaks not too long ago; newspapers, cabdrivers, barbers every one was following the trend of S&P 500 reaching new highs, every one was buying stocks. They all over reacted as the past 3 months have shown. Now there is gloom and doom every where. This will change with President elect Obama assure office. From what I have heard from him, he will be a Peoples' president, common man and main street will thrive, so will the economy. The gloom days will end in a few more weeks, look for the rainbow soon. Shorting at these levels can prove to be worst then being long in November 2007. We will see a new and prosperous USA emerging soon.

Edit: Back with my weekend charts:

Alrite, the bad unemployment numbers managed to be shrugged off and the market rallied on Friday. What gives? A lot of people are whispering about a Christmas rally, which would coincide with things in terms of Fib series and EWs, which I do not know enough about to comment on; but looking at my own charts, it would pay to continue to be very cautious on the short side. Yes, we are in a primary downtrend (aka bear market), but as they say, bear market rallies are the fiercest and fastest of all rallies. I've decided to not enter any more short positions for the time being as I feel the market is sending a message that it wants to go higher. I'd consider easing into some puts again if we get to SPY 95-96 (although will likely wait for 100), followed by SPY 100, followed by SPY 106 of positions.



There's a lot going on in this chart, but bear with me. Once again, we're coming into that gap zone from Monday's gap down, where it looks like we're right under the 25DMA as well as the middle line of the upper and lower channel. If we break this 88-90 gap, it would clear the way for a test of 95, where we first met resistance on a bounce, after the election highs. On a move up, especially with the Christmas cheer rally spreading, a run to 100 in the next couple weeks seems very viable. Above 100 though, would require us to break out of this channel we're in, and IMO not very likely as of this point. But, things will change if/when we get closer to those prices.

So, where does this put me in terms of trading this market? I'm looking right now to buy the dips, rather than short the rips. If we get a pullback next week, I would be a buyer at the 85 resistance/support that we've had a lot of fights over, these past 5 days. Any lower, I would be buying at the 82-83 low that we've held onto this week, with a stop right below at ~81.

All that being said, I am still in short positions, mostly Jan/Feb/June put options, that have time to work out, but I have one IWM Dec puts that will be begging for a pullback to exit out of.

The bigger picture:



We will likely test that 50DMA on any move up, but the 200DMA is well above us, and is continuing downwards.

Finally, a spotlight on one of my old-time-favorite stock, LDK:



LDK has been one of the most controversial solar stocks of the past, and perhaps of all solar stocks. They had some previous trouble with allegations of fradulent accounting pratices, which were eventually cleared- but the bias against them (IMO), never really faded. Anyways, LDK is one of the only solar companies that reported solid 3Q earnings, while maintaining FY08 earnings, and upping guidance for FY09. Which, is why I would like to dump my position in JASO as soon as a decent rally appears. It's a long term position, so I will have good tax treatment on that (0%!), so I'd really like to get something out of it, and not have to pay taxes to the next administration to give away as welfare.

So, LDK is seeing overhead resistance at the 15.50-16, where it's been unable to overcome that resistance twice now. A rally in the markets could easily spike LDK past the resistance and towards the 38.2 RL (~$25), which is also a level that corresponds to the gap down on 10/06. I may add LDK to my list of stocks/ETFs that I will trade if we get a rally moving. Currently looking at SSO, QLD, and I suppose LDK, for stocks to buy on dips.

Lastly, more of me trying to read into what happened in Taiwan, and infer from that the U.S. Markets' future:



Again, there's really no basis for this other than the fact that there have been a lot of similarities between what happened in Taiwan and what is happening in the U.S. in terms of politics, presidential elections, and stuff to do with that. Check this post for more information on that.

So, days to watch for if U.S. plays out like Taiwan:

Dec 16 - temporary high?
Jan 9 - temporary bottom?
Jan 19 - temporary high?

Just One Chart

Just a chart to see what I'm looking at tomorrow. Pretty much across the board, the bloggers are all in one accord, that tomorrow will be a "judgement" type day. We either fall hard, or solidify a multi-leg rally.

More Indecision

A lot more of what we've been seeing the past two days- that is, more choppiness and range-bound trading. Although, we are putting in a significant up trend on the 3-day chart from Monday's lows. Two charts, both of which make a more bullish case:



First chart above is the 3 day chart I mentioned. If we don't gap up or down tomorrow, we should open right at the resistance, and it should be a battle right from the start to determine the rest of the day. Although, these days, the market seems to want to fakeout every single person. I still would rather remain in cash, waiting for a better sense of direction of where the market is heading, rather than jumping in. Even though, I jumped into some puts yesterday when we hit the 61.8% retracement at around 87, and as such, currently holding them for a loss. Again, I'm paying for my mistakes that I'm blogging about to not do. Yeah, horrible. I'm still hedging sort of with shares of SSO, and will continue to add to the SSO position on down moves- most likely at 84, where we've found significant support there over the past couple months. Why? Well, most of what I see on the charts is just making the case for the bulls:



The descending triangle is usually a continuation pattern, and it worked the first time as we broke down on 11/19 to the downside (continuing the downtrend); but the market quickly reclaimed that support over the next three trading days. So, I know the descending triangle is usually a continuation pattern, and not a reversal pattern, but perhaps we are breaking to the upside temporarily in this case. Adding to that, the SPY also reclaimed the 5DMA.

The good news for the bears, we're still in a downtrend as seen by the 50DMA, and obviously the 200DMA. But, if we were to test even the 50DMA, there will be a world of pain for the bears to ride that one out.

On a side note, Obama can't seem to get off the air. He's been... maybe off the air for maybe one or two days out of the past week and half? And one of those days was Thanksgiving, so he's been on everyday in my opinion. Isn't this guy the one that said that there's only one president at a time? So why is he acting like he's the president already? As much as Bush is a lame-duck president already, please, we have set terms and inaugurations for a reason. They aren't there as guidelines, but as rules.

Quick Update

Even after seeing multiple 600+ point drops in a day, I'm still pretty "wowed" by the fact that we continue to drop like we have been dropping. The calmness and "un-panicky" feel of today adds to my feeling that we haven't quite gotten to that short-term bottom. As I, did not really suspect, but mentioned last week, the buying of stocks last week might have been some sort of ploy to instill a sense of calm in the markets, that things are getting better, in order to manipulate consumers (who apparently make up 2/3rds of the U.S. economy) to get out there and, buy buy buy! Following that, some sort of "Black Monday?" was my comment.

And, what did we get? Monday Meltdown, or Meltdown Monday. :)

Anyways, I'm trying to stay out of large positions even though I think the chances for another big drop in the next week or two is decent, but after messing up on this last shorting party, I've decided I just need to manage risk. Most of that is waiting for the confirmation, instead of trying to get that extra 1 to 1.5 points that you may miss, if you wait for the breakout. And what do you know, that goes back to what I previously said... patience, patience, and, patience.

SLW

I entered into a small SLW position on Wednesday as part of my move to build a commodities position. Obama + massive spending projects + bailouts = (long term) buy commodities and short the dollar.

Here's a chart of SLW:



A decent breakout might be in the works as we're starting to bump up against a trend-line from way back in March. My only concern is that this recent run-up has happened during a holiday week, and thus the volume indicators are not following through in support of a rally. You can also see that we've established a double bottom already, and so there should be good support at current price, minus a dollar. Why SLW? No reason really, but it seems like gold might have started to take off without me, so for a larger % gain, I should go with the equity that still has yet to breakout. ABX, GG, AUY, they are all on my watch lists for gold.

A look at the SPY shows that we're about to make a decisive move up or down, once again:



As noted in previous posts, a break above the 84-85 should easily get us to that 61.8% retracement level. We will likely see a test of that price on Monday, and that should dictate the rest of the week, as we will have the big boys back in play with regular volume. Note that we are getting quite a-ways above the 5 DMA, so we may start to see some consolidation early next week between the 90.63 level and its 5 DMA before making a move. We've still got room on stochs before we get into overbought territory, so I'm still waiting to pounce on the next short opportunity.

If we're going higher though, there's a lot of stocks out there that have a lot of room to run- a lot of the techs: GOOG, AAPL, BIDU. Also, the beaten down solars: LDK and STP of note, have more room to run, unlike others like JASO and ENER.

Anyways, I tried to force my last short position and totally payed for it. So,
patience, patience, patience....