Still Bearish

The chart, after all, is right. The trick is to read it.

We're getting the pull back I've been expecting, and I think it may continue. The candlesticks on the DJIA daily charts suggest a reversal and so does MACD. The DJIA attempted a rally yesterday, but gave most of the gains back by the end of the day.
Today's action was extremely bearish with selling going on right into the close.

I'm sticking with my bearish position for now.

Near term Top on DJIA?

 

Time for another graph. This is a hard game. And picking tops or bottoms makes a hard game impossible. So, while I'm not in the business to pick tops and bottoms, the attached graph provides some analysis on where I think we're headed.

Several things to note:

1. Continued negative divergence indicating a move lower.
2. Down volume was higher than up volume in the past week.
3. Slow stochastics are at overbought levels. I've included vertical lines (the blue ones) corresponding to overbought levels and the DJIA - while not perfect, there's some good correlation.
4. MACD historgram showing a high bar has been placed - i.e. we'll move lower.
5. The VIX index (not shown) is, again, approaching lows. This indicates the market is getting complacent - always a sign of trouble.

All in all, I'm not too comfortable establishing long positions here. Again, we still need to see if we'll establish a new base on the DJIA, retest the previous (10700 region), or charge higher.

Overall strategy: bearish with tight stops.

Please note that my sentiment is NOT long term, but very short term i.e. days to a few weeks.

Happy trading! 

New Support? Next Stop: 11,500?

The DOW's rallying nicely. MACD is bullish and RSI is not showing an oversold index. While this leaves the door open to a move higher especially since we don't have any resistance within the last 5 years, the run can't last too long: oil prices, interest rates, domestic and national political uncertainty continue. From a technical picture, the index is hitting the upper Bollinger Band - if we're still in a trading range, 95% of all price movements will remain within the bands.

If anything, I believe we're climbing the proverbial "wall of worry" that looms during times of uncertainty. We now have many earnings reports from the last quarter, but the question about the general macro economic conditions remains. In particular, the Fed indicated in their minutes released on Tuesday that they will rely on short-term data and not sweeping policy action. One can deduce that even the Fed is waiting for confirmation of what needs to be done.

While I don't think we'll hit 12,000 anytime soon, the possibility of a move higher to 11,500 exists. On the flip side, and perhaps more important, is to watch whether the DOW forms a new base at 10,900-11,000. Confirmation of this would create many trading opportunities going forward.

Up 136, Now What?

The DJIA clearly took off today, taking out previous highs established above 11,000. However, I'm skeptical of this rally. Note that we still have negative divergence on the RSI and MACD. Also, there's talk about this being more of a short-cover rally.

On the other hand, if we consolidate at this level and don't venture back to our trading range (10,700-11,000), we could then see a move higher.

Strategy here, then, is probably to wait for confirmation of base or if you feel speculative enough, take a short position with tight stops.

DJIA: 2/11/2006

 


Here's the DJIA 6 months chart. Things to note on the chart:

1. Negative divergence on MACD, RSI indicated by the blue lines ("Take Note"). This indicates a downward bias and indeed that's what we've seen over the past 3 weeks.

2. Notice the 10,700 - 11,000 tight range over the past 3 months.

3. 50-day MA tested on 02/10/2006 intraday.

4. Note the support and resistance... the 10,730 support also coincides with the 38.2% Fibonacci retracement, i.e. 10700 is very critical!

Let's look at fundamentals for a moment:

1. Earnings - a few misses on the tech side, GOOG, AMZN, QSII.

2. Fed - doesn't look like they'll stop here even though the economy is exhibiting weakness - weaker GDP and productivity numbers.

3. The world: Oil, Iran, Iraq - it's a mess. There's fear.

4. The yield curve - it is flat and NOT inverted - all y'all bears out there who keep saying it's inverted, get your fact right! Here are the most recent US Treasury yields from Yahoo Finance:

Maturity Yield

3 Month 4.33
6 Month 4.48
2 Year 4.67
5 Year 4.58
10 Year 4.58
30 Year 4.55

3 month & 30 year spread: +22 basis points.
6 Month & 30 Year spread: +7 basis points.
2 Year & 30 Year spread: -12 basis points.

At worst it's inverted between 2 year and 30 year. But when you consider the 6 month, it's not. So, I'd say it is relatively flat.

But, the bias certainly seems towards inverting. What does this mean? There's more confidence in longer term bonds than there is in shorter term bonds, i.e. investors are more confident of the US economy longer term than shorter term.

So, here's my take: I think the range continues, perhaps with a downward bias for the near-term. We could make it back to 11K but I don't see any reason to push above it - I expect 11,000 to continue to be a resistance, with 10,700 a near-term support. 

Welcome, Motivation, and Objectives

A friend urged me to post my trading thoughts online - what a great way to lose friends! Seriously, though, this blog contains my thoughts on current market conditions along with my thoughts on where things could be headed. My methodology will primarily focus on looking at the basic technicals based on price history (charts) along with broader fundamentals. Nothing too indepth, though.

The goal is really to keep me honest and see whether I can make it!

I will primarily focus on the broader indices - S&P 500 (SPX) and the DJIA.

Please note that these are simply my thoughts.

And, finally, BOOYAH!