Archive for September, 2008

One of the first things that you learn as a technical analyst is that fundamental events trump technicals.  That was extremely apparent this week as the market thrust up and down with triple digit moves every day on news.  We have essentially ended where we began.  Where to now?  Under normal circumstances I would be bullish without reservation.  However, these are not normal times.  I am bullish but I am watching the cross traffic closely as I pass through each intersection on the road up.  11560 has posed strong resistance recently.  If that is breach, my next target will be the doulble top area at 11790-11870.  Support resides at 11340, 11150 and 10173.  I will be adding hedged long positons to my portfolio Monday. 

See INDU comments.  1265 is my first upside target.  If the indx breaches that level, the next stop is the double top at 1303-1313.  Support is moderate at 1234 and then1200 which represents the July low.  The bottom of the range would be a retest of the low from 9/18 at 1133.  I am bullish but nimble and hedged.

The Nasdaq formed a bit of a different candle than the other two indexes on Friday.  It gapped up to the 50 day sma and retraced well off its high to close lower.  I’m not as bullish on the Nasdaq.  I feel that it will be sideways to up.  The first area of resistance is 2330 and then 2413.  We have strong support at 2230, 2170 and then the low of 9/18 at 2070.

ECONOMIC REPORTS

MONDAY  9/22

None

TUESDAY 9/23

None

WEDNESDAY  9/24

Existing Home Sales, Crude Inventories

THURSDAY  9/25

Durable Goods Orders, Initial Claims, New Home Sales

FRIDAY  9/26

Chain Deflator-Final, GDP-Final, Michigan Sentiment- Rev

 

 

EARNINGS OF NOTE

MONDAY 9/22

AZO, KMX, COMS

TUESDAY   9/23

LEN

WEDNESDAY 9/24

BBY, NKE

THURSDAY 9/25

CAN, CBK, DFS, RAD, MTN, RIMM

FRIDAY 9/26

AM, KBH

 

How did we get here!!??  Just a few things come to mind; the unregulated credit default swap market, incompetent corporate leadership, cronyism, lack of oversight and accountability and unbridled greed.  The thing that absolutely fries my britches is that we, the average Joe, end up paying for all of it.  If you aren’t furious, you ought to be. Today from Yahoo News  “Earlier, Bush authorized Treasury to tap up to $50 billion from a Depression-era fund to insure the holdings of eligible money market mutual funds. And the Federal Reserve announced it will expand its emergency lending program to help support the $2 trillion in assets of the funds.”  Where do you suppose that money is coming from?  If you guessed “Your pocketbook” you guessed right.   Secretary of the Treasury Henry Paulson said “These illiquid assets are clogging up our financial system, and undermining the strength of our otherwise sound financial institutions. As a result, Americans’ personal savings are threatened, and the ability of consumers and businesses to borrow and finance spending, investment, and job creation has been disrupted,” He went on to say, “I am convinced that this bold approach will cost American families far less than the alternative — a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion,”

            Ok, where do we go from here?  You better believe, your taxes are going up.  I would suggest that you consult your tax advisor and map out a tax reduction strategy.  I would also advise you to take control of your own investing and if not already so, become financially literate.  I am not advocating avoidance of tax liability, I am suggesting that you find ways to reduce your liability by implementing legal competent advice from your advisors.  You can invest in the markets through a self directed IRA and implement many of the strategies that I will be talking about in this blog.  For instance, most people are unaware of the fact that you can insure your stocks with what is known as a “Protective Put” and you can do that right inside of your IRA.

            A final comment, I believe that for the market to function properly we cannot summarily ban short selling. Short selling provides market liquidity and allows the market work as it should.  A free market must have the ability to establish the true value of an asset.  You can’t do that when you remove one side of the equation as has been done for the 799 financial stocks which have been temporarily banned for short selling.  Naked short selling is another issue all together.  It is illegal and should be banned.  I’m not sure that we have adequately explored the reinstitution of the uptick rule.  My fear is that the bull move in the market that we experienced today (Friday) is a short squeeze and we now have a “legislative put” under the market until October 2^nd.  As a result, the stock appreciation that will inevitably occur may be artificial and when that floor goes away, the market may seek it’s true value which may be much lower.  Well, I got it off my chest.  Got to go, See you next week.  Robin         

 

Without systems we would all be in a world of hurt. Can you imagine the next time you board a flight you over hear the pilot say to his/her crew, “Well, after we take off, I’ll look around for some clear open spots and we’ll see if we can make it over to Chicago in a few hours.” You are saying to yourself, “WOW, how do I get off!” The pilot has to file a flight plan and adhere to it. We are no different in the trading business. A trading system, if strictly adhered to, will force you to make decisions based upon predefined criteria. You will enter and exit trades based upon a set of rules that should be absolute. Trading systems will for the most part, remove discretion from stock selection, entry and exit. Until you develop an intuitive sense of how the market trades, a trading system will serve to remove decision making and emotions from the equation. With that said, there are very few people who develop an intuitive sense of the markets to the degree that they can trade without a system. In fact, most traders that fail are those that override the rules of the system and make poor decisions.

The system needs to fit your personality and risk tolerance. For instance, there are systems that bet with long options on contrarian plays that may end up losing seven out of ten trades yet can still be profitable. Are you able to psychologically deal with losing seven trades and banking on the other three to “pull your bacon out of the fire?” The drawdown could be substantial before you see account appreciation. That type of system may be fine for some but for most people it would be cause for great anxiety. When anxiety is present, it fosters irrational behavior and subsequent deviation from the system which causes additional frustration and anxiety.

Through the years, I have seen what I term “Holy Grail Trading”. “Holy Grail Traders” are traders who are in quest of the infallible system. These individuals have tried every system known to man and continue to search for the ideal system to this day. There are no infallible systems and anyone who says that is not being truthful. However, there are some excellent systems that will consistently produce profits if strictly adhered to.

In search of a system that works for you, the following considerations should be kept in mind:

· Ease of use

· Capital requirements

· Does the system trade markets to which you are comfortable

· Flexibility and adaptability

· Are others trading the system successfully

· Can you sleep at night trading the system

· Is the system consistent across market conditions

· What kind of support and training is available

Before I go, I would encourage you to check out www.MarketTamer.com. I’m sure you’ll see that the system fulfills the above criteria. Well traders, I have to go, we have a big volleyball game planned back in Sherwood this afternoon. We all got pretty fired up watching the Olympics. The only problem is Little John wants to spike the ball and he has a two inch vertical jump. I’m not going to tell him he can’t. I’d like to be around to trade next week. Robin

Monday, FNM and FRE sank quickly in the face of the government takeover of the two GSES and the DOW gained 350 points.  Tuesday, the DOW reversed course and retraced 281 points on concerns over LEH and the Financials in general.   Wednesday saw a big move to the upside as energy stocks saw some bullish activity.  LEH spelled out their plans to mend and FDX guided higher.  Huge volatility was the order of the day Thursday as the market sold off aggressively in the morning and climbed back to gain 164 points in the DOW on a plethora of economic news.  Friday saw retail post a worse than expected drop of .3%.  June and July retail figures were also adjusted lower and PPI was down.  Even with all of that, the DOW was still able to pull significantly off its low for the day to close only 12 points down.  For the week, the Dow was up 202 points, the SPX up 10 and the NDX lower by 1.

11310 AND 11150 OFFERS STRONG SUPPORT AND 11550 HAS FORMATIVE RESISTANCE.  WE COUPLE THAT WITH THE FACT THAT IT APPEARS THAT WE ARE FORMING A SYMMETRICAL TRIANGE CHART PATTERN WITH AN INCREASINGLY NARROW TRADING RANGE AND MUCH INDECISION.  WHENEVER THE MARKET MOVES INTO A COMPRESSED TRADING RANGE, ONE NEEDS TO LOOK FOR BREAKOUTS/BREAKDOWNS.  WE WILL WATCH THE AFOREMENTIONED LEVELS OF 11310 FOR SUPPORT AND 11550 FOR RESISTANCE AND SEE HOW THE MARKET REACTS AT THOSE LEVELS.

SEE INDU COMMENTS.  WATCH THE 1234 LEVEL ON SUPPORT AND THE 1266 LEVEL ON RESISTANCE.  A BREAK BELOW 1234 IS A RED LIGHT WITH THE JULY LOW OF 1200 AS THE NEXT TARGET.  BELOW1200,1173.

1725-35 PROVIDES SIGNIFICANT SUPPORT. IF YOU OBSERVE THE MARKET SYMMETRY OF THE CHART, YOU WILL NOTICE THAT WE HAVE SWING LOWS IN JAN,FEB AND MAR. OF ‘08 AS WELL AS FEB. AND MAR. OF ‘07.  WE ALSO HAVE VERY STRONG CONSOLIDATION FROM NOV. ‘05-MAY’06.  THAT ALL TRANSLATES TO VERY STRONG SUPPORT.  IF THAT LEVEL IS BROKEN, IT WILL BE A SIGNIFICANT EVENT AND COULD FALL TO 1515 FROM OCT. ‘05.  THE UPSIDE HAS STRONG RESISTANCE AT 1780, 1825, 1925 AND 1975.  EACH OF THOSE LEVELS IS STOUT.  MY OPINION IS THAT WE ARE CONSOLIDATING BETWEEN 1725 AND 1780.  WE WILL WATCH THESE CRITICAL AREAS ON THE CHART AND REACT APPROPRIATELY.

ECONOMIC REPORTS

MONDAY 9/15

NY Empire State Index, Capacity Utilization, Industrial Production

TUESDA Y 9/16

Core CPI, CPI, Net Foreign Purchases, FOMC Policy Statement

WEDNESDAY 9/17

Building Permits, Housing Starts, Crude Inventories

THURSDAY 9/18

Initial Claims, Leading Indicators, Philadelphia Fed

FRIDAY 9/19

None

EARNINGS OF NOTE

MONDAY 9/15

KR

TUESDAY 9/16

ADBE, BBY, DRI, GS

WEDNESDAY 9/17

DBRN, MS

THURSDAY 9/18

CCL, CTAS, CAG, FDX, LEH

FRIDAY 9/19

None