Crush the Gold bugs

Above is a chart of Gold.  We believe gold is ready to move down once more. Our first target is in the 640 region. This is probably the last move before the great gold bull raises its horns again in the first quarter of 2009.

As for the markets, our strategy is still to short on strength.  But these will probably be very small positions, since we are ofcourse scared, like everyone else. We are expecting a bollinger band push-up rally in the next day or two, which should give us a nice opportunity to short.

We are still holding on dearly to our UUP. The set up to short gold is there. We are waiting for a trigger. We fully expect to see a trigger in the next couple of days. We will employ a sliver of our funds towards DZZ (which shorts GLD).

The dollar

The chart above is of the only bull market in town. We parked the majority of our funds in UUP, since sept 15th and are very thankful. It has one last leg remaining, the divergences are already showing. We think the dollar index will go into the 90s before the retracement really begins.

While we think every chart has its own rhythm, sometimes correlations do occur and as of now, there is a significant inverse correlation between the stock market and the dollar. Accordingly, we believe there is one last down leg in the stock indices and all the commodity names.

According to our calculations as of now, we are looking for a multi-month top in and around the first week of december for the dollar and subsequently, also believe the stock market will bottom around that time.

When this does occur, we expect the commodities and emerging markets to really take off. We believe some of the commodities could double from their bottoms. Any one short commodity names, better take care for we think the rally in these names will be very very vicious.

Are we breaking down?

Are we breaking down? are we going to see the mother of all crashes?

I don't know, ofcourse we could. But our bet is still bullish, the near term trend is still oh-so-slightly-bullish.

What do elliott waves tell us?

If anyone tells you, they know what is going on with an EWT explanation, we think that would be BS. Elliott waves are notoriously difficult to decipher in corrective patterns. There are infact 11 corrective patterns. Corrective patterns are sloppy and they are meant to keep everyone guessing. So we have a multi-tude of elliott waves with mixed signals.

What can charts tell us?

We still prefer the uptrend. We don't know where this pullback will end. Our guess is around the 895-905 area. We will look for signs for huge downward volume. 

Why are we still oh-so-ever-slightly bullish?

We like the 5dma uptrending and the 20dma coming from under. We are not short or long this market. Should it come down to the above 900 region - we will look at short term intra day moving averages to put in a buy if there is a bullish set up.

We have also looked at many stocks and lots of them have had huge 25% run, a 10-15% pullback is only natural. 

We will turn bearish should we take out the 900 region.

Lets see

 

The week ok the elections

We received some emails (some of them even hateful) late last week and earlier this week, saying we were wrong in our oh-so-bullish look on the market and this was the work of the PPT and how the gloom and doom still exist and wave 5 of the bear market is yet to unfold.
It may all be true. We don't deny any of it. We only write what we see. We have been wrong before and we have also been right where many others were wrong.
But the argument just reminded us of the time around the beginning of July, when we warned the commodity trade was going to burst and there were many saying there is going to be hyperinflation etc.

As we see, it is very simple. The rally came furtively when no one expected it - on no news, and I will reiterate, for sure it caught a lot of shorts with their pants down. These shorts are averaging up and waiting to cover.
I don't know how far the indices will rally - yes the volume is pathetic etc. This is afterall a bear market rally. Sure, the lows of oct 2002 will be taken out. Until then, we don't want to miss the juicy quick 20-25% on offer. It has been a nicely profitable week given our exposure to SSRI, CSIQ and ACH. We chased SLV a bit, but the returns have been nice and quick. We are trail stopping on this.
Even our bagholder position UNG is acting well.

We are not adding any new longs, but slowly peeling off on some of our hugely profitable longs at this point. We will buy select dirt cheap/dividend stocks on any low volume pullbacks.

My preshyuss

Above is a chart of SLV. There has been absolute carnage in SLV. As they say a downfall in SLV predicts a recession. Well how true. Anyways, we think SLV has almost completed the first of its downward move. The chart looks prime for a take off to the 14 region, in the next 2-3 months.

Buy on any pullbacks. Hop on, ride on.

Triangle smashed?

Guess, everyone knows what happened. The triangle has been invalidated. We got of our short SDS at around 115, after we saw a ginormous green candle on the 15 min. We definitely did not see such a big rally. Nevertheless, we are less bearish than yesterday. 

What now? -

we don't want to play until we understand what is happening? One day doesn't make a market. We want follow through. The next couple of days are important. 

Is the low in?

The next couple of days will tell us.

Our strategy?

Until the indices shows follow through or busts through another resistance, we are not playing.

our stance: we are oh-so-slightly bullish, given the nature of this rally. Why? because we are dead sure there are a million shorts out there who are caught flat flooted given the nature of this rally.  It was a stealth rally with no warning and even the media is groping for reasons. Heck, even we did not get whiff of it, even though we were looking for a bottom sometime this week. Any down day and there will be short covering. Either ways, you can bet there will be a tussle.

If things workout fine, we could see 1150 on the S&P in a few weeks.

The abyss ahead

I got an email, requesting me to atleast draw a chart instead of soothsayer like predictions. Sorry but we have been extremely busy and trading is only an addictive hobby for us.

So here goes -

The chart above is of the SPY.
We were hoping that the pennant type cluster which began on oct 10, resolve quickly last week and we finish off the necessary 5 waves. Unfortunately, that hasn't happened. I guess no one can command the waves. This is also because in general corrections alternate. Wave 2 as you can see was a sharp, short affair. Wave 4 is this sloppy, time consuming pennant or triangle or flag or whatever you chose to call.
I believe, we got into wave 5(i), on thursday late and ended with the gap down on friday morning. Whole of friday we spent on wave 5(ii). The last 10 minutes, could have the been the beginning of wave 5(iii). The silver lining is the positive divergences on the momentum indicators, indicating the selling is losing strength and validates our view that we are in the final phase (wave 5) of selling.

If this plays out, we could be down hard next week. We are praying that the 2002 lows hold. That target is around 768. We don't expect 840(oct 10 lows) to hold. There are other targets around 730 and around 656. But the most dire target is around 484.
Timewise, these waves should end by next week. And we should see a multi-month bottom in a week or so. The question is at what price?

We are fervently praying that this market holds near 768 or even 730. Beyond that, it is extremely scary to even think what would happen to the world we are living in.
I guess we all need to pray.

next week

It was a very frustrating day today for us. We thought we had capitulation at the beginning of the day, but there was none. It whimpered out. Guess the waves have to finish playing out. So the date of turnaround is put off at least till the late half of next week. We will probably see some heavy selling before that.

In lieu of this view, we loaded up on SDS when the dow was down about 200 points today. We think the indices are going to go much lower. We also expect the heaviest phase of selling to come on monday and tuesday. So buckle up

Sad but true.

What now?

CNBC has on its front page, if today was a capitulation bottom. Well we are close, but not yet there. We still have at least 2 more large sell time periods, which could potentially be more damaging than today. But the good news is a rally is close, as we said in the previous post.

Our plays - we will short on strength but with reduced position sizes. We covered some of our gold short, while letting the rest run with a trailing stop.

Good luck.

Event Horizon -- Part II

The end of another nice week for us, though not as eventful/profitable as the last 2.

We are mostly in cash except for a small nugget of index shorts, loaded up today at 970.
We have a key turn date coming up next week or early the week, after that.
That should lead to a multi month rally.

As for the action, in the next week, we envision a symmetrical triangle formation/wedge formation on the indices. We think this triangle will break down. How low we go is anybody's guess. We may retest the lows again or even test the 2002 lows again. We are more certain of the time now than the price action. Since there was a huge amount of selling in the last 2 weeks.

The week ahead and the next

As we said in our earlier posts, this market is not out of the woods and further tanking is in order. Our targets are around 815, 768 and even 713.
We will watching for everyday volumes and momentum indicators. This will give us a "tell" if the downside is saturating. This is exactly similar to the inverse scenario of the commodity bust that we predicted so accurately back in july. We believe a multi month bottom is a week or so away.

We will also be watching keenly for 5 waves down. That should give us a reason to start dipping our toe on the long side. Just so that you can synchronize, today is either a full or a part of wave 1. We will see a rally very soon either tomorrow or into friday.

Strategy: A small portion (20%) to short into strength and the rest is dry powder.

Caution

Firstly, we got a nice rally from the lows. We timed the 1000 pt jump to almost perfection. But our indicators are not behaving well. We are very cautious here. We are not out of the woods as yet. We ideally wanted to see today's low taken out or retested.

Consequently, there may be another round of selling or we want some proof that the rally can unfold in fives and not 3's, implying we want to observe the market for some more time. If it unfolds in threes, we have some more ways on the downside. Our target is around 815 and/or 768 or so, should it occur. Lets see

Has the moon been sighted?

On time, like clockwork, beautiful and a big :-) on our face, in our heads and in our account.

Lets pray it stays that way.

Event horizon

We have not posted much due to our day job taking its toll in a tough corporate environment.
I will leave out charts for the same reason here. I guess individuals can do their own DD. The
We made decent gains this last month by staying short and finally covered all our shorts today.
We think tommorrow could be the abyss, and we expect a multi month rally. How high - sizeable. One thing at a time. Why?
There are lots of reason.

1. The charts are playing out in 5 moves down and 3 up. EWT theorists know what I am talking about. Today was move 3, looking at the futures, it is very likely that wave 5 finishes tomorrow.
2. We are expecting to see the investor intelligence sentiment index to hit a pick. If you take a look at http://www.market-harmonics.com/images/tech/sentiment/ii2.gif, we expect to hit the upper trendline. The peaks have been significant market bottoms.
3. Next week is opex. Banks are in dire need of money and a rally can be a cash cow for the put writers.
4. Wink wink!! Count the number of weeks between market highs and lows. We were amazed to find it is so perfectly periodic. Ideally this periodicity leads us to a turn next week.
5. The reason everyone knows, - divergences on all momentum indicators and oversold. How much value does this have? I don't know but I guess, it has been enough to scare us away from shorting for now.

We will start dipping our pinky toe tomorrow on the long side. Tech is the most beaten down and so are emerging markets. We expect these to rally big.

short term bounce - how we caught it absolutely spot on

First off, we need to boast a bit( ;-)). We made nice money the previous week and caught the jump out of the window on monday-wednesday and the escalator up on thursday. Friday, we sat back and enjoyed a good week. We are actually pinching ourselves that we were so dead on.
As for our trades, we used sds, SSRI, GG, (L) and short DTO, MS as our trades. Our course, we bought and sold some UNG to reduce our cost basis (though we are still in the red on that ;-().

Anyways, more important stuff, our charts which helped us catch the action and our reasons for doing it. The chart we used is of the SPY above. We had called for the bounce from july 15 to not go all the way to the 200d/upper trendline because there was this staircase like trendline, which every tom/dick/harry was watching. When such artifacts emerge, you betcha the market would love to destroy it. That is exactly what happened. We hit the bottom of the channel and bounced. We did not expect the violence of the bounce ofcourse and this explains why we sat out on friday. Since after thursday's huge rally, we closed our longs and only had a few shorts on.

About what's next - Everyone will be watching the green line which is the first descending trendline resistance. As of now, we are betting that we are going to break that line to the upside. Our reasons are below:-

1) That line coincides with 20d, 50d and a bevy of resistance lines, we are going to pierce it
2) The momentum indicators are showing a bullish divergence from an oversold condition, as they should given the viciousness of the bounce.
3) More importantly, longer term this market is going down. There are no two ways about it. This is not the bottom in our opinion. So, if our experience with reading charts suggests anything, we expect to see a period of long sustained decline in the indices, not a sudden -800 pt decline. This decline will be much larger and will take the dow possibly into the 9000 and beyond area. Now the reason, why the green line has to be broken is because the line is too steep. For such a sustained move to occur, the ideal pace would be the blue line on top. Wicked, huh?
4) There are of course, psychological indicators, e.g. news on TV etc, Markets don't crash after the front page shows a lady clutching her head in agony.

What next?- We expect the market to hit the 200d in this iteration and even pierce and stay above it for a little while. We absolutely need to pierce it, to get people to change their bearish stance. It is essential for the next leg down.

How long till we hit it? - Our guess, is about 3-4 weeks, until the stochs becomes overbought. The 3-day RSI is overbought. We are also guessing, this up move is going to be choppy and grinding like a staircase, not the elevator rides of the last week. Since, this is going to be choppy it will be time consuming. It will be choppy, suggesting we are running in the direction opposite to the major trend. E.g. look at the down trends from oct, 07 to jan 08 and other downtrends. They have been swift, the uptrends have trended to grind their way upwards, suggesting further downside. We are expecting similar grinding action in the coming weeks.

If it not choppy, we will have to redraw our charts and look at them in a different light, possibly a bullish light.

Short term bounce

No much time to post. But we had an amazing day of trading today. Our entire pf is up 6% due to our exposure to GG(L), SSRI(L), UNG(L), dollar (short) and short Insurers. Ofcourse, we booked profits in a big way and we took off most of these trades at the end of the day.

We think a short term bottom (3-4) days is on the horizon somewhere. How far do we think the SPX can go to, our first target is 1190 and then the max. target is 1230. We doubt it will get there, but if it gets there, we are loading up on shorts. Our target on SPX is around 1070. We are not overtly short the market or overtly long gold and PMs now, since we are also in shock and awe.

The Dollar

The dollar is a very key reading to understanding the market action. Above is what the dollar has done in the last month. It has had a 10% rally in the last month. For a currency this is truly garguantan, especially when the reason the dollar is rallying is not due to inherent strength but the weakness of other currencies. While we believe in the intermediate term (3-6) months, the dollar will continue to rally upto 80 or so, at this point in time, it look overextended. Points in favor of dollar bears,

1. The dollar is on a long term resistance trendline (not shown here), which is around 78 on this charts.
2. The recent consolidation in the dollar after this huge move is unhealthy. It has been consolidating sideways to upwards.
3. Bearish divergences on the all the momentum indicators.

Q. Would I short the dollar here and any targets?
We would wait for the stochastics to break below 80. Once that happens, we expect the next stop to be around 75 on the $USD.

Well, dollar weakening would spark a bounce in the commodities. Our guess is oil will see 130-135$ or so, before the dollar starts to regain momentum. We believe silver will atleast fill the gap upto 14$ and gold will rise to atleast 850$.

As for the markets - some of the correlation of markets and oil has started to unravel recently. We still slightly favor the upside for stocks, until the trend is broken. But airlines for sure will get clobbered should oil rise.

A Triangle appears

The Dow and SPY have frustrated the bulls and the bears alike in the past few weeks. Well, the charts show exactly that. We have been bouncing around in a triangle in the SPY, DOW and even in the transports. Triangles are explosive creatures, akin to keeping a spring coiled up within a box. Whichever edge rips, there is bound to be explosive action in that direction. We are slightly bullish still, we believe this market could rip higher next week. We believe the first target on the SPX could be around 1310-1320 or so.
On possible plays, look at XLV (the biotech sector - thanks to hil_feld for pointing us there). The sector has indeed been among the best performing since July 15th. It seems all the hot money is going into biotech. XLV looks to be consolidating nicely on the 200d. It just looks ripe to make another move.

Indices

Above are the charts of the NASDAQ, SPY and TRAN. We got the call for a rally in commodities and the downtrend in the market in the beginning of last week, followed by the nice bounce on friday almost perfectly. Where this bounce has brought is that, we are now sticking our heads up against against the same line which was providing support (for the past few weeks) SPY. Now it has turned resistance.

The charts are not suggesting one way or another to us here, decisively. We are slightly favoring the bulls with odds of 60-40. Our thinking is this, the NASDAQ is butting against the 200d. As seen from the chart in the past, the NASDAQ has always managed to penetrate the 200d, before turning back down. We believe NASDAQ could see the 2450 level. The TRAN has some more space to travel upwards. The first area of resistance is around 5150. Why we are unsure of the overall picture given we have upside wiggle room in these indices, is because the SPY seems to be missing this upside space. The SPY is against lots of resistances and it is entirely reasonable to assume we sell off hard after touching the ascending trendline. But somehow that trendline in our view, is kind of "artificial" or "too visible". It has had too many hits now that it has become so obvious. Previously, we called for that trendline to be broken on the downside, since it was too obvious. We figure, what the heck, why can't it be broken on the upside then? Bottomline, slightly bullish, but we will not prefer to play unless we have confirmation that the trendline is broken. If it does break, we could see 1320 on the SPX.

Next few days

The past few days' action has left many perplexed - as hil_feld rightly commented on one of the posts on this blog. The basis for the movement today was actually bullish in the face of oil going up and Freddie and Fannie getting spanked.

Naturally the question is where does the market head from here? We look at two charts the transports and SPY for an answer
First, the transports has a possible (perhaps sloppy) Head n shoulders. However, the right shoulder looks weak. It needs some more filling. Accordingly, we are expecting at least a rally on the transports to 5150 level - a possible upside of about 4-5%.
Another piece of evidence is more of a contrarian pyschological one. Almost every tom, dick and harry has been watching the ascending line on the SPX and the DOW. Once, it broke, there has been a sea shift into bearish mode. Somehow, we believe there will be another push upside, just because the market has its own mind. Our first target on the SPY is around 130.4.
Finally, the intra day volume in the past three days, is actually showing bullish divergences - low downside volumes and higher upside volume today.

Our vehicle to play this upmove, would be the QLD, since it is now resting on support. Furthermore, the AAPL chart looks prime for another blast upwards.

Where is the money going?

Money has rushed out of commodities in the last month and undoubtedly stocks have rallied. But somehow, the action is not commensurate with the bashing of commodities. We believe this is going into the dollar and the bond market. The bond chart shown above has raced, unlike the stocks which have drifted upwards. However, the chart is unsustainable and is at key resistance levels. The bearish divergences are showing blatantly. Fundamentally, this is the market saying, drive the real interests down since there is no threat of inflation.

We believe, a reality check is imperative here. Stocks rallying on decreasing commodity prices is unsustainable, since there is a fundamental conflict of interest.

On a longer term (a year or so) :-
The US dollar has been rallying based on the belief that the US was first into the recession and the world is lagging 6-12 months behind. And it will be the US bringing the world out of recession. We don't believe this is quite true. The US economy is dominated by consumer spending. The US has proved to be a credit defaulter, with massive writedowns. Consequently, the US will not get loans to consume once again. The world is barfing now because it lent the US economy. We believe the world will come out of it. And ofcourse, credit lenders around the world will continue lending, but only to more credit worthy customers, just not to the US.

The Rime of the Ancient mariner

Above are charts of EXM and DRYS. We got in DRYS too early last time and got burned. But this time around, we believe the shippers are just getting ready to go again. They have broken their downtrend lines. With a commodity bounce on the horizon and the baltic dry index (BDI) beginning to come back to life, these shippers may get back to their top portions for a decent 15-20% profit.

The outperformers -- Russell 2000

Above is a 3 year weekly chart of the russell 2000. This was trending up gently all along and then broke this line at the beginning of 08. We have tried to get back above the line and failed. I believe, if there is another rally (our guess is either tomorrow or on friday), the $RUT will have resistance around 770.3. Our guess is this tryst will fail too.

Momentum indicators are mixed and are not very helpful here.
In case, RUT gets back into the channel, we will change our stance to a slightly bullish one.

A bull in china -- FXI

Above is a long term 3- year chart of the FXI which reflects the hang seng HK index. In the last year Hang seng has seen sympathy selling reflecting the Dow and the other world indices.
First some bullish technicals
1. The FXI is at a long term support trendline
2. Bullish divergences in place.
3. Stochs and other momentum indicators oversold.
4. We see a huge descending triangle pattern, which has been forming for the last year or so.

The thing to note is that this is a long term play, probably in the order of months. But we believe, the returns will be spectacular as well.

On the Fundamentals side, we believe china is facing near term hiccups are the US is barfing big time. Analysts on TV are right in that US slowdown will affect china. More directly, the huge $ dollar reserves in china are growing worthless as the dollar depreciates. But what we think analysts miss is that china has a much larger reserve of its own currency the renminbi, which we believe is going to strengthen further. The ideal vehicle to exploit this unfolding economic scene, would be to probably buy good chinese stocks and collect dividends in the renminbi directly rather than buy dollar denominated ADRs or a "lame" index like FXI. If there are such vehicles out there, kindly let us know.

This post has gone long enough and pardon me for my ramblings. Any suggestions/criticisms are welcome.

Finally on a more psychological note, if you see the china Yahoo message boards, there are so many people saying the boom in china is over after the olympic circus closes. We differ, after seeing the olympics opening celebration, we can only requote Jim Rogers- "China in the 2000s is akin to the US in the 1900s ".

Gold miners

We saw possible signs of bottom formation in gold miners today. Ofcourse we want confirmation in the following week. Quite a few of them caught on sizeable tractions gain today. We would like to scale into HL this week and next. We like the stochastics, RSI turning over, bearish MACD histogram divergences. We also particularly like the rather bearish looking candle with a huge topping tail that HL put in today. We treat this like a contrarian indicator - sort of misplaced topping candle at the bottoms. Our first target is the 20MA, which is around 8.15 today. Remember, this is descending and it could be around 7.5 by the time we touch it. Good luck

fun trade -- CPSL (part 2)

We fun traded CPSL last month for a quick 13% profit
http://maybeitsclarke.blogspot.com/2008/07/fun-trade-cpsl.html

The stock is back to its baseline again. We will watch it closely, it could happen that a bounce in metals will produce a bounce in CPSL and possible breakout of this formation. GLTA

Energy Bounce -- CHK

Energy/Commodities have been flogged the past few weeks. CHK was a star performer and a darling of many portfolios, the past few years. The last few weeks have seen the violent unwinding of the CHK positions. CHK is near its long term trendline. We will look to add CHK near the 42-43 area. Our first target is around 51 on CHK. We are seeing positive bullish divergences on multiple momentum indicators. We expect energy and oil to rebound in the short term for about 2-3 weeks, starting end of this week/early next week. We saw early signs of that in the gold miners today.

On a side note, we made one roundtrip ETF short today, when the SPX touched 1291 today for a scalp profit. We don't want to be take L/S positions when the indices are at a crucial juncture, and the week is opex.

While the intermediate term picture is up in the air, as of now we are leaning towards a scenario like in Jan. We believe the energy rebound, may cause the markets to break the (too closely watched & too obvious) ascending trendline or even the July 15 lows ( probably take it out by a few, bringing on a lot of shorts on board). After that we may see a healthy bounce upto SPX 1350 levels by election time. Ofcourse , predicting markets is solving a puzzle - the more pieces fill in, the easier it is to arrive at the solution. As of now, this is our view. Lets see how things pan out.
Good luck to all.

Near Term

Above is a chart of the transport average. They say, this is usually the leader of the market. This chart has some major resistance around the 5281 area, just another 1% ahead.
The $TRAN had an inverse head n shoulders breakout and we used it correctly to predict the reversal picture in july.
http://maybeitsclarke.blogspot.com/2008/07/pivotal-position-to-go-long-or-short.html

And here we are now, bumping against that same ascending trendline. Usually, when charts break out of such steep trendlines, they rarely get back into them. We expect the $TRAN to bounce off this trendline too, the bearish divergences are also beginning to appear.

But there is good news if you are a bull - since, this trendline is ascending, the resistance on this channel keeps increasing continuously at the rate of ~200 points per month So until we see signs of a top being put in, we are long this market, though not aggressively since the divergences are beginning to show. Every new resistance area, we take off some more profits from the table. Also, from the previous posts on the dollar and USO, they both are near year long trending resistance and support lines respectively. We don't think these will break on the first hit, at least for the USO.

Good luck to you all.

Dollar

This is an update to our earlier post "Dollar versus Renminbi"
http://maybeitsclarke.blogspot.com/2008/07/dollar.html

We were clearly myopic in our vision of the dollar then. We were made to eat our words by the action in dollar this week. As can be seen from the charts above (dollar and Euro), the dollar has broken short term down trendlines and the euro is now a bearish looking chart with divergences all over. One might ask, what was it that the FED did right to strengthen the dollar, nationalize Fannie and Freddie's debt was infact bad for the dollar? Well, it seems that the ECB by not increasing interest rates has stated that growth in Europe is stifling, meaning our friends across the atlantic are also in mess. Technically, the euro chart has been in a bull run and was beginning to show topiness (with bearish divergences). It is now beginning to correct.

We believe this is the time when the fibonacci retracement will occur. These retracements are healthy for the trend. We believe by Dec end, the dollar could break its 3-year steep downtrend line and touch the 81 mark. Conversely, the euro could drop to the low 140s depending on how badly europe does. We will know better as the charts fill in and momentum indicators fill in. Mind you, breaking a descending trendline, doesn't mean there is an uptrend, it only means the rate of descent has lessened. This is what will happen with the dollar. The macro-economic view point is as the dollar weakens, the exports will gain strength and imports hurt - meaning the current fiscal deficit will start shrinking. This is necessary medicine for the US, which has been binging the past decade.

As for the short term, the next week or so, for the dollar, the first hit of such a long lasting trendline after a huge rally of the bottoms serves as resistance. This could happen sometime next week. The trade would be to sell any commodities into strength and to buy short basic materials especially steel on any pullbacks in SMN.

Do we think the commodity markets are dead? This is a story for another post.

How much more legs does this rally have?

Above is a chart of the SPY, which is supposed to track the SPX. We have been trending higher in an ascending wedge pattern in the last 3 weeks, the rallies and pullbacks have been definitely tradeable. We expect one more iteration in this wedge, wherein we run either into the 50d or even hit the descending trendline. But one way or another, we are going to break out of this wedge pretty soon. Usually, ascending wedges are bearish (Possibly the psychology behind this is that despite, the lower baseline providing increasing support, the bulls are unable to extend the top line higher, indicating waning bullish strength)
The MACD divergences are just beginning to appear.

Accordingly, we will be looking to put on a small speculative SSO(L) position either tomorrow or dayafter, whenever we hit that ascending trendline, looking for possibly the one final gasp towards 1310 (which is our first upside target).
It is possible that the commodities will start getting attention once, these roll over. Lets see.
Good luck to you all.

Is there any more air left in the Oil Bubble?

Above is the chart of the USO which tracks oil. Oil has taken a beating in the last month. As can be seen, oil was in a steep uptrend and recently broke it and everybody has been claiming that speculators have been the cause of this bubble. We don't believe so. The way we see it, the broad channel (in blue) is what is a possibly sustainable growth in the price of oil. The green line shows what speculators did with it. Oil was getting "jammed" in a rising wedge. We got this call almost spot on even timewise, which is usually very difficult, when everyone was looking for another iteration.
http://maybeitsclarke.blogspot.com/2008/07/is-oil-bubble.html

As of now, we are not short oil or (buying airlines any more, at least for the intermediate term, sure may be a quick trade here and there. For the long term, we believe airlines are attractive, but that is another story and we will believe we can get it at slightly better prices than today) which we were a few weeks back. Sure, oil is not showing signs of a bottom, but it is showing declining selling strength. We believe the USO could go down some more around the low 90s. Maybe there is one final shakeout, before ripping higher. Bullish divergences have started appearing on the chart too. This is a difficult call (for us), but as of now, we are biased towards the USO holding this channel.

On a different note, thinking the FED has coyly gotten away with prices by maintaining the most inflationary policies in the last decade doesn't give us closure. The US will have to pay the price for printing greenbacks, while the other countries around the world have been raising interest rates to > 10%.

We are on the side of those people who believe speculation only amounts for a 20-30% rise in oil prices. Fundamentals and inflation account for the rest of the 1200% increases from $12 to $144. If we are right, the time is near, when Oil will return to its rightful owners.

Damage Control -- uaua

bah! Blogspot is not behaving nicely today, Anyways,


http://maybeitsclarke.blogspot.com/2008/07/aces-high.html

is the link to our earlier post for airlines and we have made some nice profits on this. However, our UNG position is not showing any bullish signs bar for some bullish divergences. What we have been doing is playing damage control by buying airlines. We like UAUA and AMR for this. For e.g. today, we played UAUA as a hedge and sold it off at the close to the falling UNG. Our reasons for not selling UNG is we still believe this is somewhere near the lows. Unfortunately, all the commodities are being treated like trash. We believe USO will find traction around 115 atleast, if not at these levels. Nothing goes up/down in a straight line. If oil needs to fall to $100, it must more likely rise upto $133 or so first.

UAUA is currently facing stiff resistance aroung 9$. There are some downtrend lines too. However, there are also some bearish divergences on UAUA and on SMN(but that is a story for another post). Our strategy will be to buy the UAUA on break of 9$ on strong volume. For now, we are holding onto our UNG. We are taking a chance against our discipline of cutting off losers quickly - we are hoping it doesn't make us pay.

Fun trade(II) -- GIGM

Our previous fun trade, which we were eyeing for today (Visa) died even before the market opened. It is quite difficult (atleast for us) to predict what happens during earnings. Therefore, we rarely play stocks into earnings. Anyways, we are eyeing another promising fun trade in the formation. The above chart is of GIGM. As can be the chart has a nice ascending triangle with bullish divergence on the MACD and rsi. The first target for us is 14 on this, if the breakout does happen, which could be a nice quick 10%. If the upward trendline does get violated, we bail.

V for Visa (Fun trade)

Above is a chart of Visa, as can be seen, V has been descending albeit slowly for the last 2 months or so. (could this be consolidation for another leg up, who knows?). Anyways, V is now against the descending line. We are hoping it will break it and we could get a nice quick 10-15% long trade on it. Our reasons, are basically, bullish divergences on the MACD and a beautiful HnS on the chaikin. This hns on the derived chart, can be thought of the product of noise reduction on the primary price chart. This is strictly a fun trade for us as of now, in the league of our past few trades DENN & CPSL.

On a side note, we tested our hypothesis on the UNG trade and bought another sizeable portion, on a break of the bottom today. We were not disappointed and are nicely in the money on this. We want confirmation though and tomorrow is the big NatGas inventory report. But we still favor a sizeable bounce in UNG. Lets see!

Commodites - A second line of defense?

Commodities have been in a bull run since 2002. The last two weeks have seen commodities take a hit. As we had noted in our earlier posts rightly, oil/ natgas/ metals/ ag had gotten ahead of themselves. There are analysts on CNBC talking about going back to the 90s oil, due to demand destruction and the bursting of the commodity bubble.

Above is a chart of the commodity tracking $CRB index. Clearly, this has taken a hit in the last three weeks, as indicated by the 3 red bars.

Usually, such steep trends cannot be sustained and usually return to their baseline trend. In the figure are two gentler trends.

• A steeper purple trendline, which coincides with a 38% fib retracement.
• A less steeper black trendline, which coincides with a 50% fib retracement and possibly also the 50WMA, a further correction of 5-6%
  

The next couple of weeks, will be key in the commodities cycle. It is rare that multiple trendlines are broken in one direction, without a bounce. For now, we wish for the purple trendline to hold. In the worst case scenario, we expect the black trendline to hold. The SMN (ultra short basic commodities) charts are also showing bearish divergences, so the picture is not entirely clear to us. We may just have to wait and watch.

Gold (An update)

This post is a follow up to our earlier post on gold stocks GLD and AZK. These are almost at the bottom of the trendlines, probably another 5% or so more correction is in order.
Link to the earlier post -- (http://maybeitsclarke.blogspot.com/2008/07/gold.html)

As expected, gold has been consolidating since. As shown in the post above, it is almost on the verge of hitting its downward trendline, which it broke out of. While we have been waiting for this opportunity since last week and as the charts have filled out, somehow the high sell volume bars in GLD and in gold stocks have put us off a bit. The trade probability is now down to 60-40 in our mind. There is also a bearish MACD divergence on the gold chart (as the line in purple indicates). While these don't always come to fruition, when we even see faint hints of "stop", we need to stop and re-evaluate, as the charts fill out in the coming week.
We will watch gold closely here into next week - should gold bounce off the downtrend line, we will catch its action, but we don't want to be the first one in on this trade. Another thing to remember is the line is a downtrending line, so everyday the support keeps descending and it could be some days, before gold actually gets traction.

As of for our commodity exposure, we own UNG, which we scaled in around the 200d and 50W. We did not expect UNG to go low after that, but we still like it here. Next week may be a totally different story though. Lets see!

$ vs. ¥ (Dollar versus Renminbi)

The charts above are of the Chinese Renminbi and of the US dollar.

US Dollar: It has been in a long term downtrend. Recently, a bearish head n shoulders pattern has been emerging. In this right shoulder formation period, commodities are getting hammered. Ofcourse, the inverse correlation doesn't hold steadfast on every trading day, but in the long term - dollar down means commodities up. So when can we see the dollar resume its fall?

We believe that the dollar index can rise upto 73-74 region (corresponding to the UUP in 23 region), once the UUP breaks the neckline, we can see a dollar plunge, probably corresponding to another dip in the markets. By this picture, this could take another month or so.


Renminbi: Contrary to the dollar, the renminbi chart is looking bullish, it is in a gentle uptrend, with an upward slope of appreciation rate of over 7-8% for an year. If only our 401K were denominated in chinese Renminbis, instead of in dollars.

Gas

Above is a chart of UNG, a natural gas ETF. While oil has been falling "less" slowly, UNG has taken a plunge quite fast. It is now sitting at the 200d and at its long term 61.8% fib retracement. The stochs, RSI are oversold. There are inklings of bullish divergences on some of the other oscillators.

We are long on this for a jump to around the 53 region. This is our first target. We can make case for UNG to go up around the 57 area, but we will take 53 as our first target for now.

Is oil a bubble?

Above is a chart of the USO. We had earlier ranted on snotwheel.blogspot.com (whom we owe a lot of our TA learning to) about the odds being against oil.

Shown in the chart, is the action that shows the result, which is the breakdown of the steep channel. This breakdown, only indicates that oil's climb was too steep to sustain. But nevertheless, it can still climb. Analogy time, this is akin to an athlete's pace in a marathon. The peak running speed cannot be sustained, nevertheless there is still gas left for a sustained slower pace.

Deceleration in a stock's growth happens in stages. The green line will surely serve as support once. We believe oil will drift higher next week, whereby it will be poised to drop another time, ,probably, piercing through the green trendline this time. This could coincide with a push on the DJI higher.

We believe the gentler purple line, around 85 (now) will hold in the long term. This line has a slope of ~20$ per 5 months, thus yielding a conservative estimate for the price of oil (barring unforeseen discoveries etc.), of > 135$ by year's end. We also believe that the story of commodities runs somewhat parallel to this one, but that is a story for another post.

Gold!!

Above are charts of two gold companies - GRS and AZK. This is our first time in Gold. Sure the time to invest in gold was in 2001. But we believe Gold had its time in the media last november when it raced to over $1000. It also had its "crash". It has been sulking away, consolidating beautifully (look at the GLD) since, and is looking to recapture its time in the limelight (which has gone to oil recently).

Historically, Oil and Gold trade in a ratio of 10:1. Oil is just about correcting to about $130. I believe Oil will correct to about 120$ or so, coinciding with a rally in the DOW. We expect Gold to hit 1200$ or so by the year end at least.

Accordingly, above are some Gold stocks we are looking to load up on hit of their bottom lines. These charts are looking nice and bullish. We believe it will be gold's time in the limelight soon. How about that for sector rotation?

fun trade -- CPSL

The CPSL chart looks like having a strong support around the 3.95 region and recently, rebounded off that level. The stochs weekly, daily are also conforming, so is the MACD histogram with a bullish divergence. We think this stock has legs for a 10-15% profit, upto its 50d.
A quick fun trade post. This is strictly a fun trade for us, profitable also we hope. Go CPSL!

Agriculture

Shown Above are the charts of a few Ag (CF, MON, POT, Agu) stocks. These stocks have strong trendlines and have performing very well for us and other faithfuls thus far. But in this "iteration", these stocks have begun to show signs of tiredness.

There are MACD divergences all over their charts. Furthermore, in their previous iterations, these stocks went right up to the top of their channels before, coming back down. This time around, some of these are faltering. Of these MON, is probably the weakest and is sitting right on the bottom channel. Also, it has failed to make any significant new highs in its iteration. Probably the strongest of these stocks is AGU, though the stock is at the top of its channel.

We are not saying the Ag story is over. It is definitely on, we only believe the steepness of the growth cannot be maintained - a gentler slope uptrend is most likely.

On a side note, are these stocks signalling to us that there is a rate hike somewhere on the horizon of the next 6 months?

When will the bleeding stop?

The above is the chart of the VIX. As seen from around the start of MAY, it has been inching its way slowly and is up to 31 today. The bleeding has been constant and orderly. There have been no signs of capitulation in general, Probably the bank stocks have seen capitulation. But the VIX is still a good 20% away from the yearly highs.

To use David Tice's analogy: January and March were akin to a frog in boiling water and the frog quickly jumped out. This time around, the heat is being turned on gradually. So the frog is ignorant.

The VIX is at the top of its channel. There is a small bearish divergence in the VIX. Do we see capitulation? Are there too many people watching the VIX that we will never see a capitulation but a rounded bottom?

Brazil - EWZ

Above is a chart of EWZ, an ETF tracking brazilian shares. There is not much to write about here, but as goes the commodities so goes brazil. We are looking to scale into EWZ to make another iteration in the channel. We are right on the bottom end of the channel, the stochs oversold and the RSI is just about lifting off. Somehow, we believe this will be the last iteration. But that is a story for another month.

Signs of a bottom -- A shy bull?

Today is july 10th. I had earlier said we will know how oil does by July 10th. And we do know, oil has dropped about $5, but the market is still under stress. But today's action was encouraging for the bulls. Ofcourse, calling bottoms in bear markets is an atrociouly difficult situation. We will try and present a case for the bulls here. First we will cover psychology and then some technicals as evidence.

1. Today's volume was huge. To the casual eye, it may seem we had a small upday in the markets. But it was one of the most interesting days to me, as a learning experience. The market was battered down with heaps of bad news. It was hit with Fannie Mae, Freddie Mac, Lehman Brothers, you name it and still the bulls managed to win today on strong volume.

2. As if that was not sufficient, the bears used another potent, now well-tested weapon of theirs. Oil suddenly spiked up 5$. But the bulls still won.

So, the two time tested weapons for the bears seem to be impotent today. Is this the start of something new?

1. Above is a 10 day, 10 min chart of the XLF. Believe it or not, despite the heavy selling in financials today, we see bullish divergence or signs of accumulations in the charts.

2. We see a "dirty" inv Head n Shoulders in the QQQQ. This may be our illusion in sticking to our guns. But we have similar bullish divergences on the Qs too.

The value of this rant, whether worthless will be known tomorrow. Nevertheless, we love these inflection points as learning experiences. As of now, we are a shy bull.

Mac, not Indy Mac

Action:

The chart above is that of Apple computers, of Mr. Cramer's last remaining horsemen fame. We love Cramer for his entertainment value of course, his picks nah! We believe a man does one thing best.

Anyways, this chart has been downtrending in a tradable $15 downward channel for the past 2 months. It has also "observed" its fibonacci retracement of 38%. The downward tilted channel is usually bullish. Furthermore, the longer the time the stocks stays in this tight channel, the more energy or bounce it gets when it breaks out. Right now, AAPL is at the brim and underneath its 50d.

Guess:

We believe that AAPL may break out of this channel to the upside. The stock looks well rested, and ready for a leap to 200.
Ofcourse, this theory is dependent on a confirmation of the rally today (July 8th). Ideally, we would like to see a pause day. Perhaps more bullish and preferable, would be a couple or more miniature sell days, of the chinese water torture variety. Often, it helps to think of the market like a marathon runner. We just witnessed a huge forward thrust. We need to rest, so that we can sustain our speed in the long term and not be just a shooting star.

We will load up on our longs SSO/UYG/QLD/AAPL etc on any small dips. Ofcourse, all bets are off if we sell off huge again.

Aces High

Above are charts of LUV, AMR and UAUA. As can be seen, these stocks have been in a steep downtrend. They have been reduced from their lofty perches by an order of magnitude, for AMR and UAUA.

We note some bullish indicators on these:-

1. LUV has been the strongest and has not sold off with the DOW.
2. AMR has a bullish wedge formation. We believe AMR will crack out of this wedge soon.
3. UAUA and AMR have bullish MACD divergence all over their chart.

This year, we have seen the bankruptcy of over 20 airline companies. As Jim Rogers, recently uttered in his interview - "How much more bullish news can there be?". Furthermore, Oil is at sky high and has seen the steepest rate of increase in the past year. We believe the airline industry will consolidate (and has started doing so) i.e. fewer airlines and accordingly

1. Weaker airlines bought out by bigger ones or go bankrupt
2. More importantly, fewer players mean greater pricing power.

We believe, the airline industry will do better over the years. In the shorter term, we expect a correction in oil soon. Airlines will see a huge bounce in their stocks on any oil correction - possibly more than DTO (the double inverse of oil itself). We don't like to bet in downtrending stocks, this is a play trade for us. We made some quick profits on UAUA today. We do believe there is some ways to go on the upside in these stocks.

Pivotal position -- To go long or Short?

Action:

Above, are some of the major indices DJI, SPX and TRAN respectively.
As can be seen, we are at right at the deciding positions of these charts. Today's sell off took the charts right on the doorstep of the killing fields. Any break of these lines, and things could get very ugly.

We are hoping for a bounce in this market, due to our small long position. True, the bounce has been elusive thus far, and we are on the threshold of a major fall here. But we are still believers in a rally, since we see some "not-so-bearish" things on the charts.

1. There is a bullish MACD divergence on the SPX, DJI.
2. The stochastics on most of the indices are oversold. They have not been so oversold for a long time.
3. The number of bears given the PCR (put call ratio) is overwhelming. My skim on some of the ETF Yahoo message boards, confirms this opinion, not that it is an effective indicator. But everywhere in town, it is painted red.

Since, we need to see what risk exists on the downside, if we do continue selling off, this market can see 1200's on the SPX very soon. In our opinion, the next 3 days could be the key. We are expecting a rally within the next 2-3 days. The bounce if it does occur could be a big one, given the amount of shorts in this market. We believe 12200 on the DJI, is not impossible. But right now, this rally is hostage to OIL. We absolutely need OIL to crack here. Every other commodity has taken its beating expect oil. Even metals/coal sold off today, as we thought would happen in our previous post. Lets see!