Ben’s Boondoggle

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September 25, 2011

Weekly Market Outlook

By Keith Schneider


by Keith Schneider

Ben’s Boondoggle

Our Washington insider caught this picture in a bar not too far from the Fed building on Friday after the markets closed. As you can see, a seemingly inebriated Bernanke was at wits ended allegedly mumbling, I can't do anything right. First they call me Helicopter Ben and now when I park the chopper the markets don't like that either. I should have printed not twisted. From my perspective not printing more money for the banks to hoard is a good thing. Trying to actually help out the consumer was a good move. After all it's the US consumer that drives much of the worldwide economy; why not give them the opportunity to do it again?

So much other news came out this week from the Greek default, a global economic slowdown, and the downgrade of US banks that it makes the Fed move seem like pissing into the wind. Last week we talked about "twist" and thought the market might like some non-inflationary ideas, but it was overshadowed by the plethora of bad news. One piece of good news left out is that the deleveraging of the US Consumer is happening much faster than most have expected and this might actually help. Back in 2007, US household debt consumed 14% of income. It's now down to 11% and could be even lower with most current data. This means that debt levels as a % of income is at 1982 numbers. The Gold run is over for now and most pundits are seeing this week's collapse in the metals as part of the economic slowdown and the need for cash during this week's meltdown. We think that "twist" was a major component in the selloff as well. Does poor Ben have it right? From a trading perspective, it's nice when your fundamental picture lines up with the technical, but technical always trump. By the time you get the memo the fundamentals have shifted, you can end up in the poorhouse. Most portfolio managers are working overtime this weekend redoing valuation models and licking their wounds. However, this was a banner week for quick active traders. Let's take a look at what the charts are telling us now after this week's meltdown.

Twist and Shout

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September 18, 2011

Weekly Market Outlook

By Keith Schneider


Twist and ShoutAfter a two week hiatus (summer road trip) from writing this column, so much has occurred in the markets it was hard to pick a theme. However, it was nice to come back to a 5 day rally. It's fairly rare, happening only about 3% of the time since the early 50's. It brought the market up about 5% for the week. Gains the following week are usually meek following such fireworks. One thing for sure, when it seems like a sure thing, it's not. With the debt downgrade, Gold almost at $2000 OZ, and Eurozone imploding, etc., the US equity market is only down a little for the year. Sentiment versus market action is out of whack.

So, in terms of themes for this week's column, choosing from the "rogue" trader at UBS , the upcoming Fed meeting or NFLX's hosting its very own horror show, I chose to cover what is most critical to the markets and that is what might be the secret "tools" used by the Fed to bolster the sagging recovery. The idea that has been bantered about is a something called "twist" where the fed raises short term rates and sells short term rates in order to buy longer term rates. They did this in the early 60's with moderate success. By driving up short term rates and reducing long term rates the Fed keeps its balance sheet neutral and that should be perceived as non-inflationary by the markets while supporting growth. This strategic step in theory should force banks to stop hoarding cash and actually lend money to consumers and business. However, banks are still in big trouble and need help in getting solvent. Raising short term rates and taking away the free ride that the banks desperately need seem unlikely. However much the FED might like to twist, the banks will shout and it seems more likely that some form of cranking the printing presses will occur. If the Fed can convince the markets that a twist is viable, then getting the economy moving without printing money could ignite a powerful rally. Of course anything can happen!

Fed Tool Chest Revealed

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August 28, 2011

Weekly Market Outlook

By Keith Schneider


Fed Tool Chest RevealedThe biggest market moving events this week was a toss-up between Bernanke’s speech from Jackson Hole and Buffet’s Bailout of Bank of America. I give the top honor’s to Bernanke as it seems to have the most lingering bullish  effect on US equities so far or about 6 hours versus Buffets bailout which was good enough to last about 15 minutes before the market cratered a mere 175 points.  So in the same vein as our past Fed Chairman Greenspan, he often says nothing discernable, (with great eloquence) which gets mistaken for brilliance. Bernanke spoke in a similar fashion and did not promise anything but did say that he has more “tools” in his tool chest to help get the economy moving. With rates functionally at zero and the World deleveraging we are not so sure what tools he is talking about.  The top secret picture above reveals just what the “toolbox “looks like from the outside. Inside, we are speculating that it includes some ink and paper.

By the time the market closed on Friday, NASDQ rallied more than 2 % for the day and 6% + for the week. Gold rose over 3% on Friday, but down about 2% for the week. The volatility in Gold has now reached the highest intensity ever with a drop of $200 in just 3 days, and a rally of over $130 from the lows. It’s a day trader’s delight and a once in 30 year opportunity.  Is the bull run over in Gold and a Stock Market rally in the cards? Is Buffets Bail out and Bernanke’s mystery “tool box” speech the bottom? To find out what our view currently is, watch our weekly video below.

Have a great Weekend!

Aliens Hoarding Gold

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August 21, 2011

Weekly Market Outlook

By Keith Schneider


Cowboys vs AliensWith all the wonderful news (not) on the economic front and the Equity Markets cratering, Gold was partying like it was 1979, extending its parabolic move another 6% for the week, while silver moved up 5% on Friday alone, looking to join the festivities. Say what you want about Hollywood film makers, but they now rank as some of the best gold traders ever. I just saw a documentary film “Cowboys versus Aliens” and we can now identify the unrelenting demand for Gold. Aliens! Unless we expunge them from the planet, Gold will keep soaring. With the 700 plus DOW rally from the recent lows then fizzling out let’s check the charts. This week we have a special video update.

Roller Coaster

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August 14, 2011

Weekly Market Outlook

By Keith Schneider


Roller CoasterIt was considered a major feat this week that US Equity indexes only finished down about 1.5%. That was accomplished with the help of good news on the employment front as our jobless rate dropped to 9.1%, according to latest figures. Imagine if this report was negative or worse than expected!  Even without an amazing 700 pt. bounce in the Dow Jones off the lows, the SPY’s (S&P 500) and IWM (Russell 2000) have entered into bearish market phases. Gold has gone parabolic. Interest rates plummeted again as the Fed announced that that they will keep rates low until the foreseeable future.  I Like low rates as much as the next person, but this is a reflection of a weakening economy.

Most experts have got this wrong as legendary trader Soros recently exited massive gold positions early, as the yellow metal has just gone to a parabolic stage. Cramer has done it again, being in the worst place you could be during the storm….. The financial sector and BAC.  Last time around it was Bear Sterns. Hey Jim, stay away from stocks starting with the letter B and in the Banking sector.

This feels like old home week for this trader who started his career trading commodities in the pits in the late 70’s. Pure fear and greed are driving this market.  To borrow a phrase from “Wag the Dog” (a classic movie), what you have seen, well “that’s nothing” when compared to where we might be heading.   The wrangling on Capitol Hill that produced our current market swoon certainly delivered the wakeup call. Unfortunately, no one is home on the Hill and the call was forwarded to every American citizen as well as around the globe. If the objective of those on the Hill was to highlight our malfunctioning political system to our creditors and cause a downgrade, then Mission Accomplished! It’s a new world order and the recent market activity is the beginning of this adjustment.

When fear and greed predominate, the charts tell the story the best, and although some of the markets responses to the downgrade seem counter intuitive, charts don’t lie. We can find out the fundamental reasons later and make money now. So on to the charts...

SPY (S&P 500) this key US Index broke down badly and has now entered into a bearish market phase and has also broken key long term support on our monthly charts. The speed and intensity of the decline highlights how the markets were complacent.  Similar pattern for the IWM (Russell 200) although the monthly charts for IWM have not broken down yet. We are still hanging on to distribution phases in the DIA and QQQ, and those indexes still have intact monthly trends. Overall, a stunning reversal for the markets over the past two weeks and a change in trend.

SPY Chart

$VIX.X (sentiment) this sentiment indicator went from bullish and complacent a few weeks ago to fear and panic. We now have the 200 and 50 day MA stacked positive, with the VIX trading well above both, bearish longer and intermediate term. Shorter term we moved back into the Bollinger bands indicating short term market is oversold. This indicates a continuation of this short term rally within this bearish longer term reading.

VIX Chart

Up/Dn Volume This very short indicator (a few days) with the extremes in volatility requires constant monitoring. As you can see, oversold can get more oversold, overbought can get even more overbought and until the indicator reverses from extremes, the current trend is still intact.  At this point, we are currently in neutral range, so we have plenty of room to move either way. Also, this is often how bear market rallies occur; they happen extremely quickly and are over just as fast.  However, we still might have some more momentum to the upside.

SPY Chart

McClellan Oscillator This intermediate term indicator moved from overbought in July to extremely oversold last week before generating a buy signal which we are currently on.  

Up/DN Volume and AD/Decline indicators – Both of these shorter indicators are indicating a short term rally in in the works. Our volume component is throwing off a short term buy signal, and we are looking for confirmation on breadth (Advancing versus Declining Issues) as that is still weak. These are mean reverting short term indicators, and work best at extremes, good for several days to 2 weeks.

Up/Down Volume

TLT (US 20 Year Bonds) Interest rates plummeted along with the market as fears about a weakening global recovery came into the spotlight. Looking at the long term chart, lower rates are the longer term trend and accelerating. A critical level is above 110, which indicates extreme stress on the financial system as well. It’s a level not breached on a closing basis since the financial panic in 2008. Trend is bullish but overbought. So far this indicates the downgrade by S &P has not affected the appetite for our debt, at least for now. It will be interesting to watch two powerful forces at play. There is still nothing to match the liquidity of US debt.

TLT Chart

Gold (GLD ETF) and Silver (SLV) what more can be said about GOLD. As I have been highlighting, the correlation in the movements of GOLD, Dollar and Stocks would and have come to an end. In fact, Gold is now moving in the OPPOSITE direction of the stock market. This indicates a completely different market climate. Also confirming this new climate, gold has hit its highest levels on a relative basis to the $INDU since the 10 year bull market began in precious metals. It even exceeded the levels reached at the market lows in 2009.

GLD Chart

Silver (SLV) is basing out and has a nice week of compression and looks poised to move again at any moment, assuming it can hold above last week’s low of 36. A move above 39 would mark the beginning of a new leg up. Still needs to clear 41 to get this going parabolic like Gold.

SLV Chart

US Dollar ( UUP ) although our credit worthiness has been called into question, on a global basis the dollar has held up quite well as the chart below shows. We have been basing since late April againest a basket of world currencies.  If we can move up and over the 50 day MA ( blue line) we might see a 5-7% rally in the greenback. Again, counterintuitive but the charts don’t lie.

UUP Chart

Have a great Weekend!

Something Is Burning

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August 8, 2011

Weekly Market Outlook

By Keith Schneider


Rome on FireDon't panic! It's only a small fire.

The story goes that Nero. Emperor of Rome fiddled while Rome burned, ushering in the fall of the Roman Empire. There are many theories of why Rome, the world's super-power fell into decline. For most historians, the burning of Rome marked the beginning of its descent.

The origins (depending on who one studies) of Rome's descent ranges from over-reaching military objectives, to debasing of coins (by failing to put enough gold, bronze or silver in their coins) , arbitrary tax codes, financial mismanagement, disease and a decline in the education system. Sound familiar?

Although the sovereign debt downgrade of the US was small, the change in trend is an historic event for sure. How far and deep this correction will go is not easy to predict. It certainly has been an ugly past two weeks. Interest rates and gold are sure to rise and the dollar should take a hit.

The 4 trillion dollar question remains, do we, as a nation, have the willpower (like Canada) to reverse this downgrade? It took Canada a record 9 years to restore its AAA rating. One thing is for sure, the US needs the will of Canada to make tough decisions to reverse this. They cut military spending, raised taxes, and reduced entitlements...in essence everything was on the table. It is ironic the agency that was completely comatose during the recent past (when we needed them the most to prevent this crises) makes this move now. I give S&ampsP a triple FFF rating. Still, however, it's an important wake up call. America, let's choose Ottawa, not Rome!

As of midnight Sunday night the SPY is down 2% but hanging onto Fridays low (a good sign if this holds), and Gold is up 2%.

As a result of the volatility, we will hold a special free webinar TODAY - Monday (8/8) after the close to review the current state of the markets, and help make sense of how you can trade these historic markets!

REGISTER for this special webinar here: Click here to register.

No Ceiling in Sight

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July 31, 2011

Weekly Market Outlook

By Keith Schneider


MC EscherBack in the day when I was a very young NYU student, I took a few Art History classes and discovered M.C. Escher, famous for his drawings of optical illusions. The drawing above was one of my favorites. Notice how in this building there is no ceiling in sight and just an endless maze of stairways leading nowhere in an impossible configuration.  Does this somehow remind you of our current situation? There is no debt ceiling in sight as Capitol Hill can’t agree on how to solve the problem of balancing the books. That’s the real problem surfacing here, as we are in a maze of our own creation with no way out.  The raising of the debt ceiling is a puppet theater and sideshow. The real issue is actually reducing current deficits, paying off what we owe while trying to rejuvenate the economy. The treasury market is telling the story. There is no flight out of US  Treasury’s ( signaling that debt default is a non-issue) , and in fact, by Friday’s market close, the  short term yield dropped to their lowest levels  since the financial meltdown in 2008. The longer end of the curve moved down even more with 20 year bonds dropping 4%, bringing yields down 2.78% from 2.91%, the lowest yield this year. Many smart players were caught betting on higher rates and there was near panic as many closed out losing positions. So if you are bewildered by the fact that market players are rushing in US Treasuries while we are theoretically barreling into default, the more important factor concerning the market is the faltering economy and the fact that the Fed will be forced to keep rates low for quite some time.   That was not unexpected with bad news on the economic front and the debt ceiling issue still looming.  Hence, the US Equity market took a big hit this week, while Gold and the Swiss Franc surged to new highs. We have highlighted that continued tandem movements in Gold and the Stock Market were unlikely and with this week’s action it came to fruition.  If this persists, it will be signaling significant climate change in the markets.

SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQ (NASDQ 100) Indexes

QQQ (NASDQ 100) this narrow based index of the leading 100 NASDQ stocks has continued to outperform all other US Stock indexes and only fell -2.7% for the week.  It failed the top of the channel we highlighted, but is holding its bullish phase, with a modest positive slope in its key 50 day moving average.  This index is the most encouraging and if we can hold current levels this might be signaling the gathering storm is abating.

QQQ Chart

IWM (Russell 2000) as we mentioned last week this broad based index was troubling as it was lagging and had an inside day signaling compression and big follow thru . We got that in spades. We were down 5.1% for the week. We hung on to the 200 day Ma, maintaining a strong warning phase by the close on Friday. This index is most vulnerable, but looking oversold in the very short term.

IWM Chart

DIA (Dow Jones Industrials) Performed poorly this week as some of its components such as UTX took a hit in anticipation that we might reduce spending on defense.  We closed in a strong warning phase this week but we are bit oversold at the bottom of the channel that extends to 2008. Of course things can always get a lot more oversold. Note the declining 50 day ma which is the blue line.

DIA Chart

Swiss Franc (FXF Swiss Franc ETF) As a potential downgrade of US debt looms, this currency hit new highs again. All this indicates severe stress on the financial system and of all assets the Swiss is second only to silver in its performance this year. Look to this currency and gold to see the emotional frame of mind of the global markets.

FXF Chart

Interest Rates (IEF 7-10 year Bonds) If you have any doubts about market concerns of a default these charts should dispel those fears at interest rates broke out and made new highs. Depending where you are in the yield curve the charts vary but this part is clear. The  Yield is the lowest since October of last year. Inflation adjusted bonds (TIP) are at all-time new highs suggesting further easing by the Fed and more inflation and of course higher Gold.

IEF Chart

Market internals

VIX (SENTIMENT) What a difference a day makes and we moved from bullish and complacent to near panic this week as we sold off. Not since May 2010, when the most serious correction of this bull market took place have we stayed 4 consecutive days over the trading bands. We also closed with confirmation above the 50 and 200 day ma, all bearish.  On the lighter side, we are bit over extended short term therefore due for a relief rally from here and then let’s take another read. As you can see, these markets change on a deflated dime and take constant monitoring.

VIX Chart

McClellan Oscillator- This intermediate term breath reversed quickly with the sell off this week and is now in oversold regions but needs to hook to the upside to reverse the current bearish outlook

Adv. /Decline–This shorter term breadth indicator shows lots of inherent weakness and is making new lows along with the market. It is in an area where significant rallies can occur but while this is trending down, the road is bearish yet still, if can see a close above -2000, to start probing for the next rally.

Up/Down Volume – Like the other indicators the sell off quickly reversed some positive readings; however one bright spot is the volume on the downside is abating and potentially setting up for a nice divergence. Neutral to bullish.

SPY Chart

Gold – (YG Gold Futures) Gold once again hit new historic highs and more importantly broke off its relationship with the stock market and the dollar. This is indicating even more stress on the global financial system. However with that said, the breakout from the recent compression suggested a bigger move this week. It is possible that we might have run out of steam? Or is this the pause before we shift into overdrive? Silver paused and had a bearish engulfing pattern Wednesday that is still intact.

YG Chart

Mish’s Mini Swing (option) Trade of the Week-Mish was stalking ISRG as it flagged down but held the gap from its blow out earnings. The lower open on Friday morning allowed us to buy August 390 calls at 10.70, when ISRG was trading down with the rest of the market . By the day’s end ISRG closed up +3% and we booked almost an 70% return on some of those options  by the end of the day.

ISRG Chart

To learn how we trade these wacky markets join Mish's Market Minute!

Have a great Weekend!

Preparation De(fault)

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July 24, 2011

Weekly Market Outlook

By Keith Schneider


Preparation DefaultWith all of the useless things the government has spent our money on, the one that tops the list is the time our treasury officials are spending preparing for a debt default.  I have a quick solution that might prevent this from happening; one that will be easy to implement and simple in its clarity of purpose. Let’s start with the non-payment of salaries and health benefits to those congressional members who are voting to oppose meeting our prior obligations and raising the debt ceiling. After all, aren’t their salaries, pensions and health benefits contributing to the problem?

Also, just to be fully prepared for all contingencies should the plan above not work, large quantities of Preparation D (specially brewed to deal with the discomforts of an actual debt default) should be issued to every American and anyone holding US debt obligations.

Meanwhile, the markets are showing two schools of completely contradictory thought. Hard money/Austrian School of Economics followers pushed gold and the Swiss Frank to new to all-time highs this week betting on a US default and continued debasing of currencies by most Western governments.  On the other side of the equation are those making the political bet that not raising the debt ceiling is political suicide for the Republicans, thus, making the call that the wall of debt worry is a huge buying opportunity.  Blowout earnings on leading stocks such as AAPL and GOOG are bolstering those beliefs. Those students who follow earnings were also rewarded this week as the NASDQ 100 closed at its highest point since February 2001. So will this debt ceiling crisis be a Y2K type of scare or the real thing? It’s hard to see how both schools can be correct for extended periods of time.

SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQ (NASDQ 100) Indexes

The market worked off its oversold market internals this week with a strong rally.  The leading NASDQ stocks led and closed at the highs for the year. Last week we highlighted the clear trading range traced by this index and how it was best positioned to breakout to new highs as it was sitting higher in its channel than all of the other key indexes. We seemed to be poised to climb a wall of debt worry and a potential explosive rally is possible. Of course, in the event that we don’t reach a deal, a true meltdown is also in the cards. One caveat is that the leadership in QQQ needs to be confirmed by the other indexes and the distance from the new highs of DIA, SPY and especially the broader based IWM is worrisome. SPY, DIA, and IWM all had inside days on Friday and bears close attention. After compression comes expansion.

IWM (Russell 2000) this broad based index of mid-cap stocks has lagged NASDQ but is poised to move with an inside compression day. Potential inverse head and shoulders formation forming.

IWM Chart

QQQ Needs to clear channel line on good volume

QQQ Chart

Market internals

VIX (SENTIMENT) This sentiment indicator went from nervous to back too bullish as the market staged an impressive rally with QQQ closing on 10 year highs. VIX is now trading below the 200 and 50 day moving averages and well in the middle of its trading band. Risk back on!

Sentiment is content with new highs for Nast

VIX Chart

Mccllean Oscillator- This intermediate term breath finally touched a moderately oversold condition and then immediately reversed to a buy signal by the close last Tuesday. We are now in bull mode with more upside possible.

Adv/Decline and Up/Down Volume –Like clockwork, the advance /decline and up/down volume indicator were oversold last week indicating a rally was imminent. The market responded with a great week lifting the stock market as expected with more upside likely.  Remember, these are shorter term 1- 2 weeks in nature and move quickly. The sell off on Monday finally pushed us to oversold and then immediately generated a buy the following day.

Accumulation/Distribution – The big players were buying this week as there were no distribution days registered. Instead, there several accumulation days in volume this week on the key US Equity Indexes. This indicator remains in Risk On mode... bullish

SPY Chart

Gold – (YG Gold Futures) Gold once again hit new historic highs with all the vitriol on Capitol Hill over the debt ceiling and budget issues. The fact that Gold and the US Equity Markets are both hitting new highs under current circumstances is fascinating to watch. Of course the big difference is that Gold is at historic highs and Equites are not even close. The recent compression points to a large upcoming move.

YG Chart

Leading Stocks... to complete the picture, stocks like GOOG and AAPL each had blow out earnings-where the recovery is.

AAPL Chart

To watch us trade these wacky markets live join us in our Daytrading Room!

Have a great Weekend!

Congressional Cockfight

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July 17, 2011

Weekly Market Outlook

By Keith Schneider


Congressional CockfightWhile the debt ceiling issue is ticking away, the guys inhabiting Capitol Hill are playing chicken with our future. This political game of cockfighting should be outlawed just like the real thing.  One big difference between us and other countries with similar debt issues is that we are too big to fail. Stress is relative.  And from the inside looking out, your stress always seems worse. So when the Equity markets swoon, money flows to US treasuries, even with our balance sheet looking as it does.   At least, that is what is perceived for the moment. However, in a world where we still look good on a relative basis, it’s best to let sleeping dogs lie. Pushing this to the limit is just plain stupid!  We already have wakened usually comatose dogs named S& P and Moody’s; we shouldn’t be rousing the rest of the pack.  Good news on the earnings front with GOOG reporting a blow-out quarter keeping this market intact for the moment.

SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQ (NASDQ 100) Indexes

The SPY and the QQQ’s were down 2.0% for the week, but held the line at the 50 day ma.  Also noteworthy is that the market put in an inside day on Friday setting up for an interesting Monday. Since the recent decline, we have come off overbought reading as expected and are now poised to move big again. With the inside day sitting on the 50 day MA, a nice follow thru either way is in the cards. We also have AAPL earning’s after the close on Tuesday, so Friday’s breakout to new highs suggest more good news to come from the most recognized brand  in the world.

The primary trend is still up for the major market indexes, although we are trapped in a wide trading range, between 126-136 in the SPY.  Another noteworthy development is that the narrower based NASDQ 100 made new highs on the last rally but the broader based averages did not come close, indicating deterioration in breadth. This is a stock pickers market, with some stocks making new highs while most of the market is stalled. Here are some charts.

Spy is holding for now at 50 Day MA

SPY Chart

QQQ-Looking better above 50 Day and sitting higher in this well-defined channel.

QQQ Chart

Market internals

VIX (SENTIMENT) The is sentiment indicator went from nervous to relaxed and now back to a middle of its recent range. As the 200 Day MA on this indicator has drifted lower, it has given us a few mixed signals recently. , The 50 day MA is working better, along with the short term signals generated by the extremes of the Bollinger bands. For now this indicator is moderately bearish, as it is sitting in the middle of it recent trading bands but above both MA. This is not surprising considering the worldwide global financial picture.

VIX –Sentiment is concerned or slightly bearish at this point.

VIX Chart

Mccllean Oscillator- This intermediate term breath is still working off it most recent overbought readings and is now in neutral zone. We take this read to be bearish to neutral.  

Adv/Decline and Up/Down Volume –These short term indicators have been working quite well recently and are now in neutral zone having worked off the overbought readings from last week.  Neutral to bearish with plenty of room to move either way.

Accumulation/Distribution – The big players were selling this week on the sell off and we had 3 distribution days, not enough to generate a sell signal so we are still on the buy from a few weeks ago. Another couple of distribution days and we will have a sell signal.

SPY Chart

Gold – (YG Gold Futures) what more can be said as the yellow metal continues to make new highs as sovereign debt issues take center stage and several large banks failed to meet stress tests. The debt ceiling issues at home have helped bolster the flight to precious metals. We are now up for 9 consecutive days!

The worst you can say is that we are a bit overbought on the short term daily RSI and the new moon might spook some longs who hear the howling of those predisposed to following lunar cycles.  Short term overbought readings on the daily RSI in face of powerful macro forces most often lead to mild or sideway corrections at best. The weekly and longer term charts are extremely bullish.

YG Chart

Silver ( SLV) The poor man’s gold, silver finally joined the party this week and has now broke out above its recent trading range on good volume. As long as we hold the 37.25 area, this should be a nice ride, otherwise we could test the breakout level all the way down to 34.

SLV Chart

Swiss Frank/  US Dollar- The Swiss Frank is a study in fiscal and monetary responsibilty as  this chart so clearly demostrates. That Rolex that you missed buying  will now cost you twice as much as ten yeas ago and 3.5 times as much 25 years ago. The Swiss Frank  had a monster week against the dollar and the Euro, hitting all time highs, indicating severe stress on the financial system. These are critical times. However, we are at the bottom of a 6 year channel and maybe 6-7% away from the very long term 40 year down channel. We are oversold on the RSI on monthly and daily charts. Will we solve the debt ceiling issue here at home, the soverign debt crisses, etc,etc  and get a huge relief rally in stocks and the dollar? Or, is there another flush to the downside? The answer is let the charts unfold and use proper risk controls because we are in unchartered territory and no one knows for sure. Old fashioned tape reading and correct trading tactics are crucial because by the time you have the fundamental  information, the move is over or a low risk trade is not possible.

USD Chart

Have a great Weekend!

Trade The Easy Gap Set-ups
By Geoff Bysshe

This past week we had some big names report earnings and deliver these much sought after trading volatility that creates great day trading conditions. Earnings season is full of big gaps and intra-day volatility, and some are easier targets for day traders than others.

There are a lot of different strategies for trading in these market conditions, but before you get too focused in the details of a trading strategy start with this very simple approach to figuring out the easiest opportunities to trade.

The criteria for the easiest earnings gaps to trade start with the current condition of the daily chart. I’ve created a video with some detailed analysis, but finish reading this short article before you jump to the video.

If you look for the clear patterns in the daily chart and focus on the set-ups that are consistent with that pattern you will find yourself on the right side of some very nice day trades. This is generally easier than fighting the larger trend with the hope that the earnings announcement will be enough of a catalyst to change the market’s longer term sentiment.

There are some patterns that are particularly noteworthy for trading gaps, and I get into more detail about that in the video associated with this article:

Before you get to the video, here are a few observations from last week based on the simple analysis of the daily trend as it relates to an earnings gap:

AA: Rolling over at a downward sloping 50-day moving average, its earnings gap down accelerated the already bearish trend.

JPM: The gap up was weak relative to recent daily resistance and trend, so once its pre-market moment was broken the intra-day trend followed the daily trend which is clearly down

C: I could repeat the exact comments made for JPM.

JBHT: I could repeat the exact comments of C and JPM only in reverse. I’ll add that there wasn’t any real pre-market action so in this case the initial gap down was a 5 minute flush, which consolidated and then moved in the direction of the daily trend – up.

GOOG: This massive gap is capable of breaking my “keep it simple rule”, but the resistance it hit and the fact that it was sitting at a big round number, $600, were reasons enough to expect this gap to be a dud.

SWN: The big gap in the direction of the trend was never even challenged as it moved steadily higher all day. Its pattern is covered in the video associated with the article.

Certainly there are additional factors that are important considerations for day trading the gaps like the pre-market activity, the conference call reaction, the degree of the beat or miss vs. expectations. I’ll cover them in future videos and articles. This one, the daily chart, is the first thing to look at. Don’t ignore it.

If you’d like more information on trading in earnings season don’t miss our free video series and e-book that is being presented to help day traders profit from volatile market conditions.

Running of the Bulls

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July 10, 2011

Weekly Market Outlook

By Keith Schneider


Running of the BullsThe stock market continued its bull charge this week trampling some of the big hedge funds and anyone crazy enough to be short based on economic fundamentals.  Even with an anemic job growth number reported last Friday morning, the market hardly retreated, just a mere ½% loss on Friday, recovering nicely by the close.  Many big players have been seriously gorged by using irrelevant economic analysis.  Such concerns as will the current earnings season be as good as the last 6 and what will be the guidance look like going forward, is the anemic economy as witnessed by the new payroll numbers (up a paltry 18,000 last month) truly indicative of the future, are the sovereign debt issues in Europe solved, and last but not least, will our very own debt ceiling crises that comes to head on Aug 2, really cause a default? Notice in the photo above how just a few bulls have the whole crowd intimidated.  And so it goes for the market.  Some old fashioned tape reading is the required art form here to separate the real bull from the bulls##t.

SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQQ (NASDQ 100) Indexes

Of the 3 key US market Indexes, the QQQ closed with the smallest decline on Friday closing down just -.3%. Also noteworthy, is it touched its high for the year this week, way outperforming the other indexes. The rather mild correction on Friday is a positive. However, the relative strength index is overbought as well as the market internals so after an extended move right up to the highs of the year we would not be surprised to see a correction or some sideways action to work off this overbought condition.  There is no denying the primary trend is up. Another observation here is that the QQQ’s have closed higher than where it opened for 9 consecutive days. Earnings season is upon us and with stocks overextended there is added risk. Generally, this is now very short term trading for new positions and time to tighten stops or take some money off the table for existing positions, which we did on Thursday before the employment numbers. If we directly move up form here without some corrective action, the upper channel should offer some good resistance just above the yearly highs.

NASDQ 100 (QQQ) Overbought but great price action

QQQ Chart

Dow Jones (DIA) Well defined channel from 2009 lows shows support at 113 and resistance at 132 and nearing overbought levels on weekly charts

DIA Chart

Sectors

Transportation ($Tran): Making new all time highs is the transportation index, usually a good sign for the economy.  Does it know something about the recovery? A little caution here as it’s overbought for the short term on our daily RSi.

TRAN Chart

Market Internals

VIX (sentiment): Even with the extreme move last week we did not reach “irrational exuberance” and are now in bullish territory. If the market moves higher, look for this index to continue to drift lower as “risk on” prevails.

VIX Chart

McClellan Oscillator (breath): this intermediate term breath indicator has clearly reached overbought readings and has started to hook down indicating a correction is underway. Will it be more sideways action to work off this condition or does a real selloff remain to be seen?

Advance/Declining Issues: This shorter term breath indicator is clearly very overbought but must hook down thru its recent swing low or penetrate the plus 2000 level to confirm a correction is underway.

Up Volume/Down Volume: This shorter term volume indicator when used with ADV/DEC issues works extremely well. Currently, this indicator is also overbought but needs to hook down thru 60 or the recent swing low to confirm that a correction is in gear.

SPY Chart

Accumulation/Distribution: Markets are clearly in bullish mode as we have many more accumulation days even with Friday’s action.

Gold (GLD): As seen from this monthly Gold chart, the trend is clear and intact. The actions by the FED keeping interest rates at ZERO and printing money to keep the economy afloat to avert price deflation is clearly showing in this defacto currency. This trend is a textbook case of a strong uptrend. Major Support at the 140 -142 levels.

GLD Chart

Silver (SLV): Bounded by the recent high at 38 and recent lows around 32 makes these critical levels. If we break out form either one of those levels we can expect another 20% move from those levels either way.

SLV Chart

MMM Premium Swing Trades: the last 8 trading days were a field day for MMM premium members as we had a number of stocks that are up between 10-20%. Some examples are NFLX, WYNN, AAPL and AMZN.  Here is the chart on AMZN, a classic breakout above the 50 day ma with a clear compression zone and good volume patterns.

AMZN Chart

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