Monday, August 27, 2012

S&P sitting in the crosshairs

The broad market is right in the crosshairs. Crosshairs of what you ask? Well that depends on your perspective.

If you are a bull then you are seeing that the S&P is close to closing over its recent high close of 1415 and setting up for a major extension higher. This camp is talking about QE3, the effects of an election year, a resurgence of equity buying with a risk-on attitude, and looking for a 1500+ level for the futures. Yes Alice, there is a Wonderland.
If you are in the bear camp then you are seeing breadth deteriorating as the internals struggle to support a rising market. You are also talking about declining volume, a rise in the AAII bulls to its highest level since the spring (contrarian), and a return of the S&P to the low 1300's or lower. Humpty Dumpty has to fall somewhere!
Both camps have a strong leg to stand on and the argument is heating up as we head into the election. What camp you are in is a choice. One that is either forced upon you because you are fully invested in your 401K / IRA or not forced upon you because you are a "savvy" investor who  can "see" the bigger picture and knows when things are unfolding (interestingly most of us believe we are in the 2nd category but actually none of us are).
Personally I am in neither camp. Instead I see what picture the market is painting and try to decipher what it means...like an art appraiser looking at a piece of art. Is that a Pollock worth millions or is that a 5 year old throwing paint on a canvas? Sometimes the appraiser is correct and sometimes not so. But in most cases, the artwork speaks differently to different people.
So here we are - sitting in the crosshairs. To some its the beginning of a major advance, and to others a major decline. To me, its the crosshairs of a fence where we could go either way. Whats your appraisal?

 

Thursday, August 23, 2012

S&P bearish engulfing

There have been a few bearish engulfing candles since the strong rally started in early June but none have come after a significant move higher...like the one from yesterday. Can this rally extend to 1440 or so? Yes. But when we start seeing distributions like the latest bearish engulfing after a strong move higher then the warning is there for all to see.

As the post from yesterday warns, buyer beware!


Tuesday, August 21, 2012

Lowry's...buyer beware

       As the equity market keeps extending the internals do not support much more of an extension. I will leave you with a quote from Lowry's...and a blurb from their latest piece. 


  "The bottom line is, the current rally appears to be based on increasingly weak underpinnings. By a number of measures, including some that generate relatively infrequent signals, the rally has become overextended. Meanwhile, investors appear to be growing more comfortable with the idea that any interruption in the rally should be very brief and likely followed by moves above the April and May highs in the market indexes. All this is accompanying a rally that appears increasingly dependent on a lack of selling. Yet, extended prices and a sense of complacency is probably a combination more likely to lead to an increase, rather than a decrease in Supply, especially in the event of any unexpected bad news. And that could bring a quick end to the rally."

Wednesday, August 15, 2012

Ford (F) update...

Ford had a strong morning and was butting up against its very important 50day moving average at noon but the bears showed who remains in control and the stock closed back near its lows. The gravestone doji that formed as a result is certainly NOT PRETTY! The strong rejection at the 50day makes that an even more important level to watch on a possible retest.
If the stock can get through its 50day on above average volume it will set up for an extension to $10 resistance or possibly beyond. But, as we saw yesterday, that is countertrend for the moment. Right now rallies still need to be sold. As mentioned recently, a break of the $9 level could be devastating for the stock and lead to much lower prices.

Tuesday, August 14, 2012

Watch your DAX

The German DAX has been a good barometer for all things global. When it broke below its 200day moving average and looked like it was going to roll, global equities also looked vulnerable. Now that the index has recovered and raced back to resistance, we are experiencing a similar move here in the US.

Keep an eye on the support and resistance lines as outlined below, and more importantly look for a high volume break that is sustained for at least 2-3 days, for a continuation move in the direction of the break. Equities here and likely in Europe have been advancing on weak breadth and volume, but a convincing move over resistance could get things moving aggressively and catch investors off guard.


Monday, August 6, 2012

JPM ascending triangle could provide some fireworks

An ascending triangle in a bear market presents problems for swing  traders. It is a bullish pattern, but in the context of a larger bear market it can be thought of also as a bear flag. In either case the ascending trendline as well as the horizontal resistance line that make up the triangle, can be used as trading pivots for an extension in the same direction.

This brings us to the daily chart below of JPM. The horizontal resistance line near $36.90 which is just above the 200day moving average as well as where the stock opened after gapping down in May, was tested today, and for now failed. Todays high was $36.80...todays 200day moving average $36.82.
Overall, IF this horizontal resistance line is taken out on above average volume look for a strong extension towards the gap down area from May near $41. Aggressive traders may look to short here (using a tight stop) with the view that the stock will return back to its bullish trendline currently near  $35.50. But given the resilience of a broad market retreat, the risk reward appears to be to the upside. Traders playing the swing up would (depending on their risk profile) look to buy between here and the bullish trendline near $35.50 or buy on a high volume move over $36.90 with the expectation of an extension towards the  $40-$41 area...approximately 8-10% higher.



Thursday, August 2, 2012

Ford (F) looking into the abyss

After its incredible run from the March 2009 lows to its high in early 2011 near $19, Ford is in a very precarious technical position.  The stock has made a series of lower lows with psychological support in the $10 area that was broken recently. Now it is trying to hold treneline/neckline support currently near the $8.80 area.

There are 2 ways to view at the technical weakness.  Either 1) as a large head and shoulders as outlined by the red arcs. This is the worst of the 2 views as a measured move from a break below the neckline would take the stock to near 0. Not highly likely. Another way to view the technical weakness is 2) a somewhat descending triangle (not textbook because the base is declining and not horizontal). This view would have a minimum measured move of approximately $4 lower to $5 on a definitive break of trendline support near $8.80.

The only thing that would negate the negative look in F is if the stock can regain the $10 area and much more importantly the descending trendline currently near its 200day moving average near $11. That would likely get the stock moving back up nicely. But if that does not happen, and the stock does break below $8.80 on a pickup in volume, then look for a move to much lower levels.