Trading Armageddon

As most are aware the DOW is now down ~1100 pts from the year to date high in April and both the DOW and SPX are trading slightly below their 200 day moving averages now. Failure to break above the 200 DMA in the major indexes this coming week will be an ominous sign for the bulls and world stock markets in general near term with possible heavy declines leading into the next earnings season.

If the 50 DMA lines cross below the 200 DMA’s that’s the infamous Death Cross signal that has typically led to major market declines. We all know companies have reported stellar earnings but the stock market is a forward looking mechanism trying to predict where things will be 6 or so months down the road.

The ~10% correction was instigated by fears over Greece’s credit solvency and further inflamed as the situation appears to be spreading to Spain, Portugal, and today even France issued a warning about their triple A credit rating. A double dip recession warning was also issued by China today which is the main country holding world markets together.

Couple all of this with military fears in Korea and the Middle East and I don’t see a bullish outcome going forward into summer.

There is a chance of more relief rally upside barring any more ultra negative world news this week AND a much better than expected US employment report this coming Friday. I’ve been cautioning folks to take profits on rallies, go short, go to cash, or put your money in bonds since late April at DOW 11,000.

If we do see more upside it looks like SPX 1150 is major upper resistance and I’ll be shorting any rallies below that level for some time to come. The VIX (Volatility Index) is showing a pattern of higher lows and higher highs congruent with fear in the options markets and traders buying protection against further downside.

Regular readers here and on the Best of Breed Investing discussion forum know I’ve been an advocate of using ultrashort ETF’s as a hedge since late last year and recently many of these short positions rallied up 20-40%. I’ve taken some profit but remain heavily hedged as my position for Trading Armageddon (and I don’t mean that in the biblical sense). The Best of Breed stocks I prefer did great in the historic rally from March 2009 and recently I sold all positions in AAPL, GS, and most of US Steel. All were at 150-250% profit in the original shares.

Hoping world governments will be able to pull out of the growing debt crisis by printing more money and putting the US deeper into debt isn’t a viable investment plan.

Members of Best of Breed investing are kept up to date via messenger or discussion board on which trades I’m placing and my overall bias for daily/weekly market conditions.

The rest of this article is available to premium members only.
Login or Become a member

When will the S&P500 hit 1200?

The markets are still defying gravity and it seems the best strategy has been to sell shorts on the dips (or buy bulls). This is what I did last week which resulted in the big gains on Monday and Tuesday. GS rallied up to 180 and until Financials collapse this rally seems to be intact.

If the markets digest this Greek bailout news well it could mean a short term rise in the Euro/drop in the Dollar which means stocks will probably go up. Earnings reports may trump the dollar affecting market performance the next 2 weeks. The futures markets are up tonight and I believe we’ll see SPX 1200 this week, maybe a tad higher, and then a probable pullback on profit taking!

With the DOW hitting the 11,000 level briefly before the close last Friday and solid momentum in the Financial sector and Best of Breed stocks the stage is set for a little more upside IF earnings reports and forward looking forecasts are BTE (better than expected) starting this week. There is a good chance of seeing a little more upside in the next 2 weeks BUT there is a stronger statistical probability of seeing a 10-20% correction in the coming months.

The SPX support levels for a pullback or correction (which I posted in the previous blog) still stand with SPX 1180 as my 1st major support level NOW.

Here’s the PnF version of the current DOW and SPX charts. I adjusted the box size to show the last bounce off the most recent lows, classic higher lows and higher highs patterns still in place-

If you haven’t done so already please join our FREE discussion forum to read and share ideas on trading/investing with a group of very experienced investors. How am I positioned going into this week’s trading?

The rest of this article is available to premium members only.
Login or Become a member

The biggest rally in History, what next?

We’ve now seen SPX 1180 twice recently and it’s currently upper resistance with many pro’s predicting we’ll see SPX 1200-1250 sooner rather than later. The market continues to look extremely overbought but SPX 1165-1170 has held support on every dip in the action lately. Reviewed all charts for the DOW, SPX, BDI, US dollar, etc… and it’s interesting to note the 50 and 150 DMA’s have held support during the lows over 1 year. Specifically in February both the DOW and SPX bounced up almost exactly off the 150 DMA. The RSI and MACD signals continue to tread in severe overbought territory. The US dollar has turned down a tad but could easily bounce up off the 50 DMA and signal another downside reversal in Gold and Commodities. I view the major Indexes 50 DMA as support on a pullback and the 150 DMA as major support for a correction (like Feb!).

DOW 10,800 is now lower support with DOW 11K very close and a probable target on the next rally leg. The 150 DMA is down around 10.2K with the 50 DMA at 10.4K.

Futures markets moved up slightly on Friday’s Employment report but the numbers were less than consensus estimates though showing a steady improvement. The big question tomorrow morning will be whether this causes a Sell the News Event? Earnings season kicks off on April 12th and experts seem to be in consensus that SPX 1150 is major support on any small pullback near term. A break below that level could bring on major selling and a probable move down to the 50 DMA! I’m concerned that a slew of better than expected earnings reports could ignite another pullback like last January. Best to stay nimble as contrarian moves and/or hedging your portfolio may be the best strategy.

Emerging markets had extreme buying volume last week and are now showing technical oversold conditions as well. This sector had been lagging the US markets and I believe the theory espoused by pro’s that EM will be a safe sector when the US markets pullback or correct is a BUNCH OF HOGWASH. World markets will follow the US down on any correction and if the Dollar keeps rallying Gold won’t be a safe haven either.

Now that we’re at YTD highs again let’s look at what worked going up and what will probably rally on a correction. Simply click on the- 1 wk, 4 wk, 13 wk, 1 yr symbols and then click again to look at the top to bottom performers or vice versa for each column. http://moneycentral.msn.com/investor/partsub/funds/etfperformancetracker.aspx?s=52w

If you look at the percent gains you will see that 2X and 3X ETF’s far outperformed most stocks over the last year. There are however many Best of Breed stocks that did beat leveraged ETF’s, ISRG, BIDU, AAPL, US Steel, GS, etc.. Considering the volatility of individual stocks the sector leveraged ETF’s are a good way to diversify and are a better long term investment vehicle than most think. You just have to be able to ride out volatility and hopefully add on the lows, typically 50 and 150 DMA’s.

As employment continues to improve the specter of higher interest rates down the road is hanging over the market and any changes are bound to cause short term dips until the market digests the news (which always happens eventually).

Pro’s are saying April is the highest inflow month for mutual funds which should continue to see increases as we approach April 15th. This could lift all boats so to speak but extreme caution is warranted going into the May/June timeframe.

After such a historic rally I’m really concerned the market is setting up for a major correction. A 10-20% correction would actually be a good thing as long as support holds at critical levels and I’ll be hedging my portfolio to preclude major losses and possibly even achieve some gains shorting certain sectors. Join our Free Discussion Forum to get insights from myself and many very experienced investors. Here’s my near term plan-

The rest of this article is available to premium members only.
Login or Become a member

Fear and Loathing on Capital Hill or How I learned to love stock market volatility!

Last week was of course historic with the passage of the new Healthcare Reform Act which contrary to many experts did not cause a stock market correction (excluding a 100 pt drop for about 2 minutes early last Monday). If fact the stock markets rallied all the way to DOW 10,980 as an intraday high and the SPX briefly touched 1180 before pulling back.

On Thursday the markets were rocked up and down 100 pts on news the Greece bailout wasn’t appetizing to the EU financial guru Pichet who later that same night decided he liked the plan. 

The US Dollar index peaked close to 83 before pulling back slightly and it’s up/down movement (primarily influenced by worries in Europe) had a great deal of effect on Gold, Commodities, and stocks in general. Interestingly enough the US stock markets are occasionally starting to rally slightly when the dollar goes up and could disconnect from the Dollar Effect if US growth continues to be evident.

Friday the markets rallied up on news of a Greek bailout only to falter again on worries over a S.Korean military ship sinking with loss of life. By the close on Friday the Korean situation was announced to be a probable accident and the DOW recovered 1/2 the daily losses to close the week at 10,850 with the SPX holding support at 1166.

I use Financials and a handful of Best of Breed stocks as my main indicators along with RSI, MACD, Volume, Breadth, and Bull to Bear sentiment. What are these indicators showing for the immediate future?

The rest of this article is available to premium members only.
Login or Become a member

Ringing the Bell, when to take Profits!

Most of us have wondered when will this historic rally be over and when should we Ring the Bell and take serious profit or head completely to the sidelines. The old adage of Sell in May and go away works over long periods of time but hasn’t worked too well the last couple of years.

Some folks I highly respect make it a point to follow the 30:30 rule regarding when to take profits out of the stock market. When an equity position is up 30%, take 30% off the shares off the table. Last year I bought leveraged ETF’s and Best of Breed Stocks that gained 100-400% during this historic rally and I took a great deal of profit along the way. Now I’m down to 7 bull positions and ready to trim them further on a minutes notice but I still have a small handful of BoB stocks that are up well over 100%. My short hedge is now set up and ready to be increased when this market does roll over and finally give us a 10-20% or greater correction.

We’re seeing historic volatility and stock market rallies, historic changes in our Government, and a lot of general confusion as to the direction and what is best for our country now. The Vote today on Healthcare Reform could cause a massive stock market correction or just a little 2-5% pullback. No one knows what will happen but with the RSI signals at peak levels along with bullish to bearish sentiment and 90% of the SPX over the 50 day moving average IN MY OPINION the stock market is begging for a average to above average correction downwards.

Until we see some high volume selling across every sector of the stock market this rally could continue but I highly suspect last Friday was a great time to start going short and take some profits off the table.

Personally I watch the Financial sector the closest and it started rolling over last Thursday with almost every Best of Breed stock and bullish ETF down even when the DOW peaked above 10,800 early Friday morning. The SPX came close to 1170 before pulling back slightly as well.

Members of Best of Breed Investing have access to my latest Trading Plan with a early morning update tomorrow. We also share trading info in real time via MSN Live and I send email updates during the trading day as well. The BOBI discussion board has a general FREE area where general outlooks are shared and a Members Only area where I post daily results, trading plans, future outlooks. To access any of the Members Only info join Best of Breed Investing today, the first month is FREE.

Be careful with your investments, the market is fast approaching an inflection point with probable relief rallies along the way. The key is to watch for a formation of LOWER highs which is confirmation of a trend change.

Blessings to all!

When will Fear overcome Greed again?

Last week was pretty impressive considering overall low volume on the stock market and the daily gains/losses were more in line with historical averages than the gigantic rollercoaster moves we’ve seen so far this year. With the SPX now sitting right on a double top at 1150 the next question is will the DOW re-test the 10,720 level?

Here’s a nice PnF chart of the SPX showing the entire rally from last year!

Here’s the DOW rapidly approaching a double top formation.

Looking at the charts of various Best of Breed stocks, Ultra bull and bear ETF’s, and various other equities would lead one to believe a 10% or greater correction is forthcoming. Experts are extremely confused at this point as to whether the low volume buying and selling was due to overbought conditions or the market is taking a breather to move higher. The Volatility Index is approaching historical lows again meaning less fear is present in the options markets.

Next week will be critical on many levels starting with Monday when we’ll see if mutual fund managers hit the bait or run for the hills. Tuesday’s Fed meeting minutes release will also be very critical and rumor is the employment report due the 1st week of April could be much better than expected.

CNBC had a report that Best of Breed stocks were not being bought last week and the rally was driven by less quality equities like AIG, C, etc….  Not sure how they came to this conclusion as I track about 20 BoB stocks like AAPL, GS, GOOG, BIDU, ISRG, V, RIMM, RIG, POT, MON, MOS, X, etc.. and most were positive on the upswings last week, not just the low quality names. What’s a trader or long term investor supposed to do when the experts are confused?

The rest of this article is available to premium members only.
Login or Become a member

When will the Stock Market Rally really end?

We’re all wondering about this and waiting for the “Bell to ring”. It’s too bad it’s not that simple and without a Black Swan Event catalyst we could drift sideways or rally slowly for quite awhile.

The SPX has a lot of support now and 1140/1130 are the 1st two levels of support on any little pullbacks. The DOW has a support at 10.5K followed by 10.4K. Watch these levels closely as buyers may come in turning any bear move into a head fake.

Many pro’s like Cramer and others are turning very bullish on Banking/Financials again which amazes me as FAZ is the most oversold ETF in the world now.

Watch XLF, it’s a 1:1 ETF so the daily moves are more in line with reality than UYG or FAS. If it breaks above 16 you’ll probably see large moves in UYG, FAS, GS, BAC, JPM, C, MS, and regional banking. The same goes if UYG prints $7 share.

http://stockcharts.com/def/servlet/SC.pnf?chart=XLF,PLTADANRBO

Also watch GS very closely as that will probably be the first indicator of a reversal in the current bullish banking sentiment. It’s supremely obvious that Financials, Best of Breed Stocks, and Bull ETF’s are way oversold and due for a pullback. The question is whether it will be a small one to the support levels I mentioned followed by new highs or a real full-blown correction.

I looked at a long term chart of the VIX and 12 is about as low as it’s ever been since 2003. The RSI signals for the DOW and SPX are at typical turn point highs and I believe the only thing holding up the market is Financials and less “stirring of the pot” from Capital Hill. If the employment report is good tomorrow we might see more upside or vice versa.

It still wouldn’t take much to crash this party but I’m not going to fight the tape. Now 25% bearish, 75% bullish, 24% cash till I see some reason to change (which would be the Financial sector breaking down).

Looking forward a couple of months we might see a Sell in May and go away event or this market might just rally all the way till August in fits and spurts barring any geo-political Black Swan events.

ONE news story could end this or at least cause a big pullback which is why I like having at least 25% in ultrashorts.

Join our membership group today to get detailed portfolio and trading information as well as sharing and learning trading/investing/general financial knowledge with a great group of folks on the Discussion Forum. You can try it for one month for free and cancel anytime.

Bradley Turn Date imminent

Futures markets are up this evening which is hopeful but not a guarantee of an up day tomorrow. The dollar is down slightly and there are more rumors of a bailout for Greece. There are definitive technical resistance levels that must be overcome for this rally to continue that will be discussed further in this blog entry.

Who knows, maybe China will revalue currency and we’ll rally for a month or two.
There are also other trading plays coming out of the Chilean earthquake in the members area here and some are Best of Breed Stocks.

I’ve been giving a great deal of thought to the current economic/world conditions and the data is a complete conundrum of chaos and confusion (CCCC for short). That’s why I like hedging/buying protection in uncertain times.

On one hand since January we’ve seen RECORD earnings and BTE (better than expected)reports from the majority of companies in America along with a slew of improving economic indicators. Certainly looked like the recovery was well under way but……..

On the other hand the stock market ignored said BTE earnings, existing and new home sales are down, jobless claims are up, and last week the 30 yr mortgage rate rose again. Congress is gridlocked and the current admin doesn’t seem to be giving any confidence to investors or world markets and this doesn’t count the financial limbo in the EU.

Next week is CRITICAL for bulls. How are we positioned going into next week? What does the infamous Bradley Chart predict?  

The rest of this article is available to premium members only.
Login or Become a member

Will Fed Funds rate change tank the rally?

This excerpt is from the last Members Only blog entry here written last weekend.

“I tend to think we’ll see a rally up to DOW 10.3K to 10.5K followed by a huge correction starting in March/April/or May. This all depends on the Dollar’s moves vs foreign currencies and World/US news.”

The DOW rallied right up to 10,400 before pulling back slightly and this intraday high corresponded almost exactly with SPX 1108. The DOW closed slightly above the 50 day moving average and the SPX touched that area as well. Both the DOW and SPX MACD signals went positive this week as well.

Everything was looking pretty rosy till the release of the Fed Funds discount rate change after hours today which sent futures markets down.

From what I read the decision by the Feds to tighten emergency fund lending is a move to get banks to borrow at discount rates from each other. It’s possible this will help the lending situation and if you believe they know what they are doing then it’s probably a good overall sign of economic recovery.

Futures markets are not reacting kindly to the Fed news but many pro’s think the negative sentiment is being overblown.

We also have Options Expiration to deal with tomorrow and the return of the Chinese markets next week. What can we expect tomorrow and next week?

The rest of this article is available to premium members only.
Login or Become a member

Stock Market near term predictions

The next 2 weeks promise to be very interesting with China on a holiday all next week. From what I’ve read the Chinese markets typically do well after this holiday. Stock market predictions range wildly in the near term.

Experts are all over the map on very near term predictions. Everything from a very near term test of 9800 and a huge rally, to a very near term test of the yearly highs followed by a huge crash. I’m sure the truth will be in the middle somewhere.

Richard Russell the famed DOW Theory expert is very BEARISH going forward the next couple of years as are several other economic experts and financial writers. Technical support levels seem to be where programmed trades are occurring each day, trade the tape and not your emotions.

Berkshire B shares (BRK/B) have done exceptional since I suggested them on our FREE discussion forum  http://bestofbreedinvesting.com/board/. This equity is joining the SP500, watch it for pullbacks as it’s a good long term investment.

Here are DOW 1 month and 3 month charts where you can clearly see the support/resistance levels I’m discussing. The SPX charts look similar.

So what can we expect this coming week?

The rest of this article is available to premium members only.
Login or Become a member