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.

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The Stock Market Rally that never ends?

As “Buy the Dip” regardless of the news is still occurring and we saw the market end last week on fresh YTD highs it seems nothing can stop this rally. There have been some major volatility swings as evidenced by the SPX bouncing off of 1194 to end at 1217 and the VIX is signaling a contrarian top. The best plays the last several weeks have been to either buy the dips each day or short the highs and sell immediately at the next days lows.

AAPL has been on an absolute rampage rally on the heels of earnings and future growth prospects. US Steel (X) seems to be basing out for a move up but could also dip toward 50 and long term this is one of my favorite stocks. I strongly recommend buying X on any major pullbacks. GS also appears to be consolidating after the fear based pullback, it may go lower but long term Financials are probably my favorite sector.

When these 3 Best of Breed stocks fail to hold support and the Financial sector falters there will be a pullback. The severity will be limited UNLESS geo-political events escalate on any number of fronts. EU credit concerns, China real estate bubbles, Middle East tensions, and the even more unpredictable volcanoes and earthquakes are all potential catalysts.

If you look at my previous blog you’ll see the SPX and DOW charts and notice how both bounced up almost exactly above the previous lows (column of 0’s on PnF charts). 

The DOW broke above 11.2K and the SPX seems on track to test SPX 1230 or higher, probably this week. My call for the rally to end at 11K was wrong and though all technical indicators are showing overbought conditions, the rally still persists.

How am I preparing for what has to be a top very soon as the SPX approaches the 67% Fibonacci retracement levels from the March 2009 lows (which is SPX 1230)? Join our FREE discussion board and share or learn with a group of great experienced investors.

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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!

Stock Market testing yearly highs?

Last Friday was the perfect setup for a news driven rally and then a fade into the close which looked probable till the last hour of trading. Looked like at least part of the pop above SPX 1130 was due to short covering but improvement in the employment outlook seemed to be the primary catalyst. Now the stock market seems on a clear path to re-test the yearly highs as there is no resistance between here and SPX 1150. The RSI signals for the SPX and DOW are both almost at 70 which typically signals a reversal and looking at the charts it’s pretty obvious a re-test of highs will result in a slight profit taking pullback.

The key question all professional traders, investors, financial analysts are asking is WHEN will we see the next correction? Will it between now and May as many expect or the last half of the year? There are even a few brave hearts saying this rally will continue till SPX 1200. There are certainly enough potential Black Swans out there to cause several corrections or even a long protracted downturn. Even the most bullish pro’s out there are deeply concerned about the effects of the Fed’s tightening monetary policy and potential tax hikes in the USA after the November election.

All week we had somewhat negative news, low consumer confidence, low home sales, continued economic concerns over Greece, China, Great Britain, and Spain. Regardless of any of this the market continued to “climb the wall of worry”. Our first clue that the rally would continue was on Thursday when GS started breaking out which continued into Friday. This was very good for UYG and FAS but not for FAZ or SKF. The DOW chart has been a story of head fakes lately when it appeared 10,400 was the ceiling. I did predict correctly that strength around 10.4K would lead to 10.5K which is major upper resistance. The DOW clearly broke above that level last Friday and I now believe we’ll see some little pullbacks and a 2 steps forward 1 step back dance all the way to yearly highs or higher near term. The yearly high is going to be met with a lot of resistance as well and would be a good place to consider some more shorts or at least some profit taking.

The VIX Index is showing a major relaxation of fear and its a measure of puts –vs- calls which shows Options traders turning more bullish. The last time it got this low resulted in a 900 pt DOW drop and a 8% (10% intraday) correction. This is the primary reason many of us were adding to our ultrashort positions last week including the highs of the day on last Friday. The ultrashort ETF’s were on an uptrend till the last 200 pt burst upward on the DOW and the SPX breaking above 1125ish.

AAPL, one of my favorite Best of Breed Stocks hit all time highs Friday on news of their impending I-Pad product release and buzz that corporate America may adopt it’s use.

How are we positioned for next week and what do we expect near term? Members of Best of Breed Investing are privy to detailed trading plans via our discussion board, email alerts, and a Live Chat Forum where we discuss trades in real time.

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Where is the next Stock Market top?

Amazingly last Friday the DOW pulled back into the 10.3K area before rallying the rest of the day to close above 10.4K with the SPX closing above the all important 1108 area. Both indexes have now went slightly above the 50 DMA and the MACD signals for both went positive on the last rally from DOW 9830.

As I wrote last Thursday night, the market overreacted to the Fed raising the discount rate that evening. I had sold several short positions on Thursday when I saw the DOW clearly break into positive territory and was pretty concerned on Thursday night. It took a strong break above DOW 10.3K to get the markets out of the range bound area we’ve been stuck in since January’s decline.

The rally Friday took the ultrashort ETF’s I sold the previous day to new lows (excluding EDZ and FXP which I bought more of late Thursday as a hedge) so I bought back some SMN and FAZ to increase my hedge. I also sold some US Steel at 175% profit to increase my cash position. I’ve noticed EDZ and FXP have dropped but seem to hold more strength on a daily basis. My outlook is they could get cheaper but if and when the stock market does a 20-30% correction the ultrashort ETF’s will probably gain 50-100% very quickly. The 8% pullback we just had gave said ETF’s a rise of ~30% on average.

My personal outlook very near term is EXTREME CAUTION is needed, we’re only 300 pts below the YTD high on the DOW and probably very close to the Stock Market top short term. I remain hedged and plan to take profits and increase short positions on any mini-rallies going forward. There is a possibility we could set higher highs before this rally fizzles out but make no mistake, it will fizzle out again. Possibly in March, April, or May which fits both seasonal timing models and the Bradley charts. Let’s look at the VIX chart to see how the volatility index was affected by a 600 pt DOW move.

What is the “plan” going forward this week and into March?

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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?

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Is the Smart Money buying stocks now?

After massive swings in the stock market the last few weeks and especially the last few trading days all investors and traders have to be perplexed. Can it be that the Smart Money who just got out of equities have decided the water is safe again based on a technical move downward or the news rumors about Greece’s credit crisis.

I’ve been rather amazed at the volatility myself but the orderly close to 200 pt ups and downs are normal in high volatility stock market weather patterns. I find it hard to believe that the Smart Money folks have decided this 4th and largest pullback/near correction since last March IS THE TIME to go long on stocks again.

It is very possible that programmed trades and hedge fund managers trying to jostle for the right position for the next 90 day or so of trading are causing the majority of the volume moves daily.

Here’s a few PnF charts of ETF’s I have and continue to like for the next few months or longer. While none of us have a magic crystal ball it’s important to note that these charts are what Best of Breed Stocks look like coming off of major lows in normal market conditions but these are all-

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DOW has strongest 2 week gains since 2000

My apologies for not updating this blog recently but I do share intraday commentary and my personal investing/trading info on the forum at- http://bestofbreedinvesting.com/board/ 

As regular readers know we were in a quandry regarding the highs of the year that peaked in June followed by a 4 week correction (during which time I was buying more Best of Breed Stocks and bullish ETF’s). The last pullback to DOW 8100 sent a lot of folks running and the shorts were in ectasy. I recommended the contrarian approach and bought RIG and POT. Earlier at 8250ish I had bought more USD, UYG, UYM, URE, ERX, FAS, TNA, BGU after taking 20% of them off the table TWICE during the first runup. Booked >100% profit and in some cases 250% profit in almost every ETF position during the rally.

At the 2nd visit up to DOW 8800ish most pro’s were saying we had seen the high for the year or at least for awhile and recommended selling stocks/going to cash, buying puts to protect them, or going flat out short. The Bradley charts were telling me otherwise and I also strongly believe the last leg down in March was pure panic, not related to actual economic reality. The 4 weeks after this were not fun but I held to the thesis and bought on the dips and when earnings were released combined with pro’s going bullish on Financials, my thesis came true and we rallied above DOW 9000.

http://stockcharts.com/def/servlet/SC.pnf?chart=$indu,PLTADANRBO[PA][D][F1!3!!!2!20]&pref=G

What’s next for Best of Breed stocks and the market in general? Some say DOW 10K in the next week or so, some say a straight rally to SPX 1250. My best estimate is we’ll see DOW 9.2K ish with a chance of 9.5K. I don’t think the SPX will go above 1000 and certainly not above 1050 before we see another correction in the August thru October timeframe.

Started building a hedge position with FAZ (ultra bear Financial ETF) and BGZ (ultra bear Large Cap ETF), these positions will probably go a little lower in the next week but have huge upside potential now that they are all on the lowest lows of the year. Caution is the byword on these ETF’s as they are extremely volatile and can move 20% in one day.

It’s possible I’ll be wrong on an upcoming correction but looking at the straight up stems in the PnF charts tells me otherwise. When Bullish sentiment starts peaking, Side money floods in, it’s time to look for a pullback/correction. Suspect the Fall lows will test DOW 7800-8000, no lower than 7500 (unless a military conflict breaks out) followed by higher highs by year’s end. If you bought at the lows in March and don’t need the money now you might want to shut off your TV and go on vacation till the end of November.

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Blessings to everyone and I hope your trades/investments are profitable.

Stock Market Consolidation or Top?

During the latter part of last week we saw the DOW test 8700ish several times before heading higher and closing right at 8799. There is a lot of market moving news due out this week and it’s quadruple witching week for options. The trading range has tightened back to what is probably normal volatility but pro’s are expecting increased volatility this week and hopefully we’ll break out of this range to the upside.

Best of Breed stocks like GS, AAPL, X, etc….. all made new highs and pulled back slightly. All are close to filling the closest gaps and we could see 10% more additional upside according to Art Hogan with some experts calling for DOW 10-12K by end of year. My near term upside target is 9.5K +/-200 pts. When we see Financials rally again and a lot more side money come in the market it will be probably be time to look for the door and/or go short. The PnF charts are my guide.

http://stockcharts.com/def/servlet/SC.pnf?chart=gs,PLTADANRBO[PA][D][F1!3!!!2!20]&pref=G

The Nasdaq 50 day moving average crossed above the 200 day average with the DOW/SPX expected to do the same in a week or so. This is called the Golden Cross (thanks Smile) which is converse of the Death Cross seen in this indicator in late 2007. It’s not proven to be 100% accurate (like anything else is right) but should be given some credence in your investment decisions. The Bradley Charts show a MAJOR turn date rapidly approaching in mid-July. Though I’d love to see the DOW shoot up another 1000 pts I’m very cautious now especially due to the Bradley Charts and overall perceived oversold conditions.

I’ll be selling more long positions as the market moves up and I’d like to be 30-50% cash by the end of June UNLESS the PnF charts and technical indicators show more upside.  Look at the ultrashort charts for FAZ, SRS, EDZ, ERY, etc…….., they are ALL on the bottom of major downward stems. These will be GREAT trades when the market does correct.

http://stockcharts.com/def/servlet/SC.pnf?chart=faz,PLTADANRBO[PA][D][F1!3!!!2!20]&pref=G

Here’s the links to the current DOW and SPX charts.

http://stockcharts.com/def/servlet/SC.pnf?chart=$SPX,PLTADANRBO[PA][D][F1!3!!!2!20]&pref=G  The SPX looks like it’s in a consolidation pattern to me before moving upwards very near term.

http://stockcharts.com/def/servlet/SC.pnf?chart=$indu,PLTADANRBO[PA][D][F1!3!!!2!20]&pref=G  The DOW shows the same consolidation pattern before the late day breakout to 8799 on Friday. Target is mid 9000’s IMHO.

These are the equities I hold at present and percent returns as of last Friday 06/12/09.

USD	PROSHARES ULTRA SEMICONDUCTORS PROSHARES							46% Original shares up 73.8%
AAPL	APPLE INC							46.3% Original shares up 59%
MOS	MOSAIC CO							Sold ALL at 75% profit	closed
DXO	POWERSHARES DB CRUDE OIL DOUBLE LONG ETN							108%  Sold 1/2 at 125% profit
FSLR	FIRST SOLAR INC COM							62.9%
X	UNITED STATES STEEL CORP							117.5%  Original shares up 126%
GS	GOLDMAN SACHS GROUP INC							81%   Original shares up 96.1%
URE	PROSHARES ULTRA REAL ESTATE PROSHARES							46.8%  Original shares up 109.4%
ERX	DIREXION DAILY ENERGY BULL 3X SHS							66.5%  Original shares up 123.8%
UYM	PROSHARES ULTRA BASIC MATERIALS PROSHARES							48.8%  Original shares up 142.4%
BGU	DIREXION DAILY LARGE CAP BULL 3X SHARES							151.7%
TNA	DIREXION DAILY SML CAP BULL 3X SHS							79.2%   Original shares up 192.6%
FAS	DIREXION DAILY FINANCIAL BULL 3X SHARES							106.5% Original shares up 336.9%
UYG	PROSHARES ULTRA FINLS PROSHARES							46.6%   Original shares up 168%

Real Time Average portfolio gain at +76.3%  as of Friday’s close for a 1.8% gain week to week.

If you are a member of the Best of Breed Investing Discussion Board you can read the daily and intra-daily discussions to see my daily thoughts on market direction as well as information/opinion from quite a few other very experienced investors. 

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Stock Market Rally update

Last week was quite enlightening with new higher highs in the major Indexes and most Best of Breed Stocks and ETF’s. AAPL, GS, Steel, Materials, Oil, Energy all broke out to the upside. We successfully rallied and re-tested DOW 8600  a few times to peak around 8800 and pull back slightly. I anticipate we’ll see a re-test of DOW 8700 before heading higher with a peak between 8800-9000. We could go higher depending on Treasury Bill auctions and geo-politics but beyond a doubt the stock market is close to topping out. Some claim we’ll see another 1000 pts but I don’t think so.

Will be selling more long positions as the market moves up with an eye on Conditional orders at 8800 and 9000. Planning to be very heavy in cash in the next few weeks. Look at the ultrashort charts for FAZ, SRS, EDZ, etc…….., they are ALL on the bottom of major downward stems. These will be GREAT trades when the market does correct.

Here’s the DOW and SPX charts where the breakouts are clearer than last week.

These are the equities I hold and percent returns as of last Friday 05/29/09.

USD	PROSHARES ULTRA SEMICONDUCTORS PROSHARES							37.4% Original shares up 63%
AAPL	APPLE INC							54.5% Original shares up 68%
MOS	MOSAIC CO							78%  Sold ALL at 75% profit
DXO	POWERSHARES DB CRUDE OIL DOUBLE LONG ETN							97.1%  Sold 1/2 at 125% profit
FSLR	FIRST SOLAR INC COM							61.4%
X	UNITED STATES STEEL CORP							100.3%
GS	GOLDMAN SACHS GROUP INC							85.3%  Original shares up 100.7%
URE	PROSHARES ULTRA REAL ESTATE PROSHARES							53.9%  Original shares up 119%
ERX	DIREXION DAILY ENERGY BULL 3X SHS							55%     Original shares up 108%
UYM	PROSHARES ULTRA BASIC MATERIALS PROSHARES							57%     Original shares up 138%
BGU	DIREXION DAILY LARGE CAP BULL 3X SHARES							147%
TNA	DIREXION DAILY SML CAP BULL 3X SHS							83%     Original shares up 199%
FAS	DIREXION DAILY FINANCIAL BULL 3X SHARES							101.4% Original shares up 326%
UYG	PROSHARES ULTRA FINLS PROSHARES							44.5%   Original shares up 164%

Real Time Average portfolio gain at +74.5%  as of Friday’s close. Sold all MOS at 75% profit and 1/2 of DXO at 125% profit last week.

Adding in the cash I’ve taken out for living expenses in 2009 I’m now up ~12% YTD.

If you are a member of the Best of Breed Investing Discussion Board you can read the daily and intra-daily discussions to see when I make my moves and my daily thoughts on market direction are posted there. 

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