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

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?

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

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-

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

Is DOW 10K support or resistance, the saga continues!

Advancers ahead and DOW 10K is almost holding support. SPX 1065 needs to hold into the close. For some reason I think we might see a late day buying spurt today. The DOW has to make it over 10.2K or a retest of the last lows is imminent. There is a lot of pessimism out there and I’ll be surprised to see 10K support going into Fridays close.

Semiconductors and Tech seem to have support today with Financials lagging. Watching GS closely as a metric for the Financial sector.

Very near term I don’t have a bullish feeling about this market at all, too much confusion overseas, too much national debt, lack of clear economic recovery direction.

So with all the confusion amongst pro’s how can we play this uncertainty? My portfolio for doing this is here “How to make money in most market conditions”.

Here’s a chart of EDC (which I bailed on at 98). It moved from 86 to 96 since Friday. Looks like 99-100 is upper resistance for this one.  Pretty amazing bounce off of Friday’s lows and of course I’m not holding it now. When it peaks it’s time to-

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

Will DOW 10K hold support?

Last week was extremely frustrating for the Bulls as the markets repeatibly looked like support was developing somewhere between DOW 10,100 and 10,200. The intraday lows hit below 10,100 and very close to the interim bottom I called for recently of 10,050. What’s most bothersome is we’ve yet to see anything but lower lows in the intraday patterns which is Bearish to say the least.  The Davos summit ended with no agreements and news on the US/China relationship this weekend wasn’t good.

If DOW 10K doesn’t hold there is a good chance we could stairstep down for awhile in a pattern reminescent of one year ago. There will be very good shorting opportunities for bears if this week’s pattern continues last week’s downward direction or worse yet, picks up downward momentum!

On the bullish side of the coin looking at the PnF charts there are a lot of what looks like bargains setting up. We now know that very short term that we’ve been in a great shorting opportunity. My ultrashort ETF’s have moved up 20-25%, others have moved 30%.  What’s next?

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

DOW 10.2K inflection or correction

Unfortunetly the DOW didn’t quite hold 10.2K this week until the close till today. Does this mean we reached an inflection point to re-test the highs based on BTE earnings from most companies and the Feds keeping rates low OR does this mean we are on the brink of a major league correction and hanging onto DOW 10K support levels with clawed fingers?

The SPX bounced up off the lows many other pro’s predicted around 1084. We’ll soon see if the 50 dma for these two major indexes can be breached upwards again. Tech stocks seemed to get a rise out of AAPL earnings and their new product introduction today, time will tell as Semi’s are down quite a bit from the recent peak.

The DOW came close to hitting my interim low prediction of 10,050 +/-50 pts before bouncing up over 100 pts from the intraday low after the Fed meeting minutes were released. It still might get there after the “State of the Union” address tonight. My drop dead line in the sand to reduce beta risk is- 

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

Buying opportunity or Shorting paradise?

Everyone has read the news stories on the last few week’s various catalysts which drove the DOW down over 500 pts from the recent double top test of the 10,700 level. While seeing the largest 3 day drop since last March wasn’t much fun it’s also good to let the steam out a bit on the largest rally in history. What are the opportunities now? Which Best of Breed stocks, sectors, or ETF’s are the best trades or investments in the very near term? Will the stock market continue the downward trend and go from a small pullback to a full fledged correction? Can we make another 2 month 25% profit on a ETF trade like the last 2 month move on TNA before it pulled back (I sold all of mine at 47)? Let’s look at some charts and try to plan a couple of steps ahead. 

Here’s the DOW Point and Figure Chart from Friday where you can see the triple bottom break below 10,250 which is now upper resistance. 

To put this rally and pullback in perspective let’s look at the larger view on the DOW.  The 50 day moving average was breached to the low side for the 1st time since last July which ended up being a great buying opportunity (which I capitalized upon).  We won’t know if Friday was a buying opportunity or a shorting trader’s paradise till we see the reactions this week regarding Bernanke, China, and future top line growth on the back of better than expected earnings from 75% of the SP500 companies to report so far. My bet is 

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

Stocks Pullback/Turn Date soon

Stock Market Consolidation or Top?  That was the BIG question last week and the charts would indicate a top was reached. Last week was a down week with breakdowns in the patterns of the major indexes as well as most stocks. Looking at low volume and taking into account quadruple options expiration last week could also mean we just needed to let some steam off the rally. Many pro’s are calling for another 5-10% downside with a potential bottom around SPX 850.

This actually coincides nicely with the Bradley Sediograph charts I frequently mention which show a minor bottom turn date of June 26th followed by a major turn date on July 14-15. These dates and even the polarity could shift and time has shown it’s good to pay attention to the Bradley charts. This is the prime reason I’m holding out for one more upside rally this summer.

Last week we saw the DOW test 8500ish several times before heading higher and closing right at 8539. The SPX tested it’s 200 day moving average before rallying into the close on Friday.  We will probably see a lot more volatility going into the Fed meeting results on Wednesday. Consumer spending and housing sales reports are expected to show slight improvements but with the Iranian situation it’s going to be difficult  figuring out daily direction. Right now the futures markets are flat and world news reports Iran isn’t affecting world markets.

 My near term upside target is 9.2K +/-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.

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.

Last week I added ~20% to positions in TNA/BGU and also did a short barely profitable ultrashort trade during the week’s decline. Going into this week prepared for a little more downside before another upwards bounce (he writes with fingers crossed).

As a result of the 300 pt decline on the DOW and buying a tad more my overall Real Time Average was 54.4% as of last Friday’s close.  No positions were sold last week other than short term ultrashort hedges (which were probably sold a tad early). The 22% drop week over week is a result of the volatility of trading Ultra leveraged ETF’s.  The 3X ETF’s can move 10-20% daily.

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. 

Join us at-

http://bestofbreedinvesting.com/board/

Rally continues in the face of profit taking

Quite a roller coaster ride again this week and the market was impressively strong holding support levels around DOW 7800 in the face of obvious profit taking. Seems the earnings report season is surprising more to the upside than most expected. I watched the lower lows emerge that I discussed last blog and decided to set stops at 7800 after the first wave down. That level held and we in fact rallied from there most of the week to end slightly down week over week.

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

Now up 54% total average which is a 9% decline from last week BUT I also sold 20-25% of most positions when the market rallied on Friday. The average profit percentage for these sales was 68%.  I have stops and conditional orders in place in case we get a sudden turn of events downward and also bought a small entry position in FAZ as a hedge. This 3x ultra-short of financials is at an all time low along with SKF (the more widely known financial short). FAS, FAZ, SKF, UYG are at the top of the high volume movers almost daily.

Many pro’s are predicting we’re going to DOW 8500-9000 level before we see another major leg down but of course just as many are predicting an imminent crash again. Seems like the good contrarian move is to bet on a further rally as MOST expect a pullback.  It is interesting to note the Investors Alamanac and a few others claim the DOW MACD signal going negative on April 21st was the signal that the favorable season is over and we’re headed down. Of course this same favorable season was given the green light last October when the MACD crossed positive right before the big crash in November.

What I found most interesting today is I read an update from the Bradley Chart guru (who exactly called the crash last year). The same guy is now predicting a HUGE rally near term followed by another major pullback. We’ll know soon enough, the DOW and SPX now need to produce higher highs to further convince me. The VIX dropping to 30 will be the ice on the cake!

I sent an alert to friends and members of Best of Breed Investing this week to take some profits, preferably something around 20% of holdings.  As we rally further I’ll be taking more profits with a target to be at least 50% cash by the end of June. The next big leg down and subsequent rally into 2010 are probably going to be the last chances for HUGE point moves for the next few years. We just went thru the worst decline and best rally in ~80 yrs.  This is a major statistical anomoly.

Join our group and discussion board to follow our daily and intra-daily discussions  at- http://bestofbreedinvesting.com/board/

The January Effect

The equities I discussed in my last blog ran up to a average of 22% return before reversing course the last 2 weeks or so. If experts are right than this would indicate a NEGATIVE January effect and a probable NEGATIVE close to 2009. Supposedly the negative January effect caused by losses the 1st weeks in January has a much higher correlation than a positive start to the year.

We’re still in treacherous waters and the Fed’s releasing more TARP money to bailout out banks is NOT a good sign of a recovery. Q4 earnings thus far have been just as dismal as everyone expected with much more to come in the way of disappointment.

DXO (2x Oil ETF) has had the biggest run of any equities in my portfolio but I’m not sure what will happen as the ME ceasefire takes hold (assuming it lasts). It’s still up 35% in my portfolio and I do believe Oil/Energy/Financials will be the key things to own coming out of this recession. The key question is how much longer will it last? For 2009 I plan to do momentum and swing trading with no allegience to any one stock or sector.

Looking at the Bradley charts show turn dates of Jan 20/21st and Feb 9th. The first one is rapidly approaching in conjunction with Obama’s Inauguration and I believe a “sell the news” event will happen the very next day. Looking out to Feb 9th perhaps the new Stimulus bill and more clarity on Q4 earnings will prompt investors to jump back into the fray. Speaking of Bradley charts, one of the better known investors who swears by them had the highest returns in 08′ at 51%. There isn’t correlation to years of great data by this guy but it’s food for thought in a downturn. Keep in mind the Bradley charts have a correlation of ~60% to reality and the turn dates can happen within +/- 1 week. For 2008 the Bradley chart clearly showed almost 100% correlation from July to December which is why the short side investors profited heavily.

We did see the VIX spike over 45 all the way into the 50’s before coming back down to 46 last Friday. The Point and Figure charts for the major Indexes and Best of Breed Stocks all clearly show the lows being re-tested but I believe there is a strong possibility of more re-testing prior to a run in early February.

60% in equities, 40% in cash now and will probably sell more come Tuesday afternoon. The longer term looks to have more downside in late 09′ so this isn’t a time to dive back in all the way in my opinion. I’ll be watching closely for entry points on the bull side in early February.

blessings to all!