Monday, January 01, 2007

Weekly Calls Jan. 3-5, 2007

On the market:

The market enjoyed a bit of Santa Rally in the holiday-shortened week, led by DOW which closed at new high with nearly 1% gain. Both NASDAQ and SP500 had less than 0.6% gain. On the weekly charts, candle formation was bullish for DOW but neutral for both NASDAQ and SP500. Bearish divergences of Stochastic and MACD histogram are still clear for all major indices. On the daily charts, the action in NASDAQ is worth mentioning as it rebounded strongly from the vicinity of MA50 in the first 2 sessions, but met clear selling pressure in the last 2 sessions.

Some basic statements can be made here:
(1). the momentum for the 4 month long up trend continues to diminish, but the tops for both DOW and SP500 may yet to be reached.
(2). bearish divergences for all major indices are persistent.
(3). As the market leader, NASDAQ seems topped out.
(4). The reversal of the up trend requires, at the minimum, that NASDAQ closed below it MA50, something yet to occur.

On next week:

The bulls enjoyed some Santa rally last week, but the actions on the last 2 sessions were not bullish. It is remains to be seen if the Santa rally will see a happy ending next week. For me, I will look for NASDAQ for any signals of trend reversal. Basically, if NASDAQ drops significantly next week (especially on Weds Jan. 3, the first trading day of 2007) on high volume, we could see a re-run of 2005 1st quarter. Some of the key events that may significantly impact the short-term direction of the market include: ISM (Wed 10 AM), FOMC minutes (Wed 2 PM), and Dec. employment report (Fri 8:30 AM).

At this stage, the following strategy should be followed:
(1). Watch more and do little on the first/second trading sessions of 2007.
(2). Don't go long with the break-outs and don't chase the bears just yet.
(3). Look for the short-the-top setups for stocks that attempt to rebound.
(4). Play long-on-bottom for some very strong stocks that have fallen to their key support levels, but be quick when taking profits.

It appears that the market will gap up at the open on Weds, the first trading session of 2007. How the market follows up that gap may set the tone for the near-term market movement.

Trading calls:

Group 1 -- The short-on-top plays (No long plays allowed for this group)

1. AAPL: S2 on top when it approaches key resistances around 87 and 89.5. May consider S3 when it breaks down MA50=83.7 or 83.36. MA10=83.9. Because of possible more bad disclosures on the option scandal, no over-night long is allowed, on the other hand, because it may have positive announcement on Jan. 9, don't be aggressive with short position. No long plays until it approaches 77.

2. ENER: S1 on top when it spikes towards key resistance around 35, 36.7 (MA50), or 37.1 (Ma200). The down trend looks to set in.

3. ERTS: S1 on top if it spikes towards 52.5 use MA200=52.7 as stop reference, IT=48.

4. SHLD: S1 on top, entry point around MA10=169.4 or MA50=170.4. IT=164.

Group 2 -- The long-on-bottom plays

1. ADSK: L3 on bottom if it sparks down towards 39.7 (use MA50=39.2 as stop reference) or 37.4 (stop just below 37).

2. AKAM: L1 on bottom when it approaches key support levels at 50, 50.5, 51, 52; use tight stops. MA50=50.9

3. ESRX: L1 on bottom if it spikes towards MA50=70.3 use a tight stop.

4. FFIV: L2 on bottom if it spikes towards 71 or MA50=70 use tight stops.

5. FMCN: L3 on bottom if it spikes towards 65.5 use MA50=65.3 as stop reference.

6. NTAP: L2 on bottom if it spikes towards MA50=38.8 or 38.2 use tight stops.

7. STP: L1 on bottom, entry zone 32.6-33.2 (MA10) with a stop just below 32.5. MA 50=30.

8. UNH: L1 on bottom when it spikes towards 53, stop just below MA10=52.7. MA50=50.1.

Group 3 -- The range-bound CTT plays

1. BIDU: L1 on bottom only when it spikes towards key support around 106 or 107.6 (MA50) use short stops. Also consider S3 on top when it approaches key resistances around 115.5 (MA10=115.1), and 119.5. Don't trade mid-range or initiate any positions that are far away from key S/R levels.

2. DVN: CTT between 64.4(MA200)/65 and MA50=68.9 use tight stops.

3. RIMM: CTT between MA50=125 and 131 use tight stops, MA10=130.3.

4. SONS: CTT between 6.4 and 6.9 use tight stops, MA50=6, MA10=6.6

5. X: CTT between MA50=71 and 75 use tight stops.

1 comment:

shortswings said...

Hi Man,

The green was flashing all over the global market on this first day of 2007. Hope that US will follow tomorrow. A gap up opening? Quite likely. DOW and S&P could even make new high. NASDAQ is the weakest among three. However, in the long run I think that we are in the midway of toping process. Weekly Histogram has been ticking down for last 6 weeks ( all three major indices), which suggests that the up-momentum is weaking. I totally agree with your trading strategy for next week. I also agree with all your calls.

Good luck!