Weekend notes on the market -- April 19 ,2008

Bulls in marching order, finally?

By shrugging off the continuously dire economic news and embracing better than expected ER from tech heavyweights INTC/IBM/GOOG and other major companies, the bulls rallied for the week to not only recover all the losses of the previous week, but also push the major indices to their upper boundaries of the 2008 trading range.

On the weekly charts: all major indices posted a bullish Marubozu Candle; momentum turned positive for the first time since last November; MACD crossed up and turning up for the first time since last November; Stochastic in full swing of over-sold rebound process; MA10s curved up; overall volumes remain relative light for the forth straight week.

On the daily charts: for all major indices, momentum once again turning positive after a short sting in the negative side; candle formations overall bullish for recent days; RSI(2) in short-term oversold; MA10 pointed up while the short-term MAs forming bullish order; overall volumes continue the light pattern started since the rally off the Mid-March bottom.

Thoughts and observations about the current market conditions and near-term outlook:

1. Both momentum and MACD changes on the weekly charts since last November may signify a significant turning point for major indices, putting down a high probability of overall uptrend for the coming weeks.
2. As of the Friday’s closes, DOW led the market with a close above the Feb/March highs, while both SP500 and NASDAQ just inches below their 2008 highs. While it becomes increasing clear that the market has seen its inter-mediate term bottom, the ongoing rally has to take out the heavy resistance zone just above before any talks of new bull market can be substantiated.
3. The big boys have been sitting tight ever since the Mid-March’s huge rally off the bottom, and that remained unchanged in the first week of high ER season. The impact of their lukewarm participation in the ongoing rally can also be seen in the post-ER run of some major companies with better than expected results/outlooks (INTC/IBM/GOOG). Additionally, there are signs of big-boys selling in to strength.
4. While technically, it becomes compelling to join the bulls march, as long as the inflation/housing pictures remain dismal and big-boys sitting tight, the rally will be choppy and vulnerable to profit-taking whenever there are not-so-great ERs from major companies.
5. As the major indices at the top of the 2008 trading range with 2 gaps-up this past week, I expect the market to take a breath in early part of the next week before any further meaningful movement.

Raging bulls, no?

IBM behaved well, even MER did well, but bulls barely moved today, and the overall volumes, oh well. If, with over 17% jump of GOOG in AH following its ER, bulls still could not muster a serious challenge of the key R zone tomorrow, what else could power the major indices through the ceiling? Tomorrow is option exp day, wonder what will be destroyed the most, calls or puts? Some random thoughts below:

** AAPL: a break/close above 160 would complete the "cup-n-handle" formation, but the overall volumes of the ongoing 4-day winning streak have been light, DT-S2 if it spikes at the open using 160 as stop reference might be worth a try, but be quick at taking profits.

** GOOG: tomorrow's post-ER huge gap will be filled, but that probably won't happen before it touches 600/620 first.

** ISRG: probably worth a shot from the short side if it spikes towards 330/340 in the early going, or more conservatively, when it closes below MA50/300 near the close with a bearish candle, IT=MA200.

** SPWR, STP, and to the less extent FSLR: worth a shot here from the short side using today's high as stop references.

** Other topping suspects: WLT, AGU, POT

To bulls: if not now, then when?

With VIX completely broke down and major indices are approaching the key resistance zone just above the Jan'08 high for the forth time so far this year, you got to wonder if anything can hold the bulls back this time, especially IBM's ER in AH gave bulls another shot in arm. Some random thoughts:

** INTC's post ER day was a distribution day with relatively so-so volume, I will be curious if IBM will do better tomorrow.

** APPL: I mentioned last week of the possible formation of the "cup-n-handle", you think the handle is almost completed?

** BIDU sure has a pretty bullish chart, should buy any pullback with stop just below 300, IT near 350. But GOOG ER on tomorrow is a wild card.

** Why I feel the bearish urge to act if MA spikes up in the early going tomorrow morning?

** POT: it sure will break through 200 tomorrow morning, but how long do you think it would take for it to back fill the gap here?

** SGR: looks like a pretty classic short-term 2B formation here.

** SPWR sure looks like having a killer ER tomorrow, doesn't it?

** X/NUE/AKS: cost of coal is spiking, but the steel makers are able to pass it on by raising the price, then about slowing demand? I really have my doubts, but arguing with the tape/charts now just cannot make me look smart? then again, maybe tomorrow's NUE report will vindicate my vision :P

Can we go up now?

We already know what GE did for bears when it missed ER number and lowered the outlook, we will find out what INTC can do for bulls tomorrow. Personally, I will question all the strong bullish scenarios if INTC boost merely provides another sell-into-strength opportunity.

Too late to do a complete homework, but just saw some topping signs in MA and POT, hmmm

The unbearable lightness of bullishness?

Another low volume down day, and the overall volumes are so light, the bulls might just call it victory. As indices/many stocks are very oversold on the 60 min charts, fading the gap if there is one tomorrow morning seems just logical. On the other hand, since the momentum for major indices and many stocks just flipped to the negative side, you got to wonder if any sizable gains can be sustained.

The long setups are the best when the market gaps down big in the open tomorrow morning:

1. BX: DT/SW-L1, ez=16-16.82, IDS just below 15.9, IT=18.

2. GS: DT/SW-L3, ez=155-160.2, IDS just below 155, IT=167/170.

3. ISRG: DT/SW-L2 if it spikes towards 305, IDS just below 300, CS below 305, IT=315/325.

4. BEXP: buy any pullback above 8, IDS just below 7.6, CS just below 8, IT=to the moon :P

Weekly Trading Calls -- April 13, 2008

Overall Trading Strategy for the Next Week

For the reasons I stated in my Weekend Notes on the Market, I think the market will be range-bound between Jan/Feb high and March low for the time being. Given the kind of ER we saw from FedEx/UPS/GE, I also suspect the coming ER season will be a rocky one with overall bearish tone. Considering all the turmoil and volatility, the prudent strategy will be CTT using key R/S as entry/exit references levels and overbought/oversold as entry/exit triggers, and it makes sense to shorten the holding time frame until the overall market trend becomes clear.

1. AAPL
** SW-L2, ez=MA50-141, IDS below 130, CS below MA50, IT=155
** SW/DT-S3, ez=150.4-155, IDS just above 155, CS above MA200 with bullish candle, IT=145.

2. ABX
** SW-L2, ez=38-41.5, IDS just below 38, CS below 39 on bearish candle, IT=45

3. AMZN (for Mon/Tues only)
** SW-L2, ez=67-70.2, IDS just below 67, CS around 69 with bearish candle, IT=74

4. CRM
** SW-L2, ez=54-58.2, IDS just below 54, CS below MA50 on bearish candle, IT=64/66

5. GS (for Mon/Tue only)
** SW/DT-L3 if it spikes down towards 160/163, IDS just below 160, CS below 163 on bearish candle, IT=169.

6. ISRG (ER on Thursday)
** (before ER) SW-L2, ez=MA50-316, IDS just below 300, CS just below MA50 on bearish candle, IT=MA10.

7. RIMM
** SW-L1 if it spikes down towards MA50/107, IDS just below 100, CS just below MA50 on bearish candle, IT=118

8. FFIV
** SW-L2, ez=18-19.1, IDS just below 17.7, CS below 18.5 on bearish candle, IT=20.8

Is the rally over?

After several days’ futile low volumes attempt, bulls’ hope to extend the rally by clearing the key resistance zones got squashed on the Friday when the perennial beating-estimates-by-a-penny global conglomerate GE missed ER estimates AND lowered outlook. The steep sell-off on the Friday sealed a losing week as the major indices gave back two thirds or more of the gains from the week before.

On the weekly charts: all major indices posted a dark-cloud cover candle formation; the momentum either turned positive (SP500 and DOW) or poised to flip to the positive side (NASDAQ); MACD is poised to cross up and turning up; MA10s flatten while the short-term MAs remain in confirmed bearish formation; overall volumes remain light for the third straight week.

On the daily charts: for all major indices, the 3-week running positive momentum dissipated and on the verge of turning negative; stochastic indicative an in-progress over-bought pullback while RSI(2) suggesting short-term oversold; broke and closed below MA50s; candle formation bearish with clear signs of the strong resistance zone; overall volumes remained light for recent days;

Thoughts and observations about the current market conditions and near-term outlook:

1. Overall, the big boys have been sitting tight ever since the Mid-March’s huge rally off the bottom. Without their active participation, the market is likely to be range-bound between the 2008 high and low. However, this may change starting next week as the ERs flood the Street.
2. The huge sell-off (over 366 million shares) of GE on the Friday suggests that at the current level, the major market participants have NOT fully priced in weak outlook for the coming Qs. GE’s warning, along with earlier warnings from FedEx and UPS, does not bode well to say the least, for the Q1 ER season which kicks in full gear next week.
3. Judging from the overall market volumes and VIX of the Friday, fear is mild at most despite of the ominous action in GE trading.
4. Technically, bulls are at a critical point where they can still resume the rally, but they must do it very soon because another sizable decline from the current levels would put the 2008 bottom in jeopardy.
5. The market will be driven by the ERs/inflation reports next week, given what we have seen from GE/FedEX/UPS and the dismal macro-economic conditions, I feel that downside possibility outweighs the upside one.
6. I might consider aggressively long ONLY IF the major indices spike towards the 2008 bottom on modest volumes.

Position Update: I closed all my positions by Friday. The loss on FSLR (cover the remaining half near 266) and SPWR basically offset all the gains from JASO (shorted at 23.88 and covered at 21.22) ,WLT (shorted at 67.8, covered at 65.11), and other profitable flipping of BIDU, FSLR, and I have nothing to show for the last two weeks. The lesson? When you short momo high flyers like FSLR based primarily on extended and deep overbought signals, the timing has to be perfect (I was wrong by one day) or you won’t see a dime before the migraine takes over.

The unbearable lightness of volumes-Day 2

Bears got the candle, but no volumes. As the major indices are poised to test their MA50, why I feel that bears might be more nervous than bulls? I might cover some short positions if the market gaps down sizable at the open tomorrow. Lots of half-assed setups, I might well just shut up here.

The unbearable lightness of volumes

Well, the yesterday's setups were spoiled as the market gapped down at the open. Bears got to be disappointed as the promising sell-off proved to be shallow and short lived. As the overall volumes continue to dwindle, my gut feeling is that big boys are sitting tighter than ever, and the trading public along with the under-water shorts are doing most of lifting here. Personally, I want to see a big-volume up day that breaks the 5-day top before commit to the long side.

Could not find any solid long setups because the general overbought conditions with stochastic flashing sell-signals. On the other hand, I become a bit wary about all the short setups mentioned last night, despite of concrete technical reasons behind them, something just not feel right, kind of the feeling you got when you short a strong bull market.

Can you say bull?

Monday, Monday!

Well, the overbought pullback signals are pretty much here, but in the last several weeks, Tuesday has been bulls' favorite orgy day, you think it is gonna be different this time?

Evening Notes:

1. AAPL: I feel it will pullback any day now to 140/145 to form a cup-n-handle, today's doji is the first sign of hesitation on the bulls part; both stochastic and RSI(2) deeply overbought; 60 min chart shows bearish divergence in money flow and momentum. For aggressive plays tomorrow, either short it when it fails to break today's high or when it open high but then breaks today's low. DT-IT around 150.

2. AKS and X: they are very close to the 25% gain following the breakout, need to see the momentum stalled, but if there is a big gap up, especially for X, might consider a small initial position.

3. FSLR: pretty classic distribution today, but it is not done yet. I need another gap up, but no higher than 300!

4. MA: should've acted on my weekly call on it, if it opens high and then breaks 226 with some volume, could be a good short with stop just above 234, r/r not that good since IT might around 210. a bit too close to oversold on 60 min.

5. SPWR: dark-cloud cover! STP: the cloud is even darker! YGE: bearish-engulfing. so in conclusion, it might be the time to dip in if they gap up again.

6. WLT: acted on the weekly call, should touch MA10.

Now, only one thing can spoil the above setups, please, please no gap down tomorrow!

Weekly Trading Calls -- April 6, 2008

Overall Trading Strategy for Next Week

Even though the major indices are yet to give a solid confirmation, there is a growing consensus that the market has seen its inter-mediate bottoms, and the underlying bullish tone is indisputable in recent days. On the other hand, facing a well-defined resistance zone while in over bought conditions, the market is likely to consolidate and pullback before it can gather enough strength to advance further in a meaningful way. Given all of that, it seems that right now the best strategy is SW from the long side when the consolidation is over. DT or SW short setups may be consider to play the overbought conditions in the early part of the week, but tight stops must be honored and profits must be protected or taken quickly.

I am considering some changes in how I do the trading calls. Except of a few regular names, I will shift focus to the setups that would generate at least 10% potential profits with reasonable risks in 3-10 days time frame. I will also reduce detailed technical analysis for most of the setups. In addition, I may post setups during the weekday evenings if I have time and see any compelling ones.

1. AAPL
** SW-S2, ez=158-168, stop just above 170, IT=145
** SW-L2, ez=140-145.5, stop just below 140, IT=158

2. APOL
** SW-S1, ez=52.5-56, stop just above 57, IT=45

3. BIDU
** SW-S2, ez=319-329, stop just above 330, IT=285

4. CME
** CTT between 475/480 and 535/550, don’t trade the mid range.

5. CRM
** SW-L1, ez=58.5-60.5, stop just below 58.5, IT=70

6. FCX
** SW-L2, ez=96-101, IDS just below 93, CS just below 96, IT=118

7. FSLR
Ten consecutive up days with 40% gain, in overbought for a week now, but it might have a bit more to go as the positive momentum is still rising. Early signs of possible exhaustive/capitulation move coming. Current short position will be stopped out around 285, and will re-establish the position if the momentum stalled AND there are other concrete signs of topping (especially the candle formation), IT=MA10-255.

8. JASO
** SW-S2, ez=23.8-25, stop just above 25.5, IT around 20

9. LDK
** SW-S2, ez=41.8-46, stop just above 47, IT=MA50/30

10. MA
** SW-S1 when it closes below MA10 with a bearish candle, IT=MA50/210. May consider a speculative small SW-S3 position from 230-234, stop just above 235, and add to the position when it breaks MA10.

11. SGR
** SW/DT-S2 if it spikes towards 58, IDS just above 58.5, CS around 58, IT=53.

12. SPWR
Acted like FSLR, but fundamentally/technically weaker. Consider a speculative position from 98-110, and add more when there are concrete signs of topping, IT=MA10/80.

13. STP
** SW-S2, ez=53.8-58, stop just above, IT=MA50/40

14. YGE
** SW-S2, ez=24.5-26, stop just above, IT=20

15. WLT and X
DT/SW-S2 whenever the previous day’s low is breached, stop just above the previous day high, IT around MA10.

Bears out, bulls in?

Unfazed by more negative headlines, bulls mustered a big up week and on the verge of making a higher high since last November, which will produce the first solid technical indicator to confirm Jan’08 lows as the bottom and lay down a foundation for a possible trend-changing rally.

On the weekly charts: for all major indices, the momentum is poised to turn positive for the first time since last November; stochastic shows clear and early signs of oversold rebound; MACD is poised to cross and turn up; MA10 turning up while the short-term MAs remain in confirmed bearish formation; candle formation bullish; overall volumes remain light for the second straight week.

On the daily charts: for all major indices, the positive momentum stalled as they lingering in the overbought conditions; solidly above MA50 and approaching the corresponding Feb/March highs; overall volumes light for recent days; short-term MAs turning up; overall candle formations in recent days bullish;

Thoughts and observations about the current market conditions and near-term outlook:

1. It is impressive that the market shrugged off several big negative news this week, including the March employment report, to keep the big gains in the early part of the week intact.
2. The overall volumes during the last 2 weeks’ rally have been light, suggests the lack of full-hearted participation of the big institutions. Given this, the bulls may struggle to keep advancing as they approach the key resistance zone while in overbought conditions.
3. The market has priced in a quick and shallow recession scenario, and fully expected a second-half economy rebound this year. The monthly job loss numbers so far support the “shallow or mild recession” notion. But I think the upcoming earning season may provide a better indicator for the coming months, and we are yet to see if that would be in-line with the current prevailing view.
4. While there is a clear bullish tone in the market and the major indices may overall trend up in coming weeks, as long as the underlying macro-economic conditions remains dire, a strong and straight-up rally from here is not likely.

The turning point or the point of no-return?

As the major indices are approaching the Feb/March highs, tomorrow's market reaction towards the March employment report may determine the overall market direction for the coming months. Will there be another huge rally to bolster the bullish case by posting the first higher high since last Nov thus confirming the intermediate bottom, or will bears be able to smack the bulls down to keep the the possibility of the second legs down alive?

Judging from the deep overbought conditions across the board and the oversold VIX, I might bite the bullet by going short if the market gaps up big. My short list: AAPL near 160, FSLR near 264, JASO near 22, SPWR near 87, STP near 50, V near 69 (stopped out just above 65 today), YGE near 24.5, BIDU near 300/305/325, and WLT near 75/80 as speculative play. On the other hand, if the market gaps down big at the open, unless the overall volumes really spike, the sell-off might be short-lived, and buy at bottom might be considered though will be risky if the market cannot recover late in the session. In either scenarios, it is prudent to be nimble when taking profits, especially on the short side.

The calm before the storm?

Please take your position, bears and bulls, for the crucial battle coming this Friday, and no, it is not too late to switch sides, change hearts, or just hide out.

Solars are on fire for sure, and my short wabbit tail got burned a bit today, but no probomo, I will once again aim on FSLR, STP, SPWR tomorrow. Others on the short list are CME, BIDU, and WLT as a speculative play. Obviously all the setups require a key R as the stop/entry references, and the ideal trigger is a big gap-up or early spiking up in the morning. AAPL is a CTT play between 145 and 154.

Good luck all!

No country for the April bears?

Not sure why bulls picked today as the date to get serious, but they sure did mean business. Somehow I sense this very intense, genuine, and almost uncontrollable bullish urge, it feels so inevitable and self-evident, that I start to suspect on, hmm, I don't know. Maybe I should follow what Livingston often says, that you just have to bet to find out if you are right or wrong. Yeah, maybe I would...

Short candidates: V, SPWR, STP, FSLR, RCL
Long candidate: SGR

I guess the market will consolidate until Friday when bears and bulls battle out the job report.