Strategy from thursday until friday

Finally the market is beginning to reveal itself.

VIX should be coming down in the next two days through possibly next week.

Stay out and wait

SPY - Elliotte Wave analysis (30 Sept 2008)

Actually, when I did the Elliott Wave analysis on the 28 Sept 2008, I was hoping that the 5th wave would not be the 3rd wave. I was very wrong

The Congress rejection of the 700 billion Bailout plan will mean that the 3rd wave will have a longer life. Hence, I have to upgrade the 5th wave to 3rd wave (since 3rd wave is the most powerful).

For now, I have been basing my analysis from a day to day basis. I discovered that the fib levels were spot on as compared to weekly or monthly analysis.

Potential upside: Congress pass the bailout bill
Potential downside: Bad Earnings ahead, more company failures, nervous investors get their money out from funds (force selling), bad economic data.

SPY - 29 Sept 2008

Yesterday's drop of SPY broke many records, there is a lot of fear in the market at this stage. My analysis on SPY shows that, there is not much resistance to fall to 97, 106. The index is badly damaged here...


A rebound will face resistance at 113.5-114, 116, 117.5. If we manage to get above some of these resistances, at least that will provide some support.

My analysis is based on the short term, a lot of funds would have got out of their 2006 positions by now. So no point looking at the 5 year chart.

SPY - Elliotte Wave analysis (28 Sept 2008)

With the Congress announcing their decision on the debt bailout, many people are expecting stocks to rally.

Question is...how far can the rally go? After analysing the charts on SPY, I found two possible scenarios:
1. S&P 500 rallies to either 128 or 134.5
2. S&P 500 descends to either 115.6



Based on the Elliotte Wave theory, we are currently in the 5th wave. Due to government intervention, I think the bottom of the 5th wave has been delayed. I doubt that 5th wave has hit the bottom because companies are reporting their earnings in October, this will be the real test especially for sectors like technology, commodities and financials. SPY will likely hit 128 or below 134.5 before it continue the journey to find the bottom.

If I am incorrect, then we could be witnessing the start of wave "a", which makes 134.5 or above as the likely target for SPY.


In the short term, I think we should keep an eye on the Euro. As the dollar strengthens, this gives us an opportunity to be bullish on sectors affected by high commodity prices and short commodities. I expect commodities to regain strength if the dollar weakens if many key companies report bad earnings in October.

Updates:
9.53am The market chooses to go down, lets see if the 115.6 level acts as support.

2.24pm Market broke 115 support, unbelievable! Still we are not at the bottom yet. Sigh....earnings and what next...?

VIX - fever not subsiding

This VIX price pattern is beginning to look like back in Nov - Dec 2007.

Its quite a rip off for option traders like you and me. These market makers must be making lots of money playing on the volatility....lol

Looking forward to next week, if the VIX value does not decrease...I am looking forward to daytrade or trade ETFs/ Stocks and I suggest you do the same.



Strategy for next week:
Watch the commodities, China, Russia

ACN, IBM (27 Sept 2008)

Just came back from a trip to unwind...rather than being tortured mentally by this bailout plan. ;)

ACN beat earnings estimate and made a big one day gain. I was keeping an eye on this stock a month ago, but the volatility just kept me out of the options market.



If you like consulting names, there is another opportunity in IBM. Right now it is forming a rising wedge, its daily volatility is still at its all time high. If you like this stock, do buy on Dips.
Next earnings is in 16 Oct, 2008.

Why USA is likely to landup in deeper debt?

Never have I seen the VIX be at maximum value for so many days. A lot of it is due to illiquid stocks, the market still doesn't dare to stage a rally above 1200 points.

In the midst of writing this article congress is still fine tuning the 700 billion government facility rescue plan.

If the plan has been approved, question is how soon will the federal government start absorbing those toxic assets from the financial institutions. My guess is probably ASAP, though I could be wrong.

I think the FED could have made a mistake to announce this 700 billion rescue plan when the Dollar has just undergone a rally up to 80 points (DXY). Sure enough, that helped to lower crude oil prices for a brief period. But look at where crude oil is at now...its back to 109.

This 700 billion dollars could come from other institutions, whether foreign or domestic. If the dollar gets weaker, this 700 billion could mount up to 1 trillion or more. For the past few years, many businesses around the world lost confidence in the dollar and opted for the EURO or AUD because these currencies were stronger.

Global slowdown will eventually affect US exports and decrease demand for the dollar. Europe is not so bad because the Eurozone has a combined currency consisting of many nations.

Due to globalization, many jobs and manufacturing have moved overseas. Therefore, reducing chances of job growth. A lot of these is due to higher expectations for companies to make more profits in the past. And many CEO's were just doing their jobs by adopting a globalization strategy to make investors happy.

I think the only way for the US economy to heal itself is domestically. A stronger dollar wouldn't do any good if the US wants to improve international trade. Eventually, the FED will come to realize that they should have inflated the dollar first to improve the situation instead of pushing for this 700 billion rescue package.

Any comments are welcome.

Results for GLD survey (24 Sept 2008)

Here are the results for GLD. When we did the survey, GLD was hovering around 88 - 89.

Target Price
--------------
85 - 11%
90 - 22%
92 - 11%
99.8 - 11%
100 - 33%

Gold and Euro updates (23 Sept 2008)

Another day of solid gains for GLD, but still can't get past the 89.18 resistance. Not worth getting long positions due to the options volatility, one of the highest of the year.

Lets see what we have.... It looks like GLD is due for a slight pullback before it can advance further.


The Euro made it to 1.49 today, but this level showed signs of heavy resistance. It is possible for the Euro to trade sideways or pullback further.

9 days to Oct 2

GS and MS are becoming banks with investment banking units.

Hmmm....Should have seen this coming. Thats a no wonder there is a ban on short selling until Oct2.

Apparently, it looks like the SEC wants to allow some time for investors to gauge the value of both these firms. So in the coming days, I am expecting some real selling (meaning no shorting). And eventually the share price of these firms will reveal their true valuations.

So for those of you who bought puts on XLF, it was a wise move. Unless those hedge funds strategically bought shares in some of these 799 financial institutions, I expect the selling to be limited. In addition investors might decide to sell for the sake of profit taking or reducing their risk exposure. But we must remember that, those financial institutions were quite oversold before the ruling.

A Bloomberg report thinks that this will mean a bottom for commodities and expect commodities to rally. I feel commodities are already rallying quite rapidly....meaning that commodities could rally a bit more before we classify them as overbought...reason being the Global demand destruction story is still pretty intact.

Hopefully, the dust will settle by Oct2. In the short term GLD is a good buy. But I don't recommend getting options due to its high volatility, go for the ETF or stocks.

I would stay away from the options market for now.

Gold watch

Gold is a good play at the moment, taking into consideration the uncertainly in Financials and overvalued Consumer Staples and various other safe havens in times like this.

Commodities have been rallying with more certainty since the EURO crossed the 1.44 mark.

Traders were also keeping an eye on Crude Oil getting above the 102-104 mark to go long.

I got out of my GLD position because in order maximize profits I need to use more capital due to the high volatility. So I chose to wait....patience is the game. Newton's law - what goes up must come down.



If the EURO stays strong, GLD will likely hit 93. That is an excellent position to get some shorts. On the contrary, if investors feel safer to put their money in equity markets due to certain policies undertaken by the government. I expect the rise of GLD to be slower.

VIX updates

It is a good sign to see a tail emerging in the vix, but the stochastics reading is not going under...indicating that this mayhem could possibly continue tomorrow.

I am staying away from equities either long or short for now. I sense risk on both sides....yes I am still owning puts in VIX.

Kindly note to close your puts before volatility subsides....my target is 27 to be safe.

Is shorting GLD a good idea?

Many years ago, gold was used as the default commodity for valuing currencies. As time goes by, governments need more money, so they need to print more. But there was a problem, gold was getting too expensive due to its limited supplies and rising demand. This became unsustainable because more money needs to be printed in the years to come.

So in 1961, a pool of US and European banks agreed to manipulate the market to prevent further currency devaluation against increased gold demand. Hence, this slowed down the rate of increase of gold price.

Since then, the valuation of currencies are based on a basket of currencies instead of gold.
Therefore, it doesn't matter how much money federal reserves around the world prints....as long as they can agree on how much money they print. So when you hear federal reserves pumping liquidity into the financial system, this means that they are printing more money.
Of course, when they do that....the US FED has to collaborate with the Central Banks (FED from other countries) to ensure that the dollar does not devalue by much.

Here comes to the interesting question....how about gold? Well, right now gold prices are pretty high because US FED has been printing more money than other Central Banks. But, Central Banks will eventually print more money to even out their currency valuations with the US Dollar.....when that happens....currency valuations reaches a point of equilibrium. So when that happens, gold prices will eventually drop.

As for now, valuations of gold are skyroketting due to a mixture of the FED's move and irrational buying from investors/traders due to the perception of gold as a safe haven. When this irrational buying stops and the dollar stregthens, gold is expected to enter a bear market. I don't expect the dollar to strengthen so soon, we still have company earnings coming out from mid to end of October. Asking for gold to dip to 850 is a lot to ask for right now.

If you look at my portfolio, I actually shorted gold much too early...hence I am taking a beating. I need to cut losses at some point.

Well, I hope to receive some comments on what you think is the best course of action now? lol

Best Buy - VIX

The VIX is approaching January's high, a full green candle stick and the stochastics reading indicate that this can go higher if the authorities did not step in to impose a rule on naked short selling.

From my understanding, future short selling will have to cover their shorts by a settlement date. We should see a rally due to short covering by short sellers. So do keep an eye on those stocks heavily oversold.


I am planning to get some puts on the VIX tomorrow, I have a feeling that the VIX can go to record highs if this panic selling continues.

Commodities - Signs of turnaround?

Hi folks, everyone seem to think that commodities are going to be bullish with yesterday's big U-turn in most commodity names.

Funds have run out of excuses for getting the commodity bullish momentum going....so now the story is OPEC will defend the 85 price and they are playing on the room for future revenue growth story.

Here is my analysis:
1. The Dollar is still strong and the Euro is below the key level of 1.44, indicating that this currency is not yet turning around.

2. OIH is still in a bear trend, there is no indication from the stochastics of any long term uptrend.

Looking at the Sept and October options, there are no indications that OIH is going to go any higher than 160. Fund managers have at most 1 or 2 days to hike up the underlying stock price.

On the other hand there are more shorts in October.

3. Options expiry is due in 2 days, fund managers have a tendency to maximize their profits by stretching the price of the underlying stock to its limit.


Best strategy for the moment:
1. Watch for any breakouts of EURO (above 1.44).
2. Wait for two more days before going long on a pull back. Buy commodities only on dips....don't rush into a trade. The whole idea is to let the trend reveal itself.
3. Beware of the possibility of sideways trading in a tight range.
4. Short commodities only if you see the curve rollover.
5. I think there is one more day for some minor gains for commodities, before it consolidates. It is cheaper to short commodities once it has reached the top.

Tricky Euro

Crude oil was down to its lowest level of 96 this morning, the global slow down story seems to continue putting pressure on the price.

Earlier in Asian trading, the EURO broke out of the key resistance of 1.4384 but could not go any higher
As of now, the EURO is still plunging and has yet to find support.



Be very cautious on the EURO, the FED has yet to make an announcement on the interest rates this week.

Corn prices opened higher in Asian trading and is also under pressure too.

Demand for Potash

Demand for potash is related to Corn futures.

USDA reported that:

Corn Production Down 2 Percent from August Forecast

Yield forecasts are lower than last month across

the northern and eastern Corn Belt and the Ohio and Tennessee Valleys where 
the lack of rainfall during August reduced soil moisture supplies and 
stressed the crop.  Yield prospects also decreased across much of the middle 
Mississippi Valley and adjacent areas of the Great Plains as dry weather 
during August eliminated soil moisture surpluses.

Post Hurricane Ike, crude oil dropped to 98 dollars on Sunday's futures trading.
The global slowdown is putting more pressure on Oil price.

Hence, putting more pressure onto the demand of Ethanol in the foreseeable future.

The Beef and Chicken market has been under pressure too from lack of exports.
So I don't see how far Corn can rally unless some speculators cook
up another story to make Corn futures rally.

Lets keep an eye on Corn futures and potash stocks like POT, CMP.

Comments are always welcomed!

Strategy for the next 7 days

The market is really at a turning point now. There are so many events happening like:
1. GS reporting earnings on Tuesday, if GS is adequately downgraded...then the stock price has priced in the negatives. Lets hope that GS beats estimates on Tuesday, Im neutral on this.
2. Lehman's problem is known. Keep an eye on MER.
3. The Dollar is at its turning point. Keep an eye on the EURO, don't go long unless it goes above 1.44
4. Options expiry is on next Friday.
i) A lot of traders shorting commodities have been trapped. Thats the whole idea of the rapid commodity price spike.
ii) You are not advised to go long commodities, a better play is to watch the EURO....the Dollar uptrend is still intact until it breaks the trend line. Wait for your selected commodity stock to roll over before getting any shorts. Though I admit making the same mistake of shorting CMP too early.

In Summary:
Sit back and Short Commodities on the slightest sign of weakness in EURO.

My picks: DBA, CMP, FWLT

GS earnings 16 Sept 2008

I am trying to refrain from getting any big positions.

Next week Goldman Sachs is reporting their earnings on Tuesday.

Hopefully they will beat expectations.

FCX - Who is the winner? (11 Sept ,2008)

I was thinking about trading this stock, fortunately I had a technical problem with my trading platform. But this charts looks interesting, to understand what is going on with this big metal name.

First thing in the morning, you see a gap down causing this stock to appear having a 1.50 dollar loss. Then you see sellers selling this stock by 4 dollars.



But right now you see buyers buying and it is making its way up. Note the volume.


Looks like the buyers are very precise, because I only saw this number of positions when I refreshed my page.


It is quite dangerous to trade commodities if it goes sideways, because nobody knows where it is heading. A lot of these names are oversold, but the conditions are not favorable for a commodity bull market either. Another point you should note is....do not follow futures prices when trading commodity stocks. The correlation has broken.

From my observation, the Hedge funds have bailed out of their positions from FCX. So while hanging around, they are just playing with volatility.

Post OPEC Meeting

OPEC made an announcement yesterday urging members to cut back their Crude Oil production.

One might be asking, how will this impact the recent sell off of commodity related stock? I don't have an answer for that at the moment, we just need to sit tight and watch by scaling back our short positions if any.

Obviously one of the root cause of this global slowdown is due to the price of Crude Oil. Many companies have laid off workers.... from airlines, to financial institutions, to manufacturers and etc..

Maintaining an expensive price on Crude Oil is going lead to global recession because consumer spending is affected when more people lose their income.

In the coming days ... we could see some strong support for Crude Oil at 100.00. I anticipate a few scenarios:
1. Dollar keeps strengthening, putting more pressure on Crude Oil.
2. Dollar weakens, causing another rally in commodities.
Note: Whether the commodities rally will last will depend on the consumer. Eventually, corporations need to report their earnings.
3. Dollar has peaked and found strong support. No comments here.
4. We enter a Global recession, Crude Oil goes below 100.

I sense a change is about to happen in the commodity markets but lets observe a few more days to see where this leads to.

ORCL - (09 Sept 2008)

Despite some weakness in tech stocks, I find Oracle a nice opportunity to go long as we head into their earnings on 18th Sept 2008.

Whatever you do, watch the charts closely to decide whether to get in the trade.

Euro rebounds (8 Sept 2008)

Finally, the Euro rebounds. Question is, how long will this rebound last? If the EURO keeps on gaining ground for more than 1 week, we have to be prepared to see a bull market either in the Tech or Commodity sector. My indicator for a Dollar trend reversal is for EURO to go above 1.45


GBP is still underwater, means nothing for now.



If AUD keeps going up, be ready to see a commodity bull run.


You can play this unconfirmed bull run by getting small positions in tech and commodities. At least until you hear something from the upcoming OPEC meeting.

IBM, ACN (07 Sept 2008)

Some stocks that I am watching closely now. These two are the biggest names in technology consulting, both are companies that have global presence.

If you observe, IBM stocks move in a down trending channel. On the other hand, ACN is still moving in an up trending channel.

ACN is due to report its earnings in 25 Sept 2008, so do keep an eye on that earnings date.

Do remember we are in a bear market, if you wish to go long to catch the retracement train...do keep an eye on the movement tick by tick.

Of course the safest entry is to wait for the retracement to finish before shorting ya.

SPY, IWM, QQQQ - (08 Sept 2008)

I have been analyzing some charts of the major indexes over the weekend. Here are some charts of what I expect to happen if PPT doesn't mess around ;)

Lets start with SPY, based on the pattern on the stochastic indicator... I am expecting some retracement to about 128 before the continuation of the downtrend. But, do be advised to be prepared for the unexpected.


A Double Top pattern has emerged in IWM, the Doji bar on Friday indicates that this index might move sideways for a while or retrace back to the trend line above before continuing its journey towards the support at 65.88.



The recent sell off of QQQQ shows that the market is in a hurry to get somewhere. The stochastics reading shows "oversold", so a big move is coming soon. There could be a slight retracement to about 44.67, before this thing rolls over again to find its bottom.

As explained in my previous post, the strength of the Dollar is a determining factor here. If the Dollar keeps strengthening, QQQQ should theoretically weaken further until the dollar stabilizes.

A new beginning to something

I believe that a beginning of something is about to happen in the market.

Coming events that might influence the market are:
1. Euro weakens further - Then we should see further weakening of Tech and Commodities
2. Outcome of OPEC meeting on Tuesday - Fight for 100 dolar oil by reducing supply - Good for Commodities.

In the meantime, we will be experiencing very volatile markets. I am planning to stay by the sidelines until a visible bottom or trend is seen.

Dollar getting too strong

The market has been beaten down today especially companies that have exposure to global markets and anything to do with commodities.

This is due to the weaker Euro and British pound and weakening demand for Crude Oil.

Our only hope now is for Euro to bounce off its low towards 1.500 and this must happen by next week. If not expect the market to go down further.

Home Depot - HD (04 Sept 2008)

I smell a nice move coming soon for home depot, read some news that this stock is about to be upgraded.....

Technically, there will be heavy resistance at 30. So expect the possibility that this stock might go sideways for a few days.

My bias is this stock will retrace back to about 27.5.

Portfolio from 500 dollars

Most small traders start off with 2500 dollars in their trading account. They get very excited in the beginning and could end up losing 2000 dollars during their learning stages.

And then they progress to a stage where they stop losing money due to some good lessons learned.

The portfolio on this blog will try to imagine that you have 500 dollars left. Lets see what you can do with this 500 dollars to grow this into 1000 and then 2500...lol.

Once you learn how to do that.... growing that 2500 to 1 million should not be a problem.

Commisions can kill you

Many new traders lost more money paying commissions to brokers compared to losing money on a losing trade.

Usually the odds are in your favor if you do your homework before buying any options.

For example, if you pay 15 to enter a trade and 15 to exit a trade. You lose 30 bucks.

So, what if you diversify your portfolio? Say you have 10 option position in different stocks...?
You lose 300 bucks.

The point I am trying to make is....try to FOCUS on making money in LESS TRADES and you will see your investments perform to its peak.

In short, DIVERSIFICATION is a FOOLS game!

Caution - Trade what you see

By noon, it is pretty obvious that the Transportation sector still have a lot of short sellers.

Do be careful to TRADE WHAT YOU SEE, basicly most of the stocks that I mentioned worked earlier in the day. I hope you took your profits quick enough to beat those "Bears".

It just shows that the strategy of taking profits fast and not holding your positions is still the best approach for now.

Just remember this formula
"When the buys stop buying" - Sell to close your CALLS
"When the sells stop selling" - Sell to close your PUTS.

Taking advantage Oil Price weakness

Oil has declined to 110, expect strong support here before it goes lower to 100. Here are some stocks that I am expecting some decent moves.


FDX - Expect a 6 point move to 88, take half a position off if you want to continue holding for a breakout. The next few resistance levels are expected at 87, 92, 97. Earnings for FDX is at 18 Sept, I wouldn't bet on earnings but I am expecting a small rally prior to earnings.



CNW - A trucker company which uses fuel.... ;). A break above 50 should signify a buy, expect a 5 point move. The options are pretty cheap at the moment. If target is hit, we should be expecting a 300 % profit.



CMP - Expect an 8 point move once it breaks down the support at 66.4. You can take an anticipatory trade when the market opens. Target price 58.9 - 60.