The end of the Oil Bubble (31 Oct 2008)

The sequence of events happening for the past few weeks have been amazing.

Most foreign banks have cut their rates with the exception of the ECB. This is going to put a lot of pressure on the EURO, be ready to see EURUSD fall to below 1.20.

Here is a chart of FXE showing the possible targets.


We might see some window dressing today, but Monday could be bad for commodities. So if you bought any shorts on commodities either add onto your positions or hold on to it.

Here is a chart of SPY to provide an alternate view as compared to my previous post
I suspect, window dressing activities might lead us to about 105.


Stretegy: Adding more DUGs, SMNs once SPY hits 105.

Strategy for Friday (31 Oct 2008)

Greetings readers, the past two days has seen selective buying across the board.

Stocks like Coca Cola has not moved much for two days, I owned a call option on this stock for a day and I feel that Dow Jones Industrial Average might need to retest the lows...before going any higher. Virtually, DIA feels as though it has frozen for two days....

The only index I see strength in is the SPY, but I think it is about time for some corrections before going any higher.

The chart of SPY shows possible target levels (highlighted in red).

Friday is going to be a tricky day....because the Bank of Japan might cut interest rates. So I smell a continuation of flight to lower yield currencies like the JPY and USD

Crude Oil is set for a correction, the chart of USO shows similar patterns of corrections.


EURUSD is showing signs of corrections as well, it is going to be gradual initially


I bought some DUG when DIG peaked, it will take some time to bear fruit. Tomorrow is the month end, if DIG doesn't fall on Friday...then it is going to be Monday.

EUROUSD updates (29 Oct 2008)

Euro is holding steady, if it can breakout from that resistance line...will be good

Wednesday's Strategy - Careful Here(29 Oct 2008)

Today will be an interesting day, with the FED announcing their decision on any rate cuts and EIA reports. I hope the day won't be too volatile, MM has a choice to shrug off bad news like yesterday...hope they will do it again...lol


I wish to caution you to not to be overly bias on the bullish side of the trade. This is what I see that gives me the creeps...

There are more bets for the downside for SPY than further upside and the ratio is about 4 to 1. Why would the market participants want to hold on to their short positions when they could have exited yesterday? I smell something fishy here....could this be an ambush? Forgive me for being paranoia....


Here is the chart of SPY to prepare you for any market direction, take note of the possible levels.


Strategy: Trade what I see only, I have no idea which direction the market is going. And I don't intend to hold positions overnight.

Dollar Rally Updates (27 Oct 2008)

We are in a period of deflation and the US dollar is gaining ground each day. In the stock market, most of the short sellers have covered their shorts. However, in the currency markets the process of short covering for the dollar trade and selling of commodity related currencies like the CAD, AUD, NZD are still underway.

Rest be assured, all those unwinding will end soon. If any analyst say that the unwinding is going to end in December, my prudent estimate is in November. If you noticed, the EURO has not rebounded very strongly in recent days. Therefore, I suspect, the EURO will reach 1.15 in a matter of days/weeks...not months.

Here is a chart of FXE, notice that the price is approaching 3 levels of possible support.


And here is the chart for UUP. I think the dollar could possibly reach 28.5 with little difficulty. That could be an ideal place to short the dollar. If the price action goes above 28.5, I really don't know what to say....


Part of the strength of the dollar is linked to Crude Oil... If the demand for crude oil could picks up soon, then that might give us some hope to be bullish on equities.

The chart below shows the USO, I think we could be heading to 40 very soon. And that could be a point where equities could achieve capitulation. Lets see what the EIA report says on Wednesday, hopefully USO will bottom soon.



Deflation is still putting a lot of pressure on the Futures:


Strategy: Since capitulation on equities and currency markets is a brief process, I plan to do nothing and stay in cash. In case you haven't noticed, we are already long the dollar by staying in cash....

Possible Capitulation today - Buying only

9:59 - Im not sure if this is capitulation, volume is not high and I don't see any panic sellers. MM are on their own. I plan to sit it out today, we will see EOD or Monday.

10.29 - Remember not to buy agressively, today is Friday....there is a reason why there was a BLACK MONDAY

16.00 - Alrite folks, looks like nobody panicked. This is not a capitulation. Not sure if we need one. Frankly, Im quite irritated by the VIX!




OPEC has agreed to cut supplies and are now making their press conferences.

Worldwide markets are experiencing major selloffs, and the selling is still happening right now.

When US markets open, we could possibly experience a possible capitulation kind of sell off.

I am planning to stand aside until things bottom and am not thinking to be a seller.
If you are thinking that you can make money by becoming a seller...you could be wrong. Reason being the spread could be quite wide.

So folks today could be a day to pick the bottom if you are willing to take the risk. By Monday, I am hopeful the dusk will settle.

Currency price targets review
EURO - 1.25 target met
YEN - 91 target met
GBP - 1.55 target met

Strategy: Day trade only, no overnight holdings. Buying big positions on Monday, Tuesday only

EURO, YEN (24 Oct 2008)

I must say that I should have got into the EURO, YEN trade yesterday. But I told myself I shouldn't because it is a gamble due to the fact that I cannot execute trades for options during asian market trading hours. Wouldn't it be nice if options trading is 24 hours?

EURO was trading sideways during US market trading time yesterday. The volatility on FXE spiked by at least 80% to 25% from 15%. Even though 25% might look little, it is a lot when you are trading forex as compared to stocks.

The charts below shows the EURO and YEN during asian trading time.


Here is a snapshot of the US Futures, all under pressure from weakness in EURO and strength in YEN.


Strategy: I am targeting that YEN should find some support between 91-92. While the EURO should find support at 1.25. If both these currencies bounce, would be good for equities.

SPY - A bigger picture

Greetings readers, I hope you have enjoyed reading my postings.

I will like to take this opportunity to take a step back to see where we are at now....all major indexes are down significantly. How far more to fall before this mayhem will end?


The chart below shows the SPY. Notice that the symetrical triangle keeps on extending itself as compared to the one on 21 Oct 2008. The stochastics reading shows that the market is neither oversold nor overbought, and notice that weak divergence.

Ideally I will like the last green candle to be higher than the previous green candle on 16 Oct 2008. A higher high, will at least force short sellers to cover their shorts. So based on the technicals, I see that we could be trading sideways or have a weak trend in the coming days.

Each time the price breaks out from the symetrical triangle, buyers come in to offer support. So the theory that prices should fall by the height of the symetrical triangle does not apply here.

Strategy: Not holding positions overnight, only plan to day trade.

QQQQ, SPY, DIG (22 Oct 2008)

The stock market could be plain boring for next couple of days if nothing happens this week.

Here is a chart of SPY.

Behavior of stocks continue to mimic the price pattern of SPY. I can tell you that breaking down from the red trend line does not necessary mean that we are going to get a big sell off...unless some major events happen. You can take this blog entry as a reference for the key levels for any breakdowns.

The only hope for any rally is for other major currencies to bounce....so that commodities can rally as well. Just IMO.

QQQQ is another interesting story, October is usually a good month for NASDAQ to rally. But...hey...we are in bad times!
QQQQ is our last hope for any major moves, again I expect a rally if major currencies rebound.
Guess what, QQQQ is also a good candidate for a breakdown. I believe there is still some room for these component stocks to go down due to some major events. In the meantime, if non of the above happens, expect some sideways trading for a while.


The key event that I have been betting on is the fall of crude oil prices, but I think I chose the wrong instrument to bet on. Oil Services and Producers has been deeply oversold and I do not expect the fall of its component stocks to be as big as several weeks ago. If you want the most direct correlation between crude oil, go for DTO...but don't expect much returns for more buck.

But I do not write out a big move for Oil Services soon....we still have EIA report and a bounce of EURO to count on.

EURO, UUP (22 Oct 2008)

The stock market almost made me fall asleep....zzzzzz.

If you are hungry for some action, I would play the forex markets through the etfs.

UUP is reaching the the trend line, so I am expecting some correction soon. Go long only if it goes above that trend line in red.


The chart below show the FXE. At the moment (5.07am US Time), the FXE is at 129.08.
Although the price is below the fib line, I will be very cautious for a bounce from the FXE. If it does not, expect FXE to descend further to 125.22



Key events:
1. Speculation on further ECB rate cuts. Canada has cut their interest rates by 25.
2. Previous rate cuts around the world have been a coordinated effort. I suspect US might not cut their rates so soon...perhaps after OPEC meeting.

SPY - Don't benefit your brokers (21 Oct 2008)

Usually, I use SPY as a reference to indicate where the major market is heading.

Nothing much has changed for the SPY, still trading in a very tight range.

The price action needs to breakout from the symmetrical triangle to confirm any move upwards or downwards.

Breakout resistance levels for upwards is 101 and downwards is 91.

Opportunity Coming Soon (21 Oct 2008)

Updates:
7.44 - Keeping faith in DUG, financial earnings are dragging down S&P500.
7.45 - EURO is either going to bounce or head towards 1.30.

Today's rally is just a warm up to some good and bad things to come in the coming days.

Take note of the news on OPEC on Friday, in the mean time commodities are either going to rally or move sideways for a few more days.

I could see some buying opportunities and some potential short opportunities.

In particular I don't like to buy commodities, I think commodities are overbought for now...perhaps it could still rally a bit more before going sideways or rolling over. I would classify commodities as possible short opportunities SOON, I will post some names on the blog if I see that the timing is right.

In the meantime, I have been looking at ignored and beaten down names....there are some gems out there. I will post on the blog once I see some confirmation tomorrow.

In the meantime, I am hopeful that the VIX will subside further for us to get into the "options market" again.


The EURO has broken down and is now below 1.33, but OPEC seems to be the main driver for this commodity rally. Be careful not to be sucked into buying too big positions, or else you will be part of any capitulation assuming that we have not hit the bottom.


Strategy: I am still holding on to my small position of DUG as an insurance, no point selling when it cost money to do so. If my calculations are correct, DUG should hit a peak of 40 tomorrow before it reverses again. If not I might get rid of my position.

SPY, DUG, EURO (19 Oct 2008)

The market is trying very hard to rally, each time it goes higher sellers come into the picture.

The chart below shows SPY. Any rally will have to overcome two key levels of resistance - 98.35, 94.06

Last Friday, the powerful rally managed to cut through these two levels of resistance to reach 98.59. Being a Friday, traders were afraid to hold their positions over the weekend...hence SPY ended right below 94.06.

In my opinion, this is not good position to end the day. But any attempts to push the market down from this position is likely to encounter many layers of resistance below 94.06.

A rally next week will likely happen if commodities push higher due to speculation on the OPEC plan to reduce supplies.

Hence, I foresee a possible correlation between most commodity stocks and SPY.


Next chart shows DIG, an ETF that consists of key oil service companies and oil producers.
If crude oil manages to find support at 70, in the short term I expect commodities to rally if not move sideways.

The DUG position that I am still holding gives me time to exit if commodities rally. Going long on commodities is a risky trade if your positions are not big enough or without leverage. I would recommend that, you don't hold your positions overnight if possible.




The EURO needs to get above 1.37 to confirm a trend reversal. If it breaks 1.335, then it is likely to resume its downtrend towards 1.3.

A chart of FXE shows that even if EURO were to remain around 1.35, it is still trading in a tight range and is due to fall further or bounce.


Here is an intraday chart during European trading time of the EURO that shows the price has just broken out of the symetrical triangle and is now fighting hard to get back above 1.3485. Anything can happen by the time US markets open, so do keep an eye on the EURO


7.04 am Updates: - Head and shoulders pattern has developed

OPEC meeting (17 Oct 2008)

Update: Bought small position of DUG at 46.2, Oil Prices could go higher next week...just some insurance for any downside

19 Oct 2008: This hedge fund unwinding is a fairy tale, frankly I think they did it for a purpose. So I wouldn't want to be over agressive in my shorts, just deeping my toe to feel the water. If you see the Euro go above 1.35 or commodities rally up to somepoint on Monday, be prepared to get out of DUG at anytime. It just means that we could get cheaper prices later....lol

OPEC is meeting next week to discuss on slowing oil demand. Many speculators are expecting a supply cut at some point.

Well...all the better, we could have another shot on DUG. The only weakness I see on the upside for oil to get our retracement is the weak EURO.

I wanted to short the EURO, but after second thoughts...I rather let this OPEC meeting pass ...and then decide.

I do know a lot of traders are betting on the upside of oil stocks, but I feel safer to get maximum value out of my shorts when prices reach the top. And once that target has been reached....like I said we get cheaper DUGs.

Wednesday - Focussing on DUG (15 Oct 2008)

15 Oct 2008 - Held on to DUG and the plan worked...but could have doubled profits with the other half I let go. EIA report is tomorrow, not planning of letting DUG yet.

16 Oct 2008 - Crude Oil lost another 2.50 in asian trading. I might take profits at the end of today, coz there is always the element of a strong rebound. see what happens later.

17 Oct 2008 - Sold DUG at 65, waiting for retracement to finish before loading up again.

Based on yesterday's Crude Oil price action, I have cut my DUG positions by half.

I think XOM being one of the largest component of DUG could rally up to at least 80. Earnings for XOM is on 30th October 2008....If it manages to go up to 80, expect some sideways.

I would watch the movement of EURO for now, there is a lot of volatility out there for commodities to attempt to rally further.

So I am merely keeping a small DUG position as an insurance for any downside.

Today's EIA inventory report could be key for commodities to drop or hop. I estimate any attempts to rally to last to Friday. Then we get cheaper DUGs and you guys can help yourself to as much as you want.

What did I do today? What about tomorrow?

Basicly I was overwhemed by the extreme volatility on the options, nope...I am not willing to pay for deep ITM options....because even that I know I won't gain much.

At the end of the day, I wanted to get some DUG but my orders didn't fill. How disappointing! Think I might do that tomorrow.

I still have some December Calls options for QQQQ, if this bull market is for real...then thats great...if not then thats too bad.

Ok...really looking forward to tomorrow's action.

What would an MM do?

Its 4 days to option expiry, I was just thinking if I were in an MM's shoes....what would I do?

Volatility is in the extremes, I'll probably try to make volatility subside at a rapid rate to cash in those profits on the premiums I sold.

Therefore, I will try my best to make the ascend higher with smaller increments.

Who will get burned?
1. Buyers who paid a lot for OTM options.
2. Sellers who paid a lot for ITM options

We should confirm all the above if the high targets are not met today.
Refer to previous post


How to play this
1. Stay out and watch
2. Play through ETF or Stocks

So why would there be a big rally?....Just a thought

Targets for Bounce or Drop (12 Oct 2008)

After so many days of plunging, finally we see our first bounce, which is a temporary relieve.
Rather than predicting whether the market is going to bounce or drop, I prefer to keep a neutral bias and trade what I can see.

Based on the technicals... SPY's targeted lowest high is 96.14. Take half your profits once you reached this level and let the other half continue running.

I would expect any drop from the lowest high to face strong resistance at mid target of 85.

SPY's targeted highest low is 69.7.
IWM - lowest high target is 57.51, highest low target is 30.85.

IWM bounced off a strong support level developed since 2002. This will serve as future support level before any attempts to reach lower targets.


QQQQ - lowest high target is 34.9, highest low target is 27.1.



Strategy:
1.Play the IWM and QQQQ for a bounce and reload more positions for any further plunges.
2. As for the SPY I do not recommend playing this because financial stocks are weighing on the SPY...furthermore we have weaker commodity prices.
3. Remember, dont be overly biased for a big bounce....use your head. Be ready to act on a bounce with QQQQ or IWM options. On the other hand, be prepared for further plunges if any.

I own some small positions of QQQQ calls in december.

Last line of defense

Today the SPX hit 909.92, which broke the previous capitulation level of 944.75 back in Oct 2001 .


Frankly, I am quite worried and shocked because people keep looking for signs of gap down and aggressive buying support. Back then there were still strong players like GS, MS, LEH, BS to at least lead the market. It is pretty sad to see the situation right now because it gives me a bad feeling that we have no clear leaders in Wall Street.

My advise to you is don't try and be a hero to assume any bottom in the market.

What I feel the President should do now is to advise market players to stay calm and educate them on how to preserve the stock market. Company missing earnings by 1 cent does not mean you have to punish them .....because eventually there will be nothing left for everybody including short sellers.

Gold Stocks Watch (09 Oct 2008)

Gold had a good day, if you noticed the gains for each stock is proportionate to its earnings performance in the past.

We are still on course for gold to hit the trendlines, if you wish to go long buy on dips. Some say that it is possible for gold to over shoot the down trend line towards 1020, anything is possible so look at the charts each day

On another scenario, should we arrive in a situation where there is capitulation in the market...be very careful with the gold stocks.

SPY, IWM, VIX (08 Oct 2008)

If you look at SPY and IWM, usually should have bounced now. But lets play safe and take a look at both scenarios.

Short selling restrictions will be lifted today, so I expect further downside.

SPY could hit 95 and continue to 80 , always be on alert for any strong bounce. I think chances for a bounce on Friday is higher because it is the end of the week.




IWM same concept, most likely will go down to 50 before meeting a possible resistance level at 50, but if it breaks expect IWM to go down to 30.
Personally I don't like to short IWM or SPY, I prefer to play the VIX. If the panic selling continues today, I plan go long on VIX. Before I forget, don't try to short the VIX...that is stupidity...we have not even arrived at capitulation yet.

Gold Updates (08 Oct 2008)

Gold is continuing its trend towards 950, if it manages to overcome this expect 100 gold soon.

Im not chasing this trade, you guys go ahead. Well in times like this no point holding on to gold, one day these guys are going to sell their positions when they need the cash.

What now?

Fantastic day for trading, locked in my profits for RGLD.

Lets take a look at SPY for a start.
Looks like we could have a 5 point move to about 110.5 before SPY hits a major resistance. For those of you who went long when the market hit bottom congratulations! But for those of you who did not go long at the bottom, be very careful....you are not advised to buy call options....go for the stocks or etf and don't forget to set tight stops.

Moving on to the Euro, it looks like the EURO has a little more room to fall before it meets with a stronger level of support at 132.9


GLD looks as though it is less correlated to the dollar's strength for now. At least until after most companies have reported their profits.

It looks as though GLD is going to trade sideways for a while. Im not counting on GLD to make very big moves so soon.

Strategy: Im not planning to go long on any stocks in particular, no matter how I draw the charts the potential upside is not a lot for a trade. However, I will post any stocks that I find interesting soon...

RGLD - Entered a small position (04 Oct 2008)

Updates ! 06 Oct 2008 716pm US Time - Monday Asian Market Open - Euro loses strength due a bank failure.

This page has a whopper 480 hits in one day, actually was hoping for more contributors....
Anyway, read this.
http://www.nytimes.com/2008/07/04/business/worldbusiness/04euro.html?_r=1&oref=slogin

Searched so hard for a less volatile stock, finally found one. I believe fear is preventing anyone from entering short positions in gold, wish I have done so earlier. This stock has lost about 3.50 in value before I started buying puts, today RGLD lost another 1.80.



The euro is now below the 138.4 resistance line, it has had its opportunity to bounce.... Next target for euro could be 133.8





Potential Risk and Analysis:

There is a lot of talk about FED rate cuts this weekend, which could add to inflation. However, we must remember that the Dollar is not using Gold predominantly for preserving its value. If Euro weakens, Dollar will get stronger....it is all based on relative strengths of each countries' currencies.

Time and time again, the FED and Central Banks have refrained from cutting interest rates to prevent inflation. I think cutting now might be too early, after all we still have a possible long recession ahead....may as well reserve the rate cuts for later use.

Thus far Central Banks and the FED have pumped billions of dollars and euros into the financial system, to me that is the same as cutting rates minus the inflation effect. Inflation is a double edge sword, it can help to manage a country's debt....but can also increase the cost of living. Central Banks around the world need a stable currency and I believe the dollar can lead.

Lets see how this play out, I could be wrong.

Oil retreat, Gold up - what does this mean?

Yesterday's rally for Oil and Gold pullback is a SUCKER, don't be fooled too early.

If you go long or short you are not gong to gain much, trust me on this.

This morning Oil retreated by 2 and Gold is back up by a little. My instincts tell me VIX is not going to subside so soon.

As planned, I try to refrain from getting into any trades today....unless I see some improvements

CMP, DUG - 01 Oct 2008

A few trading ideas I have. Commodities is still in a bear trend and it remains guilty untill proven.

The first one is CMP, a fertilizer and mineral salt play. Target for reversal is around 54-56. If it goes above that, wait for a rollover before shorting.

The second one is DUG, an etf for shorting oil services. We will use the DIG as a reference to decide when to buy DUG. If you see Crude Oil prices weakening and dollar getting stronger, get some DUG. I target DIG will reverse at around 67 to 70. If it goes above that, wait for it to rollover shorting.