Wednesday, October 29, 2008

Where are we headed long term?

I am going to change it up a bit today and present some more longer term numbers. Most of my posts have been short term based and focused on the immediate nature of the market. As some of you remember I had posted a fairly negative message last week about the overall outlook so I wanted to elaborate a bit more on direction and challenges we see in the current market place and conditions.

The First Big Crash – ok let’s address the month of September and October. As some of you may remember back in July I had indicated the lows of the year being formed in October – we have a few days left and I think our current down cycle will find its bottom at the 764 level, the level we adjusted down to back in 2001 at the end of the dot com boom. We have been holding up fairly well over the last few days but you can sense the market sentiment not accepting the 839 as the bottom. Our bottom is imminent and will develop over the next few days and I am pretty confident we will find it at the 764 range where we will trade very very short. From here on out the market will rally in a dramatic move on the short term and stabilize in an uptrend that should find the top around the 1040 or the 1100 range – it is possible to hit the 1180 but that I need to determine once we get closer to the range based on momentum. This cycle should find its end towards the end of the year and may reach into January. The overall sentiment of the market, investors and consumers are based on the buy and hold still. In September and October a large amount of the down volume has been caused by the redemptions and de-leveraging in hedge funds. In a down trend environment the first positions to get hit are the higher risk ones and those have come to an end.

The next Big (orderly) Crash – the next big event we have to deal with is the redemptions out of mutual funds and 401k’s. I see huge risks with the average investor being sold on the idea that the bottom is in and we will continue on the upside. Seeing the DOW at the 10K levels again will bring back huge amounts of confidence, investors are more comfortable now that they have recovered some of their losses and greed will step in again with low risk investments being moved into more risky ventures to get in on those “undervalued companies” that are begging to be bought and bring huge returns back how we had them in 2007. After our top around the turn of the year our downtrend will continue in an orderly fashion, nothing like we had seen in the past 2 months. Sense, with a hint of fear, will slowly set in again when we will trade back towards the 700-800 range. Here is where I believe we will start to see a huge change in the market place with more redemptions coming from Mutual funds based on 401K liquidations or moves into bonds and other stable investments. This will be a long process and by the time we are done we will have our 400 mark on the S&P towards 2009/2010. You may call me crazy and yes I agree I am worst case scenario kind of guy but I rather prepare for this event and be called out in 3 years about how wrong I was then to blindly follow a path that has risk and loss written all over it.

Friday, October 24, 2008

WOW ....

Nothing more to say ... if we are to reach 764, get your money ready, your parents money, your grandmas money, ask your neighbor, ask your wife/girl friend, your best friend, your employer. It is possible today if the SEC will allow trading this low - today we could see the first trading halt in a long time. Futures contract are at their maximum permissable level for pre-market.

Thursday, October 23, 2008

Oh we had a decision alright ...

Well the decisions is there, it can;t get any clearer then this. Violent move to the downside and fear setting in again.

Today / Time and Price
Watch the bottom at 839, if we are to break we have one more chance to find support around the 820 range. If we are to get support at the 865 it should be short lived as we are so close from the previous bottom.

Mid & Long Term
We could be on our ways to form a double bottom, however, this is not something I anticipate. During times of a double bottom technicals and fundamentals are more neutral allowing prices to stablize around the previous bottom and gather strength for a rally. At the moment fundamentals are very negative, earnings starting and reports have been very negative, with guidance being adjusted downwards for pretty much any industry.

I am starting to get worried about where we are headed. Looking at it from a big picture of society and the last decade - this could be the big crash, the big adjustment or change that will come. Presidential elections with a fairly left candidate that is most likly going to win, double top from our previous dot com peak, the end of wall street and investment banks. The days of the US being the poster child of capitalism and opportunity could be at an important turning point. The government is doing everything possible in an attempt to fix a problem that is in reality not fixable. Now even more then before I believe that we will be headed for a lot more lows in the next 2 years. We will see the 400 mark on the S&P long term, not this year, maybe not in the next 6-12 months but it will occur.

When looking at the markets and investments from the average consumer - the past 30 years have shown one and only one message - start investing into the market place, 401K's, put your money into companies and you will be able to build your retirement without any worries. What will happen if we drop another 40%? Americans and many others who have relied on this strategy to retire will be left with nothing to retire from. Look at europe and their way of retirements being supported by the government - no one is waiting for this big payout from investments - you work hard you entire life and will be taken care off. This concept does not exist in the US, nor did it need to exist - but what will happen to those, who depend on their 401ks, retirement accounts and other investments when they will have lost 75% in value and nothing else is there to support them?

I am concerned, very concerned ...

I apologize for given such a grim negative message today, I hope I am wrong in many of my points but we have to start to accept the fact that this is possible - the sooner we realize this and do not get caught in denial the more able we are to do something about it for ourselves.

Wednesday, October 22, 2008

Decision day ...

I am still off by a point of two but overall numbers are starting to make sense again. Hit the first high right at the 985. Unfortunately we broke the 970 fairly hard and as mentioned it brought us to the next level at the 952 (first low was off by 2 points). I mentioned I wanted to see at least one test of the 985 and we were able to test it one more time in the afternoon - However we had a fairly large sell off that brought us right back to the 952 which marked the low for the day. This unfortunately was not a good sign and indicates that we will find ourselves on the lower end again.

Unfortunately we are already down premarket so the 940 will be broken on the morning. If we are to continue on the upside we need to try to stay above this number and at least attempt to get back to the 952 range througout the day.

Time and Price

970 - if we can get to this number today we will continue on the upside, though I do not expect to even get a test here
952 - we need at least 2 tests of this number today, if we cannot break this on the upside the market will continue lower
919-921 - expect quite a bit of support here

A break and close below the 940 will send is back into the 800 range and possibly retest the lows.

Tuesday, October 21, 2008

Ohh yeah .... we starting to act normally again

Impressive, we are slowly starting to trade with sense again. Opened in the 948-952 range, hit the first high at 970, hit the low at 940 (off by 3 points) and went to retest the 970 with a final break to close right at the 984 (off by a point). This is what we need here.

After our monday last week we did some attempt to retest the lows and created a fairly wide penant formation which is a fairly bullish sign. We broke the trend line late afternoon in trading and need to ensure to stay above this point today.

Time and Price

984-985 - I would like to see at least a test of this number today.
970 - as you could see yesterday this turned out to be a fairly important point now. This needs to hold today or we will head back to the lower side.

Monday, October 20, 2008

Are we starting to act rationally?

Previous Trade Day
Well, last week we experienced ups and downs but on Friday we showed the first signs of some sense setting in. We still had a fairly crazy day but for half day I finally saw the first signs of technicals and some fundamentals set in.

As many times on options expiration fridays we finsih the day the same way we started. Today I would really like to see more consistency in price points.

Time and Price
As we are slowly getting back to more normal trade enviornments support and resistance are coming back into play. Lets hope we can keep this up. So for the first time in many weeks I finally have some price points to discuss.

Our trade range from last week has narrowed with the top on tuesday and the retest of the lows on Thursday. As mentioned I want to see one more day today with consistency.


As we are up premarket we should open around the 970 and start the trading day from here on out.

Tuesday, October 14, 2008

Well ... we definitly rallied

We can clearly see how our bottom has formed on Friday. V-bottom with the exhaustion gap I was hinting at to finally break the current trend on the short term. The dip in the afternoon provided the traders on the sidelines with a great opportunity and everyone wanted to get in on this rally in the fear of missing it. A lot of money was made yesterday but looking at it from the big picture perspective we are back to where we were mid last week. We need to ensure we continue on the upside with high volume to sustain those gains. We had less volume yesterday then any of our previous days last week so we need to watch it here carefully.

As we are up premarket we have some room left to go on the upside. Yesterday I said we will rally till 1070 and that will be the game today. I expect huge amount of resistance at this level and I believe we will not be able to break this number today. Watch the sell off that will initate at this level.

Time and Price
As the market is still trading irrational numbers again are light. 1070 is what we need to watch today. I would expect a test of this number at least once after we have initially reached it.

Mid Term
1070 represents the 38% retracement from out May top to Fridays bottom. From a big picture perpective every rally we have had from our previous lows has declined in terms of retracements. A break of the 1070 will bring us back to the 1140 levels.

Monday, October 13, 2008

How far will we run?

Well today is going to be a short one. I have been saying since tuesday last week the bottom is in, well it wasn't and we experienced the worst week in the market ever.

Today is the day we need to watch carefully. If we will be able to stick to the gains in the first hour, and remain above our close price on Thursday at 909, V-bottom on Friday coupled with an exhaustion gap are all the signs of a bottom being in.

Time and Price
We need to stay above 909, after the morning sell off we need to stay well above this number. If we are to see a retest I would be concerned.

Mid Term
First stop is 1070, a break here and we will have seen the lows for the year. If we are unable to break this we will continue our primary down trend. Expect at least 2-3 trade days around this number once we get there.

Friday, October 10, 2008

Well no ....

GM is what drove the markets mad yesterday .... do not even know what to say anymore. Worst week since the 1938 or something?

I stick by what I said yesterday that the first signs of a bottom are forming. GE reported inline on both their financial and industrial divisions - that to me is a good sign. GE has been used in the past as a measure against the economy - something that is not aligned now.

We have to be really concerned about continued liquidation. As my broker said yesterday, the consumer is just now getting their september statements in the mail just to see they are down 8% in the entire month of september and in the first 2 weeks in oct already more then that. Those consumers are unable to control their emotions and fear and will definitly push for pulling out their money. Also bush talking at 10:00 today, anytime the government speaks we see the market drop - lets hope it won't be like that today.

I do believe that we are close to the bottom, but I have been saying that since Tuesday when I anticipated the V-bottom on monday.

Time and Price
yeah right lol

Thursday, October 9, 2008

First signs of a bottom ...

Yet another gap open in the morning however this time it was accompanied with a global interest rate cut by pretty much all major banks. Here I thought is were we would take off but this rally did not even last one hour before it sold off again, very clear sign of the confidence for traders being non existant. I would have expected further sell offs but surprisingly, the first time in over 2 weeks, we showed signs of support - we tested the 1020 range three times before finally selling off, however this is the first time having consequitive tests on an the upside. Additionally several stocks have shown prices to find support. AAPL is a great example as the 87-88 range indicates a bottom there. I am not convinced yet of the upside but we should see more companies finding a bottom here.

We have to make sure we keep ourselves on the upside, that does not mean close in the greens but staying above the key range of 990, even if we have a narrow range today or trading sideways I would consider this a victory at this point.

Time and Price
I am hoping that sense is coming slowly into the market. Two numbers to watch today.


Of course a break of the 990 will lead is to the 955 I indicated yesterday.

Wednesday, October 8, 2008

Too much too late ...

Well, as mentioned before I stayed out of trading the past few sessions. Yesterday however I initiated positions after careful analysis on Mondays trade action as we had all technical signs of a v-bottom. I entered quite a few positions of stocks that have been very undervalued and will show huge gains during a bear market rally - however, as you all could see the bottom was not in. I held on to my position anticipating the fed rate cut that did not come. The market was waiting for this sign and the feds/govt have yet again missed the timing window. I applaud the feds, SEC and government of the extraordinary efforts they are putting together, however, timing is the key, and they have failed at that, a rate cut yesterday would have confirmed the monday bottom and initiated the rally.

In further efforts to stabilize the markets the feds and other global institutions have cut interest rates (finally but too late). Additionally the feds will now DIRECTLY lend to corporations and bypass the banks if needed - a measure that was only taken during the great depression. Further breakdowns should occur as the market has no confidence, anyone that has tried to go long (me included) has been slapped in the face over and over again. There is no one left to buy.

When looking at equities at the moment we are at valuation levels that have not been seen in a very long time, yet there is too much risk to the downside, once the bottom is in get ready for a frenzy. Make your list now of what you want to own, I tell you, there is a lot out there.

Time and Price

990 is our 200dma on the monthly chart
955 (I cannot believe I am saying this) could be the bottom today, we should expect quite a bit of support in this area.

Tuesday, October 7, 2008

Lets make the market move ...

Holy Crap, DOW broke 10K, down to 1007 on the S&P, over 8% at one point and a pretty huge recovery rally, considering how the market traded yesterday we can consider our -3.5% a victory.

Technically we are bound for a rally from here and we should be able to fill our gap created yesterday. As mentioned the gap yesterday was a beautfil setup for an exhaustion gap that should be filled today. From here on out we can expect a nice recovery in the short term.

Time and Price
As we are still trading with fear in mind it is difficult to predict price points. As mentioned the 1070 number still applies as an important turning point.

Monday, October 6, 2008

How much further?

Last post was on September 25. The past 2 weeks have been rather chaotic and left little room for fundamentals or technicals as the market is driven by fear. I have incurred quite a few losses and as a result have stopped trading last week. The next few days will be key in determining the direction of the market. As everyone knows our bailout plan was passed on friday and to the surprise of most traders even the pros we turned negative after the approval - something very few expected and something that is difficult to explain. There are a few reasons for this sharp decline after the approval. Lets look back over the past 2 weeks, on Thursday the 18th when a bailout plan was announced we rallied 100 pts in less then 2 trade days, Monday last week we dropped 100 pts after the plan was declined. Many traders have taken this as a base and prepared themselves to sell into the rally upon the approval on Friday - however no one was buying yet the traders and institutions continued liuquidating into the market anticipating strong buy volume that did not occur. The pressure that was put onto this bailout plan made many come out and create even more fear into the market place - I mean the governator stated that California will run out of money by the end of october unless this plan is approved - many skeletons came out of the closet in an attempt to persude polticians to vote yes - but as a result more truths were uncovered about where our economy stands - truths that were answered with more fear. VIX remains at 45 and will continue increasing today, we should see our first 50 on the VIX - levels it has not been at in many decades.

On September 17th I changed my mid term outlook calling for 10xx on the S&P 500 in the beginning of october, well october is here and on Friday we marked our first break into the 10xx range by closing right at our low at 1099.

As global markets are reacting to the crisis more pressure will be put on the US market place. Again we will have a large gap open today - a gap that in my opinion will be filled and will clearly be shown as an exhaustion gap - we have traded on the downside and have had no attempts at any rally. I do feel that we will see a change of trend today, look for confirmation around the 10:00-10:30AM mark, if we are not to see a rally from there we will likly continue our downslide without stops - as we will remain fear based the only stops and rallys are incurred through outside interventions. I do expect the feds to cut rates before their scheduled meeting by the end of this month.

Time and Price
As we are trading on fear and are in an area we have not seen in many years support and resistance points are difficult to forecast. We are currently seeing ourselves in a sharp trend downwards and it is difficult to predict price points.

Watch for our bottom at hte 1070 today as this could be the trend changer.

Mid Term
I believe the current fear based moves will come to an end soon and will mark the lows for the year - I am glad that my call for the lows for October back in July worked out - not glad that nevertheless I lost quite a bit of money =) The key in this market at the moment is surviving the fear and getting back to fundamentals and technicals - until this is taken place I will remain very light and trade with little money. There are many great opportunities out there at prices that are very undervalued, AAPL is a good example, RIMM and many others especially in the financials and services industries - in a few months you will look back at those prices and wish you would have been able to pick some up. When everyone is running for the hills and people are selling the smart investor picks up the strong ones that have been beaten down in price and value.