Saturday, July 28, 2012

IBD Puts Market Back in Uptrend - Time to Be Cautious?

If you follow me on Twitter, you likely saw me tweet on Tuesday night about IBD and their market calls.

 

I do like IBD and what they do - I've learned a lot from their books and although I don't subscribe to them anymore, I still check out their website and follow several of their writers on Twitter.   The CANSLIM model is still a great one and although I have adapted it to my tastes as have many other traders, it's still a great starting point for new traders.   This post is in no way meant to disparage them (as I tweeted above as well), but to make a point about the type of market we are in currently.

IBD went back into a confirmed uptrend on Friday after the very nice move we saw on the back of good earnings reports and GDP I guess, but more likely because of more comments out of Europe on further quantitative easing coming soon to a market near you.  The gains (over 2% for Nasdaq and Russell) were excellent and came on heavier volume for the most part, which by definition can be considered a follow-through day. 

The problem lies in the fact that we've seen several instances of very positive action over the past two months that last several days but then just as enough evidence seems present to convince most traders (including myself) that the bullish side is best, the market pulls the rug back out for a week or so.  Up and down, up and down - that's the market we are in and I think it's going to be tough to get out of this pattern as we enter into the final month of summer trading.   That's why I am very cautious here in the short-term.   The only strategy that has seemed to work over the past two months is to fade the signals given by traditional (and let me add historically accurate) timing systems like IBD and I don't know if that is going to change with a month left of summer.

If you look at the indexes, the S&P is the one leading right now and I never like to see that.  The Nasdaq is almost out of this coiling pattern and if we do see a further upside move early next week, it is possible that the range will officially be broken for good.  It's not broken yet, however, and the Russell doesn't look anywhere near as good as the other two indexes, which worries me. 

 Nasdaq
 Russell 2000
 S&P 500
Charts from TC2000, Courtesy of Worden Brothers, Inc.

I certainly hope the market can continue higher as I finally made some money on Thursday and Friday after spending more than a week before that making no trades at all.  Going forward, however, I would actually look to short a big gap up on Monday if we get one.   I would rather play the pattern that is working until it doesn't rather than play a pattern that isn't working and hope that it finally will work.   We are a little overbought by my measurements and another big up day would put us right in the area that has led to the sharp pullbacks this summer.  After the past two sessions, there are not many stocks with buyable patterns anyway, so I would be cautious on the long side for now.  

If the market opens up flat on Monday, doesn't do much for a day or so, and then goes past the highs we saw on Friday, I would be "all in" on the long side as it would represent a change to what we've experienced over the past two months.   I'll share some charts to watch going forward if that happens as a day or so of rest will set up some nice patterns.   Until it does, however, I have to go with what's worked and that is to fade IBD and other timing models.  Summer markets like to chop traders up and since they've done a great job so far, I don't know why they would stop with a month left.   I do hope I am wrong as I would love to make some "easy" money on the long side.  Good luck.

Monday, July 23, 2012

Hard to Be Bullish, Tough to Be Super Bearish, Easy to Be in Cash

I apologize for not doing a market summary this week for those of you that use it for the upcoming week, but I knew there would be no point.   We are in a extremely difficult, very volatile market that in terms of swing trading is almost impossible to navigate correctly.   Even today, we see a huge gap-down that sees really no follow-through to the downside.  Signals are constanly being whipsawed as the market goes back and forth but actually goes nowhere.  The Nasdaq chart below shows how tough things have been as basically the market has gone nowhere over the past two months.

Coiling But Going Nowhere
Chart from TC2000, Courtesy of Worden Brothers, Inc.

We are coiling here and on other indices as well, but your guess is as good as mine as to which direction the market eventually (hopefully?) moves out of this coil.   There are arguments I see on both sides....

Bullish Arguments - We have yet to see a major breakdown in the market from a technical standpoint and bears have been unable to run with several potential headlines from Europe and elsewhere that could have easily sent the market into a new leg down.   I also have a hard time believing that the current administration in Washington is going to allow the market to fall further with a Presidential election hanging in the balance.  On the contrary, I would expect they will provide a "cushion" for any further selling through some sort of intervention (perhaps many sorts of interventions).

Bearish Arguments - Individual charts look like death.   Former big-cap, IBD-type leading stocks like ISRG, CMG, MNST are dead, not to mention former darlings like NFLX, GMCR, DECK, etc.  AAPL is hanging in there and maybe you can say PCLN is as well, but I honestly can't even give you a list of what I would call "leaders" in this market.   Where are they?  How does the market move appreciably higher without a group of strong leaders?   There is also the obvious news tidbit from today of European countries now banning short selling on their stock markets.  If that doesn't shout "we have problems and they are massive", I don't know what does.   

After seeing my yearly gains drop from over 20% at the end of March to a little under 10% as of about a week ago, I haven't made a trade in about six sessions and really don't see myself doing too much going forward.   It remains a very difficult market to do much positive with, especially as a swing trader, so as my title states, it is pretty easy for me to be in cash here.   I'm not a genius and I know my chances of being successful in a market like this are slim to none. 

I do see the bearish argument being stronger here and am watching a few names as shorts, but as I stated earlier, if things do get bad, I think you will see some major intervention come in to boost stocks up in front of the election.   All in all, that mix produces a market that will be much like it has been the past two months - one that moves all over the place but goes nowhere.  If you're daytrading, it's great, but if you're trying to catch 10-15% moves in names over the course of a week or two, it's a recipe for disaster.   Be careful out there.

Wednesday, July 18, 2012

Guest Post - Gold Bullion Investment Strategy

This is a freelance guest post on behalf of bullionvault.com   The chart for physical gold has been coiling for over a year now as you can see from the chart below and perhaps will start a move higher on any further easing from the Federal Reserve (which seems to be a strong possibility).  If a move out of this coiling pattern does occur, you could play an ETF or if you are interested in buying physical gold, please read below for more information. 

Chart from TC2000, Courtesy of Worden Brothers, Inc.

Investing in gold seems to be a more popular concept these days, and is now frequently mentioned as an alternative form of investment for those looking for opportunities outside of the ordinary stock market. The rise in popularity of gold bullion investment may be partially due to the convenience with which people can buy gold. These days, all you need to do is visit a relevant website like bullionvault.com, and you will find that you are able to buy, store and sell virtually any amount of gold bullion that you please. However, before you rush online to buy gold, it is a good idea to gain a better understanding of why people invest in gold, and whether or not now would be a good time to do so with regard to greater financial markets.

Gold bullion prices in general do not rise and fall with the same intensity or consistency as ordinary stocks, which means that people traditionally do not turn to gold when looking to make significant profits in investments. Rather, people tend to look into gold investments for the sake of financial stability, as gold can sometimes protect the value of your money more effectively than your own economy can. If you place money in gold, and then the value of your currency falls due to economic shifts, your value will have been protected in the form of gold bullion. However, this is not to say that the gold market is always a safe or smart alternative – just like any other sort of investment, it must be read with regard to specific times and trends.

For example, as of July of 2012, the price of gold seems to be leveling out a bit, after having performed quite strongly during the last few years of worldwide economic difficulty. Some would suggest that the increasing strength of the U.S. dollar and indications of an American economy that is slowly but surely stabilizing would make now a bad time to invest in gold. Generally, as the value of the dollar increases, the risk of investing in gold becomes less necessary, and more risky.

However, because gold bullion is not specifically tied to any one single economy, the somewhat positive trends in the United States should not entirely dictate the market for gold. In fact, with European financial markets now struggling mightily, many are still predicting the price of gold to continue rise in the near future, meaning it may still be a good time to purchase some gold. Ultimately, the decision of whether or not to invest depends on your own interpretation of financial patterns, and whether or not you trust in signs of general economic recovery.

Sunday, July 15, 2012

Stock Market Video - If This Market is Giving You Fits, You're Not Alone - 7/15/12

Hi traders - here's the video with some stocks to watch for the week ahead.   In the video, I also look at why this market has been so tough recently.  Maybe it's just me, but swing trading has been virtually impossible recently as whipsaw, false breakouts, false breakdowns, and volatile market moves are making things extremely difficult.  Don't get frustrated if you're having trouble - I know I am and I think a lot of traders are as well (although they might not talk about it).  Hopefully a better market is around the corner....maybe.

Sunday, July 8, 2012

Vacation Charts for the Week Ahead

Hi traders.  I'm on the family vacation this week in Deep Creek, Maryland but wanted to put some charts out before the week starts to share what I am watching right now as I will be keeping an eye on things (just not a really, really close eye.)   I have a TZA position from Friday and also some FB in my IRAs, but besides that, I am in cash.  I would not be surprised at anything here, but Friday was not unexpected due to the overbought nature of this market (T2106 was at a record +376 on Tuesday) and really, given the circumstances with the bad jobs number and an overextended market, the selloff was not bad at all.  I was worried we were going to see a June 21 type of day, but that luckily didn't happen.

I am leaning long here and did see some decent charts in my scans this weekend.   The action before the fourth of July was very positive and now that we've seen a little bit of a pullback, the uptrend could resume and hopefully will.  A bit more rest and backfilling would not be a bad thing, so don't be surprised at it.  I will be watching the names below among others and if they trigger with buy stops, then I'll go with it.   Charts are in no particular order.

GWRE, KONG, EXAS, ABT
 REG, CENT, JIVE, RJET
RGR, CYH, OSIR, CKEC
 WIFI, SKX, PVA, LGF
Charts from TC2000, Courtesy of Worden Brothers, Inc.

Have a great week and best of luck.   As always, if you have any questions or comments, shoot me an email or send me a tweet.  Take care.