Sunday, November 14, 2010

Weekly review

The past week was interesting because it featured a trend reversal. Let's take a look at it on the daily Dow chart:I have added the new RTC downtrend to this chart starting from the 5th. Notice how we continued lower once the Dow fell below the lower line of the ascending RTC. That was the bearish confirmation that the uptrend going back to August 31st was over. We can see that we're actually below the new descending RTC.

However, we also see that all of the indicators I follow (stochastic, RSI, momentum, and money flow) have decisively come off their overbought levels. On the other hand, none has yet reached oversold levels yet. So to gain some perspective, let's look at the weekly chart:

Technically, this picture looks at least as bad as the daily chart. The indicators are off their overbought levels but not nearly as much as on the daily chart. Also, last week's long red candle looks very nearly like a dark cloud cover and that's never a good sign. Look also back to the end of the April rally and see how it ended. The similarity to the past two weeks is a bit disconcerting. I'm not exactly expecting a huge drop this coming week like the one that followed the April run-up, but I don't think we're in for any big recovery either.

On the downside, it looks like the next stop is the 200 day MA at 10,957. That level should provide some support if we head lower tomorrow. And speaking of tomorrow, I note that as of this writing (7:45 PM) all three of the major futures (ES, NQ< and YM) are up by non-trivial amounts. In fact, the ES is now showing as oversold on the indicators. And it's not really unusual to see at least some sort of bounce after a bad week before continuing lower. And that's pretty much what I expect right now. So I'm taking my short hat off for tomorrow but keeping it handy for later this week. But I'm also leaving the red arrow in place for the daily trend, just because the daily RTC is so dismal.

So the general take-away is that Wall St. is getting close to putting on a sale, but I'm not quite ready to go shopping just yet. Soon though. We'll see how the week plays out. If the PIGS can manage to stay out of trouble for a few days and if our esteemed president can keep his foot out of his mouth and refrain from torpedoing the economy for a change, we may see some more upside before the end of the month.


Last week was not good for me. I lost 1.7% compared to a 4.3% gain the week before. The only consolation is that the Dow lost more. Even so, I'm still up 24.57% year-to-date and on track for a 34.92% annual rate of return. My win/lose ratio by day is 1.56. My low cost/high yield basket of stocks was off last week but all are still in the black. Since I'm only owning them for the dividend, I'm not overly concerned with that at this point. Capital appreciation on these stocks is just the icing on the cake.

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