Near Term Dow Direction

With the second quarter just beginning, I thought I'd take a look at a larger view of the daily Dow going back almost a year (click on the image to get a larger version).

There's a few interesting points I see here:

First, notice how most of the lows are very sharp bounces (green arrows) but most of the highs are extended across several days before a pullback happens (red circles).

Next, note how today's up 70 point action put us back to the top of a now seven day trading range that is now peeling away from the upper Bollinger band.

Also, money flow peaked on March 17th and has been declining since then.

And we've gotten pretty extended away from the 20 MA. (I mislabeled this in the chart as "40" - it really is the 20 though).

What does this all remind you of? Doesn't this look a lot like the action we saw back in the beginning of last August? Notice how the RSI has been indicating an overbought condition for a while now, just as it did back then.

Of course, we can never be sure that history will repeat itself, but I'm starting to think we're getting due sometime soon for a pullback to the 20 MA, which now stands at 10,742. Oddly enough, that number is also exactly the support level established in the January peak.

BTW, notice how the stochastic provides a nice indicator of bottoms but not tops.

Dow Forecast for 4/1/10

Today's action played out about like I thought. Dow down 50 took us back to the bottom of the trading range established a week ago. With the ES posting non-trivial gains (up over 400) as of right now (1:45 AM EDT), I'm looking for some recovery tomorrow, though being the day before a holiday and with jobless numbers coming out, who knows. I think the Street has already baked in a good result there, so it's going to take some really good numbers to help out the bulls.

All in all though, I'm looking at the range bound trade and figuring that what comes down must go up. Also note that the Dow has been unable to pull in more than two consecutive down days (not counting small range doji days) since the tumble way back in mid-January. Nonetheless, I see no major buying opportunites right now. I did not trade today and don't expect to tomorrow either.

I ended the quarter up a respectable 9.6% YTD and was pleased to see that I had only three losing days in all of March, a new monthly record for me.

Dow Forecast for 3/31/10

As we approach the end of the first quarter of 2010, it is perhaps instructive to take a look at the weekly DOW chart:
Two things immediately stand out:

1. We have broken out over the previous peak of 10,724 set on 1/11. That level is now support.

2. We are rapidly approaching the resistance line at 11,000 (green line). This is significant both as a psychological level and becasue it represents the floor established in the summer of '08 before the big crash that fall.

Now comes the problem. After today's close of 10,907, we're also real close to the 200 day MA, at 11,133. If the Dow can make it past 11,000 and get to the 200 day MA, we should be good for another leg up. The question now is how much of a barrier will the resistance at 11K be?

Complicating the matter is that tomorrow is the last day of the quarter. One might reasonably expect some window dressing to go on, but that doesn't always materialize. But I also note that the daily Dow is only slightly above the pivot point of 10,887, so there's not much downward tug on that front. And the daily VIX is pretty much in the middle of its recent range on the way down with not much to suggest a reversal there. OTOH, the ES daily chart seems to be getting ready to turn over, having put in a doji yesterday and being down 325 in the overnight so far 2 AM EST).

And on top of that, this is a holiday shortened week.

My best guess is that not much will happen tomorrow. Of course, that's on a technical basis only. If our pal le president du ECB opens his mouth again, or if flying saucers land on Wall St., all bets are off. Right now I'm 26% in cash and have no plans to trade tomorrow. I'll just be watching and waiting to see how the attack on Dow 11K unfolds.

Latest Trades

I've had my eye on a few things since my last post, so here's a quick update.

C: I unloaded my 600 shares of Citi (C) last Friday at 4.36. So far, that seems to have been a good decision. It closed at 4.09 today. Keep in mind I'm a swing trader. I think that C has a long term potential to go higher, but with the US government threatening to unleash their 27 billion share tsunami on the market (at some unspecified point in the future), I'd rather wait til that's done before getting back in.

WFR: MEMC, maker of silicon chips for computers and solar panels. I bought this last fall, has spent the winter in the toilet, is finally moving again, looks like it may go higher. I'm finally in a profit position but holding on. I have a stop for half my position at break-even, letting the rest ride. Closed at 15.51 today, consensus target is 16.98. Should benefit from the alternative energy hysteria and the recovering economy.

GAZ: I took a flier on the natural gas ETF, GAZ last week at 10.28. It looked like it was putting in a bottom. I was wrong. I took a small loss after two days and got out. Glad I did too, since it went lower after that. Today, GAZ closed up 16 cents at 9.74. This stock (and the entire commodity) has been beaten down so hard for so long I really have to believe that it eventually has to rise from the ashes at some point. But since I now have another nick on my hands from catching the falling knife (again), I'm going to wait for some solid evidence of a turn-around here. I'm watching though.

AUY: Gold, gotta love it. AUY, Yamana Gold, is my favorite gold proxy, mostly because I can afford it at its present price of 9.81. It seems to be holding support in the $10 area, it's come way down from it's March high at 11.20, and I'm hearing noise about gold demand from China. I'm long AUY and looking to buy more.

SLV: the silver ETF. I went long last week at 16.57, sold yesterday at 17.03. I thought I'd get more out of it, but hey, you take what you get. SLV is at the top of its recent trading range right now so I'm not looking to get back in right away. But it's always a good play on a pullback. Silver never goes out of style.

IRBT: iRobot, the company that brings you the Roomba robotic vacuum cleaner, as well as bomb cleaning robots for the US Army. Being the lazy sort and a techno-geek, I love this sort of stuff. Plus, the Roomba actually works. It cleans my floors by itself leaving me more time to watch the markets. I took a flyer on this one yesterday afternoon at 15.58. They must have seen me coming because it promptly dropped 50 cents right after that. But it was up today a bit to close at 15.28, so I'm going to hang on a while longer. That's the beauty of swing trading - I can wait. I think it's going higher. It looks oversold on the stochastic, CCI, and RSI.

Disclaimer: I am long AUY, WFR, and IRBT. I have no other connection to any of these companies, other than owning some products from iRobot. (Hopefully it goes without saying that I am trading real money, not paper trading).

Weekly Performance Update

In a post in his wonderful blog today, Dr. Steenbarger asks the question

"Are you aware of the distribution of your returns?"

And I'm embarassed to reply, no I don't (or I didn't). Fortunately, I've been keeping very careful records of my daily results since last August, so I cut that data out of my spreadsheet, stuck it into Matlab and came up with the following histogram for 2010 so far (58 sessions). This represents the daily percent change in my net trading account balance (ie. I have accounted for commissions and fees):

Viewed as a graph over time, we see:

Overall, this isn't too bad. There are more up days than down days, and dispite one disasterous day (on 2/4, the day the Dow dove 271 points), this was still good enough to put me up 8.65% for the year. This isn't bragging or anything, just a point of reference. I'd be interested in hearing how that compares to other traders so far this year.