Friday, October 8, 2010

Wait for it...

Today's lackluster market action edged us closer to the lower regression trend channel line on the Daily Dow chart. A drop of 50 points tomorrow or two more days of action like today will create a bearish setup. Then a drop one day after that will be the trigger, signaling that the upward trend dating back to the end of August is over.

If, on the other hand, we get some positive action in the next three days, that will keep us within the RTC channel and suggest that the uptrend will continue. The S&P futures right now actually aren't looking all that bad, up 125 at the moment. In the meantime, it's just more watching and waiting. I'm still not going short just yet.

Today I added 100 shares to my position in CIM (Chimera Investment). I also sold 100 shares of VZ (Verizon) at 32.93, taking a profit. VZ is looking a bit toppy to me, having formed a bearish engulfing pattern today that took it to the edge of its lower RTC line on the daily chart.

Thursday, October 7, 2010

Another reversal?

Here's an interesting weekly chart of the US Dollar index. This usually has an inverse correlation with the market and lately its been particularly strong. Look at how oversold the indicators are and how it's approaching a strong two year support level. It's still firmly in its descending RTC channel but I'm starting to think a reversal may be coming soon.

At its current rate, I'd give it another week or two. If the dollar starts moving back up, that will make me consider a market top is soon to follow. The Dow also came within 13 points of its 200 day moving average today. Tomorrow should be interesting to see if it can break through that level (10,974). I don't expect a major change in trend but maybe a correction like we saw in June.

At the moment I'm sitting on the sidelines - not buying or selling. Right now I'm 40% in cash and my YTD trading return is 21.3%.