Weekly Update

Well the problematic day after Thanksgiving is over. And as I expected, we did not break above the 11,200 level in the Dow marking the upper end of the trading range now going back eight sessions. However, the 95 point loss was greater than I would have thought. This brings us almost exactly back to the middle of this horizontal channel.

And that makes the question of where do we go from here a lot harder. I spent a long time looking at this this afternoon and I think I have the answer. And the answer lies in the weekly chart, which is fortuitous since today was the end of the week. So let's have a look at that. Here's an entire year's worth of the Dow in weekly candles:Here the picture becomes much clearer. The downtrend established on 11/5 appears to be intact here. The past eight days of sideways channeling don't even show up and more importantly, they do not violate the descending RTC channel. Now take a look at the weekly indicators, the RSI, momentum, money flow, and stochastic: all of them have peaked and are now declining. This is consistent with an overall weakening market.

So here's what I think. It looks to me like we're in for some continued weakness for at least a few more days, possibly a week. If we break below the 11,000 - 11,200 channel we've been stuck in for so long now, then the next support level on the Dow is the 200 week MA at 10,943. After that we have support at the plateau established back in August around 10,700, and finally, the 200 day MA at 10,621, though I don't think we'll get that far. In fact, the monthly chart looks a lot more optimistic and I'll get to that next week when I do my monthly review.

Of course, it's important not to read too much into today's action, being a holiday shortened half session when most of the big players are still home digesting turkey. Next Monday should be a better indicator of where we're going. Six of the last seven, and seven of the last 10 years in the Dow have been down on the Monday after Thanksgiving, including the horrifying 680 point massacre in 2008 (remember that one?) Given all of this, I'm going to keep the channeling trend indicator up, but I'm reaching for my short hat.

Performance

I lost 0.46% today. About the only consolation I have is that the Dow lost more: -0.85%. This leaves me with a -0.77% week, and a disappointing three week losing streak though I'm still up 23.38% on the year. My only bigger losing streak this year was a string of five weeks back in January into February. This in itself is something of a bullish indicator if you believe that any trend that gets overextended eventually comes to an end. So I'm hopeful to make some money next week, even though I think the first half of the week isn't looking great right now.

I made no trades today.

A Trader's Thanksgiving

Today is Thanksgiving 2010. I am of course thankful for all the usual things: family, friends, health, and just still being around for another year. But there's plenty to be thankful for as a trader too. The economy, while not exactly a powerhouse, is at least holding its own and it's looking less and less likely that the dreaded "double-dip" will happen. Next year is a pre-presidential election year and that is traditionally a good one for the markets.

I'm thankful for living in a country that gives us a marketplace where I can buy and sell all sorts of interesting things right from the comfort of my own home, and gives us the technology to do it. The computing power available to the little guy today would have made John D. Rockefeller's jaw drop. The financial and regulatory barriers to entry into trading are ridiculously low, compared to say opening a MacDonald's or an auto repair shop.

I'm thankful to blogspot.com for hosting my silly little blog for free, and very thankful that it has actually begun to attract an audience. To all my readers, thanks.

And despite all the moaning and complaining about how the market is rigged and how only the fat cats can win, it really is possible for anyone to make money trading. Of course you really need to know what you're doing, but the fact that the opportunity is there for anyone to take advantage of is something to be thankful for.

I am very very thankful for being profitable in my trading for two year running now, after a rocky start in which I blew out not one but two (admittedly small) trading accounts over the course of five bad years.

And finally, thanks to everyone out there who sold me their stocks just before they bottomed, and bought them from me close to the top :-) Now get off your PC and go enjoy some turkey!

Range Bound

Last night I called the market higher today and that's just what we got, with a 150 point jump in the Dow closing near session highs and right up to the top of the horizontal channel established seven days ago (blue horizontal lines in the chart).

Looking ahead to Friday, historically that day, the day after Thanksgiving, tends to do well too. However, we are now at the top of the recent trading range. I doubt that the Dow will be able to break the 11,200 level on the holiday shortened session Friday. I went back five years and note that in the years where the Dow was up the day after Thanksgiving, it had had room to run in that direction as part of a longer trend. In years where the day before closes near the top of a range, it's less likely to see an advance on the following day.

All the big money movers will be on vacation and either way I'm not expecting much out of that day. If the Europeans can stay out of bankruptcy for one more day and if the North Koreans can manage to act like civilized human beings for a while, things should be fairly quiet on Wall St. I myself plan on watching the markets but I doubt I'll do any trading. For now, we remain in channeling mode.

And I made no trades today either. I will just note that my OMEX spec play spent a few days bobbing around the ocean aimlessly before giving me a nice 9.63% pop today; I'll let it run. And GM (which I also talked about at its debut last week), though posting a 23 cent gain today, still put in another red candle in the wake of its overpriced, over-issued, and over-hyped IPO. I'm looking for it to go lower still. And seven of my eight LP/HY stocks were higher today, with one unchanged.

Sideways Channeling

Today's ugly action in the market was brought to you courtesy of Kim "Mentally" Ill Sung, the loose cannon of North Korea. And with the 142 point drop in the Dow, I now have to take down the green arrow and admit that I have no idea where this market is going. I took down the rising RTC channel I thought we had yesterday. The low Pearson's coefficient simply did not bear it out.

The best I can say at this point is that there is no trend right now, either up or down. We are simply channeling, with strong support at the psychologically important 11,000 level and resistance at 11,200. On that basis alone, and since the futures have been rising since the close, and because the day before Thanksgiving is traditionally good, I'll call tomorrow higher but I'm not overly confident about it.

We're in an environment now where bad news is bad news and good news is also bad news. Until the market can break one way or the other outside the range established over the last seven sessions, there's not really much one can do, at least on a swing trading basis. Once again, I made no trades today. I'm just waiting for this mess to resolve one way or the other.

Holding the course

It's difficult, after a day in which the Dow was down well over 100 points at the low, to keep my long hat on, and yet, if you look at the way things ended up on the daily chart, down only 25 points, you see that this still leaves us above the upper line of the new ascending RTC trend. I'm almost reluctant to do so, but I just have to leave the green arrow up. Today's action leaves us a long way from bearish territory.

I also note that today's declining volume was lower than yesterday's rising volume. That just leaves the shape of today's candle - a hanging man if I ever saw one. But all in all, I think that the RTC and the indicators, which are all still rising off their recent bottom, point to higher prices ahead.

And again, we're talking about swing trends here. If you're a day trader, there's not much here for you. After today, it would take a one day loss of 175 points or four more days of sideways action to bring us to a bearish setup. That's the time range we're talking about.

No trades today. Of the eight stocks in my low price/high yield portfolio I wrote about the other day, four were up, two were down, and two were unchanged and cumulatively, their net value rose 10% today.

Weekly review

Two days ago, I declared the recent downtrend over and turned the swing trend arrow around from red to green based on the strength of the technical indicators. Friday's action confirmed that. Look at the latest daily Dow chart. Thursday took us to the top edge of the descending RTC line. That's a bullish setup. Friday's action was entirely above the line. That's the bullish trigger. Notice also how the indicators have all bottomed and begun rising. And finally notice how volume hit a weekly low on Wednesday, the low point of the week, then rose Thursday and finally rose more on Friday. All bullish signs. My long hat remains on.

And although this isn't technical, I can't help but observing that two important pieces of news came out today: first, Ireland finally cried Uncle and decided they needed some help from the EU after all, after denying it for quite a while now. Second, it turns out that North Korea is going into the Atomic bomb business in earnest, to the complete surprise of absolutely no one. With the futures up half to two thirds of a percent this early in the evening (it is now 8:35 PM EST), I'd say the market chose to "accentuate the positive, eliminate the negative". But I have to say that in strategic terms, the implications of a belligerent nuclear armed North Korea run by paranoid schizophrenics are of much more concern to the security and stability of the world than a bunch of Irishmen who can't keep books. Still, you can't fight the charts, and I don't intend to.

Finally, historically, the shortened week before Thanksgiving usually does pretty well. I'm at least not looking for any major meltdowns between now and Turkey day.

Performance

Last week was kind of a disappointment for me. Although I was up three days out of five, I finished the week essentially flat. A bad day on Tuesday, the day the Dow tumbled 177, is what did me in. After a full week of trading, I lost all of $58. Oh well. This is the sort of thing where I can take consolation in my low price/high yield portfolio. It still spun off interest last week. So right now, I am up 24.34% YTD, on track for a 36.6% annual return. The Dow meanwhile is up 7.43% YTD.

Weekend Reading

Here's something that's apparently a long-running tradition, but I only just discovered it recently, and it's great. If you don't already have a copy of The Stock Trader's Almanac, run don't walk to your nearest book-selling website (I got mine from Amazon) and buy one today.

Published annually, the STA is like the Old Farmer's Almanac, only for the stock market. It's just brimming with useful nuggets of historical data, statistics, trends, tables, and charts all in a wire-bound daily calendar format that lies open flat on your desk. Market holidays, options expiration days, everything is in there. And though it's also available as an e-book, treat yourself to the real deal. It deserves a prominent place on your office desk. There is something interesting on every page.

The Stock Traders Almanac is like a cell phone or a microwave oven. I never knew I needed one before they existed; now I don't know how I ever got along without them.

Chart of the Week

And here's a chart I found on a site by the name of www.financialarmageddon.com. It shows the correlation between the S&P and the Consumer Confidence Index, going back 20 years. Note how during most of that time, there is a high degree of correlation between the two. It makes intuitive sense: when the market goes up, people feel good; when it goes down they feel bad.
But look what happened after the 2008 financial collapse: since then the market has rebounded nicely, but consumer confidence remains in the toilet. I interpret this as being bullish for the market. The two major tops in this chart (in 2000 and 2007) were both marked by consumer confidence readings that were not only much higher than now, but much closer to the level of the S&P (going by the way this chart was set up) at the time.

You have to admit, this is a most interesting chart.