Saturday, December 4, 2010

Weekend Buffet

Quote of the Week
"Germans are not going to retire at 67 so Greeks can retire at 58."

- Angela Merkel, Chancellor of Germany

Since the mess being made in Europe by the PIGS has been in the news again so much this past week, I think it's worth taking a special look at it. I came across the following article in the Washington Times and I can highly recommend it. If you want to know more about what Ms. Merkel is talking about, check this out:

It's not a pretty picture. Bottom line, the Europeans in general hate each other and always have, no doubt to the chagrin of the "one worlder" types. The coming unraveling of the Euro (and I am certain that it is inevitable now) is simply the end result of that.

Chart of the Week
And if the unrest in Europe wasn't enough to bum you out, with the new unemployment numbers out this past week, check out this chart I found over at Wells Fargo, courtesy of the US Dept. of Labor:It is often all to easy to forget, when you live in a nice upper middle class neighborhood populated by college professors, scientists and other professionals, that the rest of the world is not like that. The message is clear: if you have a college education, the unemployment rate in the country for you personally is not 9.6% or 9.8% or anywhere near there. It's about 5%. And over there on the left end of the chart, not to belabor the obvious, you drop out of school at your own peril. Your unemployment rate then is almost 16%. And the recession induced hit was far larger than for those with more education.

What's the answer? I won't even pretend to know that one. What I do know is that throwing more money at the school system is definitely not the answer. New York, for instance has the third highest per capita spending rate on public education in the nation and yet ranked 32 out of 50 in 2001 (the last chart I was able to find - I wouldn't be surprised if it's even lower today).

Friday, December 3, 2010

Weekly review: Uptrend established

I was a bit concerned yesterday that after two such big up days, we'd give it all back today and fall back into the 11,000 - 11,200 trading range. But apparently, all the day traders decided not to bail out for the weekend leaving us with a modest 19.7 point gain in the Dow to end the week at 11,382. And as you can see from the daily chart here, this keeps us right in the middle of the new ascending RTC channel I started from 11/30. I'm sure glad I had my long hat on.

And since it's the end of the week, now let's take a look at the weekly Dow chart, going back to the start of the September rally.Technically, there's not much to dislike here either. This week formed a big bullish engulfing pattern and the weekly volume on this green candle was about double last week's red one. Dr. Brett Steenbarger was always pointing out how important volume was to judge the significance of a particular price movement. By that measure, this week was significant indeed. Finally, we can see a nice bullish crossover in the stochastic. This all points towards an assault on last month's high of 11,451 before the end of the month. The uptrend is established; my long hat remains on.

On This Day in History
1929 - US President Herbert Hoover announces to the U.S. Congress that the worst effects of the recent stock market crash are behind the nation and the American people have regained faith in the economy.

The Dow gained an impressive 2.6% this week. By comparison, I was up 2.55%. It would have been more but for the 1% loss I took on Tuesday. But you can't really be disappointed with a 2.5+% gain on any week. And for today at least, I handily outperformed the Dow, gaining 1.38% vs. to Dow's 0.17%. This now gives me a year to date gain of 26.5%, compared to the Dow with 9.15%.

And my low price/high yield portfolio is doing very nicely indeed. It's giving me a yield of more than 10% and I also now have a capital appreciation of 10%, just since last July.

Thursday, December 2, 2010

New Uptrend

Yesterday, I thought today we'd see a fairly sedate day with perhaps some small losses. I was quite pleased to be wrong, with an additional 107 points piled on top of yesterday's monster 250 point jump in the Dow to close at 11,362. (In my defense, don't forget I did say I had my long hat on). Anyway, with today's action lying entirely above the critical 11,200 level, I can finally take down the channeling icon that's been up for two weeks now and replace it with a green arrow. Today's action makes me believe we're headed back to the highs of early last month at 11,450 and the upper Bollinger band, standing today at 11,497. Possible headwinds for tomorrow include that the ES futures are already at those early November resistance levels. But overall, I think the swing trend is now positive.

In retrospect, I should have been more bullish on today. While the first day of December is historically bullish, so are the second and third days. I don't know if we'll see any follow through tomorrow, but we're definitely out of that 11,000 - 11,200 channel and the break to the upside definitely bodes well for stocks, coming as it does at this time of year. The VIX meanwhile is down big time from where I called it lower two days ago, and I think it's not done yet, meaning there's more room to run for stocks.


Today I spent a while kicking myself for dumping OMEX, which bobbed to the surface to close at 2.09, higher than anywhere I was holding it. Then I kicked myself some more over GMR, which went nowhere since I bought it yesterday. Then I bought some GE preferred (GE/PA for you eSignal subscribers) at 26.36, which has been beaten down lately and is looking quite oversold. It yields a most attractive 7% and I think has a lot of room for appreciation.

Meantime, my low price/high yield portfolio (see my special post on that) has hit its highest level since I bought in last summer. I've got about an 8% gain on a basket that's yielding over 10%. Not too shabby.

Wednesday, December 1, 2010

Ho Ho Ho!

Wow - what a way to kick off December! I called my post yesterday, "Looking for higher", and we sure found higher today, up a whopping 250 points for a 2.27% gain to 11,256, the Dow's best gain since September 1st (you remember September 1st - that was the day that kicked off the big fall rally).

Of course, the question everyone is asking now, being December, is: what's the story with the Santa Claus rally, and which Santa is going to show up? Will it be jolly old St. Nick with a sack full of toys for all good little traders, or will it be Futurama's evil Robot Santa, bellowing "Your mistletoe is no match for my TOW missile!"

Let's try to sort it all out. First of all, historically, December is a great month for the markets in general, with the S&P averaging a 1.6% gain and the Dow a cheery 1.7% gain. Now of course, December wasn't so hot last year, coming as it did after a monster rally that lasted most of 2009. And naturally all of 2008 was just a complete nightmare. I just went over the monthly Dow chart going back 20 years and it seems that the Dow does better in years where it has some positive momentum pushing on it going in but isn't yet overextended, as we had in 2003 and much as we have now. By contrast, in years where the overall performance was lackluster, like 2002, the Dow was down in December.

But what we really want to know is what about this December. Well let's look at the monthly Dow chart:The chart looks a little busy because I've left all the recent RTC channels up and because I wanted to get the entire swing from the 2007 highs to the 2009 lows in there, but bear with me. On a monthly basis we see that we're pretty much in an upward trend going back to September.

Today's action completely canceled out last month's negativity. And just as important, today we finally closed outside the channel that's been going on forever it seems, breaking convincingly above the 11,200 level. And why was that number such resistance anyway? On the monthly chart, you can follow the lines back and see they point tot he "summer shelf" of 2008 just before the big meltdown.

I mentioned recently that I think a lot of people who rode the market all the way to the March 2009 bottom are now so thankful to have finally made back their losses that they've been unloading their stocks right here. It looks like this process may finally be coming to an end, thus freeing the market for another leg higher. Having cleared the 11,200 barrier, the next resistance point is 11,705, which is the upper Bollinger band. Then we have the psychological 12,000 level, and finally 12,600, the high of June 2008.

Note also that the monthly indicators have not yet reached overbought levels and even the weekly indicators are now actually less oversold than they've been since the end of September. In fact the weekly stochastic is now getting ready to make a bullish crossover. Now I freely admit that I am by nature biased to the long side (though I try to stay neutral when doing analysis), but it's looking to me like this December it's going to be a merry Christmas. Assuming we can keep the Koreas from blowing each other up and the rioters off the streets of Europe for a while.

In any case, I now have my long hat on again, though I'm leaving the channeling icon up one more day until I see an actual daily upward trend forming, something that I can draw an RTC channel across. After such a big run-up today, I'm not expecting a whole lot more out of tomorrow, but I also don't think we'll give up all of today's gains either. I'd vote for a narrow range day tomorrow, and slightly negative before resuming higher. We'll see.


Today I entered a small long position in GMR, General Maritime Corp., another shipping outfit, at 3.86. It's been beaten down pretty badly for a long time but is now looking oversold on a daily basis, and still reasonable on the weekly chart.

Looking for higher

I know that yesterday I thought the market was going to go higher today and it ended up not. I just got that one wrong. What we in fact got today was actually a lot like yesterday - a probe down below the 11K mark in the Dow but then rallying back to close just inside the lower end of the horizontal channel we've been in now for 10 straight sessions. So although we're now down for three days in a row, the swing trend indicator remains set to "channeling".

Tomorrow will be critical. If we close below 11,000 tomorrow, the channel is broken and we're in a new downtrend. But if we head higher, we'll be in for an 11th day of sideways channeling. Now I know I was wrong about today and I hate to call for a higher close tomorrow for fear of sounding like one of those people who are always making the same call - eventually they're right. But I really think I was just a day early (and a dollar short, obviously).

The VIX, which was looking overbought yesterday is looking even more overbought today. And the bears were unable, for a second day in a row to force a close near session lows, even on much higher volume today than Monday. We have also now traveled all the way to the lower Bollinger band in the Dow (though not closing there). Also, the futures, which last night at this time (1:40 AM EST) were all lower, are now all 0.3% higher.

We're also about to begin December, which according to The Stock Trader's Almanac, is the no. 1 rated month for the S&P and no. 2 for the Dow going back to 1971. And the first day of December is itself historically a good one. So let's see what happens. These trading ranges are difficult to call. It seems logical right now that the market could go higher tomorrow but I'm just not feeling really confident about it right now.

I am also putting together a longer monthly view, being as it is the end of November. That will have to wait for my next post.

No trades today. OMEX closed down 3 cents from where I sold it yesterday and has still lower to go. And it looks like GM may not be following the IBKR IPO model after all, being on a three day winning streak and defying the rest of the overall market.

Tuesday, November 30, 2010

Channeling action continues

Last Friday I wrote:
It looks to me like we're in for some continued weakness for at least a few more days, possibly a week.
and sure enough, the Dow ended down 39.5 today. But look at how that played out. I also said we'd get more clarity after today's action and so we did. Today, I'm a bit more optimistic because there are two telling points in this chart. First is the shape of the candle. This is as classic a hammer as I've seen and that's always bullish. If you consider the range-bound sideways channeling action of the last 10 sessions now as lumped together into a consolidation, then we have a potential resolution here and may see some upside later on this week.

The second thing to note is that the bottom end of the channel, the psychologically important 11,000 level was tested today but finally held in the end. The bears tried to knock 'em down but were finally unable to hold 'em down. (That's basically the rationale behind the hammer).

I note also that the channeling has now gone three days outside of the right edge of the descending RTC trend that began on November 5th. This is also bullish.

And finally, let's take a peak at the daily VIX. I've zoomed in on the last couple of weeks here.What an interesting chart. The VIX today ran right up to its 200 day MA (23.19) and was stopped cold, closing at 21.53. Strike one. It also hit its upper Bollinger band. Strike two. And look at the two day pattern - a classical dark cloud cover, and that's an excellent bearish predictor. Strike three. The VIX is out. (Oh and the VIX today got as far extended from its pivot point as it's been in weeks. Never underestimate the attractive power of the pivot. It will always return there sooner or later).

On that basis, it would not surprise me to see the VIX lower tomorrow and therefore by implication, the market higher. We're nearer the bottom end of the 10 day Dow channel now than the top and we know the bottom held support. And of course, tomorrow is the last day of the month, so there may be some window dressing going on (though that seems to be less in vogue lately than in the past).

In any case I'm removing my short hat and reaching for my long hat, but I'm keeping the channeling icon up since there is no real uptrend developing just yet.


I deep-sixed my OMEX today at 2.02 and took a small profit. It closed a few cents higher but after last weeks big gain, I think it now has more risk than reward, at least from a swing trade viewpoint and that's what we do here.

Sunday, November 28, 2010

Weekend Buffet


Time for some selected weekend musings. Here's a link I just can't emphasize enough. It's to Dr. Brett Steenbarger's Trader Feed blog. Until its end earlier this year, I was an avid daily reader of this. I credit Dr. Brett in large measure for my trading turning profitable, and he was the inspiration for my starting this blog. To his credit, the blog is still up and searchable, though no longer updated since he went private.

If you've never read Trader Feed, you owe it to yourself. It is an impressive collection of psychological insight into the art and science of trading. You will be a better trader (and a better person) for reading it:

Dr. Steenbarger has also written several books. I've read The Psychology of Trading: Tools and Techniques for Minding the Markets and it was great. Here's an Amazon link to all of them. This is definitely worth taking a look at too:

Chart of the Week

There's been a lot of interest in gold lately, what with it setting new record highs. While wandering the web, I found this chart over on Wikipedia. I find it both fascinating and depressing. It plots the value of the US dollar against gold from 1954 to 2003. This chart is worth discussing in more detail later on, but for now, here it is:I'm not quite old enough to remember the very left edge of this chart, but I do remember the days when gas was 26 cents a gallon and a postage stamp was 4 cents. Today both gas and stamps are about an order of magnitude more expensive. But does a gallon of gas get my car ten times further than it did back in the 50's? Does a letter get delivered 10 times faster? No and no.

Gas and mail (and cars and college educations and everything else) are the same today as they were back then. What has changed is that the value of our currency has shriveled to near worthlessness. We're not quite to the stage of Weimar Republic wheelbarrows of cash to buy a loaf of bread - just yet anyway. But looking at this chart makes me sad.