Friday, December 17, 2010

Bears Beaten Back

Today did not start off very auspiciously, with the bears mounting an attack on the 11,400 support level in the Dow, actually driving it down to 11,424 early on. But that's as far as they got. For the second day in a row, they were beaten back, and we ended up gaining 42 points leaving us solidly along the upper edge of the rising RTC channel. The holding of this important technical support level is quite bullish and the bearish action that could have brought us out of the RTC channel today did not materialize. Similarly, the VIX today was unable to break out over its own resistance level of 18 and after yesterday's doji, posted a big red candle - also bullish for stocks.

Note also that the House finally passed the tax cut bill (which to be fair isn't really a tax cut, but rather an extension of the status quo in taxes) late this evening. The removal of all the uncertainty associated with this issue for so long now can only be good news for the markets.

Finally, we are passing out of the historical mid-December sag and gearing up for the full effect of the Santa Claus rally, which typically really gets going in the last six trading days before the last day of the year, according to The Stock Trader's Almanac. Since Santa already gave us a few early presents back at the start of December, one can only conclude that he's got more goodies in his sleigh for us, and not lumps of coal.

So I'm now reaching for my long hat and the green trend arrow remains in place.


I dumped my puts on GE today for a small loss. GE ended the day up a respectable 1.6%, so the insurance wasn't needed. I could have saved a little money by not making this trade yesterday, but I slept better last night. It still looked like a good idea at the time from a technical perspective. I'm also looking for an entry point to AUY, with the recent dip in gold. I expect to find one in a day or two.

Thursday, December 16, 2010

Bearish setup possible tomorrow

Today the Dow dropped 19 points but remains well within the boundaries of the ascending RTC that I drew going back to December 8th. More importantly, the 11,400 area which provided resistance for so long is now support, and it held up well today with the low reaching 11,445 (the high of November 5th was 11,452). Add this to the fact that all three futures are up modestly at this point (1:20 AM EST) whereas they were down at the same time last night, and I'm not looking for a breakdown tomorrow.

Also, note that the VIX today hit a high of 18.14 before closing at 17.94. The 18 level which was its support for a long time, is now resistance. Anything that impedes the rise of the VIX is good for stocks.

However, because of the steep slope of the RTC, it would now take only one more day of either sideways action or an outright decline of any amount to form a bearish setup that might signal the end of this trend. And note too that today's volume was greater than yesterday's - a bearish sign.

So with these mixed messages, tthe market has a feel of indecision to me. I'll bet that in this environment, any piece of good news on taxes could drive it quickly higher and any bad news out of Europe could drive it lower. I realize that's not a particularly deep observation, but there are times when the market seems to completely ignore the news. This doesn't feel like one of those times. Right now, I can't really put on either my long or short hat. We'll see.


Today, GE, one of my holdings, fell out of its own daily RTC channel that saw it climb from 15.68 last month to a high of 17.90 two days ago before closing at 17.49 today. Since I really like GE as a company and I'm in a deep profit position in it, instead of selling it I bought some puts (March 2011 strike) today to act as insurance and protect my profit. I don't really play options very much. Buying puts as insurance is about all I ever do with them. Try as I might, I have a hard time figuring out all those exotic strangle, straddle, whatever combinations. And I don't trade what I don't understand.

Wednesday, December 15, 2010

New Uptrend

Today's 48 point gain in the Dow to close at 11476 provided the confirmation I was looking for after a week of directionless trading. Accordingly I'm drawing a new regression trend channel and putting up the green swing trend arrow. With a Pearson's coefficient of 0.968, this one should provide some good guidance going forward. After today, it will now take three days of sideways action, or one day of a drop below 11,425 to put the current uptrend in jeopardy.

A couple of interesting divergences today worth noting: first the VIX rose, as I thought it might, closing up 0.34%, but the Dow also rose, 0.42%. That's unusual. Also, while the ES and YM futures are both down slightly right now (1 AM EST), the recent trend in ES is not looking as strong as YM. Usually, these two are pretty highly correlated. I'm not quite sure what to make of that, but with the Dow now up four out of five (and the fifth day was only flat), I'm going to be looking for further advances as we follow the RTC channel. Even more important is that we finally closed above the 11,400 resistance level. I'd not been expecting it to come so soon after yesterday's failure to hold that line, but I did say the third time would be the charm.


Today, I bought some Ford (F) preferred, but for my IRA, not my trading account. With a 7.5% yield in a company that's looking better coming out of the Great Recession, it seemed like not a bad deal at 25.66. I did not trade my trading account today. It closed at 25.64 today.

Tuesday, December 14, 2010

More Indecision

Today saw the second attempt to breach the November 11,400 resistance (red horizontal line on the chart), and like the first on December 7th, this one failed too. We actually hit an intraday high of 11,480 before falling back to finish at 11,429 with a modest 18 point gain on the day. Ordinarily with a chart that looks like this, I'd start a rising trend channel here, but with a total gain of just 58 points in four days, I'd like one more day of gains to do that. And I'm not convinced we'll get that tomorrow.

Actually, I still don't see any good signposts that might provide a clue as to where we're headed the next few days. The fact that the Dow has managed to close higher the past two days is encouraging, but the rejection of the 11,400 level is not, especially coming in the form of a gravestone doji, which is bearish. Also, the indicators are looking overbought, especially the RSI and stochastic. And the daily VIX looks primed to rise, which is also bearish for stocks.

On the other hand, the futures are holding their own right now, fairly late into the night (it is now 1:40 AM EST) with the ES up one tick, the NQ down two and YM up 3. So all in all, lacking any clear direction, it's too early to declare a new trend and I will be sitting on the sidelines a while longer.

I do think the next attempt to cross that 11,400 line will be succesful - I'm just not sure when it's coming. Maybe when our Fearless Leader announces a tax deal, hopefully before the end of the month. We'll see.


Today I finally sold my AKS trade that turned into an investment, at 14.96, for a $12 loss. Had I held on a bit longer, I would have seen it climb to a high of $15.42 before falling back to end at 14.96 again. I think it's going lower tomorrow.

Sunday, December 12, 2010

Weekly Review

56 points. Fifty six. That was the entire range of the Dow last week. Not the difference between the weekly open and close. That was the difference between the high of the week and the low of the entire week. I have never, in the eight years I've been watching the market seen such a narrow range week. Friday's meager 40 point gain extended the Dow's nowhere streak to six days, equal to the record going back 10 years.

The only thing that looks clear now is that the market appears to be hostage to all the political posturing going on in Washington over tax cuts. I think the current situation is going to continue until we get some sort of resolution, any resolution, from Congress. I also think that in the end, the Bush tax cuts will be extended and when (and if) that finally happens, the market will go higher. Until then though, the Santa Claus rally is stuck in neutral and it looks like more nowhere action. Accordingly, the "X" indicator remains in place. There is no trend, there's not even enough range to declare a channel, there's just nothing.


Ironically enough, despite the lack of volatility, I ended up making 2.09% last week in my trading account, well above average, and finished the week at a 52 week high, thereby proving once again that it's better to be lucky than good. I own some GE, and that took a nice pop after they increased their dividend. I wasn't expecting that, but it sure contributed to my bottom line. Right now, the Dow is up 9.42% YTD, and I'm up 29.18% with just 13 trading days left in 2010.