Wednesday, December 22, 2010

Uptrend resumed

Well it looks like this is the market that will not be denied. Today's 26 point gain in the Dow convinces me to reinstate the green trend arrow. The fact that the bears tried to knock 'em down for two successive days on Monday and last Friday, but failed, makes me consider today's action even more bullish. At 11,559, we have left the 11,400 resistance level in the dust and now set our sights on the 11,867 peak from way back in August 2008. There is no resistance of any sort between here and there. After that is the 12,000 level from earlier in 2008.

We are now far along enough into December to conclude that the Santa Claus rally did in fact occur this year. At this point, with just five trading days left in the year and the pros all gone off to Aruba or Vail, it's all over but the shouting. As for me, after a nice 0.63% gain yesterday, I made all of three dollars today. Oh well. I'm still just about at my high for the year, so I'd say I'm about done too. Next, we will set our sights on the fabled January Effect. Stay tuned. No trades today.

Another present from Santa

Well well well. Looks like Santa Claus resumed his rally today and dropped off 55 Dow points worth of presents for everyone. This was particularly welcome since we managed to close above the highs of the last five sessions. In fact, today's close brought us right back to the lower edge of the RTC channel we fell out of yesterday. It's too soon to tell if that uptrend can be resumed though.

Note in particular that the VIX actually rose today for the second day in a row, even as the Dow finished up. Very curious. And given that the Big Three futures (ES< NQ, and YM) are all down around 0.1% right now (1 AM EST), it's possible we may not get any follow through tomorrow. But trying to make any predictions this entire week is pretty pointless. Right now, I'm just along for the ride.

History suggests we might still have a few more up days left this year, and I certainly don't see any big losses on the horizon. I see the recent action as part of a process of overcoming the mid-2008 shelf. It might take some time to accomplish as the market gathers the necessary steam. In the meantime, the upper Bollinger band at 11,657 suggests there's at least a few more points left to gain in the short term. We'll see.

No trades today. I'm just letting my longs run right now.

Monday, December 20, 2010

Directionless markets

Well, it seemed like a reasonable thesis yesterday, but clearly the market disagreed with me. After expecting gains for two days, we got losses, ending today down just under 14 points in the Dow, though once again the S&P and the Nasdaq both posted small gains to finish up a quarter percent each. In any event, today's Dow loss fell entirely outside the lower line of the RTC channel. This is a bearish trigger. Ordinarily, I'd change the trend arrow from green to red at this point, but because of the low volume and the time of year, I'm not confident enough to do that right now. So instead, I will punt and put up the "who knows" icon. With such tiny daily moves, we're kind of back to the situation we were in from the 3rd through the 9th. There's not much money to be made swing trading this sort of market. Right now I'm leaving my long hat on, but only because I don't see any real need to remove it.

My theory on the VIX was also wrong, but though it didn't fall as I expected, it also didn't rise very much, gaining just 0.30 today. Today's Dow candle looks like a doji, but I think it reflects more a lack of leadership in this environment than the usual indecision of a turning point. Personally, I was actually up 0.42% today thanks largely to the performance of my low price/high yield portfolio. No trades today.

Sunday, December 19, 2010

Weekly Review

Thursday night I was expecting the Dow to go higher on Friday. While the Nasdaq and S&P did managed to eke out tiny gains, the Dow was down by an equally tiny fraction, dropping just 7 1/3 points to finish the week at 11,492. So I wasn't right, but I also wasn't too terribly wrong. Nonetheless, I think there's a lesson in this week's action and that is that we were able to breach and defend the 11,400 resistance point from the November highs (upper blue horizontal line). And as I've mentioned before, that level is also the cliff edge from back in 2008 right before the big October crash. The only fly in the ointment now is the shape of Friday's candle, which is a hanging man, coming on very high volume. However, it being options expiration at the end of the year, I can't really call that a top without confirmation Monday.

So where does that all leave us for the coming holiday-shortened week? Let's check out the weekly chart. Take a look at an entire year of the Dow in weekly bars:One thing that jumps out at me is that the Dow posted bigger gains this past week than last week and did it on much higher volume. As the great Dr. Brett Steenbarger always emphasized, volume is critical in chart interpretation.

Add to this that there are now just eight trading days left in 2010 and that historically, six of the last seven days of the year are positive for the markets (the very last trading day is typically a loser), I'm going to keep my long hat on this coming week and keep the green swing trend arrow in place. I believe the market still has the potential to climb at least a bit more before we call 2010 a wrap. But I'm not looking for any major moves. It's a short week, and I'm sure many of the pros have already decided to take the rest of the year off, with the Dow at its high of the year.

I note too that the VIX has now touched an important weekly support level at 15.23, its lowest point since mid-2007. The daily VIX indicators are mixed with the RSI calling it oversold but the stochastic executing a bearish (for the VIX) crossover, ie. bullish for stocks. And I particularly note that of the 19 other times in 2010 when the VIX stochastic looked like it does right now, the VIX went lower the next day. Check it out. I've highlighted the last three instances (blue vertical lines). Looks like the VIX could go even lower from here, doesn't it?


I was up 0.63% on Friday, a day on which the market as a whole did nothing, so that was nice. However, disappointing results early in the week left me with just a 0.13% gain on the week. Nonetheless, my trading account is now at a year-to-date high, and barring any catastrophes between now and New Year's I should end the year well ahead of my 2009 results (knock on my glass desktop). My current YTD return is 29.35%; the Dow is up just over 10%.