Friday, January 7, 2011

Almost there

Today's lackluster performance in the Dow cost us 26 points but still keeps us riding along the top edge of the ascending regression trend channel as you can see in the daily chart. At this rate it would take four more days of sideways action or a one day close at 11,646 to signal an end to this uptrend. Given the recent action, I think this is unlikely tomorrow. Also note that today brought us just a bit under the pivot point at 11,706. And the Dow has not traded meaningfully below its daily pivot since last November, indicating a continuing bias to the upside.

It's also unlikely, with just one day left, that the S&P will close out the week below its Monday open. That would confirm the historical "first five days" indicator. We'll find out tomorrow. As of this writing (12:30 AM EST), all three futures are up modestly leading me to keep my long hat one and the green arrow in place. There is no indication yet that this uptrend is over.

Many people have commented that we're due for a pullback based on the indicators currently at overbought levels. However, in extended trends, the indicators eventually become "broken" and lose their predictive power. For example, the RSI has been showing overbought since December 3rd, and yet December was a terrific month. I think the RTC will be a more accurate predictor of the trend change when it comes.

No trades today.

Wednesday, January 5, 2011

3 down, 2 to go

Today's gratifying 32 point advance in the Dow, along with gains in the S&P and Nasdaq extend our 2011 YTD advance to three days. That leaves just two more days to conclude the "January early warning system" from The Stock Traders Alamanc. If we can finish the week up, that will be bullish for stock for the year. Since 2011 is a pre-presidential election yeat, that is even more bullish. As you can see from today's daily Dow chart, we are still riding the upper edge of the ascending RTC channel.

And as I mentioned yesterday, there is no resistance in sight for what is now another 100 points. Our TTBS (time to bearish setup) is now extended to seven days of sideways action or a dne day drop to 11,624. Failing that, the green swing trend arrow is still up and my long hat is still on.


No trades today, though I note that HIMX, which I dumped two days ago and rose higher yesterday, lost 2.33% today and put in a dark cloud cover. That is a bearish confirmation of yesterday's evening star doji. That's what I get for not waiting for the confirmation. Anyway, watch for HIMX to go lower tomorrow again.

Uptrend Intact

Well, they tried to knock 'em down shortly after noon today but the Dow got right back up and finished with a 20 point gain to close at 11691. And despite the S&P's slight 1.69 point loss today, we're still on track for the "first five days" of January indicator. The Dow remains at the upper end of its rising RTC channel. At this rate, it would take either five straight days of sideways action, or a one day drop to 11,558 to cause a bearish setup. I've been hearing a lot of talk about excessive optimism in the market lately and people calling for a pullback. I don't doubt it will happen at some point, but I don't think that point is the next few days. So the green swing trend arrow remains in place.

I see no real Dow resistance until 11,867, representing the top of the 2008 "summer shelf". Also, although we have now reached the upper Bollinger band in the daily chart, we are only 38 points above the daily pivot at 11,653. Staying above this number is bullish.


No trades today. My INTC buy last Friday was up 1.44% today, but I bailed out of HIMX too soon. Despite going exponential, there were apparently still enough people who wanted to get on this bus today to drive it up another 7%. Oh well - I'd rather leave something on the table than lose it when everyone runs for the exits.

I'm also watching gold again. I think there may be an entry point here by the end of this week or early next.

Tuesday, January 4, 2011

Off and running

2011 got off to a great start with a 93 point advance in the Dow. This keeps us at the upper end of an RTC channel established December 9th when the Dow broke out of its week long consolidation. Not only was price up but volume was higher than any point last month except for the first two days of December which saw those awesome gains. Even the short stochastic is giving a bullish crossover right now. And even after today's gains, the futures are all up modestly right now (1 AM EST).

So technically, there's really nothing to suggest we don't have more room to run. The green swing trend arrow remains in place and my long hat is on. Keep your fingers crossed that we can get five up sessions in a row. That would be a major bullish indicator for the rest of the year. And note that historically, pre-presidential election years, of which this is one, tend to finish positive.


Today I booted HIMX from my low price/high yield portfolio, not because it was too bad, but because it was too good. It basically became a victim of its own success. Check out this chart. Over the last four sessions Himax went exponential in a big way, ending up in a classical evening star doji candle today. That's a major bearish sign. Because of the parabolic run-up, I'm not even waiting for confirmation tomorrow. I bought it at 2.03 purely for its dividends, but after selling it today at 2.38 I made more in appreciation than the dividends would have paid. I'll consider getting back in after the pullback that's sure to come. It may still go higher in the long run, but we are swing traders and this swing trade is done.

Sunday, January 2, 2011

The Week Ahead

The week ahead, the first trading week of 2011, is going to be crucial. According to The Stock Traders Almanac, when the five days of January were up, the rest of the year was up, in the last 32 out of 37 years. That's a pretty good track record. And while historically the first day of January is not so hot, the fact that right now (7:45 PM EST) all three futures (ES, NQ, and YM) are up about a third of a percent, following their sharp rise in the closing minutes of last Friday, I'd say the odds are good that we'll see some positive action over the next few days. Accordingly, I'm leaving the green swing trend arrow in place for now.

How to profit from the next flash crash

"In confusion there is profit"
Tony Curtis, Operation Petticoat

Looking back on 2010, probably the biggest event was the now infamous "Flash Crash" of May 6th, a mystery that still hasn't ever really been satisfactorily explained. The big question is how to protect yourself from the next Flash Crash. That one, fortunately, is easy: just don't use stop loss orders. If you have to put in some sort of stop order, make sure it's a stop limit, not a stop loss. That way, you'll be guaranteed of getting your price, though at the risk of not getting executed at all. However, as the Flash Crash of 2010 demonstrated, the risk of guaranteed execution provided by a stop loss order proved to be disastrous to many investors.

As for me, I just happened to have been out running errands that day. I didn't even know it had happened until I came back and looked at my charts. At first I thought it was just a bad tick - that happens sometimes. But then I noticed that everyone had "bad ticks". Then I read the news. Fortunately, I had no stop loss orders in so it was all pretty much a non-event for me.

But I digress. So how can we make some quick money from the next Flash Crash? Assuming there will be one, of course (and a surprising number of people think there will). Simple: just put in some limit buy orders for stocks you'd love to buy on sale at ridiculously low prices. They'll just sit there, like underwater mines, patiently waiting for some unsuspecting ship to come by and then ka-boom, you've got a bargain.

The only question is where to place your order. During the last Flash Crash, the SEC ended up busting trades that went through at over 60% price drops, so make sure you don't put in a number lower than that. No point in buying GE for a penny if the trade simply gets busted an hour later. And make sure you have enough cash around to cover the trade if it should ever happen to go off. You definitely don't want to do this on margin.

This is a low probability/low risk/potentially high reward play. At worst, you won't ever get your price, but then you're no worse off than now. Or the SEC might decide to bust 50% trades next time, but then you still don't actually lose anything.

The only real risk is in the case where a company really does drop 60% in a flash but for a good reason (the CFO is caught embezzling funds, the company goes bankrupt, etc.) Then you will have bought in at a price that's not likely to come back (although even then, stocks that fall off a cliff often have a dead cat bounce the next day, so you could still possibly at least break even). And that's relatively rare.

So the moral is to only do this with strong companies. Don't try this with drug companies that are always just one FDA ruling away from disaster, nor with airlines that face similar "sudden death" risks. Just a thought.